I

104TH CONGRESS

2D SESSION H. R. 3209

To amend the Internal Revenue Code of 1986 to increase the maximum

amount deferrable under a 457 plan for any year to the amount deferrable for such year under a 401(k) plan, and to require that amounts

in 457 plans be held in trust.

IN THE HOUSE OF REPRESENTATIVES

MARCH 29, 1996

Mr. BEREUTER introduced the following bill; which was referred to the

Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to increase

the maximum amount deferrable under a 457 plan for

any year to the amount deferrable for such year under

a 401(k) plan, and to require that amounts in 457

plans be held in trust.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. INCREASE OF MAXIMUM AMOUNT DEFER2 RABLE UNDER 457 PLAN TO AMOUNT DEFER3 RABLE UNDER 401(K) PLAN FOR SAME YEAR

4 AND REQUIREMENT THAT AMOUNTS IN 457

5 PLANS BE HELD IN TRUST.

6 (a) INCREASE IN AMOUNT DEFERRABLE UNDER 457

7 PLAN.—

8 (1) IN GENERAL.—Subparagraph (A) of section

9 457(b)(2) of the Internal Revenue Code of 1986 (re10 lating to deferred compensation plans of State and

11 local governments and tax-exempt organizations) is

12 amended to read as follows:

13 ‘‘(A) the limitation in effect for such tax14 able year under section 402(g)(1), or’’.

15 (2) EFFECTIVE DATE.—The amendment made

16 by paragraph (1) shall apply to taxable years begin17 ning after the date of the enactment of this Act.

18 (b) TRUST REQUIREMENT.—

19 (1) IN GENERAL.—Paragraph (6) of section

20 457(b) of such Code (relating to eligible deferred

21 compensation plan defined) is amended by striking

22 the text following subparagraph (C) and inserting

23 the following:

24 ‘‘shall be held in trust for the exclusive benefit of

25 participants and their beneficiaries until made avail26 able to participants or their beneficiaries.’’
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1 (2) SPECIAL RULES FOR TRUSTS.—Section 457

2 of such Code is amended by adding at the end the

3 following new subsection:

4 ‘‘(g) TRUSTS AND PARTICIPANTS.—

5 ‘‘(1) TAXABILITY OF TRUSTS AND PARTICI6 PANTS.—For purposes of this title—

7 ‘‘(A) a trust described in subsection (b)(6)

8 shall be treated as an organization exempt from

9 taxation under section 501(a), and

10 ‘‘(B) notwithstanding any other provision

11 of this title, amounts in the trust shall be in12 cludible in the gross income of participants and

13 beneficiaries only to the extent, and at the time,

14 provided in this section.

15 ‘‘(2) CUSTODIAL ACCOUNTS AND CONTRACTS.—

16 For purposes of this subsection and subsection

17 (b)(6), custodial accounts and contracts described in

18 section 401(f) shall be treated as trusts under rules

19 similar to the rules under section 401(f).’’

20 (3) EFFECTIVE DATES.—

21 (A) STATE AND LOCAL GOVERNMENTS.—

22 In the case of an eligible employer (within the

23 meaning of section 457(e)(1) of such Code)

24 which is a State, political subdivision of a State,

25 or any agency or instrumentality of a State or
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1 political subdivision of a State, the amendments

2 made by this subsection shall apply to assets

3 and income described in section 457(b)(6) of

4 such Code and held by a plan on and after the

5 earlier of—

6 (i) the date which is 90 days after the

7 close of the 1st session of the legislature of

8 such State which begins after the date of

9 the enactment of this Act, or

10 (ii) January 1, 1998.

11 (B) TAX EXEMPT ORGANIZATIONS.—In the

12 case of an eligible employer (within the meaning

13 of section 457(e)(1) of such Code) not described

14 in subparagraph (A), the amendments made by

15 this subsection shall apply to assets and income

16 described in section 457(b)(6) of such Code and

17 held by a plan on and after January 1, 1998.

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