I

104TH CONGRESS

2D SESSION H. R. 3520

To provide for retirement savings and security.

IN THE HOUSE OF REPRESENTATIVES

MAY 23, 1996

Mr. GEPHARDT (for himself, Mr. BONIOR, Mr. BENTSEN, Mr. GEJDENSON,

Mr. POMEROY, Mr. SAWYER, Mr. FAZIO of California, Mrs. KENNELLY,

Mr. DINGELL, Mr. GIBBONS, Mr. CLAY, Mr. LAFALCE, Mr. OBERSTAR,

Mr. DURBIN, Mr. JOHNSON of South Dakota, Mr. KENNEDY of Massachusetts, Mr. STARK, Mr. MATSUI, Mr. COYNE, Mr. LEVIN, Mr.

MCDERMOTT, Mr. KLECZKA, Mr. LEWIS of Georgia, Mr. NEAL of Massachusetts, Mr. MILLER of California, Mr. WILLIAMS, Mr. ANDREWS, Mr.

GENE GREEN of Texas, Ms. WOOLSEY, Mr. FATTAH, Ms. DELAURO, Mr.

MURTHA, Mr. OBEY, Mr. FROST, Mr. BROWN of California, Mr. YATES,

Mr. GONZALEZ, Mr. STUDDS, Mr. MARKEY, Mr. RAHALL, Mr. VENTO,

Mr. EVANS, Ms. KAPTUR, Mr. SPRATT, Mr. TORRES, Mr. TOWNS, Mr.

WISE, Mr. KANJORSKI, Mr. THORNTON, Mr. COSTELLO, Ms. SLAUGHTER, Mrs. LOWEY, Mr. SERRANO, Mr. OLVER, Mr. FILNER, Mr.

GUTIERREZ, Ms. HARMAN, Mr. HASTINGS of Florida, Mr. HOLDEN, Mrs.

MEEK of Florida, Mr. SCOTT, Mr. STUPAK, Mrs. THURMAN, Ms.

VELA ́ZQUEZ, Mr. WYNN, Mr. BALDACCI, Ms. LOFGREN, Mr.

FALEOMAVAEGA, and Mr. SANDERS) introduced the following bill; which

was referred to the Committee on Ways and Means, and in addition to

the Committees on Economic and Educational Opportunities, Government

Reform and Oversight, and Transportation and Infrastructure, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

A BILL

To provide for retirement savings and security.
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1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Retirement Savings and Security Act’’.

6 (b) TABLE OF CONTENTS.—

Sec. 1. Short title; table of contents.

TITLE I—REVENUE PROVISIONS

Sec. 1100. Amendment of 1986 Code.

Subtitle A—Expanded Pension Coverage and Simplification

CHAPTER 1—THE NEST AND OTHER COVERAGE EXPANSION

Sec. 1101. Establishment of national employee savings trusts for employees of

small employers.

Sec. 1102. Tax-exempt organizations eligible under section 401(k).

Sec. 1103. Nondiscrimination rules for qualified cash or deferred arrangements

and matching contributions.

Sec. 1104. Repeal of family aggregation.

Sec. 1105. Definition of highly compensated employees.

Sec. 1106. Repeal of limitation in case of defined benefit plan and defined contribution plan for same employee.

Sec. 1107. Contributions on behalf of disabled employees.

Sec. 1108. Plans covering self-employed individuals.

Sec. 1109. Trust requirement for deferred compensation plans of State and

local governments.

Sec. 1110. Treatment of certain disability benefits received by former police officers or firefighters.

CHAPTER 2—SIMPLIFICATION AND COST SAVINGS

Sec. 1201. Treatment of governmental and multiemployer plans under section

415 and treatment of excess benefit plans.

Sec. 1202. Definition of compensation for section 415 purposes.

Sec. 1203. Assumptions for adjusting certain benefits of defined benefit plans

for early retirees.

Sec. 1204. Treatment of deferred compensation plans of State and local governments and tax-exempt organizations.

Sec. 1205. No required distributions for active employees.

Sec. 1206. Simplified method for taxing annuity distributions under certain employer plans.

Sec. 1207. Repeal of 5-year income averaging for lump-sum distributions.

Sec. 1208. Elimination of half-year requirements.

Sec. 1209. Distributions under rural cooperative plans.

Sec. 1210. Modification of additional participation requirements.

Sec. 1211. Uniform retirement age.

Sec. 1212. Treatment of leased employees.
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Sec. 1213. Full funding limitation for multiemployer plans.

Sec. 1214. Elimination of partial termination rules for multiemployer plans.

Sec. 1215. Elective deferrals under section 403(b).

Sec. 1216. Uniform penalty provisions to apply to certain pension reporting requirements.

Sec. 1217. Tax on prohibited transactions.

Sec. 1218. Date for adoption of plan amendments.

Subtitle B—Expanded Individual Retirement Accounts to Increase Coverage

and Portability

CHAPTER 1—RETIREMENT SAVINGS INCENTIVES

SUBCHAPTER A—IRA DEDUCTION

Sec. 1301. Increase in income limitations.

Sec. 1302. Inflation adjustment for deductible amount and income limitations.

Sec. 1303. Coordination of IRA deduction limit with elective deferral limit.

SUBCHAPTER B—NONDEDUCTIBLE TAX-FREE IRAS

Sec. 1311. Establishment of nondeductible tax-free individual retirement accounts.

CHAPTER 2—DISTRIBUTIONS AND INVESTMENTS

Sec. 1321. Distributions from IRAs may be used without additional tax to purchase first homes, to pay higher education or financially devastating medical expenses, or by the unemployed.

Sec. 1322. Contributions must be held at least 5 years in certain cases.

Sec. 1323. Investments in qualified State prepaid tuition programs.

CHAPTER 3—TERMINATION OF CERTAIN PROVISIONS

Sec. 1331. Termination of certain provisions

Subtitle C—Other Expansions of Pension Portability

Sec. 1401. Alternative nondiscrimination rules for certain plans that provide for

early participation.

Sec. 1402. Treatment of certain veterans’ reemployment rights.

Sec. 1403. Elimination of special vesting rule for multiemployer plans.

Subtitle D—Conforming Amendments

Sec. 1501. Conforming amendment relating to missing participants.

Sec. 1502. Conforming amendments relating to ERISA enforcement.

TITLE II—ERISA PROVISIONS

Sec. 2000. Amendment of ERISA.

Subtitle A—Expanded Pension Coverage and Simplification

Sec. 2001. Reporting and fiduciary requirements relating to NESTs.

Sec. 2002. Elimination of requirement for plan descriptions and the filing requirement for summary plan descriptions and descriptions of

material modifications to a plan; technical corrections.

Sec. 2003. Conforming amendment relating to investment in qualified State

prepaid tuition programs.
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Subtitle B—Portability

Sec. 2011. Missing participants.

Sec. 2012. Elimination of special vesting rule for multiemployer plans.

Sec. 2013. Treatment of loans during military service.

Subtitle C—Enhanced Security

CHAPTER 1—GENERAL PROVISIONS

Sec. 2021. Multiemployer plan benefits guaranteed.

Sec. 2022. Reversion report.

Sec. 2023. Full funding limitation for multiemployer plans.

Sec. 2024. Prohibited transactions.

Sec. 2025. Substantial owner benefits.

CHAPTER 2—ERISA ENFORCEMENT

Sec. 2031. Short title.

Sec. 2032. Repeal of limited scope audit.

Sec. 2033. Reporting and enforcement requirements for employee benefit plans.

Sec. 2034. Additional requirements for qualified public accountants.

Sec. 2035. Clarification of fiduciary penalties.

TITLE III—ADDITIONAL RETIREMENT PARTICIPATION AND

PAYMENT OPTIONS FOR FEDERAL EMPLOYEES

Sec. 3001. Immediate participation in the Thrift Savings Plan for Federal employees.

Sec. 3002. Deferred annuities for surviving spouses of Federal employees.

Sec. 3003. Payment of lump-sum credit for former spouses of Federal employees.

TITLE IV—CONFORMING RAILROAD RETIREMENT BENEFITS

WITH SOCIAL SECURITY

Sec. 4001. Child’s annuity.

Sec. 4002. Entitlement to spousal annuities.

Sec. 4003. Continued payment to survivors of waived lump sum benefits in

amounts equivalent to social security survivor benefits.

Sec. 4004. Lump sum death benefits equivalent to social security benefits.

Sec. 4005. Payment of benefits equivalent to social security benefits with respect to service for which certain railroad retirement annuities

are not payable.

Sec. 4006. Effective date.

1 TITLE I—REVENUE PROVISIONS

2 SEC. 1100. AMENDMENT OF 1986 CODE.

3 Except as otherwise expressly provided, whenever in

4 this title an amendment or repeal is expressed in terms

5 of an amendment to, or repeal of, a section or other provi-
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1 sion, the reference shall be considered to be made to a

2 section or other provision of the Internal Revenue Code

3 of 1986.

4 Subtitle A—Expanded Pension

5 Coverage and Simplification

6 CHAPTER 1—THE NEST AND OTHER

7 COVERAGE EXPANSION

8 SEC. 1101. ESTABLISHMENT OF NATIONAL EMPLOYEE SAV9 INGS TRUSTS FOR EMPLOYEES OF SMALL EM10 PLOYERS.

11 (a) IN GENERAL.—Section 408 (relating to individual

12 retirement accounts) is amended by redesignating sub13 section (p) as subsection (q) and by inserting after sub14 section (o) the following new subsection:

15 ‘‘(p) NESTS.—

16 ‘‘(1) IN GENERAL.—For purposes of this title,

17 the term ‘NEST’ means an individual retirement ac18 count or annuity established under a written plan of

19 an eligible employer—

20 ‘‘(A) which meets the requirements of

21 paragraphs (4), (5), (6), (7), and (8), and

22 ‘‘(B) under which contributions are made

23 to NESTs solely in accordance with a qualified

24 formula.
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1 ‘‘(2) QUALIFIED FORMULA.—For purposes of

2 this subsection—

3 ‘‘(A) IN GENERAL.—The term ‘qualified

4 formula’ means a contribution formula which

5 meets the requirements for—

6 ‘‘(i) a 3-percent formula under sub7 paragraph (B), or

8 ‘‘(ii) a matching-contribution formula

9 under subparagraph (C).

10 ‘‘(B) 3-PERCENT FORMULA.—

11 ‘‘(i) NONELECTIVE CONTRIBU12 TIONS.—The requirements of the 3-percent

13 formula are met if, pursuant to the terms

14 of the plan, the employer makes nonelec15 tive contributions of 3 percent of com16 pensation for each eligible employee who

17 has at least $5,000 of compensation from

18 the employer for the year.

19 ‘‘(ii) ELECTIVE CONTRIBUTIONS.—A

20 plan shall not fail to meet the require21 ments of this subparagraph merely be22 cause, pursuant to the terms of the plan,

23 an eligible employee may elect to have the

24 employer make payments—
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1 ‘‘(I) as elective contributions to

2 the NEST on behalf of the employee,

3 or

4 ‘‘(II) to the employee directly in

5 cash.

6 ‘‘(C) MATCHING-CONTRIBUTION FOR7 MULA.—The requirements of the matching-con8 tribution formula are met if, pursuant to the

9 terms of the plan—

10 ‘‘(i) the employer makes nonelective

11 contributions of 1 percent of compensation

12 for each eligible employee who has at least

13 $5,000 of compensation from the employer

14 for the year,

15 ‘‘(ii) an eligible employee may elect to

16 have the employer make payments—

17 ‘‘(I) as elective contributions to

18 the NEST on behalf of the employee,

19 or

20 ‘‘(II) to the employee directly in

21 cash, and

22 ‘‘(iii) the employer makes matching

23 contributions on behalf of each eligible em24 ployee in an amount equal to—
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1 ‘‘(I) 100 percent of the elective

2 contributions of the employee to the

3 extent such elective contributions do

4 not exceed 3 percent of the employee’s

5 compensation, and

6 ‘‘(II) a uniform percentage

7 (which is at least 50 percent but not

8 more than 100 percent) of the elective

9 contributions of the employee to the

10 extent that such elective contributions

11 exceed 3 percent but do not exceed 5

12 percent of the employee’s compensa13 tion.

14 ‘‘(D) DISCRETIONARY CONTRIBUTIONS.—A

15 plan shall not be treated as failing to meet the

16 requirements of this paragraph merely because,

17 pursuant to the terms of the plan, an employer

18 makes nonelective contributions under subpara19 graph (B)(i) or (C)(i) in excess of 3 percent or

20 1 percent of compensation, respectively, but

21 only if all such contributions bear a uniform re22 lationship to the compensation of each eligible

23 employee and do not exceed 5 percent of com24 pensation for any eligible employee.
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1 ‘‘(E) LIMITATION ON ELECTIVE CONTRIBU2 TIONS.—Elective contributions to a NEST

3 under subparagraph (B)(ii) or (C)(ii) shall not

4 be treated as made pursuant to a qualified for5 mula if such contributions on behalf of any em6 ployee for a year exceed the greater of $5,000

7 or one-half of the limitation applicable for the

8 year to elective deferrals under section 402(g).

9 ‘‘(F) COMPENSATION LIMIT.—Contribu10 tions to a NEST shall not be treated as made

11 pursuant to a qualified formula if the annual

12 compensation taken into account for any em13 ployee under the formula exceeds the limitation

14 imposed by section 401(a)(17).

15 ‘‘(G) LOWER COMPENSATION THRESHOLD

16 PERMITTED.—A plan shall not be treated as

17 failing to meet the requirements of this para18 graph merely because, pursuant to the terms of

19 the plan, an employer makes nonelective con20 tributions under subparagraph (B)(i) or (C)(i)

21 to each eligible employee who has compensation

22 from the employer for the year in excess of a

23 uniform compensation threshold which is less

24 than $5,000.

25 ‘‘(H) For purposes of this paragraph—
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1 ‘‘(i) IN GENERAL.—The term ‘com2 pensation’ has the meaning given such

3 term by section 414(q)(3).

4 ‘‘(ii) SELF-EMPLOYED INDIVID5 UALS.—Notwithstanding clause (i), in the

6 case of an employee within the meaning of

7 section 401(c)(1), compensation under sec8 tion 414(q)(3) shall be determined without

9 regard to paragraph (2)(A) (v) and (vi) of

10 section 401(c).

11 ‘‘(3) DEFINITIONS.—For purposes of this sub12 section—

13 ‘‘(A) ELIGIBLE EMPLOYER.—

14 ‘‘(i) IN GENERAL.—The term ‘eligible

15 employer’ means, with respect to any year,

16 an employer which had no more than 100

17 employees who received at least $5,000 of

18 compensation from the employer for the

19 preceding year.

20 ‘‘(ii) 2-YEAR GRACE PERIOD.—An eli21 gible employer who establishes and main22 tains a plan under this subsection for 1 or

23 more years and who fails to be an eligible

24 employer for any subsequent year shall be

25 treated as an eligible employer for the 2
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1 years following the last year the employer

2 was an eligible employer. If such failure is

3 due to any acquisition, disposition, or simi4 lar transaction involving an eligible em5 ployer, the preceding sentence shall apply

6 only in accordance with rules similar to the

7 rules of section 410(b)(6)(C)(i).

8 ‘‘(B) EMPLOYEE.—The term ‘employee’ in9 cludes an employee as defined in section

10 401(c)(1).

11 ‘‘(C) ELIGIBLE EMPLOYEE.—

12 ‘‘(i) IN GENERAL.—The term ‘eligible

13 employee’ means, with respect to any year,

14 any employee who, prior to such year—

15 ‘‘(I) completed 2 consecutive

16 years of service with the employer,

17 and

18 ‘‘(II) attained 21 years of age.

19 A plan may provide a uniform shorter pe20 riod of service or lower age to apply in lieu

21 of those under the preceding sentence.

22 ‘‘(ii) EXCLUDABLE EMPLOYEES.—An

23 employer may elect not to treat employees

24 described in section 410(b)(3) as eligible

25 employees.
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1 ‘‘(iii) YEAR OF SERVICE.—For pur2 poses of this paragraph, an employee shall

3 be treated as completing a year of service

4 for each year for which the employee re5 ceives at least $5,000 of compensation

6 from the employer.

7 ‘‘(D) COMPENSATION.—For purposes of

8 this paragraph, the term ‘compensation’ means

9 wages within the meaning of section 3401(a)

10 and all other payments of compensation to an

11 employee by the employer with respect to which

12 the employer is required to furnish the em13 ployee a written statement under sections

14 6041(d), 6051(a)(3), and 6052. In the case of

15 an employee (within the meaning of section

16 401(c)(1)), such term means earned income

17 within the meaning of section 401(c)(2).

18 ‘‘(E) YEAR.—The term ‘year’ means the

19 calendar year.

20 ‘‘(4) VESTING REQUIREMENTS.—A plan meets

21 the requirements of this paragraph only if the em22 ployee’s rights to the employee’s account balance

23 under the NEST are nonforfeitable. Except as pro24 vided in paragraph (5), the rules of subsection

25 (k)(4) shall apply for purposes of this paragraph.
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1 ‘‘(5) TWO-YEAR HOLDING PERIOD.—A plan

2 meets the requirements of this paragraph only if the

3 plan, and each NEST under the plan, prohibits the

4 withdrawal of contributions made for a year (and

5 any earnings allocable thereto) during the 2-year pe6 riod beginning on the first day of such year.

7 ‘‘(6) TIME CONTRIBUTIONS REQUIRED TO BE

8 MADE.—

9 ‘‘(A) ELECTIVE CONTRIBUTIONS.—A plan

10 meets the requirements of this paragraph only

11 if, under the terms of the plan, the employer

12 must make all elective contributions to a NEST

13 not later than the date on which such contribu14 tions would otherwise be required to be made

15 under title I of the Employee Retirement In16 come Security Act of 1974 if such contributions

17 were elective contributions under a qualified

18 cash or deferred arrangement under section

19 401(k).

20 ‘‘(B) NONELECTIVE AND MATCHING CON21 TRIBUTIONS.—

22 ‘‘(i) IN GENERAL.—A plan meets the

23 requirements of this paragraph only if,

24 under the terms of the plan, the employer

25 must make all nonelective and matching
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1 contributions not later than the close of

2 the 45-day period following the last day of

3 the calendar quarter for which the con4 tributions are to be made.

5 ‘‘(ii) COMPENSATION EXCEPTION.—If

6 an employer does not make nonelective

7 contributions to a NEST for employees

8 whose compensation from the employer for

9 the year is less than the threshold amount

10 of $5,000 (or such lower amount permitted

11 under paragraph (2)(G)), then clause (i)

12 shall apply with respect to nonelective con13 tributions only for employees who received

14 at least the threshold amount of compensa15 tion as of the end of the applicable quar16 ter. In the case of an employee who

17 reaches the threshold amount in a calendar

18 quarter other than the first calendar quar19 ter, the employer shall make nonelective

20 contributions for that calendar quarter and

21 all preceding calendar quarters not later

22 than the date prescribed for that quarter.

23 ‘‘(C) CONTRIBUTIONS AFTER YEAR-END.—

24 For purposes of this subsection, a contribution

25 on account of a year which is made within 45
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1 days (or within a period prescribed by the Sec2 retary) after the close of the year shall be

3 deemed to have been made on the last day of

4 such year.

5 ‘‘(7) EMPLOYEE ELECTIONS.—A plan meets the

6 requirements of this paragraph only if, under the

7 terms of the plan—

8 ‘‘(A) an employee may elect to terminate

9 elective contributions (described in subpara10 graphs (B)(ii) and (C)(ii) of paragraph (2)) at

11 any time during the year, except that, if the

12 employer so elects, the employee may not

13 resume participation until the first day of the

14 next year (or such earlier time as provided by

15 the plan), and

16 ‘‘(B) each employee eligible to partici17 pate—

18 ‘‘(i) may elect, during the 60-day pe19 riod before the beginning of any year, to

20 make elective contributions, or to modify

21 the amount of elective contributions, for

22 such year, and

23 ‘‘(ii) may elect, within 30 days of be24 coming eligible to participate in the plan,

25 to make elective contributions for the year.
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1 ‘‘(8) OTHER PLANS OF THE EMPLOYER.—

2 ‘‘(A) PROHIBITION ON OTHER PLANS WITH

3 ELECTIVE OR MATCHING CONTRIBUTIONS.—A

4 plan shall not meet the requirements of this

5 paragraph for a year if the employer maintain6 ing the plan maintains—

7 ‘‘(i) a plan providing for elective de8 ferrals described in section 402(g)(3), or

9 ‘‘(ii) any plan described in section

10 401(a) which provides for matching con11 tributions (within the meaning of section

12 401(m)(4)(A)).

13 For purposes of this subparagraph, an employer

14 shall not be treated as maintaining a plan for

15 a year if, under the plan, no contributions or

16 benefit accruals may occur for such year.

17 ‘‘(B) COORDINATION WITH OTHER

18 PLANS.—

19 ‘‘(i) OTHER PLANS DISREGARDED.—If

20 an employer maintaining a plan to which

21 this subsection applies also maintains 1 or

22 more plans described in section 401(a),

23 403(a), or 408(k) (other than a plan de24 scribed in subparagraph (A)), the deter25 mination of whether such plan satisfies the
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1 requirements of this subsection shall be

2 made without regard to such other plans.

3 ‘‘(ii) NEST DISREGARDED.—Except

4 as provided in sections 404(m) and

5 415(a)(2), a plan to which this subsection

6 applies shall not be taken into account in

7 applying this title to any other plan de8 scribed in clause (i).

9 ‘‘(9) EMPLOYER OPTIONS.—

10 ‘‘(A) USE OF DESIGNATED FINANCIAL IN11 STITUTION.—A plan shall not be treated as fail12 ing to satisfy the requirements of this sub13 section or any other provision of this title mere14 ly because the employer makes all contributions

15 to the individual retirement accounts or annu16 ities of a designated trustee or issuer. The pre17 ceding sentence shall not apply unless each

18 NEST plan participant is notified in writing

19 (either separately or as part of the notice under

20 subsection (l)(2)(C)) that the participant’s bal21 ance may be transferred without cost or penalty

22 to another individual account or annuity in ac23 cordance with section 408(d)(3)(G).

24 ‘‘(B) SUSPENSION OF PLAN.—Except as

25 provided by the Secretary, a plan shall not be
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1 treated as failing to meet the requirements of

2 this subsection if, under the plan, the employer

3 may suspend all elective, matching, and non4 elective contributions under the plan after noti5 fying eligible employees of such suspension in

6 writing at least 30 days in advance. Such sus7 pension shall apply to contributions with re8 spect to compensation earned after the effective

9 date of the suspension. Only 1 suspension

10 under this subparagraph may take effect during

11 any year.

12 ‘‘(10) MODEL FORM TO BE PROVIDED.—The

13 Secretary shall issue a model form that may be used

14 by an eligible employer to establish a plan that satis15 fies all requirements of this subsection.’’

16 (b) TAX TREATMENT OF NESTS.—

17 (1) DEDUCTIBILITY OF CONTRIBUTIONS.—

18 (A) Section 219(b) (relating to maximum

19 amount of deduction) is amended by adding at

20 the end the following new paragraph:

21 ‘‘(4) SPECIAL RULE FOR NESTS.—This section

22 shall not apply with respect to any amount contrib23 uted to a NEST established under section 408(p).’’

24 (B) Section 219(g)(5)(A) (defining active

25 participant) is amended by striking ‘‘or’’ at the
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1 end of clause (iv) and by adding at the end the

2 following new clause:

3 ‘‘(vi) any NEST (with the meaning of

4 section 408(p)), or’’.

5 (C) Section 404 (relating to deductions for

6 contributions of an employer) is amended by

7 adding at the end the following new subsection:

8 ‘‘(m) SPECIAL RULES FOR NESTS.—

9 ‘‘(1) IN GENERAL.—Employer contributions to

10 a NEST (within the meaning of section 408(p))

11 shall be treated as if they are made to a plan subject

12 to the requirements of this section. Employer deduc13 tions for such contributions shall be subject to the

14 following limitations:

15 ‘‘(A) Contributions made for a calendar

16 year are deductible for the taxable year of the

17 employer with or within which the calendar year

18 ends.

19 ‘‘(B) Contributions shall be treated for

20 purposes of this subsection as if they were

21 made for a calendar year if such contributions

22 are made on account of such calendar year and

23 are made not later than the time prescribed in

24 section 408(p)(6).
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1 ‘‘(C) The amount deductible in a taxable

2 year for a NEST shall not exceed the amount

3 contributed pursuant to a qualified formula

4 (within the meaning of section 408(p)(2)), and

5 shall be deductible without regard to the

6 amount contributed under any other plan sub7 ject to this section.

8 ‘‘(2) EFFECT ON STOCK BONUS AND PROFIT9 SHARING TRUST.—For any taxable year for which

10 the employer has a deduction under paragraph (1),

11 the otherwise applicable limitations in subsection

12 (a)(3)(A) with respect to a stock bonus or profit13 sharing trust maintained by the same employer shall

14 be reduced by the amount of the allowable deduction

15 under paragraph (1).

16 ‘‘(3) COORDINATION WITH SUBSECTION

17 (a)(7).—For purposes of applying the limitation of

18 subsection (a)(7) with respect to a plan to which this

19 section applies (other than a plan to which section

20 408(p) applies), a plan to which section 408(p) ap21 plies shall be treated as if it were a separate stock

22 bonus or profit-sharing trust of the employer main23 taining the plan.

24 ‘‘(4) COORDINATION WITH SUBSECTION (h).—

25 For any taxable year for which the employer has a
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1 deduction under paragraph (1), the otherwise appli2 cable limitations in subsection (h) with respect to a

3 simplified employee pension maintained by the same

4 employer shall be reduced by the amount of the de5 duction allowable under paragraph (1).’’

6 (2) CONTRIBUTIONS AND DISTRIBUTIONS.—

7 (A) Section 402 (relating to taxability of

8 beneficiary of employees’ trust) is amended by

9 adding at the end the following new subsection:

10 ‘‘(k) TREATMENT OF NESTS.—The rules of para11 graphs (1) and (3) of subsection (h) shall apply to con12 tributions and distributions with respect to a NEST under

13 section 408(p).’’

14 (B) Section 408(d)(3) is amended by add15 ing at the end the following new subparagraph:

16 ‘‘(G) NESTS.—This paragraph shall apply

17 to an amount distributed to an individual with

18 respect to a NEST only to the extent such

19 amount is paid directly to an individual retire20 ment account or annuity for the benefit of such

21 individual in a direct transfer and, if applicable,

22 such amount continues to be subject to the 2-

23 year holding period described in subsection

24 (p)(5).’’
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1 (C) Clause (i) of section 457(c)(2)(B) is

2 amended by striking ‘‘section 402(h)(1)(B)’’

3 and inserting ‘‘section 402 (h)(1)(B) or (k)’’.

4 (c) REPORTING REQUIREMENTS.—

5 (1) IN GENERAL.—

6 (A) SUMMARY DESCRIPTIONS AND EM7 PLOYEE NOTIFICATION.—Section 408(l) is

8 amended by adding at the end the following

9 new paragraph:

10 ‘‘(2) NESTS.—

11 ‘‘(A) NO EMPLOYER REPORTS.—Except as

12 provided in this paragraph, no report shall be

13 required under this section by an employer

14 maintaining a NEST under subsection (p).

15 ‘‘(B) SUMMARY DESCRIPTION.—The trust16 ee or issuer of any individual retirement ac17 count or annuity under a NEST described in

18 subsection (p) shall prepare, and provide to the

19 employer maintaining the arrangement, each

20 year a description containing the following in21 formation:

22 ‘‘(i) The name and address of the em23 ployer and the trustee or issuer.

24 ‘‘(ii) The requirements for eligibility

25 for participation.
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1 ‘‘(iii) The benefits provided with re2 spect to the NEST.

3 ‘‘(iv) The time and method of making

4 elections with respect to the NEST.

5 ‘‘(v) The procedures for, and effects

6 of, distributions (including rollovers) from

7 the arrangement.

8 ‘‘(C) EMPLOYEE NOTIFICATION.—The em9 ployer shall notify each employee immediately

10 before the period for which an election de11 scribed in subsection (p)(7)(B) may be made of

12 the employee’s opportunity to make such elec13 tion. Such notice shall include a copy of the de14 scription described in subparagraph (B) and

15 shall indicate whether matching contributions

16 will be made with respect to the employee’s

17 elective contributions, and the level of employer

18 matching and nonelective contributions which

19 will be made, for the year for which the election

20 may be made.’’

21 (B) CONFORMING AMENDMENT.—Section

22 408(l) is amended by striking ‘‘an employer’’

23 and inserting—

24 ‘‘(1) IN GENERAL.—An employer’’.
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1 (2) TRUSTEE AND ISSUER REPORTS.—Section

2 408(i) (relating to reports of trustees or issuers) is

3 amended by adding at the end thereof the following

4 new flush sentence:

5 ‘‘In the case of an individual retirement account or annu6 ity maintained in connection with a NEST described in

7 subsection (p), only 1 report under this subsection shall

8 be required to be submitted each calendar year to the Sec9 retary (at the time provided under paragraph (2)) but, in

10 addition to the report under this subsection, there shall

11 be furnished, within 30 days after each calendar quarter,

12 to the individual on whose behalf the account is main13 tained a statement with respect to the account balance as

14 of the close of, and the account activity during, such cal15 endar quarter.’’

16 (3) PENALTIES FOR FAILURE TO REPORT.—

17 Section 6693 is amended by redesignating sub18 section (c) as subsection (d) and by inserting after

19 subsection (b) the following new subsection:

20 ‘‘(c) PENALTIES RELATING TO NESTS.—

21 ‘‘(1) EMPLOYER PENALTIES.—An employer who

22 fails to provide 1 or more notices required by section

23 408(l)(2)(C) shall pay a penalty of $50 for each day

24 on which such failures continue.
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1 ‘‘(2) TRUSTEE PENALTIES.—A trustee who

2 fails—

3 ‘‘(A) to provide 1 or more statements re4 quired by the last sentence of section 408(i)

5 shall pay a penalty of $50 for each day on

6 which such failures continue, or

7 ‘‘(B) to provide 1 or more summary de8 scriptions required by section 408(l)(2)(B) shall

9 pay a penalty of $50 for each day on which

10 such failures continue.

11 ‘‘(3) REASONABLE CAUSE EXCEPTION.—No

12 penalty shall be imposed under this subsection with

13 respect to any failure which the taxpayer shows was

14 due to reasonable cause.’’

15 (d) CONFORMING AMENDMENTS.—

16 (1) Section 280G(b)(6) is amended by striking

17 the ‘‘or’’ at the end of subparagraph (B), by striking

18 the period at the end of subparagraph (C) and in19 serting ‘‘, or’’, and by adding after subparagraph

20 (C) the following new subparagraph:

21 ‘‘(D) a NEST described in section

22 408(p).’’

23 (2) Section 402(g)(3) is amended by striking

24 ‘‘and’’ at the end of subparagraph (B), by striking

25 the period at the end of subparagraph (C) and in-
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1 serting ‘‘, and’’, and by adding after subparagraph

2 (C) the following new subparagraph:

3 ‘‘(D) any elective contribution under sec4 tion 408(p)(2)(B)(ii) or (C)(ii).’’

5 (3) Subsections (b), (c), (m)(4)(B), and

6 (n)(3)(B) of section 414 are each amended by in7 serting ‘‘408(p),’’ after ‘‘408(k),’’.

8 (4) Section 415(a)(2) is amended by adding at

9 the end the following new flush sentence:

10 ‘‘A plan described in section 408(p) shall not be subject

11 to this section, except that if an employer that maintains

12 such plan also maintains 1 or more plans, annuities, or

13 accounts subject to this section, such plan shall be taken

14 into account in determining whether any such other plans,

15 annuities, or accounts satisfy the requirements of this sec16 tion.’’

17 (5) Section 4972(d)(1)(A) is amended by strik18 ing ‘‘and’’ at the end of clause (ii), by striking the

19 period at the end of clause (iii) and inserting ‘‘,

20 and’’, and by adding after clause (iii) the following

21 new clause:

22 ‘‘(iv) any NEST (within the meaning

23 of section 408(p)).’’

24 (6)(A) Paragraph (5) of section 3121(a) is

25 amended by striking ‘‘or’’ at the end of subpara-
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1 graph (F), by inserting ‘‘or’’ at the end of subpara2 graph (G), and by adding at the end the following

3 new subparagraph:

4 ‘‘(H) under a plan to which section 408(p)

5 applies, other than any elective contributions

6 under subparagraphs (B)(ii) and (C)(ii) of sec7 tion 408(p)(2),’’.

8 (B) Section 209(a)(4) of the Social Security

9 Act is amended by inserting ‘‘, or (J) under a plan

10 to which section 408(p) of such Code applies, other

11 than any elective contributions under subparagraphs

12 (B)(ii) and (C)(ii) of section 408(p)(2) of such

13 Code’’ before the semicolon at the end thereof.

14 (C) Paragraph (5) of section 3306(b) is amend15 ed by striking ‘‘or’’ at the end of subparagraph (F),

16 by inserting ‘‘or’’ at the end of subparagraph (G),

17 and by adding at the end the following new subpara18 graph:

19 ‘‘(H) under a plan to which section 408(p)

20 applies, other than any elective contributions

21 under subparagraphs (B)(ii) and (C)(ii) of sec22 tion 408(p)(2),’’.

23 (D) Paragraph (12) of section 3401(a) is

24 amended by adding the following new subparagraph:
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1 ‘‘(D) under or to a NEST described in sec2 tion 408(p); or’’.

3 (e) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to years beginning after December

5 31, 1996.

6 SEC. 1102. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER

7 SECTION 401(k).

8 (a) IN GENERAL.—Subparagraph (B) of section

9 401(k)(4) is amended to read as follows:

10 ‘‘(B) ELIGIBILITY OF STATE AND LOCAL

11 GOVERNMENTS AND TAX-EXEMPT ORGANIZA12 TIONS.—

13 ‘‘(i) TAX-EXEMPTS ELIGIBLE.—Ex14 cept as provided in clause (ii), any organi15 zation exempt from tax under this subtitle

16 may include a qualified cash or deferred

17 arrangement as part of a plan maintained

18 by it.

19 ‘‘(ii) GOVERNMENTS INELIGIBLE.—A

20 cash or deferred arrangement shall not be

21 treated as a qualified cash or deferred ar22 rangement if it is part of a plan main23 tained by a State or local government or

24 political subdivision thereof, or any agency

25 or instrumentality thereof. This clause
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1 shall not apply to a rural cooperative plan

2 or to a plan of an employer described in

3 clause (iii).

4 ‘‘(iii) TREATMENT OF INDIAN TRIBAL

5 GOVERNMENTS.—An employer which is an

6 Indian tribal government (as defined in

7 section 7701(a)(40)), a subdivision of an

8 Indian tribal government (determined in

9 accordance with section 7871(d)), or an

10 agency or instrumentality of an Indian

11 tribal government or subdivision thereof

12 may include a qualified cash or deferred

13 arrangement as part of a plan maintained

14 by it.’’

15 (b) EFFECTIVE DATE.—The amendment made by

16 this section shall apply to plan years beginning after De17 cember 31, 1996, but shall not apply to any cash or de18 ferred arrangement to which clause (i) of section

19 1116(f)(2)(B) of the Tax Reform Act of 1986 applies.

20 SEC. 1103. NONDISCRIMINATION RULES FOR QUALIFIED

21 CASH OR DEFERRED ARRANGEMENTS AND

22 MATCHING CONTRIBUTIONS.

23 (a) ALTERNATIVE METHODS OF SATISFYING SEC24 TION 401(k) NONDISCRIMINATION TESTS.—Section

25 401(k) (relating to cash or deferred arrangements) is
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1 amended by adding at the end the following new para2 graph:

3 ‘‘(11) ALTERNATIVE METHODS OF MEETING

4 NONDISCRIMINATION REQUIREMENTS.—

5 ‘‘(A) IN GENERAL.—A cash or deferred ar6 rangement shall be treated as meeting the re7 quirements of paragraph (3)(A)(ii) if such ar8 rangement—

9 ‘‘(i) meets the contribution require10 ments of subparagraph (B) or (C), and

11 ‘‘(ii) meets the notice requirements of

12 subparagraph (D).

13 ‘‘(B) NONELECTIVE AND MATCHING CON14 TRIBUTIONS.—

15 ‘‘(i) IN GENERAL.—The requirements

16 of this subparagraph are met if the re17 quirements of clauses (ii) and (iii) are met.

18 ‘‘(ii) NONELECTIVE CONTRIBU19 TIONS.—The requirements of this clause

20 are met if, under the arrangement, the em21 ployer is required, without regard to

22 whether the employee makes an elective

23 contribution or employee contribution, to

24 make a contribution to a defined contribu25 tion plan on behalf of each employee who
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1 is not a highly compensated employee and

2 who is eligible to participate in the ar3 rangement in an amount equal to at least

4 1 percent of the employee’s compensation.

5 ‘‘(iii) MATCHING CONTRIBUTIONS.—

6 The requirements of this clause are met if,

7 under the arrangement, the employer

8 makes matching contributions on behalf of

9 each employee who is not a highly com10 pensated employee in an amount equal

11 to—

12 ‘‘(I) 100 percent of the elective

13 contributions of the employee to the

14 extent such elective contributions do

15 not exceed 3 percent of the employee’s

16 compensation, and

17 ‘‘(II) 50 percent of the elective

18 contributions of the employee to the

19 extent that such elective contributions

20 exceed 3 percent but do not exceed 5

21 percent of the employee’s compensa22 tion.

23 ‘‘(iv) RATE FOR HIGHLY COM24 PENSATED EMPLOYEES.—The require25 ments of clause (iii) are not met if, under
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1 the arrangement, the rate of matching con2 tribution with respect to any rate of elec3 tive contribution of a highly compensated

4 employee is greater than that with respect

5 to an employee who is not a highly com6 pensated employee. For purposes of this

7 clause, to the extent provided in regula8 tions, the last sentences of paragraph

9 (3)(A) and subsection (m)(2)(B) shall not

10 apply.

11 ‘‘(v) ALTERNATIVE PLAN DESIGNS.—

12 If the rate of matching contribution with

13 respect to any rate of elective contribution

14 is not equal to the percentage required

15 under clause (iii), an arrangement shall

16 not be treated as failing to meet the re17 quirements of clause (iii) if—

18 ‘‘(I) the rate of an employer’s

19 matching contribution does not in20 crease as an employee’s rate of elec21 tive contribution increase, and

22 ‘‘(II) the aggregate amount of

23 matching contributions at such rate of

24 elective contribution is at least equal

25 to the aggregate amount of matching
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1 contributions which would be made if

2 matching contributions were made on

3 the basis of the percentages described

4 in clause (iii).

5 ‘‘(C) NONELECTIVE CONTRIBUTIONS.—

6 The requirements of this subparagraph are met

7 if, under the arrangement, the employer is re8 quired, without regard to whether the employee

9 makes an elective contribution or employee con10 tribution, to make a contribution to a defined

11 contribution plan on behalf of each employee

12 who is not a highly compensated employee and

13 who is eligible to participate in the arrangement

14 in an amount equal to at least 3 percent of the

15 employee’s compensation.

16 ‘‘(D) NOTICE REQUIREMENT.—An ar17 rangement meets the requirements of this para18 graph if, under the arrangement, each employee

19 eligible to participate is, within a reasonable pe20 riod before any year, given written notice of the

21 employee’s rights and obligations under the ar22 rangement which—

23 ‘‘(i) is sufficiently accurate and com24 prehensive to reasonably apprise the em25 ployee of such rights and obligations, and
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1 ‘‘(ii) is written in a manner calculated

2 to be understood by the average employee

3 eligible to participate.

4 ‘‘(E) OTHER REQUIREMENTS.—

5 ‘‘(i) WITHDRAWAL AND VESTING RE6 STRICTIONS.—An arrangement shall not be

7 treated as meeting the requirements of

8 subparagraph (B) or (C) of this paragraph

9 unless the requirements of subparagraphs

10 (B) and (C) of paragraph (2) are met with

11 respect to all employer contributions (in12 cluding matching contributions) taken into

13 account in determining whether the re14 quirements of subparagraphs (B) and (C)

15 of this paragraph are met.

16 ‘‘(ii) SOCIAL SECURITY AND SIMILAR

17 CONTRIBUTIONS NOT TAKEN INTO AC18 COUNT.—An arrangement shall not be

19 treated as meeting the requirements of

20 subparagraph (B) or (C) unless such re21 quirements are met without regard to sub22 section (l), and, for purposes of subsection

23 (l), employer contributions under subpara24 graph (B) or (C) shall not be taken into

25 account.
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1 ‘‘(F) OTHER PLANS.—An arrangement

2 shall be treated as meeting the requirements

3 under subparagraph (A)(i) if any other plan

4 maintained by the employer meets such require5 ments with respect to employees eligible under

6 the arrangement.’’

7 (b) ALTERNATIVE METHODS OF SATISFYING SEC8 TION 401(m) NONDISCRIMINATION TESTS.—Section

9 401(m) (relating to nondiscrimination test for matching

10 contributions and employee contributions) is amended by

11 redesignating paragraph (10) as paragraph (11) and by

12 adding after paragraph (9) the following new paragraph:

13 ‘‘(10) ALTERNATIVE METHOD OF SATISFYING

14 TESTS.—

15 ‘‘(A) IN GENERAL.—A defined contribution

16 plan shall be treated as meeting the require17 ments of paragraph (2) with respect to match18 ing contributions if the plan—

19 ‘‘(i) meets the contribution require20 ments of subparagraph (B) or (C) of sub21 section (k)(11),

22 ‘‘(ii) meets the notice requirements of

23 subsection (k)(11)(D), and

24 ‘‘(iii) meets the requirements of sub25 paragraphs (B) and (C).
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1 ‘‘(B) LIMITATION ON MATCHING CON2 TRIBUTIONS.—The requirements of this sub3 paragraph are met if—

4 ‘‘(i) matching contributions on behalf

5 of any employee may not be made with re6 spect to an employee’s contributions or

7 elective deferrals in excess of 6 percent of

8 the employee’s compensation,

9 ‘‘(ii) the rate of an employer’s match10 ing contribution does not increase as the

11 rate of an employee’s contributions or elec12 tive deferrals increase, and

13 ‘‘(iii) the matching contribution with

14 respect to any highly compensated em15 ployee at any rate of an employee contribu16 tion or rate of elective deferral is not

17 greater than that with respect to an em18 ployee who is not a highly compensated

19 employee.

20 To the extent provided in regulations, the last

21 sentences of paragraph (2)(B) and subsection

22 (k)(3)(A) shall not apply for purposes of clause

23 (iii).

24 ‘‘(C) TEST MUST BE MET SEPARATELY.—

25 If this paragraph applies to any matching con-
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1 tributions, such contributions shall not be taken

2 into account in determining whether employee

3 contributions satisfy the requirements of this

4 subsection.’’

5 (c) YEAR FOR COMPUTING NONHIGHLY COM6 PENSATED EMPLOYEE PERCENTAGE.—

7 (1) CASH OR DEFERRED ARRANGEMENTS.—

8 Clause (ii) of section 401(k)(3)(A) is amended—

9 (A) by striking ‘‘such year’’ and inserting

10 ‘‘the plan year’’,

11 (B) by striking ‘‘for such plan year’’ and

12 inserting ‘‘for the preceding plan year’’, and

13 (C) by adding at the end the following new

14 sentence: ‘‘An arrangement may apply this

15 clause by using the plan year rather than the

16 preceding plan year if the employer so elects,

17 except that if such an election is made, it may

18 not be changed except as provided by the Sec19 retary.’’

20 (2) MATCHING AND EMPLOYEE CONTRIBU21 TIONS.—Section 401(m)(2)(A) is amended—

22 (A) by inserting ‘‘for such plan year’’ after

23 ‘‘highly compensated employees’’,
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1 (B) by inserting ‘‘for the preceding plan

2 year’’ after ‘‘eligible employees’’ each place it

3 appears in clause (i) and clause (ii), and

4 (C) by adding at the end the following

5 flush sentence: ‘‘This subparagraph may be ap6 plied by using the plan year rather than the

7 preceding plan year if the employer so elects,

8 except that if such an election is made, it may

9 not be changed except as provided the Sec10 retary.’’

11 (d) SPECIAL RULE FOR DETERMINING AVERAGE DE12 FERRAL PERCENTAGE FOR FIRST PLAN YEAR, ETC.—

13 (1) Paragraph (3) of section 401(k) is amended

14 by adding at the end the following new subpara15 graph:

16 ‘‘(E) For purposes of this paragraph, in

17 the case of the first plan year of any plan, the

18 amount taken into account as the actual defer19 ral percentage of nonhighly compensated em20 ployees for the preceding plan year shall be—

21 ‘‘(i) 3 percent, or

22 ‘‘(ii) the actual deferral percentage of

23 nonhighly compensated employees deter24 mined for such first plan year in the case

25 of—
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1 ‘‘(I) an employer who elects to

2 have this clause apply, or

3 ‘‘(II) except to the extent pro4 vided by the Secretary, a successor

5 plan.’’

6 (2) Paragraph (3) of section 401(m) is amend7 ed by adding at the end the following: ‘‘Rules similar

8 to the rules of subsection (k)(3)(E) shall apply for

9 purposes of this subsection.’’

10 (e) DISTRIBUTION OF EXCESS CONTRIBUTIONS AND

11 EXCESS AGGREGATE CONTRIBUTIONS.—

12 (1) Subparagraph (C) of section 401(k)(8) (re13 lating to arrangement not disqualified if excess con14 tributions distributed) is amended by striking ‘‘on

15 the basis of the respective portions of the excess con16 tributions attributable to each of such employees’’

17 and inserting ‘‘on the basis of the amount of con18 tributions by, or on behalf of, each of such employ19 ees’’.

20 (2) Subparagraph (C) of section 401(m)(6) (re21 lating to method of distributing excess aggregate

22 contributions) is amended by striking ‘‘on the basis

23 of the respective portions of such amounts attrib24 utable to each of such employees’’ and inserting ‘‘on
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1 the basis of the amount of contributions on behalf

2 of, or by, each such employee’’.

3 (f) EFFECTIVE DATES.—

4 (1) IN GENERAL.—The amendments made by

5 this section shall apply to plan years beginning after

6 December 31, 1998.

7 (2) SUBSECTIONS (c), (d), AND (e).—The

8 amendments made by subsections (c), (d), and (e)

9 shall apply to plan years beginning after December

10 31, 1996.

11 SEC. 1104. REPEAL OF FAMILY AGGREGATION.

12 (a) REPEAL OF FAMILY AGGREGATION RULES.—

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

14 414(q) is hereby repealed.

15 (2) COMPENSATION LIMIT.—Paragraph (17)(A)

16 of section 401(a) is amended by striking the last

17 sentence.

18 (3) DEDUCTION.—Subsection (l) of section 404

19 is amended by striking the last sentence.

20 (b) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to years beginning after December

22 31, 1996.
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1 SEC. 1105. DEFINITION OF HIGHLY COMPENSATED EM2 PLOYEES.

3 (a) IN GENERAL.—Paragraph (1) of section 414(q)

4 (defining highly compensated employee) is amended to

5 read as follows:

6 ‘‘(1) IN GENERAL.—The term ‘highly com7 pensated employee’ means any employee who—

8 ‘‘(A) was a 5-percent owner at any time

9 during the year or the preceding year, or

10 ‘‘(B) for the preceding year had compensa11 tion from the employer in excess of $80,000.

12 The Secretary shall adjust the $80,000 amount

13 under subparagraph (B) at the same time and in the

14 same manner as under section 415(d), except that

15 the base period shall be the calendar quarter ending

16 September 30, 1996.’’

17 (b) CONFORMING AMENDMENTS.—

18 (1)(A) Subsection (q) of section 414 is amended

19 by striking paragraphs (2), (4), (5), (8), (10), and

20 (12) and by redesignating paragraphs (3), (7), (9),

21 and (11) as paragraphs (2) through (5), respec22 tively.

23 (B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii),

24 408(k)(2)(C), and 416(i)(1)(D) are each amended

25 by striking ‘‘section 414(q)(7)’’ and inserting ‘‘sec26 tion 414(q)(3)’’.
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1 (C) Section 416(i)(1)(A) is amended by striking

2 ‘‘section 414(q)(8)’’ and inserting ‘‘section

3 414(r)(9)’’.

4 (2)(A) Section 414(r) is amended by adding at

5 the end the following new paragraph:

6 ‘‘(9) EXCLUDED EMPLOYEES.—For purposes of

7 paragraph (2)(A), the following employees shall be

8 excluded:

9 ‘‘(A) Employees who have not completed 6

10 months of service.

11 ‘‘(B) Employees who normally work less

than 171 12 ⁄2 hours per week.

13 ‘‘(C) Employees who normally work not

14 more than 6 months during any year.

15 ‘‘(D) Employees who have not attained the

16 age of 21.

17 ‘‘(E) Except to the extent provided in reg18 ulations, employees who are included in a unit

19 of employees covered by an agreement which

20 the Secretary of Labor finds to be a collective

21 bargaining agreement between employee rep22 resentatives and the employer.’’

23 (B) Subparagraph (A) of section 414(r)(2) is

24 amended by striking ‘‘subsection (q)(8)’’ and insert25 ing ‘‘paragraph (9)’’.
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1 (3) Section 1114(c)(4) of the Tax Reform Act

2 of 1986 is amended by adding at the end the follow3 ing new sentence: ‘‘Any reference in this paragraph

4 to section 414(q) shall be treated as a reference to

5 such section as in effect on the day before the date

6 of the enactment of the Retirement Savings and Se7 curity Act.’’.

8 (c) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to years beginning after December

10 31, 1996, except that in determining whether an employee

11 is a highly compensated employee for years beginning in

12 1997, such amendments shall be treated as having been

13 in effect for years beginning in 1996.

14 SEC. 1106. REPEAL OF LIMITATION IN CASE OF DEFINED

15 BENEFIT PLAN AND DEFINED CONTRIBUTION

16 PLAN FOR SAME EMPLOYEE.

17 (a) IN GENERAL.—Section 415(e) is repealed.

18 (b) CONFORMING AMENDMENTS.—

19 (1) Paragraph (1) of section 415(a) is amend20 ed—

21 (A) by adding ‘‘or’’ at the end of subpara22 graph (A),

23 (B) by striking ‘‘, or’’ at the end of sub24 paragraph (B) and inserting a period, and

25 (C) by striking subparagraph (C).
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1 (2) Subparagraph (B) of section 415(b)(5) is

2 amended by striking ‘‘and subsection (e)’’.

3 (3) Paragraph (1) of section 415(f) is amended

4 by striking ‘‘subsections (b), (c), and (e)’’ and in5 serting ‘‘subsections (b) and (c)’’.

6 (4) Subsection (g) of section 415 is amended by

7 striking ‘‘subsections (e) and (f)’’ in the last sen8 tence and inserting ‘‘subsection (f)’’.

9 (5) Clause (i) of section 415(k)(2)(A) is amend10 ed to read as follows:

11 ‘‘(i) any contribution made directly by

12 an employee under such an arrangement

13 shall not be treated as an annual addition

14 for purposes of subsection (c), and’’.

15 (6) Clause (ii) of section 415(k)(2)(A) is

16 amended by striking ‘‘subsections (c) and (e)’’ and

17 inserting ‘‘subsection (c)’’.

18 (7) Section 416 is amended by striking sub19 section (h).

20 (c) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to years beginning after December

22 31, 1998.
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1 SEC. 1107. CONTRIBUTIONS ON BEHALF OF DISABLED EM2 PLOYEES.

3 (a) ALL DISABLED PARTICIPANTS RECEIVING CON4 TRIBUTIONS.—Section 415(c)(3)(C) is amended by adding

5 at the end the following: ‘‘If a defined contribution plan

6 provides for the continuation of contributions on behalf

7 of all participants described in clause (i) for a fixed or

8 determinable period, this subparagraph shall be applied

9 without regard to clauses (ii) and (iii).’’

10 (b) EFFECTIVE DATE.—The amendment made by

11 this section shall apply to years beginning after December

12 31, 1996.

13 SEC. 1108. PLANS COVERING SELF-EMPLOYED INDIVID14 UALS.

15 (a) AGGREGATION RULES.—Section 401(d) (relating

16 to additional requirements for qualification of trusts and

17 plans benefiting owner-employees) is amended to read as

18 follows:

19 ‘‘(d) CONTRIBUTION LIMIT ON OWNER-EMPLOY20 EES.—A trust forming part of a pension or profit-sharing

21 plan which provides contributions or benefits for employ22 ees some or all of whom are owner-employees shall con23 stitute a qualified trust under this section only if, in addi24 tion to meeting the requirements of subsection (a), the

25 plan provides that contributions on behalf of any owner26 employee may be made only with respect to the earned
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1 income of such owner-employee which is derived from the

2 trade or business with respect to which such plan is estab3 lished.’’

4 (b) EFFECTIVE DATE.—The amendments made by

5 this section shall apply to plan years beginning after De6 cember 31, 1996.

7 SEC. 1109. TRUST REQUIREMENT FOR DEFERRED COM8 PENSATION PLANS OF STATE AND LOCAL

9 GOVERNMENTS.

10 (a) IN GENERAL.—Section 457 is amended by adding

11 at the end the following new subsection:

12 ‘‘(g) GOVERNMENTAL PLANS MUST MAINTAIN SET13 ASIDES FOR EXCLUSIVE BENEFIT OF PARTICIPANTS.—

14 ‘‘(1) IN GENERAL.—A plan maintained by an

15 eligible employer described in subsection (e)(1)(A)

16 shall not be treated as an eligible deferred com17 pensation plan unless all amounts, property and

18 rights, and income of the plan described in subpara19 graphs (A), (B), and (C) of subsection (b)(6) are

20 held in trust for the exclusive benefit of participants

21 and their beneficiaries.

22 ‘‘(2) TAXABILITY OF TRUSTS AND PARTICI23 PANTS.—For purposes of this title—
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1 ‘‘(A) a trust described in paragraph (1)

2 shall be treated as an organization exempt from

3 taxation under section 501(a), and

4 ‘‘(B) notwithstanding any other provision

5 of this title, amounts in the trust shall be in6 cludible in the gross income of participants and

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

8 provided in this section.

9 ‘‘(3) CUSTODIAL ACCOUNT AND CONTRACTS.—

10 For purposes of this subsection, custodial accounts

11 and contracts described in section 401(f) shall be

12 treated as trusts under rules similar to the rules

13 under section 401(f).’’

14 (b) CONFORMING AMENDMENT.—Paragraph (6) of

15 section 457(b) is amended by inserting ‘‘except as pro16 vided in subsection (g),’’ before ‘‘which provides that’’.

17 (c) EFFECTIVE DATES.—

18 (1) IN GENERAL.—Except as provided in para19 graph (2), the amendments made by this section

20 shall apply to amounts, property and rights, and in21 come described in subparagraphs (A), (B), and (C)

22 of section 457(b)(6) of the Internal Revenue Code of

23 1986 held by a plan on and after the date of the en24 actment of this Act.
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1 (2) TRANSITION RULE.—In the case of

2 amounts, property and rights, and income described

3 in paragraph (1) under a plan before the last day

4 of the first calendar quarter beginning after the

5 close of the first regular session (beginning after the

6 date of the enactment of this Act) of the State legis7 lature of the State in which the governmental entity

8 maintaining the plan is located, a trust need not be

9 established by reason of the amendments made by

10 this section before such last day. For purposes of

11 the preceding sentence, in the case of a State that

12 has a 2-year legislative session, each year of such

13 session shall be deemed to be a separate regular ses14 sion of the State legislature.

15 SEC. 1110. TREATMENT OF CERTAIN DISABILITY BENEFITS

16 RECEIVED BY FORMER POLICE OFFICERS OR

17 FIREFIGHTERS.

18 (a) GENERAL RULE.—For purposes of determining

19 whether any amount to which this section applies is ex20 cludable from gross income under section 104(a)(1) of the

21 Internal Revenue Code of 1986, the following conditions

22 shall be treated as personal injuries or sickness in the

23 course of employment:

24 (1) Heart disease.

25 (2) Hypertension.
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1 (b) AMOUNTS TO WHICH SECTION APPLIES.—This

2 section shall apply to any amount—

3 (1) which is payable—

4 (A) to an individual (or to the survivors of

5 an individual) who was a full-time employee of

6 any police department or fire department which

7 is organized and operated by a State, by any

8 political subdivision thereof, or by any agency

9 or instrumentality of a State or political sub10 division thereof, and

11 (B) under a State law (as in existence on

12 July 1, 1992) which irrebuttably presumed that

13 heart disease and hypertension are work-related

14 illnesses but only for employees separating from

15 service before such date; and

16 (2) which is received in calendar year 1989,

17 1990, or 1991.

18 For purposes of the preceding sentence, the term ‘‘State’’

19 includes the District of Columbia.

20 (c) WAIVER OF STATUTE OF LIMITATIONS.—If, on

21 the date of the enactment of this Act (or at any time with22 in the 1-year period beginning on such date of enactment)

23 credit or refund of any overpayment of tax resulting from

24 the provisions of this section is barred by any law or rule

25 of law, credit or refund of such overpayment shall, never-
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•HR 3520 IH

1 theless, be allowed or made if claim therefore is filed be2 fore the date 1 year after such date of enactment.

3 CHAPTER 2—SIMPLIFICATION AND COST

4 SAVINGS

5 SEC. 1201. TREATMENT OF GOVERNMENTAL AND MULTIEM6 PLOYER PLANS UNDER SECTION 415 AND

7 TREATMENT OF EXCESS BENEFIT PLANS.

8 (a) COMPENSATION LIMIT.—Subsection (b) of sec9 tion 415 is amended by adding immediately after para10 graph (10) the following new paragraph:

11 ‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN12 MENTAL AND MULTIEMPLOYER PLANS.—In the case

13 of a governmental plan (as defined in section

14 414(d)) or a multiemployer plan (as defined in sec15 tion 414(f)), subparagraph (B) of paragraph (1)

16 shall not apply.’’

17 (b) TREATMENT OF CERTAIN EXCESS BENEFIT

18 PLANS.—

19 (1) IN GENERAL.—Section 415 is amended by

20 adding at the end the following new subsection:

21 ‘‘(m) TREATMENT OF QUALIFIED GOVERNMENTAL

22 EXCESS BENEFIT ARRANGEMENTS.—

23 ‘‘(1) GOVERNMENTAL PLAN NOT AFFECTED.—

24 In determining whether a governmental plan (as de25 fined in section 414(d)) meets the requirements of
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•HR 3520 IH

1 this section, benefits provided under a qualified gov2 ernmental excess benefit arrangement shall not be

3 taken into account. Income accruing to a govern4 mental plan (or to a trust that is maintained solely

5 for the purpose of providing benefits under a quali6 fied governmental excess benefit arrangement) in re7 spect of a qualified governmental excess benefit ar8 rangement shall constitute income derived from the

9 exercise of an essential governmental function upon

10 which such governmental plan (or trust) shall be ex11 empt from tax under section 115.

12 ‘‘(2) TAXATION OF PARTICIPANT.—For pur13 poses of this chapter—

14 ‘‘(A) the taxable year or years for which

15 amounts in respect of a qualified governmental

16 excess benefit arrangement are includible in

17 gross income by a participant, and

18 ‘‘(B) the treatment of such amounts when

19 so includible by the participant,

20 shall be determined as if such qualified govern21 mental excess benefit arrangement were treated as a

22 plan for the deferral of compensation which is main23 tained by a corporation not exempt from tax under

24 this chapter and which does not meet the require25 ments for qualification under section 401.
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1 ‘‘(3) QUALIFIED GOVERNMENTAL EXCESS BEN2 EFIT ARRANGEMENT.—For purposes of this sub3 section, the term ‘qualified governmental excess ben4 efit arrangement’ means a portion of a governmental

5 plan if—

6 ‘‘(A) such portion is maintained solely for

7 the purpose of providing to participants in the

8 plan that part of the participant’s annual bene9 fit otherwise payable under the terms of the

10 plan that exceeds the limitations on benefits im11 posed by this section,

12 ‘‘(B) under such portion no election is pro13 vided at any time to the participant (directly or

14 indirectly) to defer compensation, and

15 ‘‘(C) benefits described in subparagraph

16 (A) are not paid from a trust forming a part

17 of such governmental plan unless such trust is

18 maintained solely for the purpose of providing

19 such benefits.’’

20 (2) RULES RELATING TO EXCESS BENEFIT AR21 RANGEMENT.—

22 (A) APPLICATION OF SECTION 457.—Sub23 section (e) of section 457 is amended by adding

24 at the end the following new paragraph:
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1 ‘‘(14) TREATMENT OF EXCESS BENEFIT AR2 RANGEMENTS.—

3 ‘‘(A) IN GENERAL.—Subsections (b)(2)

4 and (c)(1) shall not apply to any excess benefit

5 arrangement and benefits provided under such

6 an arrangement shall not be taken into account

7 in determining whether any other plan is an eli8 gible deferred compensation plan.

9 ‘‘(B) EXCESS BENEFIT ARRANGEMENT DE10 FINED.—For purposes of this section, the term

11 ‘excess benefit arrangement’ means a plan

12 which is maintained by an eligible employer

13 solely for purposes of providing benefits for cer14 tain employees in excess of the limits on con15 tributions and benefits imposed by section 415.

16 Such term includes a qualified governmental ex17 cess benefit arrangement (as defined in section

18 415(m)(3)).’’

19 (B) CONFORMING AMENDMENT.—Para20 graph (2) of section 457(f) is amended by strik21 ing ‘‘and’’ at the end of subparagraph (C), by

22 striking the period at the end of subparagraph

23 (D) and inserting ‘‘, and’’, and by inserting im24 mediately thereafter the following new subpara25 graph:
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•HR 3520 IH

1 ‘‘(E) an excess benefit arrangement (as de2 fined in subsection (e)(14)(B)).’’

3 (c) EXEMPTION FOR SURVIVOR AND DISABILITY

4 BENEFITS.—Paragraph (2) of section 415(b) is amended

5 by adding at the end the following new subparagraph:

6 ‘‘(I) EXEMPTION FOR SURVIVOR AND DIS7 ABILITY BENEFITS PROVIDED UNDER GOVERN8 MENTAL AND MULTIEMPLOYER PLANS.—Sub9 paragraph (C) of this paragraph and paragraph

10 (5) shall not apply to—

11 ‘‘(i) income received from a govern12 mental plan (as defined in section 414(d))

13 or a multiemployer plan (as defined in sec14 tion 414(f)) as a pension, annuity, or simi15 lar allowance as the result of the recipient

16 becoming disabled by reason of personal

17 injuries or sickness, or

18 ‘‘(ii) amounts received from a govern19 mental or multiemployer plan by the bene20 ficiaries, survivors, or the estate of an em21 ployee as the result of the death of the em22 ployee.’’

23 (d) REVOCATION OF GRANDFATHER ELECTION.—
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1 (1) IN GENERAL.—Subparagraph (C) of section

2 415(b)(10) is amended by adding at the end the fol3 lowing new clause:

4 ‘‘(ii) REVOCATION OF ELECTION.—An

5 election under clause (i) may be revoked

6 not later than the last day of the third

7 plan year beginning after the date of the

8 enactment of this clause. The revocation

9 shall apply to all plan years to which the

10 election applied and to all subsequent plan

11 years. Any amount paid by a plan in a tax12 able year ending after the revocation shall

13 be includible in income in such taxable

14 year under the rules of this chapter in ef15 fect for such taxable year, except that, for

16 purposes of applying the limitations im17 posed by this section, any portion of such

18 amount which is attributable to any tax19 able year during which the election was in

20 effect shall be treated as received in such

21 taxable year.’’

22 (2) CONFORMING AMENDMENT.—Subparagraph

23 (C) of section 415(b)(10) is amended by striking

24 ‘‘This’’ and inserting:

25 ‘‘(i) IN GENERAL.—This’’.
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•HR 3520 IH

1 (e) EFFECTIVE DATE.—

2 (1) IN GENERAL.—The amendments made by

3 subsections (a), (b), and (c) shall apply to years be4 ginning after December 31, 1996.

5 (2) SPECIAL RULES FOR GOVERNMENTAL

6 PLANS.—

7 (A) IN GENERAL.—In the case of a govern8 mental plan, the amendments made by sub9 sections (a), (b), and (c) shall apply to years

10 beginning after December 31, 1995.

11 (B) REVOCATIONS.—The amendments

12 made by subsection (d) shall apply with respect

13 to revocations adopted after the date of the en14 actment of this Act.

15 (C) TREATMENT FOR YEARS BEGINNING

16 BEFORE JANUARY 1, 1996.—Nothing in the

17 amendments made by this section shall be con18 strued to imply that a governmental plan (as

19 defined in section 414(d) of the Internal Reve20 nue Code of 1986) fails to satisfy the require21 ments of section 415 of such Code for any year

22 beginning before January 1, 1996.
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1 SEC. 1202. DEFINITION OF COMPENSATION FOR SECTION

2 415 PURPOSES.

3 (a) GENERAL RULE.—Section 415(c)(3) (defining

4 participant’s compensation) is amended by adding at the

5 end the following new subparagraph:

6 ‘‘(D) CERTAIN DEFERRALS INCLUDED.—

7 The term ‘participant’s compensation’ shall in8 clude—

9 ‘‘(i) any elective deferral (as defined

10 in section 402(g)(3)),

11 ‘‘(ii) any amount which is contributed

12 by the employer at the election of the em13 ployee and which is not includible in the

14 gross income of the employee pursuant to

15 section 125, and

16 ‘‘(iii) any amount which is deferred at

17 the election of the employee and which is

18 not includible in the gross income of the

19 employee pursuant to section 457.’’

20 (b) CONFORMING AMENDMENTS.—

21 (1) Section 414(q)(3), as redesignated by sec22 tion 1105, is amended to read as follows:

23 ‘‘(3) COMPENSATION.—For purposes of this

24 subsection, the term ‘compensation’ has the meaning

25 given such term by section 415(c)(3).’’
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1 (2) Section 414(s)(2) is amended by inserting

2 ‘‘not’’ after ‘‘elect’’ in the text and heading thereof.

3 (c) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to years beginning after December

5 31, 1996.

6 SEC. 1203. ASSUMPTIONS FOR ADJUSTING CERTAIN BENE7 FITS OF DEFINED BENEFIT PLANS FOR

8 EARLY RETIREES.

9 (a) IN GENERAL.—Subparagraph (E) of section

10 415(b)(2) (relating to limitation on certain assumptions)

11 is amended—

12 (1) by striking ‘‘Except as provided in clause

13 (ii), for purposes of adjusting any benefit or limita14 tion under subparagraph (B) or (C),’’ in clause (i)

15 and inserting ‘‘For purposes of adjusting any limita16 tion under subparagraph (C) and, except as provided

17 in clause (ii), for purposes of adjusting any benefit

18 under subparagraph (B),’’, and

19 (2) by striking ‘‘For purposes of adjusting the

20 benefit or limitation of any form of benefit subject

21 to section 417(e)(3),’’ in clause (ii) and inserting

22 ‘‘For purposes of adjusting any benefit under sub23 paragraph (B) for any form of benefit subject to sec24 tion 417(e)(3),’’.
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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall take effect as if included in the provisions

3 of section 767 of the Uruguay Round Agreements Act.

4 SEC. 1204. TREATMENT OF DEFERRED COMPENSATION

5 PLANS OF STATE AND LOCAL GOVERNMENTS

6 AND TAX-EXEMPT ORGANIZATIONS.

7 (a) SPECIAL RULES FOR PLAN DISTRIBUTIONS.—

8 Paragraph (9) of section 457(e) (relating to other defini9 tions and special rules) is amended to read as follows:

10 ‘‘(9) BENEFITS NOT TREATED AS MADE AVAIL11 ABLE BY REASON OF CERTAIN ELECTIONS, ETC.—

12 ‘‘(A) TOTAL AMOUNT PAYABLE IS $3,500

13 OR LESS.—The total amount payable to a par14 ticipant under the plan shall not be treated as

15 made available merely because the participant

16 may elect to receive such amount (or the plan

17 may distribute such amount without the partici18 pant’s consent) if—

19 ‘‘(i) such amount does not exceed

20 $3,500, and

21 ‘‘(ii) such amount may be distributed

22 only if—

23 ‘‘(I) no amount has been deferred

24 under the plan with respect to such

25 participant during the 2-year period
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1 ending on the date of the distribution,

2 and

3 ‘‘(II) there has been no prior dis4 tribution under the plan to such par5 ticipant to which this subparagraph

6 applied.

7 A plan shall not be treated as failing to meet

8 the distribution requirements of subsection (d)

9 by reason of a distribution to which this sub10 paragraph applies.

11 ‘‘(B) ELECTION TO DEFER COMMENCE12 MENT OF DISTRIBUTIONS.—The total amount

13 payable to a participant under the plan shall

14 not be treated as made available merely because

15 the participant may elect to defer commence16 ment of distributions under the plan if—

17 ‘‘(i) such election is made after

18 amounts may be available under the plan

19 in accordance with subsection (d)(1)(A)

20 and before commencement of such dis21 tributions, and

22 ‘‘(ii) the participant may make only 1

23 such election.’’

24 (b) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DE25 FERRAL AMOUNT.—Subsection (e) of section 457, as
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1 amended by section 1201(b)(2) (relating to governmental

2 plans), is amended by adding at the end the following new

3 paragraph:

4 ‘‘(15) COST-OF-LIVING ADJUSTMENT OF MAXI5 MUM DEFERRAL AMOUNT.—The Secretary shall ad6 just the $7,500 amount specified in subsections

7 (b)(2) and (c)(1) at the same time and in the same

8 manner as under section 415(d), except that the

9 base period shall be the calendar quarter ending

10 September 30, 1994, and any increase under this

11 paragraph which is not a multiple of $500 shall be

12 rounded to the next lowest multiple of $500.’’

13 (c) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to taxable years beginning after

15 December 31, 1996.

16 SEC. 1205. NO REQUIRED DISTRIBUTIONS FOR ACTIVE EM17 PLOYEES.

18 (a) IN GENERAL.—Section 401(a)(9)(C) (defining re19 quired beginning date) is amended to read as follows:

20 ‘‘(C) REQUIRED BEGINNING DATE.—For

21 purposes of this paragraph—

22 ‘‘(i) IN GENERAL.—The term ‘re23 quired beginning date’ means April 1 of

24 the calendar year following the later of—
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1 ‘‘(I) the calendar year in which

the employee attains age 701 2 ⁄2, or

3 ‘‘(II) the calendar year in which

4 the employee retires.

5 ‘‘(ii) EXCEPTION.—Subclause (II) of

6 clause (i) shall not apply—

7 ‘‘(I) except as provided in section

8 409(d), in the case of an employee

9 who is a 5-percent owner (as defined

10 in section 416) with respect to the

11 plan year ending in the calendar year

12 in which the employee attains age

701 13 ⁄2, or

14 ‘‘(II) for purposes of section 408

15 (a)(6) or (b)(3).

16 ‘‘(iii) ACTUARIAL ADJUSTMENT.—In

17 the case of an employee to whom clause

18 (i)(II) applies who retires in a calendar

19 year after the calendar year in which the

employee attains age 701 20 ⁄2, the employee’s

21 accrued benefit shall be actuarially in22 creased to take into account the period

after age 701 23 ⁄2 in which the employee was

24 not receiving any benefits under the plan.
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1 ‘‘(iv) EXCEPTION FOR GOVERN2 MENTAL AND CHURCH PLANS.—Clauses

3 (ii) and (iii) shall not apply in the case of

4 a governmental plan or church plan. For

5 purposes of this clause, the term ‘church

6 plan’ means a plan maintained by a church

7 for church employees, and the term

8 ‘church’ means any church (as defined in

9 section 3121(w)(3)(A)) or qualified church10 controlled organization (as defined in sec11 tion 3121(w)(3)(B)).’’

12 (b) EFFECTIVE DATE.—The amendment made by

13 subsection (a) shall apply to years beginning after Decem14 ber 31, 1996.

15 SEC. 1206. SIMPLIFIED METHOD FOR TAXING ANNUITY DIS16 TRIBUTIONS UNDER CERTAIN EMPLOYER

17 PLANS.

18 (a) GENERAL RULE.—Subsection (d) of section 72

19 (relating to annuities; certain proceeds of endowment and

20 life insurance contracts) is amended to read as follows:

21 ‘‘(d) SPECIAL RULES FOR QUALIFIED EMPLOYER

22 RETIREMENT PLANS.—

23 ‘‘(1) SIMPLIFIED METHOD OF TAXING ANNUITY

24 PAYMENTS.—
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1 ‘‘(A) IN GENERAL.—In the case of any

2 amount received as an annuity under a quali3 fied employer retirement plan—

4 ‘‘(i) subsection (b) shall not apply,

5 and

6 ‘‘(ii) the investment in the contract

7 shall be recovered as provided in this para8 graph.

9 ‘‘(B) METHOD OF RECOVERING INVEST10 MENT IN CONTRACT.—

11 ‘‘(i) IN GENERAL.—Gross income

12 shall not include so much of any monthly

13 annuity payment under a qualified em14 ployer retirement plan as does not exceed

15 the amount obtained by dividing—

16 ‘‘(I) the investment in the con17 tract (as of the annuity starting date),

18 by

19 ‘‘(II) the number of anticipated

20 payments determined under the table

21 contained in clause (iii) (or, in the

22 case of a contract to which subsection

23 (c)(3)(B) applies, the number of

24 monthly annuity payments under such

25 contract).
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1 ‘‘(ii) CERTAIN RULES MADE APPLICA2 BLE.—Rules similar to the rules of para3 graphs (2) and (3) of subsection (b) shall

4 apply for purposes of this paragraph.

5 ‘‘(iii) NUMBER OF ANTICIPATED PAY6 MENTS.—

‘‘If the age of the

primary annuitant on The number

the annuity starting of anticipated

date is: payments is:

Not more than 55 ................................ 360

More than 55 but not more than 60 ... 310

More than 60 but not more than 65 ... 260

More than 65 but not more than 70 ... 210

More than 70 ....................................... 160.

7 ‘‘(C) ADJUSTMENT FOR REFUND FEATURE

8 NOT APPLICABLE.—For purposes of this para9 graph, investment in the contract shall be de10 termined under subsection (c)(1) without re11 gard to subsection (c)(2).

12 ‘‘(D) SPECIAL RULE WHERE LUMP SUM

13 PAID IN CONNECTION WITH COMMENCEMENT

14 OF ANNUITY PAYMENTS.—If, in connection with

15 the commencement of annuity payments under

16 any qualified employer retirement plan, the tax17 payer receives a lump sum payment—

18 ‘‘(i) such payment shall be taxable

19 under subsection (e) as if received before

20 the annuity starting date, and
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1 ‘‘(ii) the investment in the contract

2 for purposes of this paragraph shall be de3 termined as if such payment had been so

4 received.

5 ‘‘(E) EXCEPTION.—This paragraph shall

6 not apply in any case where the primary annu7 itant has attained age 75 on the annuity start8 ing date unless there are fewer than 5 years of

9 guaranteed payments under the annuity.

10 ‘‘(F) ADJUSTMENT WHERE ANNUITY PAY11 MENTS NOT ON MONTHLY BASIS.—In any case

12 where the annuity payments are not made on a

13 monthly basis, appropriate adjustments in the

14 application of this paragraph shall be made to

15 take into account the period on the basis of

16 which such payments are made.

17 ‘‘(G) QUALIFIED EMPLOYER RETIREMENT

18 PLAN.—For purposes of this paragraph, the

19 term ‘qualified employer retirement plan’ means

20 any plan or contract described in paragraph

21 (1), (2), or (3) of section 4974(c).

22 ‘‘(2) TREATMENT OF EMPLOYEE CONTRIBU23 TIONS UNDER DEFINED CONTRIBUTION PLANS.—

24 For purposes of this section, employee contributions

25 (and any income allocable thereto) under a defined
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1 contribution plan may be treated as a separate con2 tract.’’

3 (b) EFFECTIVE DATE.—The amendment made by

4 this section shall apply in cases where the annuity starting

5 date is after December 31, 1996.

6 SEC. 1207. REPEAL OF 5-YEAR INCOME AVERAGING FOR

7 LUMP-SUM DISTRIBUTIONS.

8 (a) IN GENERAL.—Subsection (d) of section 402 (re9 lating to taxability of beneficiary of employees’ trust) is

10 amended to read as follows:

11 ‘‘(d) TAXABILITY OF BENEFICIARY OF CERTAIN

12 FOREIGN SITUS TRUSTS.—For purposes of subsections

13 (a), (b), and (c), a stock bonus, pension, or profit-sharing

14 trust which would qualify for exemption from tax under

15 section 501(a) except for the fact that it is a trust created

16 or organized outside the United States shall be treated

17 as if it were a trust exempt from tax under section

18 501(a).’’

19 (b) CONFORMING AMENDMENTS.—

20 (1) Subparagraph (D) of section 402(e)(4) (re21 lating to other rules applicable to exempt trusts) is

22 amended to read as follows:

23 ‘‘(D) LUMP-SUM DISTRIBUTION.—For pur24 poses of this paragraph—
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1 ‘‘(i) IN GENERAL.—The term ‘lump

2 sum distribution’ means the distribution or

3 payment within one taxable year of the re4 cipient of the balance to the credit of an

5 employee which becomes payable to the re6 cipient—

7 ‘‘(I) on account of the employee’s

8 death,

9 ‘‘(II) after the employee attains

age 591 10 ⁄2,

11 ‘‘(III) on account of the employ12 ee’s separation from service, or

13 ‘‘(IV) after the employee has be14 come disabled (within the meaning of

15 section 72(m)(7)),

16 from a trust which forms a part of a plan

17 described in section 401(a) and which is

18 exempt from tax under section 501 or from

19 a plan described in section 403(a). Sub20 clause (III) of this clause shall be applied

21 only with respect to an individual who is

22 an employee without regard to section

23 401(c)(1), and subclause (IV) shall be ap24 plied only with respect to an employee

25 within the meaning of section 401(c)(1).
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1 For purposes of this clause, a distribution

2 to two or more trusts shall be treated as

3 a distribution to one recipient. For pur4 poses of this paragraph, the balance to the

5 credit of the employee does not include the

6 accumulated deductible employee contribu7 tions under the plan (within the meaning

8 of section 72(o)(5)).

9 ‘‘(ii) AGGREGATION OF CERTAIN

10 TRUSTS AND PLANS.—For purposes of de11 termining the balance to the credit of an

12 employee under clause (i)—

13 ‘‘(I) all trusts which are part of

14 a plan shall be treated as a single

15 trust, all pension plans maintained by

16 the employer shall be treated as a sin17 gle plan, all profit-sharing plans main18 tained by the employer shall be treat19 ed as a single plan, and all stock

20 bonus plans maintained by the em21 ployer shall be treated as a single

22 plan, and

23 ‘‘(II) trusts which are not quali24 fied trusts under section 401(a) and

25 annuity contracts which do not satisfy
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1 the requirements of section 404(a)(2)

2 shall not be taken into account.

3 ‘‘(iii) COMMUNITY PROPERTY LAWS.—

4 The provisions of this paragraph shall be

5 applied without regard to community prop6 erty laws.

7 ‘‘(iv) AMOUNTS SUBJECT TO PEN8 ALTY.—This paragraph shall not apply to

9 amounts described in subparagraph (A) of

10 section 72(m)(5) to the extent that section

11 72(m)(5) applies to such amounts.

12 ‘‘(v) BALANCE TO CREDIT OF EM13 PLOYEE NOT TO INCLUDE AMOUNTS PAY14 ABLE UNDER QUALIFIED DOMESTIC RELA15 TIONS ORDER.—For purposes of this para16 graph, the balance to the credit of an em17 ployee shall not include any amount pay18 able to an alternate payee under a quali19 fied domestic relations order (within the

20 meaning of section 414(p)).

21 ‘‘(vi) TRANSFERS TO COST-OF-LIVING

22 ARRANGEMENT NOT TREATED AS DIS23 TRIBUTION.—For purposes of this para24 graph, the balance to the credit of an em25 ployee under a defined contribution plan
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1 shall not include any amount transferred

2 from such defined contribution plan to a

3 qualified cost-of-living arrangement (within

4 the meaning of section 415(k)(2)) under a

5 defined benefit plan.

6 ‘‘(vii) LUMP-SUM DISTRIBUTIONS OF

7 ALTERNATE PAYEES.—If any distribution

8 or payment of the balance to the credit of

9 an employee would be treated as a lump10 sum distribution, then, for purposes of this

11 paragraph, the payment under a qualified

12 domestic relations order (within the mean13 ing of section 414(p)) of the balance to the

14 credit of an alternate payee who is the

15 spouse or former spouse of the employee

16 shall be treated as a lump-sum distribu17 tion. For purposes of this clause, the bal18 ance to the credit of the alternate payee

19 shall not include any amount payable to

20 the employee.’’

21 (2) Section 402(c) (relating to rules applicable

22 to rollovers from exempt trusts) is amended by strik23 ing paragraph (10).
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1 (3) Paragraph (1) of section 55(c) (defining

2 regular tax) is amended by striking ‘‘shall not in3 clude any tax imposed by section 402(d) and’’.

4 (4) Paragraph (8) of section 62(a) (relating to

5 certain portion of lump-sum distributions from pen6 sion plans taxed under section 402(d)) is hereby re7 pealed.

8 (5) Section 401(a)(28)(B) (relating to coordina9 tion with distribution rules) is amended by striking

10 clause (v).

11 (6) Subparagraph (B)(ii) of section 401(k)(10)

12 (relating to distributions that must be lump-sum dis13 tributions) is amended to read as follows:

14 ‘‘(ii) LUMP-SUM DISTRIBUTION.—For

15 purposes of this subparagraph, the term

16 ‘lump-sum distribution’ has the meaning

17 given such term by section 402(e)(4)(D),

18 without regard to subclauses (I), (II),

19 (III), and (IV) of clause (i) thereof.’’

20 (7) Section 406(c) (relating to termination of

21 status as deemed employee not to be treated as sep22 aration from service for purposes of limitation of

23 tax) is hereby repealed.

24 (8) Section 407(c) (relating to termination of

25 status as deemed employee not to be treated as sep-
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1 aration from service for purposes of limitation of

2 tax) is hereby repealed.

3 (9) Section 691(c) (relating to deduction for es4 tate tax) is amended by striking paragraph (5).

5 (10) Paragraph (1) of section 871(b) (relating

6 to imposition of tax) is amended by striking ‘‘section

7 1, 55, or 402(d)(1)’’ and inserting ‘‘section 1 or

8 55’’.

9 (11) Subsection (b) of section 877 (relating to

10 alternative tax) is amended by striking ‘‘section 1,

11 55, or 402(d)(1)’’ and inserting ‘‘section 1 or 55’’.

12 (12) Section 4980A(c)(4) is amended—

13 (A) by striking ‘‘to which an election under

14 section 402(d)(4)(B) applies’’ and inserting

15 ‘‘(as defined in section 402(e)(4)(D)) with re16 spect to which the individual elects to have this

17 paragraph apply’’,

18 (B) by adding at the end the following new

19 flush sentence:

20 ‘‘An individual may elect to have this paragraph

21 apply to only one lump-sum distribution.’’, and

22 (C) by striking the heading and inserting:

23 ‘‘(4) SPECIAL ONE-TIME ELECTION.—’’.

24 (13) Section 402(e) is amended by striking

25 paragraph (5).
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1 (c) EFFECTIVE DATES.—

2 (1) IN GENERAL.—The amendments made by

3 this section shall apply to taxable years beginning

4 after December 31, 1998.

5 (2) RETENTION OF CERTAIN TRANSITION

6 RULES.—Notwithstanding any other provision of

7 this section, the amendments made by this section

8 shall not apply to any distribution for which the tax9 payer elects the benefits of section 1122 (h)(3) or

10 (h)(5) of the Tax Reform Act of 1986. For purposes

11 of the preceding sentence, the rules of sections

12 402(c)(10) and 402(d) of the Internal Revenue Code

13 of 1986 (as in effect before the amendments made

14 by this Act) shall apply.

15 SEC. 1208. ELIMINATION OF HALF-YEAR REQUIREMENTS.

16 (a) IN GENERAL.—Each of the following provisions

are amended by striking ‘‘age 591 17 ⁄2’’ and inserting ‘‘age

18 59’’:

19 (1) Section 72(q)(2)(A).

20 (2) Section 72(q)(3)(B)(i).

21 (3) Section 72(q)(3)(B)(ii).

22 (4) Section 72(t)(2)(A)(i).

23 (5) Section 72(t)(4)(A)(ii)(I).

24 (6) Section 72(t)(4)(A)(ii)(II).

25 (7) Section 72(v)(2)(A).
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1 (8) Section 401(k)(2)(B)(i)(III).

2 (9) Section 403(b)(7)(A)(ii).

3 (10) Section 403(b)(11)(A).

4 (11) The heading for section 403(b)(11).

5 (12) Section 4978(d)(1)(B).

6 (b) OTHER PROVISIONS.—Each of the following provisions are amended by striking ‘‘age 701 7 ⁄2’’ each place

8 it appears and inserting ‘‘age 70’’:

9 (1) Section 219(d)(1).

10 (2) The heading for section 219(d)(1).

11 (3) Section 401(a)(9)(B)(iv)(I).

12 (4) Section 401(a)(9)(C).

13 (5) Section 408(b).

14 (6) Section 457(d)(1)(A).

15 (c) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to years beginning after December

17 31, 1996.

18 SEC. 1209. DISTRIBUTIONS UNDER RURAL COOPERATIVE

19 PLANS.

20 (a) DISTRIBUTIONS FOR HARDSHIP OR AFTER A

21 CERTAIN AGE.—Section 401(k)(7) is amended by adding

22 at the end the following new subparagraph:

23 ‘‘(C) SPECIAL RULE FOR CERTAIN DIS24 TRIBUTIONS.—A rural cooperative plan which

25 includes a qualified cash or deferred arrange-
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1 ment shall not be treated as violating the re2 quirements of section 401(a) or of paragraph

3 (2) merely because, under the plan, distribu4 tions may be made by reason of hardship or the

attainment of age 591 5 ⁄2. For purposes of this

6 section, the term ‘hardship distribution’ means

7 a distribution described in paragraph

8 (2)(B)(i)(IV) (without regard to the limitation

9 of its application to profit-sharing or stock

10 bonus plans).’’

11 (b) EFFECTIVE DATE.—The amendment made by

12 subsection (a) shall apply to distributions after the date

13 of the enactment of this Act.

14 SEC. 1210. MODIFICATION OF ADDITIONAL PARTICIPATION

15 REQUIREMENTS.

16 (a) GENERAL RULE.—Section 401(a)(26)(A) (relat17 ing to additional participation requirements) is amended

18 to read as follows:

19 ‘‘(A) IN GENERAL.—In the case of a trust

20 which is a part of a defined benefit plan, such

21 trust shall not constitute a qualified trust under

22 this subsection unless, on each day of the plan

23 year, such plan benefits at least the lesser of—

24 ‘‘(i) 50 employees of the employer, or

25 ‘‘(ii) the greater of—
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1 ‘‘(I) 40 percent of all employees

2 of the employer, or

3 ‘‘(II) 2 employees (or if there is

4 only 1 employee, such employee).’’

5 (b) EFFECTIVE DATE.—The amendment made by

6 this section shall apply to plan years beginning after De7 cember 31, 1996.

8 SEC. 1211. UNIFORM RETIREMENT AGE.

9 (a) DISCRIMINATION TESTING.—Paragraph (5) of

10 section 401(a) (relating to special rules relating to non11 discrimination requirements) is amended by adding at the

12 end the following new subparagraph:

13 ‘‘(F) SOCIAL SECURITY RETIREMENT

14 AGE.—For purposes of testing for discrimina15 tion under paragraph (4)—

16 ‘‘(i) the social security retirement age

17 (as defined in section 415(b)(8)) shall be

18 treated as a uniform retirement age, and

19 ‘‘(ii) subsidized early retirement bene20 fits and joint and survivor annuities shall

21 not be treated as being unavailable to em22 ployees on the same terms merely because

23 such benefits or annuities are based in

24 whole or in part on an employee’s social

25 security retirement age (as so defined).’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to plan years beginning after De3 cember 31, 1996.

4 SEC. 1212. TREATMENT OF LEASED EMPLOYEES.

5 (a) GENERAL RULE.—Subparagraph (C) of section

6 414(n)(2) (defining leased employee) is amended to read

7 as follows:

8 ‘‘(C) such services are performed under

9 significant direction or control by the recipi10 ent.’’

11 (b) EFFECTIVE DATE.—The amendment made by

12 subsection (a) shall apply to years beginning after Decem13 ber 31, 1996, but shall not apply to any relationship deter14 mined under an Internal Revenue Service ruling issued be15 fore the date of the enactment of this Act pursuant to

16 section 414(n)(2)(C) of the Internal Revenue Code of

17 1986 (as in effect on the day before such date) not to

18 involve a leased employee.

19 SEC. 1213. FULL FUNDING LIMITATION FOR MULTIEM20 PLOYER PLANS.

21 (a) FULL-FUNDING LIMITATION.—Section

22 412(c)(7)(C) (relating to full-funding limitation) is

23 amended—

24 (1) by inserting ‘‘or in the case of a multiem25 ployer plan,’’ after ‘‘paragraph (6)(B),’’, and
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1 (2) by inserting ‘‘AND MULTIEMPLOYER PLANS’’

2 after ‘‘PARAGRAPH (6)(B)’’ in the heading thereof.

3 (b) VALUATION.—Section 412(c)(9) is amended—

4 (1) by inserting ‘‘(3 years in the case of a mul5 tiemployer plan)’’ after ‘‘year’’, and

6 (2) by striking ‘‘ANNUAL VALUATION’’ in the

7 heading and inserting ‘‘VALUATION’’.

8 (c) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to plan years beginning after De10 cember 31, 1996.

11 SEC. 1214. ELIMINATION OF PARTIAL TERMINATION RULES

12 FOR MULTIEMPLOYER PLANS.

13 (a) PARTIAL TERMINATION RULES FOR MULTIEM14 PLOYER PLANS.—Section 411(d)(3) is amended by adding

15 at the end the following new sentence: ‘‘This paragraph

16 shall not apply in the case of a partial termination of a

17 multiemployer plan.’’

18 (b) EFFECTIVE DATE.—The amendment made by

19 this section shall apply to partial terminations beginning

20 after December 31, 1996.

21 SEC. 1215. ELECTIVE DEFERRALS UNDER SECTION 403(b).

22 (a) IN GENERAL.—Subparagraph (E) of section

23 403(b)(1) is amended to read as follows:

24 ‘‘(E) in the case of a contract purchased

25 under a salary reduction agreement, the con-
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1 tract meets the requirements of section

2 401(a)(30),’’.

3 (b) EFFECTIVE DATE.—The amendment made by

4 this section shall apply to years beginning after December

5 31, 1996.

6 SEC. 1216. UNIFORM PENALTY PROVISIONS TO APPLY TO

7 CERTAIN PENSION REPORTING REQUIRE8 MENTS.

9 (a) PENALTIES.—

10 (1) STATEMENTS.—Paragraph (1) of section

11 6724(d) is amended by striking ‘‘and’’ at the end of

12 subparagraph (A), by striking the period at the end

13 of subparagraph (B) and inserting ‘‘, and’’, and by

14 inserting after subparagraph (B) the following new

15 subparagraph:

16 ‘‘(C) any statement required to be made to

17 the Secretary under—

18 ‘‘(i) section 408(i) (relating to reports

19 with respect to individual retirement ac20 counts or annuities), or

21 ‘‘(ii) section 6047(d) (relating to re22 ports by employers, plan administrators,

23 etc.).’’

24 (2) REPORTS.—Paragraph (2) of section

25 6724(d) is amended by striking ‘‘or’’ at the end of
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1 subparagraph (S), by striking the period at the end

2 of subparagraph (T) and inserting a comma, and by

3 inserting after subparagraph (T) the following new

4 subparagraphs:

5 ‘‘(U) section 408(i) (relating to reports

6 with respect to individual retirement plans) to

7 any person other than the Secretary, or

8 ‘‘(V) section 6047(d) (relating to reports

9 by plan administrators) to any person other

10 than the Secretary.’’

11 (3) PENALTIES.—

12 (A) Section 6721(e)(2)(A) is amended by

13 striking ‘‘or 6050L’’ and inserting ‘‘6050L, or

14 408(i)’’.

15 (B) Section 6722(c)(1)(A) is amended by

16 striking ‘‘or 6050L(c)’’ and inserting

17 ‘‘6050L(c), or 408(i)’’.

18 (b) MODIFICATION OF REPORTABLE DESIGNATED

19 DISTRIBUTIONS.—

20 (1) SECTION 408.—Subsection (i) of section 408

21 (relating to individual retirement account reports) is

22 amended by inserting ‘‘aggregating $10 or more in

23 any calendar year’’ after ‘‘distributions’’.

24 (2) SECTION 6047.—Paragraph (1) of section

25 6047(d) (relating to reports by employers, plan ad-
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1 ministrators, etc.) is amended by adding at the end

2 the following new sentence: ‘‘No return or report

3 may be required under the preceding sentence with

4 respect to distributions to any person during any

5 year unless such distributions aggregate $10 or

6 more.’’

7 (c) CONFORMING AMENDMENTS.—

8 (1) Paragraph (1) of section 6047(f) is amend9 ed to read as follows:

‘‘(1) For provisions relating to penalties for failures to file returns and reports required under this

section, see sections 6652(e), 6721, and 6722.’’

10 (2) Subsection (e) of section 6652 is amended

11 by adding at the end the following new sentence:

12 ‘‘This subsection shall not apply to any return or

13 statement which is an information return described

14 in section 6724(d)(1)(C)(ii) or a payee statement de15 scribed in section 6724(d)(2)(V).’’

16 (3) Subsection (a) of section 6693 is amended

17 by adding at the end the following new sentence:

18 ‘‘This subsection shall not apply to any report which

19 is an information return described in section

20 6724(d)(1)(C)(i) or a payee statement described in

21 section 6724(d)(2)(U).’’

22 (d) EFFECTIVE DATE.—The amendments made by

23 this section shall apply to returns, reports, and other
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1 statements the due date for which (determined without re2 gard to extensions) is after December 31, 1996.

3 SEC. 1217. TAX ON PROHIBITED TRANSACTIONS.

4 (a) IN GENERAL.—Section 4975(a) is amended by

5 striking ‘‘5 percent’’ and inserting ‘‘10 percent’’.

6 (b) EFFECTIVE DATE.—The amendment made by

7 this section shall apply to prohibited transactions occur8 ring after the date of the enactment of this Act.

9 SEC. 1218. DATE FOR ADOPTION OF PLAN AMENDMENTS.

10 (a) IN GENERAL.—If any amendment made by this

11 subtitle requires an amendment to any plan, such plan

12 amendment shall not be required to be made before the

13 last day of the first plan year beginning on or after Janu14 ary 1, 1998, if—

15 (1) during the period after such amendment

16 takes effect and before the last day of such first

17 plan year, the plan is operated in accordance with

18 the requirements of such amendment, and

19 (2) such plan amendment applies retroactively

20 to such period.

21 (b) GOVERNMENTAL PLANS.—In the case of a gov22 ernmental plan (as defined in section 414(d) of the Inter23 nal Revenue Code of 1986), subsection (a) shall be applied

24 by substituting for ‘‘January 1, 1998’’ the later of—

25 (1) January 1, 1999, or
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1 (2) the date which is 90 days after the opening

2 of the first legislative session beginning after Janu3 ary 1, 1999, of the governing body with authority to

4 amend the plan, but only if such governing body

5 does not meet continuously.

6 Subtitle B—Expanded Individual

7 Retirement Accounts to In8 crease Coverage and Portability

9 CHAPTER 1—RETIREMENT SAVINGS

10 INCENTIVES

11 Subchapter A—IRA Deduction

12 SEC. 1301. INCREASE IN INCOME LIMITATIONS.

13 (a) IN GENERAL.—Subparagraph (B) of section

14 219(g)(3) is amended—

15 (1) by striking ‘‘$40,000’’ in clause (i) and in16 serting ‘‘$80,000 ($70,000 in the case of taxable

17 years beginning in 1996, 1997, or 1998)’’, and

18 (2) by striking ‘‘$25,000’’ in clause (ii) and in19 serting ‘‘$50,000 ($45,000 in the case of taxable

20 years beginning in 1996, 1997, or 1998)’’.

21 (b) PHASEOUT OF LIMITATIONS.—Clause (ii) of sec22 tion 219(g)(2)(A) is amended by striking ‘‘$10,000’’ and

23 inserting ‘‘an amount equal to 10 times the dollar amount

24 applicable for the taxable year under subsection

25 (b)(1)(A)’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1995.

4 SEC. 1302. INFLATION ADJUSTMENT FOR DEDUCTIBLE

5 AMOUNT AND INCOME LIMITATIONS.

6 (a) IN GENERAL.—Section 219 is amended by redes7 ignating subsection (h) as subsection (i) and by inserting

8 after subsection (g) the following new subsection:

9 ‘‘(h) COST-OF-LIVING ADJUSTMENTS.—

10 ‘‘(1) DEDUCTIBLE AMOUNTS.—In the case of

11 any taxable year beginning in a calendar year after

12 1996, the $2,000 amounts under subsections

13 (b)(1)(A) and (c)(2) shall be increased by an amount

14 equal to—

15 ‘‘(A) such dollar amount, multiplied by

16 ‘‘(B) the cost-of-living adjustment deter17 mined under section 1(f)(3) for the calendar

18 year in which the taxable year begins, deter19 mined by substituting ‘calendar year 1995’ for

20 ‘calendar year 1992’ in subparagraph (B)

21 thereof.

22 ‘‘(2) APPLICABLE DOLLAR AMOUNT.—In the

23 case of any taxable year beginning in a calendar

24 year after 1999, the applicable dollar amounts under
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1 subsection (g)(3)(B) shall be increased by an

2 amount equal to—

3 ‘‘(A) such dollar amount, multiplied by

4 ‘‘(B) the cost-of-living adjustment deter5 mined under section 1(f)(3) for the calendar

6 year in which the taxable year begins, deter7 mined by substituting ‘calendar year 1998’ for

8 ‘calendar year 1992’ in subparagraph (B)

9 thereof.

10 ‘‘(3) ROUNDING RULES.—

11 ‘‘(A) DEDUCTION AMOUNTS.—If any

12 amount after adjustment under paragraph (1)

13 is not a multiple of $500, such amount shall be

14 rounded to the next lowest multiple of $500.

15 ‘‘(B) APPLICABLE DOLLAR AMOUNTS.—If

16 any amount after adjustment under paragraph

17 (2) is not a multiple of $5,000, such amount

18 shall be rounded to the next lowest multiple of

19 $5,000.’’

20 (b) CONFORMING AMENDMENTS.—

21 (1) Clause (i) of section 219(c)(2)(A) is amend22 ed to read as follows:

23 ‘‘(i) the sum of $250 and the dollar

24 amount in effect for the taxable year under

25 subsection (b)(1)(A), or’’.
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1 (2) Section 408(a)(1) is amended by striking

2 ‘‘in excess of $2,000 on behalf of any individual’’

3 and inserting ‘‘on behalf of any individual in excess

4 of the amount in effect for such taxable year under

5 section 219(b)(1)(A)’’.

6 (3) Section 408(b)(2)(B) is amended by strik7 ing ‘‘$2,000’’ and inserting ‘‘the dollar amount in

8 effect under section 219(b)(1)(A)’’.

9 (4) Subparagraph (A) of section 408(d)(5) is

10 amended by striking ‘‘$2,250’’ and inserting ‘‘the

11 dollar amount in effect for the taxable year under

12 section 219(c)(2)(A)(i)’’.

13 (5) Section 408(j) is amended by striking

14 ‘‘$2,000’’.

15 (c) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to taxable years beginning after

17 December 31, 1995.

18 SEC. 1303. COORDINATION OF IRA DEDUCTION LIMIT WITH

19 ELECTIVE DEFERRAL LIMIT.

20 (a) IN GENERAL.—Section 219(b) (relating to maxi21 mum amount of deduction) is amended by adding at the

22 end the following new paragraph:

23 ‘‘(4) COORDINATION WITH ELECTIVE DEFER24 RAL LIMIT.—The amount determined under para25 graph (1) or subsection (c)(2) with respect to any
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1 individual for any taxable year shall not exceed the

2 excess (if any) of—

3 ‘‘(A) the limitation applicable for the tax4 able year under section 402(g)(1), over

5 ‘‘(B) the elective deferrals (as defined in

6 section 402(g)(3)) of such individual for such

7 taxable year.’’

8 (b) CONFORMING AMENDMENT.—Section 219(c) is

9 amended by adding at the end the following new para10 graph:

11 ‘‘(3) CROSS REFERENCE.—

‘‘For reduction in paragraph (2) amount, see subsection (b)(4).’’

12 (c) EFFECTIVE DATE.—The amendments made by

13 this section shall apply to taxable years beginning after

14 December 31, 1995.

15 Subchapter B—Nondeductible Tax-Free IRAs

16 SEC. 1311. ESTABLISHMENT OF NONDEDUCTIBLE TAX-FREE

17 INDIVIDUAL RETIREMENT ACCOUNTS.

18 (a) IN GENERAL.—Subpart A of part I of subchapter

19 D of chapter 1 (relating to pension, profit-sharing, stock

20 bonus plans, etc.) is amended by inserting after section

21 408 the following new section:

22 ‘‘SEC. 408A. SPECIAL INDIVIDUAL RETIREMENT ACCOUNTS.

23 ‘‘(a) GENERAL RULE.—Except as provided in this

24 chapter, a special individual retirement account shall be
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1 treated for purposes of this title in the same manner as

2 an individual retirement plan.

3 ‘‘(b) SPECIAL INDIVIDUAL RETIREMENT AC4 COUNT.—For purposes of this title, the term ‘special indi5 vidual retirement account’ means an individual retirement

6 plan which is designated at the time of establishment of

7 the plan as a special individual retirement account.

8 ‘‘(c) TREATMENT OF CONTRIBUTIONS.—

9 ‘‘(1) NO DEDUCTION ALLOWED.—No deduction

10 shall be allowed under section 219 for a contribution

11 to a special individual retirement account.

12 ‘‘(2) CONTRIBUTION LIMIT.—The aggregate

13 amount of contributions for any taxable year to all

14 special individual retirement accounts maintained for

15 the benefit of an individual shall not exceed the ex16 cess (if any) of—

17 ‘‘(A) the maximum amount allowable as a

18 deduction under section 219 with respect to

19 such individual for such taxable year, over

20 ‘‘(B) the aggregate amount of contribu21 tions for such taxable year to all individual re22 tirement plans (other than special individual re23 tirement accounts) maintained for the benefit of

24 the individual.
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1 ‘‘(3) SPECIAL RULES FOR QUALIFIED TRANS2 FERS.—

3 ‘‘(A) IN GENERAL.—No rollover contribu4 tion may be made to a special individual retire5 ment account unless it is a qualified transfer.

6 ‘‘(B) LIMIT NOT TO APPLY.—The limita7 tion under paragraph (2) shall not apply to a

8 qualified transfer to a special individual retire9 ment account.

10 ‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—

11 ‘‘(1) IN GENERAL.—Except as provided in this

12 subsection, any amount paid or distributed out of a

13 special individual retirement account shall not be in14 cluded in the gross income of the distributee.

15 ‘‘(2) EXCEPTION FOR EARNINGS ON CONTRIBU16 TIONS HELD LESS THAN 5 YEARS.—

17 ‘‘(A) IN GENERAL.—Any amount distrib18 uted out of a special individual retirement ac19 count which consists of earnings allocable to

20 contributions made to the account during the 5-

21 year period ending on the day before such dis22 tribution shall be included in the gross income

23 of the distributee for the taxable year in which

24 the distribution occurs.

25 ‘‘(B) ORDERING RULE.—
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1 ‘‘(i) FIRST-IN, FIRST-OUT RULE.—

2 Distributions from a special individual re3 tirement account shall be treated as having

4 been made—

5 ‘‘(I) first from the earliest con6 tribution (and earnings allocable

7 thereto) remaining in the account at

8 the time of the distribution, and

9 ‘‘(II) then from other contribu10 tions (and earnings allocable thereto)

11 in the order in which made.

12 ‘‘(ii) ALLOCATIONS BETWEEN CON13 TRIBUTIONS AND EARNINGS.—Any portion

14 of a distribution allocated to a contribution

15 (and earnings allocable thereto) shall be

16 treated as allocated first to the earnings

17 and then to the contribution.

18 ‘‘(iii) ALLOCATION OF EARNINGS.—

19 Earnings shall be allocated to a contribu20 tion in such manner as the Secretary may

21 prescribe.

22 ‘‘(iv) AGGREGATIONS OF CONTRIBU23 TIONS.—Except as provided by the Sec24 retary, for purposes of this subpara25 graph—
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1 ‘‘(I) all contributions made dur2 ing the same taxable year may be

3 treated as 1 contribution, and

4 ‘‘(II) all contributions made be5 fore the first day of the 5-year period

6 ending on the day before any distribu7 tion may be treated as 1 contribution.

8 ‘‘(C) CROSS REFERENCE.—

‘‘For additional tax for early withdrawal, see section 72(t).

9 ‘‘(3) QUALIFIED TRANSFER.—

10 ‘‘(A) IN GENERAL.—Paragraph (2) shall

11 not apply to any distribution which is trans12 ferred in a qualified transfer to another special

13 individual retirement account.

14 ‘‘(B) CONTRIBUTION PERIOD.—For pur15 poses of paragraph (2), the special individual

16 retirement account to which any contributions

17 are transferred shall be treated as having held

18 such contributions during any period such con19 tributions were held (or are treated as held

20 under this subparagraph) by the special individ21 ual retirement account from which transferred.

22 ‘‘(4) SPECIAL RULES RELATING TO CERTAIN

23 TRANSFERS.—
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1 ‘‘(A) IN GENERAL.—Notwithstanding any

2 other provision of law, in the case of a qualified

3 transfer to a special individual retirement ac4 count from an individual retirement plan which

5 is not a special individual retirement account—

6 ‘‘(i) there shall be included in gross

7 income any amount which, but for the

8 qualified transfer, would be includible in

9 gross income, but

10 ‘‘(ii) section 72(t) shall not apply to

11 such amount.

12 ‘‘(B) TIME FOR INCLUSION.—In the case

13 of any qualified transfer which occurs before

14 January 1, 1998, any amount includible in

15 gross income under subparagraph (A) with re16 spect to such contribution shall be includible

17 ratably over the 4-taxable year period beginning

18 in the taxable year in which the amount was

19 paid or distributed out of the individual retire20 ment plan. The amount of such qualified trans21 fer taken into account for purposes of section

22 4980A(c) shall be taken into account ratably

23 over such period.

24 ‘‘(C) ADDITIONAL REPORTING.—A trustee

25 of an individual retirement plan shall include
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1 such additional information in any report re2 quired under section 408(i) as the Secretary

3 may require to insure that amounts described

4 in subparagraph (B) are included in gross in5 come for the appropriate taxable year.

6 ‘‘(e) QUALIFIED TRANSFER.—For purposes of this

7 section—

8 ‘‘(1) IN GENERAL.—The term ‘qualified trans9 fer’ means a transfer to a special individual retire10 ment account from another such account or from an

11 individual retirement plan but only if such transfer

12 meets the requirements of section 408(d)(3).

13 ‘‘(2) LIMITATION.—

14 ‘‘(A) IN GENERAL.—A transfer otherwise

15 described in paragraph (1) shall not be treated

16 as a qualified transfer if the taxpayer’s adjusted

17 gross income for the taxable year of the trans18 fer exceeds the sum of—

19 ‘‘(i) the applicable dollar amount, plus

20 ‘‘(ii) the dollar amount applicable for

21 the taxable year under section

22 219(g)(2)(A)(ii).

23 This subparagraph shall not apply to a transfer

24 from a special individual retirement account to

25 another special individual retirement account.
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1 ‘‘(B) TRANSITION RULE.—In the case of a

2 transfer before January 1, 1999, the dollar lim3 itation under subparagraph (A) shall be

4 $100,000 in the case of a married individual fil5 ing a joint return, zero in the case of a married

6 individual filing a separate return, and $70,000

7 in any other case.

8 ‘‘(3) DEFINITIONS.—For purposes of this sub9 section, the terms ‘adjusted gross income’ and ‘ap10 plicable dollar amount’ have the meanings given

11 such terms by section 219(g)(3), except that ad12 justed gross income shall be determined by taking

13 into account the deduction under section 219 and

14 not taking into account any transfer to which para15 graph (2) applies.’’

16 (b) ADDITIONAL TAX ON EARLY DISTRIBUTIONS.—

17 Section 72(t) is amended by adding at the end the follow18 ing new paragraph:

19 ‘‘(6) RULES RELATING TO SPECIAL INDIVIDUAL

20 RETIREMENT ACCOUNTS.—In the case of a special

21 individual retirement account under section 408A—

22 ‘‘(A) this subsection shall only apply to

23 distributions out of such account which consist

24 of earnings allocable to contributions made to
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1 the account during the 5-year period ending on

2 the day before such distribution, and

3 ‘‘(B) paragraph (2)(A)(i) shall not apply to

4 any distribution described in subparagraph

5 (A).’’

6 (c) EXCESS CONTRIBUTIONS.—Section 4973(b) is

7 amended—

8 (1) by inserting ‘‘, or a qualified transfer de9 scribed in section 408A(e)’’ after ‘‘408(d)(3)’’ in

10 paragraph (1)(A), and

11 (2) by adding at the end the following new sen12 tence: ‘‘For purposes of paragraphs (1)(B) and

13 (2)(C), the amount allowable as a deduction under

14 section 219 shall be computed without regard to sec15 tion 408A.’’

16 (d) REPORTING.—Section 408(i) is amended by strik17 ing ‘‘under regulations’’ and ‘‘in such regulations’’ each

18 place such terms appear.

19 (e) CONFORMING AMENDMENT.—The table of sec20 tions for subpart A of part I of subchapter D of chapter

21 1 is amended by inserting after the item relating to section

22 408 the following new item:

‘‘Sec. 408A. Special individual retirement accounts.’’

23 (f) EFFECTIVE DATE.—The amendments made by

24 this section shall apply to taxable years beginning after

25 December 31, 1995.
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1 CHAPTER 2—DISTRIBUTIONS AND

2 INVESTMENTS

3 SEC. 1321. DISTRIBUTIONS FROM IRAS MAY BE USED WITH4 OUT ADDITIONAL TAX TO PURCHASE FIRST

5 HOMES, TO PAY HIGHER EDUCATION OR FI6 NANCIALLY DEVASTATING MEDICAL EX7 PENSES, OR BY THE UNEMPLOYED.

8 (a) IN GENERAL.—Paragraph (2) of section 72(t)

9 (relating to exceptions to 10-percent additional tax on

10 early distributions from qualified retirement plans) is

11 amended by adding at the end the following new subpara12 graph:

13 ‘‘(D) DISTRIBUTIONS FROM CERTAIN

14 PLANS FOR FIRST HOME PURCHASES OR EDU15 CATIONAL EXPENSES.—Distributions to an in16 dividual from an individual retirement plan—

17 ‘‘(i) which are qualified first-time

18 homebuyer distributions (as defined in

19 paragraph (7)); or

20 ‘‘(ii) to the extent such distributions

21 do not exceed the qualified higher edu22 cation expenses (as defined in paragraph

23 (8)) of the taxpayer for the taxable year.’’

24 (b) FINANCIALLY DEVASTATING MEDICAL EX25 PENSES.—
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1 (1) IN GENERAL.—Section 72(t)(3)(A) is

2 amended by striking ‘‘(B),’’.

3 (2) CERTAIN LINEAL DESCENDANTS AND AN4 CESTORS TREATED AS DEPENDENTS AND LONG5 TERM CARE SERVICES TREATED AS MEDICAL

6 CARE.—Subparagraph (B) of section 72(t)(2) is

7 amended by striking ‘‘medical care’’ and all that fol8 lows and inserting ‘‘medical care determined—

9 ‘‘(i) without regard to whether the

10 employee itemizes deductions for such tax11 able year, and

12 ‘‘(ii) in the case of an individual re13 tirement plan—

14 ‘‘(I) by treating such employee’s

15 dependents as including all children,

16 grandchildren, and ancestors of the

17 employee or such employee’s spouse

18 and

19 ‘‘(II) by treating qualified long20 term care services (as defined in para21 graph (9)) as medical care for pur22 poses of this subparagraph.’’

23 (3) CONFORMING AMENDMENT.—Subparagraph

24 (B) of section 72(t)(2) is amended by striking ‘‘or

25 (C)’’ and inserting ‘‘, (C), or (D)’’.
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1 (c) DEFINITIONS.—Section 72(t), as amended by this

2 Act, is amended by adding at the end the following new

3 paragraphs:

4 ‘‘(7) QUALIFIED FIRST-TIME HOMEBUYER DIS5 TRIBUTIONS.—For purposes of paragraph

6 (2)(D)(i)—

7 ‘‘(A) IN GENERAL.—The term ‘qualified

8 first-time homebuyer distribution’ means any

9 payment or distribution received by an individ10 ual to the extent such payment or distribution

11 is used by the individual before the close of the

12 60th day after the day on which such payment

13 or distribution is received to pay qualified ac14 quisition costs with respect to a principal resi15 dence of a first-time homebuyer who is such in16 dividual or the spouse, child (as defined in sec17 tion 151(c)(3)), or grandchild of such individ18 ual.

19 ‘‘(B) QUALIFIED ACQUISITION COSTS.—

20 For purposes of this paragraph, the term

21 ‘qualified acquisition costs’ means the costs of

22 acquiring, constructing, or reconstructing a res23 idence. Such term includes any usual or reason24 able settlement, financing, or other closing

25 costs.
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1 ‘‘(C) FIRST-TIME HOMEBUYER; OTHER

2 DEFINITIONS.—For purposes of this para3 graph—

4 ‘‘(i) FIRST-TIME HOMEBUYER.—The

5 term ‘first-time homebuyer’ means any in6 dividual if—

7 ‘‘(I) such individual (and if mar8 ried, such individual’s spouse) had no

9 present ownership interest in a prin10 cipal residence during the 3-year pe11 riod ending on the date of acquisition

12 of the principal residence to which

13 this paragraph applies, and

14 ‘‘(II) subsection (h) or (k) of sec15 tion 1034 did not suspend the run16 ning of any period of time specified in

17 section 1034 with respect to such in18 dividual on the day before the date

19 the distribution is applied pursuant to

20 subparagraph (A).

21 In the case of an individual described in

22 section 143(i)(1)(C) for any year, an own23 ership interest shall not include any inter24 est under a contract of deed described in

25 such section. An individual who loses an
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1 ownership interest in a principal residence

2 incident to a divorce or legal separation is

3 deemed for purposes of this subparagraph

4 to have had no ownership interest in such

5 principal residence within the period re6 ferred to in subclause (II).

7 ‘‘(ii) PRINCIPAL RESIDENCE.—The

8 term ‘principal residence’ has the same

9 meaning as when used in section 1034.

10 ‘‘(iii) DATE OF ACQUISITION.—The

11 term ‘date of acquisition’ means the date—

12 ‘‘(I) on which a binding contract

13 to acquire the principal residence to

14 which subparagraph (A) applies is en15 tered into, or

16 ‘‘(II) on which construction or re17 construction of such a principal resi18 dence is commenced.

19 ‘‘(D) SPECIAL RULE WHERE DELAY IN AC20 QUISITION.—Any portion of any distribution

21 from any individual retirement plan which fails

22 to meet the requirements of subparagraph (A)

23 solely by reason of a delay or cancellation of the

24 purchase or construction of the residence may

25 be contributed to an individual retirement plan
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1 as provided in section 408(d)(3)(A)(i) (deter2 mined by substituting ‘120 days’ for ‘60 days’

3 in such section), except that—

4 ‘‘(i) section 408(d)(3)(B) shall not be

5 applied to such portion, and

6 ‘‘(ii) such portion shall not be taken

7 into account in determining whether sec8 tion 408(d)(3)(B) applies to any other

9 amount.

10 ‘‘(8) QUALIFIED HIGHER EDUCATION EX11 PENSES.—For purposes of paragraph (2)(D)(ii)—

12 ‘‘(A) IN GENERAL.—The term ‘qualified

13 higher education expenses’ means tuition and

14 fees required for the enrollment or attendance

15 of—

16 ‘‘(i) the taxpayer,

17 ‘‘(ii) the taxpayer’s spouse,

18 ‘‘(iii) a dependent of the taxpayer

19 with respect to whom the taxpayer is al20 lowed a deduction under section 151, or

21 ‘‘(iv) the taxpayer’s child (as defined

22 in section 151(c)(3)) or grandchild,

23 as an eligible student at an institution of higher

24 education.
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1 ‘‘(B) EXCEPTIONS.—The term ‘qualified

2 higher education expenses’ does not include—

3 ‘‘(i) expenses with respect to any

4 course or other education involving sports,

5 games, or hobbies, unless such expenses—

6 ‘‘(I) are part of a degree pro7 gram, or

8 ‘‘(II) are deductible under this

9 chapter without regard to this section;

10 or

11 ‘‘(ii) any student activity fees, athletic

12 fees, insurance expenses, or other expenses

13 unrelated to a student’s academic course of

14 instruction.

15 ‘‘(C) COORDINATION WITH SAVINGS BOND

16 PROVISIONS.—The amount of qualified higher

17 education expenses for any taxable year shall be

18 reduced by any amount excludable from gross

19 income under section 135.

20 ‘‘(D) ELIGIBLE STUDENT.—For purposes

21 of subparagraph (A), the term ‘eligible student’

22 means a student who—

23 ‘‘(i) meets the requirements of section

24 484(a)(1) of the Higher Education Act of

25 1965 (20 U.S.C. 1091(a)(1)), as in effect
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1 on the date of the enactment of this sec2 tion, and

3 ‘‘(ii)(I) is carrying at least one-half

4 the normal full-time work load for the

5 course of study the student is pursuing, as

6 determined by the institution of higher

7 education, or

8 ‘‘(II) is enrolled in a course which en9 ables the student to improve the student’s

10 job skills or to acquire new job skills.

11 ‘‘(E) INSTITUTION OF HIGHER EDU12 CATION.—The term ‘institution of higher edu13 cation’ means an institution which—

14 ‘‘(i) is described in section 481 of the

15 Higher Education Act of 1965 (20 U.S.C.

16 1088), as in effect on the date of the en17 actment of this section, and

18 ‘‘(ii) is eligible to participate in pro19 grams under title IV of such Act.

20 ‘‘(9) QUALIFIED LONG-TERM CARE SERVICES.—

21 For purposes of paragraph (2)(B)—

22 ‘‘(A) IN GENERAL.—The term ‘qualified

23 long-term care services’ means necessary diag24 nostic, curing, mitigating, treating, preventive,

25 therapeutic, and rehabilitative services, and
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1 maintenance and personal care services (wheth2 er performed in a residential or nonresidential

3 setting) which—

4 ‘‘(i) are required by an individual dur5 ing any period the individual is an inca6 pacitated individual (as defined in subpara7 graph (B)),

8 ‘‘(ii) have as their primary purpose—

9 ‘‘(I) the provision of needed as10 sistance with 1 or more activities of

11 daily living (as defined in subpara12 graph (C)), or

13 ‘‘(II) protection from threats to

14 health and safety due to severe cog15 nitive impairment, and

16 ‘‘(iii) are provided pursuant to a con17 tinuing plan of care prescribed by a li18 censed professional (as defined in subpara19 graph (D)).

20 ‘‘(B) INCAPACITATED INDIVIDUAL.—The

21 term ‘incapacitated individual’ means any indi22 vidual who—

23 ‘‘(i) is unable to perform, without sub24 stantial assistance from another individual

25 (including assistance involving cueing or
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1 substantial supervision), at least 2 activi2 ties of daily living as defined in subpara3 graph (C), or

4 ‘‘(ii) has severe cognitive impairment

5 as defined by the Secretary in consultation

6 with the Secretary of Health and Human

7 Services.

8 Such term shall not include any individual oth9 erwise meeting the requirements of the preced10 ing sentence unless, within the preceding 12-

11 month period, a licensed professional has cer12 tified that such individual meets such require13 ments.

14 ‘‘(C) ACTIVITIES OF DAILY LIVING.—Each

15 of the following is an activity of daily living:

16 ‘‘(i) Eating.

17 ‘‘(ii) Toileting.

18 ‘‘(iii) Transferring.

19 ‘‘(iv) Bathing.

20 ‘‘(v) Dressing.

21 ‘‘(D) LICENSED PROFESSIONAL.—The

22 term ‘licensed professional’ means—

23 ‘‘(i) a physician or registered profes24 sional nurse, or
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1 ‘‘(ii) any other individual who meets

2 such requirements as may be prescribed by

3 the Secretary after consultation with the

4 Secretary of Health and Human Services.

5 ‘‘(E) CERTAIN SERVICES NOT IN6 CLUDED.—The term ‘qualified long-term care

7 services’ shall not include any services provided

8 to an individual—

9 ‘‘(i) by a relative (directly or through

10 a partnership, corporation, or other entity)

11 unless the relative is a licensed professional

12 with respect to such services, or

13 ‘‘(ii) by a corporation or partnership

14 which is related (within the meaning of

15 section 267(b) or 707(b)) to the individual.

16 For purposes of this subparagraph, the term

17 ‘relative’ means an individual bearing a rela18 tionship to the individual which is described in

19 paragraphs (1) through (8) of section 152(a).’’

20 (d) DISTRIBUTIONS FOR CERTAIN UNEMPLOYED IN21 DIVIDUALS.—Paragraph (2) of section 72(t) is amended

22 by adding at the end the following new subparagraph:

23 ‘‘(E) DISTRIBUTIONS TO UNEMPLOYED IN24 DIVIDUALS.—A distribution from an individual
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1 retirement plan to an individual after separa2 tion from employment, if—

3 ‘‘(i) such individual has received un4 employment compensation for 12 consecu5 tive weeks under any Federal or State un6 employment compensation law by reason of

7 such separation, and

8 ‘‘(ii) such distributions are made dur9 ing any taxable year during which such un10 employment compensation is paid or the

11 succeeding taxable year.’’

12 (e) EFFECTIVE DATE.—The amendments made by

13 this section shall apply to payments and distributions after

14 December 31, 1995.

15 SEC. 1322. CONTRIBUTIONS MUST BE HELD AT LEAST 5

16 YEARS IN CERTAIN CASES.

17 (a) IN GENERAL.—Section 72(t), as amended by this

18 Act, is amended by adding at the end the following new

19 paragraph:

20 ‘‘(10) CERTAIN CONTRIBUTIONS MUST BE HELD

21 5 YEARS.—

22 ‘‘(A) IN GENERAL.—Paragraph (2)(A)(i)

23 shall not apply to any amount distributed out

24 of an individual retirement plan (other than a

25 special individual retirement account) which is
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1 allocable to contributions made to the plan dur2 ing the 5-year period ending on the date of

3 such distribution (and earnings on such con4 tributions).

5 ‘‘(B) ORDERING RULE.—For purposes of

6 this paragraph—

7 ‘‘(i) FIRST-IN, FIRST-OUT RULE.—

8 Distributions shall be treated as having

9 been made—

10 ‘‘(I) first from the earliest con11 tribution (and earnings allocable

12 thereto) remaining in the account at

13 the time of the distribution, and

14 ‘‘(II) then from other contribu15 tions (and earnings allocable thereto)

16 in the order in which made.

17 ‘‘(ii) ALLOCATION OF EARNINGS.—

18 Earnings shall be allocated to contribu19 tions in such manner as the Secretary may

20 prescribe.

21 ‘‘(iii) AGGREGATIONS OF CONTRIBU22 TIONS.—Except as provided by the Sec23 retary, for purposes of this subpara24 graph—
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1 ‘‘(I) all contributions made dur2 ing the same taxable year may be

3 treated as 1 contribution, and

4 ‘‘(II) all contributions made be5 fore the first day of the 5-year period

6 ending on the day before any distribu7 tion may be treated as 1 contribution.

8 ‘‘(C) SPECIAL RULE FOR ROLLOVERS.—

9 ‘‘(i) PENSION PLANS.—Subparagraph

10 (A) shall not apply to distributions out of

11 an individual retirement plan which are al12 locable to rollover contributions to which

13 section 402(c), 403(a)(4), or 403(b)(8) ap14 plied.

15 ‘‘(ii) CONTRIBUTION PERIOD.—For

16 purposes of subparagraph (A), amounts

17 shall be treated as having been held by a

18 plan during any period such contributions

19 were held (or are treated as held under

20 this clause) by any individual retirement

21 plan from which transferred.

22 ‘‘(D) SPECIAL ACCOUNTS.—For rules ap23 plicable to special individual retirement ac24 counts under section 408A, see paragraph (8).’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to contributions (and earnings allo3 cable thereto) which are made after December 31, 1995.

4 SEC. 1323. INVESTMENTS IN QUALIFIED STATE PREPAID

5 TUITION PROGRAMS.

6 (a) IN GENERAL.—Section 408, as amended by sec7 tion 1101, is amended by redesignating subsection (q) as

8 subsection (r) and by inserting after subsection (p) the

9 following new subsection:

10 ‘‘(q) SPECIAL RULES FOR QUALIFIED STATE PRE11 PAID TUITION PROGRAM INSTRUMENTS.—

12 ‘‘(1) IN GENERAL.—In the case of a qualified

13 State prepaid tuition program instrument to which

14 this subsection applies—

15 ‘‘(A) the use of all or part of the assets of

16 an individual retirement plan to purchase such

17 an instrument shall be treated for purposes of

18 this section as for the exclusive benefit of the

19 individual for whom the plan was established or

20 the individual’s beneficiaries, and

21 ‘‘(B) to the extent such instrument is con22 verted into tuition and fees as provided in para23 graph (3)(B)(i), such individual (or such bene24 ficiaries) shall be treated—
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1 ‘‘(i) for purposes of subsection (d) as

2 having received a distribution in an

3 amount equal to such tuition and fees (as

4 of the time of the conversion), and

5 ‘‘(ii) for purposes of section

6 72(t)(2)(D)(ii), as having incurred quali7 fied higher education expenses to the ex8 tent such tuition and fees otherwise con9 stitute such expenses.

10 ‘‘(2) INSTRUMENTS TO WHICH SUBSECTION AP11 PLIES.—To the extent provided by the Secretary,

12 this subsection shall apply to any qualified State

13 prepaid tuition program instrument if—

14 ‘‘(A) the instrument is purchased by the

15 individual retirement plan directly from the

16 State or an instrumentality thereof, and

17 ‘‘(B) the beneficiary designated under the

18 instrument is the taxpayer, the taxpayer’s

19 spouse, a dependent of the taxpayer with re20 spect to whom the taxpayer is allowed a deduc21 tion under section 151, or the taxpayer’s child

22 (as defined in section 151(c)(3)) or grandchild.

23 ‘‘(3) QUALIFIED STATE PREPAID TUITION PRO24 GRAM INSTRUMENT.—For purposes of this sub-
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1 section, the term ‘qualified State prepaid tuition pro2 gram instrument’ means an instrument which—

3 ‘‘(A) is issued under a program established

4 and maintained by a State, and

5 ‘‘(B) which may only be—

6 ‘‘(i) converted into a percentage (de7 termined as of the time of purchase) of

8 tuition and fees which would constitute

9 qualified higher education expenses (within

10 the meaning of section 72(t)(8)) if the ben11 eficiary designated under the instrument

12 enrolls in or attends an institution of high13 er education specified in the instrument as

14 an eligible student, or

15 ‘‘(ii) redeemed for an amount not less

16 than the purchase price (less any reason17 able administrative fees) if the instrument

18 is not converted as provided in clause (i).

19 ‘‘(4) DEFINITIONS.—For purposes of this sub20 section, the terms ‘institution of higher education’

21 and ‘eligible student’ have the meanings given such

22 terms by section 72(t)(8).’’

23 (b) EXEMPTION FROM PROHIBITED TRANS24 ACTIONS.—Section 4975(d) is amended by striking ‘‘or’’

25 at the end of paragraph (14), by striking the period at
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1 the end of paragraph (15) and inserting ‘‘; or’’, and by

2 inserting after paragraph (15) the following new para3 graph:

4 ‘‘(16) any purchase of a qualified State prepaid

5 tuition program instrument to which section 408(q)

6 applies.’’

7 (c) EFFECTIVE DATE.—The amendments made by

8 this section shall apply to taxable years beginning after

9 December 31, 1995.

10 CHAPTER 3—TERMINATION OF CERTAIN

11 PROVISIONS

12 SEC. 1331. TERMINATION OF CERTAIN PROVISIONS.

13 (a) TERMINATION OF INFLATION ADJUSTMENT FOR

14 IRA LIMITATIONS.—The dollar amounts applicable under

15 section 219 of the Internal Revenue Code of 1986 shall

16 be determined without regard to subsection (h) of such

17 section in the case of taxable years beginning after Decem18 ber 31, 2000.

19 (b) TERMINATION OF CONTRIBUTIONS TO SPECIAL

20 INDIVIDUAL RETIREMENT ACCOUNTS.—No contribution

21 may be made after December 31, 2000, to any special in22 dividual retirement account (within the meaning of section

23 408A of such Code).

24 (c) TERMINATION OF TRANSFERS TO SPECIAL INDI25 VIDUAL RETIREMENT ACCOUNTS FROM REGULAR INDI-
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1 VIDUAL RETIREMENT ACCOUNTS.—For purposes of sec2 tion 408A of such Code, the term ‘‘qualified transfer’’

3 shall not include any transfer after December 31, 2000,

4 to a special individual retirement account from any ac5 count other than a special individual retirement account.

6 (d) APPLICATION OF EARLY WITHDRAWAL TAX.—

7 The amendments made by the following provisions shall

8 not apply to any distribution after December 31, 2000:

9 (1) Section 1311(b) (relating to exception for

10 distributions from special individual retirement ac11 counts allocable to contributions held at least 5

12 years).

13 (2) Section 1321 (relating to distributions from

14 IRAs may be used without additional tax to pur15 chase first homes, to pay higher education or finan16 cially devastating medical expenses, or by the unem17 ployed).

18 (3) Section 1322 (relating to exception for dis19 tributions allocable to contributions held at least 5

20 years).

21 (e) TERMINATION OF INCREASES IN CERTAIN LIMI22 TATIONS.—The amendments made by the following provi23 sions shall not apply to any taxable year beginning after

24 December 31, 2000:
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1 (1) Section 1301 (relating to increase in income

2 limitations for individual retirement plans).

3 (2) Section 1303 (relating to coordination of

4 IRA deduction limit with elective deferral limit).

5 Subtitle C—Other Expansions of

6 Pension Portability

7 SEC. 1401. ALTERNATIVE NONDISCRIMINATION RULES FOR

8 CERTAIN PLANS THAT PROVIDE FOR EARLY

9 PARTICIPATION.

10 (a) CASH OR DEFERRED ARRANGEMENTS.—Para11 graph (3) of section 401(k) (relating to application of par12 ticipation and discrimination standards), as amended by

13 section 1103(d), is amended by adding at the end the fol14 lowing new subparagraph:

15 ‘‘(F) SPECIAL RULE FOR EARLY PARTICI16 PATION.—If an employer elects to apply section

17 410(b)(4)(B) in determining whether a cash or

18 deferred arrangement meets the requirements

19 of subparagraph (A)(i), the employer may, in

20 determining whether the arrangement meets the

21 requirements of subparagraph (A)(ii), exclude

22 from consideration all eligible employees (other

23 than highly compensated employees) who have

24 not met the minimum age and service require25 ments of section 410(a)(1)(A).’’
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1 (b) MATCHING CONTRIBUTIONS.—Paragraph (5) of

2 section 401(m) (relating to employees taken into consider3 ation) is amended by adding at the end the following new

4 subparagraph:

5 ‘‘(C) SPECIAL RULE FOR EARLY PARTICI6 PATION.—If an employer elects to apply section

7 410(b)(4)(B) in determining whether a plan

8 meets the requirements of section 410(b), the

9 employer may, in determining whether the plan

10 meets the requirements of paragraph (2), ex11 clude from consideration all eligible employees

12 (other than highly compensated employees) who

13 have not met the minimum age and service re14 quirements of section 410(a)(1)(A).’’

15 (c) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to plan years beginning after De17 cember 31, 1996.

18 SEC. 1402. TREATMENT OF CERTAIN VETERANS’ REEM19 PLOYMENT RIGHTS.

20 (a) IN GENERAL.—Section 414 is amended by adding

21 at the end the following new subsection:

22 ‘‘(u) SPECIAL RULES RELATING TO VETERANS’ RE23 EMPLOYMENT RIGHTS UNDER USSERA.—

24 ‘‘(1) TREATMENT OF CERTAIN CONTRIBUTIONS

25 MADE PURSUANT TO VETERANS’ REEMPLOYMENT
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1 RIGHTS UNDER USERRA.—If any contribution is

2 made by an employer or an employee under an indi3 vidual account plan with respect to an employee, or

4 by an employee to a defined benefit plan that pro5 vides for employee contributions, and such contribu6 tion is required by reason of such employee’s rights

7 under chapter 43 of title 38, United States Code, re8 sulting from qualified military service, then—

9 ‘‘(A) such contribution shall not be subject

10 to any otherwise applicable limitation contained

11 in section 402(g), 402(h), 403(b), 404(a),

12 404(h), 408, 415, or 457, and shall not be

13 taken into account in applying such limitations

14 to other contributions or benefits under such

15 plan or any other plan, with respect to the year

16 in which the contribution is made,

17 ‘‘(B) such contribution shall be subject to

18 the limitations referred to in subparagraph (A)

19 with respect to the year to which the contribu20 tion relates (in accordance with rules prescribed

21 by the Secretary), and

22 ‘‘(C) such plan shall not be treated as fail23 ing to meet the requirements of section

24 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11),

25 401(m), 403(b)(12), 408(k)(3), 408(k)(6),
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1 408(p), 410(b), or 416 by reason of the making

2 of (or the right to make) such contribution.

3 For purposes of the preceding sentence, any elective

4 deferral or employee contribution made under para5 graph (2) shall be treated as required by reason of

6 the employee’s rights under such chapter 43.

7 ‘‘(2) REEMPLOYMENT RIGHTS UNDER USERRA

8 WITH RESPECT TO ELECTIVE DEFERRALS.—

9 ‘‘(A) IN GENERAL.—For purposes of this

10 subchapter and section 457, if an employee is

11 entitled to the benefits of chapter 43 of title 38,

12 United States Code, with respect to any plan

13 which provides for elective deferrals, the em14 ployer sponsoring the plan shall be treated as

15 meeting the requirements of such chapter 43

16 with respect to such elective deferrals only if

17 such employer—

18 ‘‘(i) permits such employee to make

19 additional elective deferrals under such

20 plan (in the amount determined under sub21 paragraph (B) or such lesser amount as is

22 elected by the employee) during the period

23 which begins on the date of the reemploy24 ment of such employee with such employer

25 and has the same length as the lesser of—
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1 ‘‘(I) the product of 3 and the pe2 riod of qualified military service which

3 resulted in such rights, and

4 ‘‘(II) 5 years, and

5 ‘‘(ii) makes a matching contribution

6 with respect to any additional elective de7 ferral made pursuant to clause (i) which

8 would have been required had such defer9 ral actually been made during the period of

10 such qualified military service.

11 ‘‘(B) AMOUNT OF MAKEUP REQUIRED.—

12 The amount determined under this subpara13 graph with respect to any plan is the maximum

14 amount of the elective deferrals that the indi15 vidual would have been permitted to make

16 under the plan in accordance with the limita17 tions referred to in paragraph (1)(A) during the

18 period of qualified military service if the indi19 vidual had continued to be employed by the em20 ployer during such period and received com21 pensation as determined under paragraph (7).

22 Proper adjustment shall be made to the amount

23 determined under the preceding sentence for

24 any elective deferrals actually made during the

25 period of such qualified military service.
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1 ‘‘(C) ELECTIVE DEFERRAL.—For purposes

2 of this paragraph, the term ‘elective deferral’

3 has the meaning given such term by section

4 402(g)(3); except that such term shall include

5 any deferral of compensation under an eligible

6 deferred compensation plan (as defined in sec7 tion 457(b)).

8 ‘‘(D) AFTER-TAX EMPLOYEE CONTRIBU9 TIONS.—References in subparagraphs (A) and

10 (B) to elective deferrals shall be treated as in11 cluding references to employee contributions.

12 ‘‘(3) CERTAIN RETROACTIVE ADJUSTMENTS

13 NOT REQUIRED.—For purposes of this subchapter

14 and subchapter E, no provision of chapter 43 of title

15 38, United States Code, shall be construed as re16 quiring—

17 ‘‘(A) any crediting of earnings to an em18 ployee with respect to any contribution before

19 such contribution is actually made, or

20 ‘‘(B) any allocation of any forfeiture with

21 respect to the period of qualified military serv22 ice.

23 ‘‘(4) LOAN REPAYMENT SUSPENSIONS PER24 MITTED.—If any plan suspends the obligation to

25 repay any loan made to an employee from such plan
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1 for any part of any period during which such em2 ployee is performing service in the uniformed serv3 ices (as defined in chapter 43 of title 38, United

4 States Code), whether or not qualified military serv5 ice, such suspension shall not be taken into account

6 for purposes of section 72(p) or 401(a).

7 ‘‘(5) QUALIFIED MILITARY SERVICE.—For pur8 poses of this subsection, the term ‘qualified military

9 service’ means any service in the uniformed services

10 (as defined in chapter 43 of title 38, United States

11 Code) by any individual if such individual is entitled

12 to reemployment rights under such chapter with re13 spect to such service.

14 ‘‘(6) INDIVIDUAL ACCOUNT PLAN.—For pur15 poses of this subsection, the term ‘individual account

16 plan’ means any defined contribution plan (including

17 any tax-sheltered annuity plan under section 403(b),

18 any simplified employee pension under section

19 408(k), and any NEST under section 408(p)) and

20 any eligible deferred compensation plan (as defined

21 in section 457(b)).

22 ‘‘(7) COMPENSATION.—For purposes of sections

23 403(b)(3), 415(c)(3), and 457(e)(5), an employee

24 who is in qualified military service shall be treated
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1 as receiving compensation from the employer during

2 such period of qualified military service equal to—

3 ‘‘(A) the compensation the employee would

4 have received during such period if the em5 ployee were not in qualified military service, de6 termined based on the rate of pay the employee

7 would have received from the employer but for

8 absence during the period of qualified military

9 service, or

10 ‘‘(B) if the compensation the employee

11 would have received during such period was not

12 reasonably certain, the employee’s average com13 pensation from the employer during the 12-

14 month period immediately preceding the quali15 fied military service (or, if shorter, the period of

16 employment immediately preceding the qualified

17 military service).

18 ‘‘(8) USERRA REQUIREMENTS FOR QUALIFIED

19 RETIREMENT PLANS.—For purposes of this sub20 chapter and section 457, an employer sponsoring a

21 retirement plan shall be treated as meeting the re22 quirements of chapter 43 of title 38, United States

23 Code, only if each of the following requirements is

24 met:
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1 ‘‘(A) An individual reemployed under such

2 chapter is treated with respect to such plan as

3 not having incurred a break in service with the

4 employer maintaining the plan by reason of

5 such individual’s period of qualified military

6 service.

7 ‘‘(B) Each period of qualified military

8 service served by an individual is, upon reem9 ployment under such chapter, deemed with re10 spect to such plan to constitute service with the

11 employer maintaining the plan for the purpose

12 of determining the nonforfeitability of the indi13 vidual’s accrued benefits under such plan and

14 for the purpose of determining the accrual of

15 benefits under such plan.

16 ‘‘(C) An individual reemployed under such

17 chapter is entitled to accrued benefits that are

18 contingent on the making of, or derived from,

19 employee contributions or elective deferrals only

20 to the extent the individual makes payment to

21 the plan with respect to such contributions or

22 deferrals. No such payment may exceed the

23 amount the individual would have been per24 mitted or required to contribute had the indi25 vidual remained continuously employed by the
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1 employer throughout the period of qualified

2 military service. Any payment to such plan shall

3 be made during the period beginning with the

4 date of reemployment and whose duration is 3

5 times the period of the qualified military service

6 (but not greater than 5 years).

7 ‘‘(9) PLANS NOT SUBJECT TO TITLE 38.—This

8 subsection shall not apply to any retirement plan to

9 which chapter 43 of title 38, United States Code,

10 does not apply.

11 ‘‘(10) REFERENCES.—For purposes of this sec12 tion, any reference to chapter 43 of title 38, United

13 States Code, shall be treated as a reference to such

14 chapter as in effect on December 12, 1994 (without

15 regard to any subsequent amendment).’’

16 (b) COORDINATION WITH PROHIBITED TRANS17 ACTION RULES.—Section 4975(d) is amended by adding

18 at the end the following new sentence: ‘‘A loan made by

19 a plan shall not fail to meet the requirements of paragraph

20 (1) by reason of a loan repayment suspension described

21 under section 414(u)(4).’’

22 (c) EFFECTIVE DATE.—The amendments made by

23 this section shall be effective as of December 12, 1994.
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1 SEC. 1403. ELIMINATION OF SPECIAL VESTING RULE FOR

2 MULTIEMPLOYER PLANS.

3 (a) IN GENERAL.—Paragraph (2) of section 411(a)

4 (relating to minimum vesting standards) is amended—

5 (1) by striking ‘‘subparagraph (A), (B), or (C)’’

6 and inserting ‘‘subparagraph (A) or (B)’’; and

7 (2) by striking subparagraph (C).

8 (b) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to plan years beginning on or after

10 the earlier of—

11 (1) the later of—

12 (A) January 1, 1997, or

13 (B) the date on which the last of the col14 lective bargaining agreements pursuant to

15 which the plan is maintained terminates (deter16 mined without regard to any extension thereof

17 after the date of the enactment of this Act), or

18 (2) January 1, 1999.

19 Such amendments shall not apply to any individual who

20 does not have more than 1 hour of service under the plan

21 on or after the 1st day of the 1st plan year to which such

22 amendments apply.
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1 Subtitle D—Conforming

2 Amendments

3 SEC. 1501. CONFORMING AMENDMENT RELATING TO MISS4 ING PARTICIPANTS.

5 Section 401(a)(34) is amended by striking ‘‘title IV’’

6 and inserting ‘‘section 4050’’.

7 SEC. 1502. CONFORMING AMENDMENTS RELATING TO

8 ERISA ENFORCEMENT.

9 (a) SPECIAL RULE FOR CERTAIN JUDGMENTS AND

10 SETTLEMENTS.—Section 401(a)(13) is amended by add11 ing at the end the following new subparagraphs:

12 ‘‘(C) SPECIAL RULE FOR CERTAIN JUDG13 MENTS AND SETTLEMENTS.—Subparagraph (A)

14 shall not apply to any offset of a participant’s

15 accrued benefit in a plan against an amount

16 that the participant is ordered or required to

17 pay to the plan if—

18 ‘‘(i) the order or requirement to pay

19 arises—

20 ‘‘(I) under a judgment of convic21 tion for a crime involving such plan,

22 ‘‘(II) under a civil judgment (in23 cluding a consent order or decree) en24 tered by a court in an action brought

25 in connection with a violation (or al-
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1 leged violation) of part 4 of subtitle B

2 of title I of the Employee Retirement

3 Income Security Act of 1974, or

4 ‘‘(III) pursuant to a settlement

5 agreement between the Secretary of

6 Labor and the participant, or a settle7 ment agreement between the Pension

8 Benefit Guaranty Corporation and the

9 participant, in connection with a viola10 tion (or alleged violation) of part 4 of

11 subtitle B of title I of such Act,

12 ‘‘(ii) the judgment, order, decree, or

13 settlement agreement expressly provides

14 for the offset of all or part of the amount

15 ordered or required to be paid to the plan

16 against the participant’s accrued benefit in

17 the plan, and

18 ‘‘(iii) if the participant has a spouse

19 at the time at which the offset is to be

20 made—

21 ‘‘(I) such spouse has consented

22 in writing to such offset and such con23 sent is witnessed by a notary public or

24 representative of the plan,
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1 ‘‘(II) such spouse is ordered or

2 required to pay in such judgment,

3 order, decree, or settlement an

4 amount to the plan in connection with

5 a violation of part 4 of this title, or

6 ‘‘(III) in such judgment, order,

7 decree, or settlement, such spouse re8 tains the right to receive the value of

9 the survivor annuity under a qualified

10 joint and survivor annuity provided

11 pursuant to paragraph (11)(A)(i) and

12 under a qualified preretirement survi13 vor annuity provided pursuant to

14 paragraph 11(A)(ii), determined in

15 accordance with subparagraph (D).

16 ‘‘(D) DETERMINATION OF VALUE OF SUR17 VIVOR ANNUITY IN CONNECTION WITH OFF18 SET.—The value of the survivor annuity de19 scribed in subparagraph (C)(iii)(III) shall be

20 determined as if—

21 ‘‘(i) the participant terminated em22 ployment on the date of the offset,

23 ‘‘(ii) there was no offset,

24 ‘‘(iii) the plan permitted retirement

25 only on or after normal retirement age,
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1 ‘‘(iv) the plan provided only the mini2 mum-required qualified joint and survivor

3 annuity, and

4 ‘‘(v) the amount of the qualified pre5 retirement survivor annuity under the plan

6 is equal to the amount of the survivor an7 nuity payable under the minimum-required

8 qualified joint and survivor annuity.

9 For purposes of this subparagraph, the term

10 ‘minimum-required qualified joint and survivor

11 annuity’ means the qualified joint and survivor

12 annuity which is the actuarial equivalent of a

13 single annuity for the life of the participant and

14 under which the survivor annuity is 50 percent

15 of the amount of the annuity which is payable

16 during the joint lives of the participant and the

17 spouse.

18 ‘‘(E) WAIVER OF CERTAIN DISTRIBUTION

19 REQUIREMENTS.—With respect to the require20 ments of subsections (a) and (k) of section 401,

21 section 403(b), and section 409(d), a plan shall

22 not be treated as failing to meet such require23 ments solely by reason of an offset under sub24 paragraph (C).’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall apply to judgments, orders, and de3 crees issued, and settlement agreements entered into, on

4 or after the date of enactment of this Act.

5 TITLE II—ERISA PROVISIONS

6 SEC. 2000. AMENDMENT OF ERISA.

7 Except as otherwise expressly provided, whenever in

8 this title an amendment or repeal is expressed in terms

9 of an amendment to, or repeal of, a section or other provi10 sion, the reference shall be considered to be made to a

11 section or other provision of the Employee Retirement In12 come Security Act of 1974.

13 Subtitle A—Expanded Pension

14 Coverage and Simplification

15 SEC. 2001. REPORTING AND FIDUCIARY REQUIREMENTS

16 RELATING TO NESTS.

17 (a) REPORTING REQUIREMENTS.—Section 101 (29

18 U.S.C. 1021) is amended by redesignating subsection (g)

19 as subsection (h) and by inserting after subsection (f) the

20 following new subsection:

21 ‘‘(g) NESTS.—

22 ‘‘(1) IN GENERAL.—Except as provided in this

23 subsection, no reporting or disclosure requirements

24 under this title shall apply with respect to a pension
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1 plan under section 408(p) of the Internal Revenue

2 Code of 1986.

3 ‘‘(2) SUMMARY DESCRIPTION.—The trustee or

4 issuer of any NEST established pursuant to a pen5 sion plan under section 408(p) of such Code shall

6 provide to the employer maintaining the arrange7 ment each year a description containing the follow8 ing information:

9 ‘‘(A) The name and address of the em10 ployer and the trustee.

11 ‘‘(B) The requirements for eligibility for

12 participation.

13 ‘‘(C) The benefits provided with respect to

14 the arrangement.

15 ‘‘(D) The time and method of making elec16 tions with respect to the arrangement.

17 ‘‘(E) The procedures for, and effects of,

18 distributions (including rollovers) from the ar19 rangement.

20 ‘‘(3) EMPLOYEE NOTIFICATION.—The employer

21 shall notify each employee immediately before the

22 period for which an election described in section

23 408(p)(7)(B) of such Code may be made of the em24 ployee’s opportunity to make such election. Such no25 tice shall include a copy of the description described
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1 in paragraph (2) and shall indicate whether match2 ing contributions will be made with respect to the

3 employee’s elective contributions, and the level of

4 employer matching and nonelective contributions

5 which will be made, for the year for which the elec6 tion may be made.’’

7 (b) FIDUCIARY DUTIES.—Section 404 (29 U.S.C.

8 1104) is amended by redesignating subsection (d) as sub9 section (e) and by adding after subsection (c) the following

10 new subsection:

11 ‘‘(d)(1) In the case of a NEST established pursuant

12 to a plan under section 408(p) of the Internal Revenue

13 Code of 1986, no plan sponsor who is otherwise a fiduciary

14 shall be liable under this part for any loss, or by reason

15 of any breach, which results from—

16 ‘‘(A) the designation of the trustee or issuer of

17 the NEST, or

18 ‘‘(B) the manner in which the assets in the

19 NEST are invested,

20 after the earliest of the dates described in paragraph (2).

21 ‘‘(2) The dates described in this paragraph are as fol22 lows:

23 ‘‘(A) The date on which an affirmative election

24 with respect to the initial investment of any con-
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1 tribution is made by the individual for whose benefit

2 the NEST is established.

3 ‘‘(B) The date on which there is a rollover of

4 the assets of the NEST to any other NEST or indi5 vidual retirement account or annuity described in

6 section 408 of the Internal Revenue Code of 1986.

7 ‘‘(C) The date which is 1 year after the NEST

8 is established.

9 ‘‘(3) This subsection shall not apply to a participant

10 in a plan unless the participant is notified in writing (ei11 ther separately or as part of the notice under section

12 101(g)(3)) that the participant’s balance may be trans13 ferred without cost or penalty to another individual ac14 count or annuity in accordance with section 408(d)(3)(G)

15 of the Internal Revenue Code of 1986.’’

16 (c) EFFECTIVE DATE.—The amendments made by

17 this section shall apply to years beginning after December

18 31, 1996.

19 SEC. 2002. ELIMINATION OF REQUIREMENT FOR PLAN DE20 SCRIPTIONS AND THE FILING REQUIREMENT

21 FOR SUMMARY PLAN DESCRIPTIONS AND DE22 SCRIPTIONS OF MATERIAL MODIFICATIONS

23 TO A PLAN; TECHNICAL CORRECTIONS.

24 (a) FILING REQUIREMENTS.—Section 101(b) (29

25 U.S.C. 1021(b)) is amended by striking paragraphs (1),
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1 (2), and (3) and by redesignating paragraphs (4) and (5)

2 as paragraphs (1) and (2), respectively.

3 (b) PLAN DESCRIPTION.—

4 (1) IN GENERAL.—Section 102(a) (29 U.S.C.

5 1022(a)) is amended—

6 (A) by striking paragraph (2), and

7 (B) by striking ‘‘(a)(1)’’ and inserting

8 ‘‘(a)’’.

9 (2) CONFORMING AMENDMENTS.—

10 (A) Section 102(b) (29 U.S.C. 1022(b)) is

11 amended by striking ‘‘The plan description and

12 summary plan description shall contain’’ and

13 inserting ‘‘The summary plan description shall

14 contain’’.

15 (B) The heading for section 102 is amend16 ed by striking ‘‘PLAN DESCRIPTION AND’’.

17 (c) FURNISHING OF REPORTS.—

18 (1) IN GENERAL.—Section 104(a)(1) (29

19 U.S.C. 1024(a)(1)) is amended to read as follows:

20 ‘‘SEC. 104. (a)(1) The administrator of any employee

21 benefit plan subject to this part shall file with the Sec22 retary the annual report for a plan year within 210 days

23 after the close of such year (or within such time as may

24 be required by regulations promulgated by the Secretary

25 in order to reduce duplicative filing). The Secretary shall
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1 make copies of such annual reports available for inspection

2 in the public document room of the Department of

3 Labor.’’

4 (2) SECRETARY MAY REQUEST DOCUMENTS.—

5 (A) IN GENERAL.—Section 104(a) (29

6 U.S.C. 1024(a)) is amended by adding at the

7 end the following new paragraph:

8 ‘‘(6) The administrator of any employee benefit plan

9 subject to this part shall furnish to the Secretary, upon

10 request, any documents relating to the employee benefit

11 plan, including but not limited to, the latest summary plan

12 description (including any summaries of plan changes not

13 contained in the summary plan description), and the bar14 gaining agreement, trust agreement, contract, or other in15 strument under which the plan is established or operated.’’

16 (B) PENALTY.—Section 502(c) (29 U.S.C.

17 1132(c)) is amended by adding at the end the

18 following new paragraph:

19 ‘‘(5) If, within 30 days of a request by the Secretary

20 to a plan administrator for documents under section

21 104(a)(6), the plan administrator fails to furnish the ma22 terial requested to the Secretary, the Secretary may assess

23 a civil penalty against the plan administrator of up to

24 $100 a day from the date of such failure (but in no event

25 in excess of $1,000 per request). No penalty shall be im-
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1 posed under this paragraph for any failure resulting from

2 matters reasonably beyond the control of the plan admin3 istrator.’’

4 (d) CONFORMING AMENDMENTS.—

5 (1) Section 104(b)(1) (29 U.S.C. 1024(b)(1)) is

6 amended by striking ‘‘section 102(a)(1)’’ each place

7 it appears and inserting ‘‘section 102(a)’’.

8 (2) Section 104(b)(2) (29 U.S.C. 1024(b)(2)) is

9 amended by striking ‘‘the plan description and’’ and

10 inserting ‘‘the latest updated summary plan descrip11 tion and’’.

12 (3) Section 104(b)(4) (29 U.S.C. 1024(b)(4)) is

13 amended by striking ‘‘plan description’’.

14 (4) Section 106(a) (29 U.S.C. 1026(a)) is

15 amended by striking ‘‘descriptions,’’.

16 (5) Section 107 (29 U.S.C. 1027) is amended

17 by striking ‘‘description or’’.

18 (6) Paragraph (2)(B) of section 108 (29 U.S.C.

19 1028) is amended to read as follows: ‘‘(B) after pub20 lishing or filing the annual reports,’’.

21 (7) Section 502(a)(6) (29 U.S.C. 1132(a)(6)) is

22 amended by striking ‘‘subsection (c)(2) or (i) or (l)’’

23 and inserting ‘‘paragraph (2), (4), or (5) of sub24 section (c) or subsection (i) or (l)’’.

25 (e) TECHNICAL CORRECTIONS TO ERISA.—
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1 (1) Section 502(c)(1) (29 U.S.C. 1132(c)(1)) is

2 amended by adding at the end the following new

3 sentence: ‘‘For purposes of this paragraph, each vio4 lation described in subparagraph (A) with respect to

5 any single participant, and each violation described

6 in subparagraph (B) with respect to any single par7 ticipant or beneficiary, shall be treated as a separate

8 violation.’’

9 (2) Section 502(c) (29 U.S.C. 1132(c)) is

10 amended—

11 (A) by striking the last two sentences of

12 paragraph (4), and

13 (B) by adding at the end the following new

14 paragraph:

15 ‘‘(5) The Secretary and the Secretary of Health and

16 Human Services shall maintain such ongoing consultation

17 as may be necessary and appropriate to coordinate en18 forcement under this subsection with enforcement under

19 section 1144(c)(9) of the Social Security Act.’’

20 (f) EFFECTIVE DATE.—The provisions of this section

21 shall take effect on the date of the enactment of this Act.
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1 SEC. 2003. CONFORMING AMENDMENT RELATING TO IN2 VESTMENTS IN QUALIFIED STATE PREPAID

3 TUITION PROGRAMS.

4 (a) IN GENERAL.—Subsection (b) of section 408 is

5 amended by adding at the end the following new para6 graph:

7 ‘‘(14) any purchase of a qualified State prepaid

8 tuition program instrument to which section 408(q)

9 of the Internal Revenue Code of 1986 applies.’’

10 (b) EFFECTIVE DATE.—The amendment made by

11 this section shall apply to taxable years beginning after

12 December 31, 1995.

13 Subtitle B—Portability

14 SEC. 2011. MISSING PARTICIPANTS.

15 (a) IN GENERAL.—Section 4050 (29 U.S.C. 1350)

16 is amended by redesignating subsection (c) as subsection

17 (e) and by inserting after subsection (b) the following new

18 subsections:

19 ‘‘(c) MULTIEMPLOYER PLANS.—The corporation

20 shall prescribe rules similar to the rules in subsection (a)

21 for multiemployer plans covered by this title that termi22 nate under section 4041A.

23 ‘‘(d) PLANS NOT OTHERWISE SUBJECT TO TITLE.—

24 ‘‘(1) TRANSFER TO CORPORATION.—The plan

25 administrator of a plan described in paragraph (4)
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1 may elect to transfer a missing participant’s benefits

2 to the corporation upon termination of the plan.

3 ‘‘(2) INFORMATION TO THE CORPORATION.—To

4 the extent provided in regulations, the plan adminis5 trator of a plan described in paragraph (4) shall,

6 upon termination of the plan, provide the corpora7 tion information with respect to benefits of a miss8 ing participant if the plan transfers such benefits—

9 ‘‘(A) to the corporation, or

10 ‘‘(B) to an entity other than the corpora11 tion or a plan described in paragraph (4)(B)(ii).

12 ‘‘(3) PAYMENT BY THE CORPORATION.—If ben13 efits of a missing participant were transferred to the

14 corporation under paragraph (1), the corporation

15 shall, upon location of the participant or beneficiary,

16 pay to the participant or beneficiary the amount

17 transferred (or the appropriate survivor benefit) ei18 ther—

19 ‘‘(A) in a single sum (plus interest), or

20 ‘‘(B) in such other form as is specified in

21 regulations of the corporation.

22 ‘‘(4) PLANS DESCRIBED.—A plan is described

23 in this paragraph if—

24 ‘‘(A) the plan is a pension plan (within the

25 meaning of section 3(2))—
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1 ‘‘(i) to which the provisions of this

2 section do not apply (without regard to

3 this subsection), and

4 ‘‘(ii) which is not a plan described in

5 paragraphs (2) through (11) of section

6 4021(b), and

7 ‘‘(B) at the time the assets are to be dis8 tributed upon termination, the plan—

9 ‘‘(i) has missing participants, and

10 ‘‘(ii) has not provided for the transfer

11 of assets to pay the benefits of all missing

12 participants to another pension plan (with13 in the meaning of section 3(2)).

14 ‘‘(5) CERTAIN PROVISIONS NOT TO APPLY.—

15 Subsections (a)(1) and (a)(3) shall not apply to a

16 plan described in paragraph (4).’’

17 (b) CONFORMING AMENDMENTS.—Section 206(f)

18 (29 U.S.C. 1056(f)) is amended—

19 (1) by striking ‘‘title IV’’ and inserting ‘‘section

20 4050’’, and

21 (2) by striking ‘‘the plan shall provide that’’.

22 (c) EFFECTIVE DATE.—The amendments made by

23 this section shall apply to distributions made after final

24 regulations implementing subsections (c) and (d) of sec25 tion 4050 of the Employee Retirement Income Security
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1 Act of 1974 (as added by subsection (a)), respectively, are

2 prescribed.

3 SEC. 2012. ELIMINATION OF SPECIAL VESTING RULE FOR

4 MULTIEMPLOYER PLANS.

5 (a) IN GENERAL.—Paragraph (2) of section 203(a)

6 (29 U.S.C. 1053(a)) is amended—

7 (1) by striking ‘‘subparagraph (A), (B), or (C)’’

8 and inserting ‘‘subparagraph (A) or (B)’’; and

9 (2) by striking subparagraph (C).

10 (b) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to plan years beginning on or after

12 the earlier of—

13 (1) the later of—

14 (A) January 1, 1997, or

15 (B) the date on which the last of the col16 lective bargaining agreements pursuant to

17 which the plan is maintained terminates (deter18 mined without regard to any extension thereof

19 after the date of the enactment of this Act), or

20 (2) January 1, 1999.

21 Such amendments shall not apply to any individual who

22 does not have more than 1 hour of service under the plan

23 on or after the first day of the first plan year to which

24 such amendments apply.
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1 SEC. 2013. TREATMENT OF LOANS DURING MILITARY SERV2 ICE.

3 (a) IN GENERAL.—Section 408(b)(1) (29 U.S.C.

4 1148(b)) is amended by adding at the end the following

5 new sentence: ‘‘A loan made by a plan shall not fail to

6 meet the requirements of the preceding sentence by reason

7 of a loan repayment suspension described under section

8 414(u)(4) of the Internal Revenue Code of 1986.’’

9 (b) EFFECTIVE DATE.—The amendment made by

10 this section shall be effective as of December 12, 1994.

11 Subtitle C—Enhanced Security

12 CHAPTER 1—GENERAL PROVISIONS

13 SEC. 2021. MULTIEMPLOYER PLAN BENEFITS GUARAN14 TEED.

15 (a) IN GENERAL.—Section 4022A(c) (29 U.S.C.

16 1322a(c)) is amended—

17 (1) by striking ‘‘$5’’ each place it appears in

18 paragraph (1) and inserting ‘‘$11’’,

19 (2) by striking ‘‘$15’’ in paragraph (1) and in20 serting ‘‘$33’’, and

21 (3) by striking paragraphs (2), (5), and (6) and

22 by redesignating paragraphs (3) and (4) as para23 graphs (2) and (3), respectively.

24 (b) EFFECTIVE DATE.—The amendments made by

25 this section shall apply to any multiemployer plan that has

26 not received financial assistance (within the meaning of
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1 section 4261 of the Employee Retirement Income Security

2 Act of 1974) within the 1-year period ending on the date

3 of the enactment of this Act.

4 SEC. 2022. REVERSION REPORT.

5 (a) IN GENERAL.—Section 4008 (29 U.S.C. 1308)

6 is amended by adding at the end the following new sub7 section:

8 ‘‘(b) REVERSION REPORT.—As soon as practicable

9 after the close of each fiscal year, the Secretary of Labor

10 (acting in the Secretary’s capacity as chairman of the cor11 poration’s board) shall transmit to the President and the

12 Congress a report providing information on plans from

13 which residual assets were distributed to employers pursu14 ant to section 4044(d).’’

15 (b) CONFORMING AMENDMENT.—Section 4008 (29

16 U.S.C. 1308) is amended by striking ‘‘SEC. 4008.’’ and

17 inserting ‘‘SEC. 4008. (a) ANNUAL REPORT.—’’.

18 (c) EFFECTIVE DATE.—The amendments made by

19 this section shall apply to fiscal years beginning after Sep20 tember 30, 1996.

21 SEC. 2023. FULL FUNDING LIMITATION FOR MULTIEM22 PLOYER PLANS.

23 (a) FULL-FUNDING LIMITATION.—Section

24 302(c)(7)(C) (29 U.S.C. 1082(c)(7)(C)) is amended—
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1 (1) by inserting ‘‘or in the case of a multiem2 ployer plan,’’ after ‘‘paragraph (6)(B),’’, and

3 (2) by inserting ‘‘AND MULTIEMPLOYER PLANS’’

4 after ‘‘PARAGRAPH (6)(B)’’ in the heading thereof.

5 (b) VALUATION.—Section 302(c)(9) (29 U.S.C.

6 1082(c)(9)) is amended—

7 (1) by inserting ‘‘(3 years in the case of a mul8 tiemployer plan)’’ after ‘‘year’’, and

9 (2) by striking ‘‘ANNUAL VALUATION’’ in the

10 heading and inserting ‘‘VALUATION’’.

11 (c) EFFECTIVE DATE.—The amendments made by

12 this section shall apply to plan years beginning after De13 cember 31, 1996.

14 SEC. 2024. PROHIBITED TRANSACTIONS.

15 (a) IN GENERAL.—Section 502(i) (29 U.S.C.

16 1132(i)) is amended by striking ‘‘5 percent’’ and inserting

17 ‘‘10 percent’’.

18 (b) EFFECTIVE DATE.—The amendments made by

19 this section shall apply to prohibited transactions occur20 ring after the date of enactment of this Act.

21 SEC. 2025. SUBSTANTIAL OWNER BENEFITS.

22 (a) MODIFICATION OF PHASE-IN OF GUARANTEE.—

23 Subparagraphs (B) and (C) of section 4022(b)(5) (29

24 U.S.C. 1322(b)(5)) are amended to read as follows:
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1 ‘‘(B) For purposes of this title, the term ‘majority

2 owner’ has the same meaning as substantial owner under

3 subparagraph (A), except that subparagraph (A) shall be

4 applied by substituting ‘50 percent or more’ for ‘more

5 than 10 percent’ each place it appears.

6 ‘‘(C) In the case of a participant who is a majority

7 owner, the amount of benefits guaranteed under this sec8 tion shall not exceed the product of—

9 ‘‘(i) a fraction (not to exceed 1) the numerator

10 of which is the number of years from the later of the

11 effective date or the adoption date of the plan to the

12 termination date, and the denominator of which is

13 30, and

14 ‘‘(ii) the amount of the majority owner’s month15 ly benefits guaranteed under subsection (a) (as lim16 ited by paragraph (3) of this subsection).’’

17 (b) MODIFICATION OF ALLOCATION OF ASSETS.—

18 (1) Section 4044(a)(4)(B) (29 U.S.C.

19 1344(a)(4)(B)) is amended by striking ‘‘section

20 4022(b)(5)’’ and inserting ‘‘section 4022(b)(5)(C)’’.

21 (2) Section 4044(b) (29 U.S.C. 1344(b)) is

22 amended—

23 (A) by striking ‘‘(5)’’ in paragraph (2) and

24 inserting ‘‘(4), (5),’’, and
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1 (B) by redesignating paragraphs (3)

2 through (6) as paragraphs (4) through (7), re3 spectively, and by inserting after paragraph (2)

4 the following new paragraph:

5 ‘‘(3) If assets available for allocation under

6 paragraph (4) of subsection (a) are insufficient to

7 satisfy in full the benefits of all individuals who are

8 described in that paragraph, the assets shall be allo9 cated first to benefits described in subparagraph (A)

10 of that paragraph. Any remaining assets shall then

11 be allocated to subparagraph (B). If assets allocated

12 to subparagraph (B) are insufficient to satisfy in full

13 the benefits in that subparagraph, the assets shall

14 be allocated pro rata among individuals on the basis

15 of the present value (as of the termination date) of

16 their respective benefits described in that subpara17 graph.’’

18 (c) EFFECTIVE DATE.—The amendments made by

19 this section shall apply to plan terminations—

20 (1) under section 4041(c) of the Employee Re21 tirement Income Security Act of 1974 (29 U.S.C.

22 1341(c)) with respect to which notices of intent to

23 terminate are provided under section 4041(a)(2) of

24 such Act (29 U.S.C. 1341(a)(2)) on or after the

25 date of the enactment of this Act, or
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1 (2) under section 4042 of such Act (29 U.S.C.

2 1342) with respect to which proceedings are insti3 tuted by the corporation on or after such date.

4 CHAPTER 2—ERISA ENFORCEMENT

5 SEC. 2031. SHORT TITLE.

6 This part may be cited as the ‘‘Pension Audit Im7 provement Act of 1996’’.

8 SEC. 2032. REPEAL OF LIMITED SCOPE AUDIT.

9 (a) IN GENERAL.—Section 103(a)(3) (29 U.S.C.

10 1023(a)(3)) is amended by striking subparagraph (C) and

11 by redesignating subparagraph (D) as subparagraph (C).

12 (b) CONFORMING AMENDMENTS.—

13 (1) Section 103(a)(3)(A) (29 U.S.C.

14 1023(a)(3)(A)) is amended by striking ‘‘Except as

15 provided in subparagraph (C), the’’ and inserting

16 ‘‘The’’.

17 (2) Section 104(a)(5)(A) (29 U.S.C.

18 1024(a)(5)(A)) is amended by striking ‘‘section

19 103(a)(3)(D)’’ and inserting ‘‘section 103(a)(3)(C)’’.

20 (c) EFFECTIVE DATE.—The amendments made by

21 this section shall apply with respect to opinions required

22 under section 103(a)(3)(A) of the Employee Retirement

23 Income Security Act of 1974 for plan years beginning on

24 or after January 1 of the calendar year following the date

25 of the enactment of this Act.
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1 SEC. 2033. REPORTING AND ENFORCEMENT REQUIRE2 MENTS FOR EMPLOYEE BENEFIT PLANS.

3 (a) IN GENERAL.—Part 1 of subtitle B of title I (29

4 U.S.C. 1021 et seq.) is amended—

5 (1) by redesignating section 111 as section 112,

6 and

7 (2) by inserting after section 110 the following

8 new section:

9 ‘‘DIRECT REPORTING OF CERTAIN EVENTS

10 ‘‘SEC. 111. (a) REQUIRED NOTIFICATIONS.—

11 ‘‘(1) NOTIFICATIONS BY PLAN ADMINIS12 TRATOR.—The administrator of an employee benefit

13 plan shall, within 5 business days after the adminis14 trator determines that there is evidence (or after the

15 administrator is notified under paragraph (2)) that

16 an irregularity may have occurred with respect to

17 the plan—

18 ‘‘(A) notify the Secretary of the irregular19 ity in writing; and

20 ‘‘(B) furnish a copy of such notification to

21 the accountant who is currently engaged under

22 section 103(a)(3)(A).

23 ‘‘(2) NOTIFICATIONS BY ACCOUNTANT.—

24 ‘‘(A) IN GENERAL.—An accountant en25 gaged by the administrator of an employee ben26 efit plan under section 103(a)(3)(A) shall, with-
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1 in 5 business days after the accountant in con2 nection with such engagement determines that

3 there is evidence that an irregularity may have

4 occurred with respect to the plan—

5 ‘‘(i) notify the plan administrator of

6 the irregularity in writing, or

7 ‘‘(ii) if the accountant determines that

8 there is evidence that the irregularity may

9 have involved an individual who is the plan

10 administrator or who is a senior official of

11 the plan administrator, notify the Sec12 retary of the irregularity in writing.

13 ‘‘(B) NOTIFICATION UPON FAILURE OF

14 PLAN ADMINISTRATOR TO NOTIFY.—If an ac15 countant who has provided notification to the

16 plan administrator pursuant to subparagraph

17 (A)(i) does not receive a copy of the administra18 tor’s notification to the Secretary required

19 under paragraph (1)(B) within the 5-business

20 day period specified therein, the accountant

21 shall furnish to the Secretary a copy of the ac22 countant’s notification made to the plan admin23 istrator on the next business day following such

24 period.

25 ‘‘(3) IRREGULARITY DEFINED.—
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1 ‘‘(A) For purposes of this subsection, the

2 term ‘irregularity’ means—

3 ‘‘(i) a theft, embezzlement, or a viola4 tion of section 664 of title 18, United

5 States Code (relating to theft or embezzle6 ment from an employee benefit plan);

7 ‘‘(ii) an extortion or a violation of sec8 tion 1951 of such title 18 (relating to in9 terference with commerce by threats or vi10 olence);

11 ‘‘(iii) a bribery, a kickback, or a viola12 tion of section 1954 of such title 18 (relat13 ing to offer, acceptance, or solicitation to

14 influence operations of an employee benefit

15 plan);

16 ‘‘(iv) a violation of section 1027 of

17 such title 18 (relating to false statements

18 and concealment of facts in relation to em19 ployer benefit plan records); or

20 ‘‘(v) a violation of section 411, 501, or

21 511 of this title (relating to criminal viola22 tions).

23 ‘‘(B) The term ‘irregularity’ shall not in24 clude any act or omission described in this

25 paragraph involving less than $1,000 unless
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1 there is reason to believe that the act or omis2 sion may bear on the integrity of plan manage3 ment.

4 ‘‘(b) NOTIFICATION UPON TERMINATION OF EN5 GAGEMENT OF ACCOUNTANT.—

6 ‘‘(1) NOTIFICATION BY PLAN ADMINIS7 TRATOR.—Within 5 business days after the termi8 nation of an engagement for auditing services under

9 section 103(a)(3)(A) with respect to an employee

10 benefit plan, the administrator of such plan shall—

11 ‘‘(A) notify the Secretary in writing of

12 such termination, giving the reasons for such

13 termination, and

14 ‘‘(B) furnish the accountant whose engage15 ment was terminated with a copy of the notifi16 cation sent to the Secretary.

17 ‘‘(2) NOTIFICATION BY ACCOUNTANT.—If the

18 accountant referred to in paragraph (1)(B) has not

19 received a copy of the administrator’s notification to

20 the Secretary as required under paragraph (1)(B),

21 or if the accountant disagrees with the reasons given

22 in the notification of termination of the engagement

23 for auditing services, the accountant shall notify the

24 Secretary in writing of the termination, giving the
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1 reasons for the termination, within 10 business days

2 after the termination of the engagement.

3 ‘‘(c) DETERMINATION OF PERIODS REQUIRED FOR

4 NOTIFICATION.—In determining whether a notification re5 quired under this section with respect to any act or omis6 sion has been made within the required number of busi7 ness days—

8 ‘‘(1) the day on which such act or omission be9 gins shall not be included; and

10 ‘‘(2) Saturdays, Sundays, and legal holidays

11 shall not be included.

12 For purposes of this subsection, the term ‘legal holiday’

13 means any Federal legal holiday and any other day ap14 pointed as a holiday by the State in which the person re15 sponsible for making the notification principally conducts

16 his business.

17 ‘‘(d) IMMUNITY FOR GOOD FAITH NOTIFICATION.—

18 Except as provided in this Act, no accountant or plan ad19 ministrator shall be liable to any person for any finding,

20 conclusion, or statement made in any notification made

21 pursuant to subsection (a)(2) or (b)(2), or pursuant to any

22 regulations issued thereunder, if such finding, conclusion,

23 or statement is made in good faith.’’

24 (b) CIVIL PENALTY.—
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1 (1) IN GENERAL.—Section 502(c) (29 U.S.C.

2 1132(c)), as amended by section 2002, is amended

3 by redesignating paragraph (6) as paragraph (7)

4 and by inserting after paragraph (5) the following

5 new paragraph:

6 ‘‘(6)(A) The Secretary may assess a civil penalty of

7 up to $100,000 against any administrator who fails to

8 provide the Secretary with any notification as required

9 under section 111.

10 ‘‘(B) The Secretary may assess a civil penalty of up

11 to $100,000 against any accountant who knowingly and

12 willfully fails to provide the Secretary with any notification

13 as required under section 111.’’

14 (2) CONFORMING AMENDMENT.—Section

15 502(a)(6) (29 U.S.C. 1132(a)(6)), as amended by

16 section 2002, is amended by striking ‘‘or (5)’’ and

17 inserting ‘‘(5), or (6)’’.

18 (c) CLERICAL AMENDMENTS.—

19 (1) Section 514(d) (29 U.S.C. 1144(d)) is

20 amended by striking ‘‘111’’ and inserting ‘‘112’’.

21 (2) The table of contents in section 1 is amend22 ed by striking the item relating to section 111 and

23 inserting the following new items:

‘‘Sec. 111. Direct reporting of certain events.

‘‘Sec. 112. Repeal and effective date.’’
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1 (d) EFFECTIVE DATE.—The amendments made by

2 this section shall apply with respect to any irregularity or

3 termination of engagement described in such amendments

4 only if the 5-day period described in such amendments in

5 connection with such irregularity or termination com6 mences at least 90 days after the date of the enactment

7 of this Act.

8 SEC. 2034. ADDITIONAL REQUIREMENTS FOR QUALIFIED

9 PUBLIC ACCOUNTANTS.

10 (a) IN GENERAL.—Section 103(a)(3)(C) (29 U.S.C.

11 1023(a)(3)(C)), as redesignated by section 2032, is

12 amended—

13 (1) by inserting ‘‘(i)’’ after ‘‘(C)’’;

14 (2) by inserting ‘‘, with respect to any engage15 ment of an accountant under subparagraph (A)’’

16 after ‘‘means’’;

17 (3) by redesignating clauses (i), (ii), and (iii) as

18 subclauses (I), (II), and (III), respectively;

19 (4) by striking the period at the end of sub20 clause (III) (as so redesignated) and inserting a

21 comma;

22 (5) by adding after subclause (III) (as so redes23 ignated), and flush with clause (i), the following:

24 ‘‘but only if such person meets the requirements of clauses

25 (ii) and (iii) with respect to such engagement.’’; and
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1 (6) by adding at the end the following new

2 clauses:

3 ‘‘(ii) A person meets the requirements of this clause

4 with respect to an engagement of such person as an ac5 countant under subparagraph (A) if such person—

6 ‘‘(I) has in operation an appropriate internal

7 quality control system;

8 ‘‘(II) has undergone a qualified external quality

9 control review of the person’s accounting and audit10 ing practices, including such practices relevant to

11 employee benefit plans (if any), during the 3-year

12 period immediately preceding such engagement; and

13 ‘‘(III) has completed, within the 2-year period

14 immediately preceding such engagement, at least 80

15 hours of continuing education or training which con16 tributes to the accountant’s professional proficiency,

17 at least 20 hours of which have been completed dur18 ing the 1-year period immediately preceding the en19 gagement, and at least 16 hours of which relate to

20 employee benefit plan matters.

21 ‘‘(iii) A person meets the requirements of this clause

22 with respect to an engagement of such person as an ac23 countant under subparagraph (A) if such person meets

24 such additional requirements and qualifications of regula-
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1 tions which the Secretary deems necessary to ensure the

2 quality of plan audits.

3 ‘‘(iv) For purposes of clause (ii)(II), an external qual4 ity control review shall be treated as qualified with respect

5 to a person referred to in clause (ii) if—

6 ‘‘(I) such review is performed in accordance

7 with the requirements of external quality control re8 view programs of recognized auditing standard-set9 ting bodies, as determined under regulations of the

10 Secretary, and

11 ‘‘(II) in the case of any such person who has,

12 during the peer review period, conducted one or

13 more previous audits of employee benefit plans, such

14 review includes the review of an appropriate number

15 (determined as provided in such regulations, but in

16 no case less than one) of plan audits in relation to

17 the scale of such person’s auditing practice.

18 The Secretary shall issue the regulations under subclause

19 (I) no later than December 31, 1997.’’

20 (b) EFFECTIVE DATES.—

21 (1) IN GENERAL.—Except as provided in para22 graph (2), the amendments made by this section

23 shall apply with respect to plan years beginning on

24 or after the date which is 3 years after the date of

25 the enactment of this Act.
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1 (2) RESTRICTIONS ON CONDUCTING EXAMINA2 TIONS.—Clause (iii) of section 103(a)(3)(C) of the

3 Employee Retirement Income Security Act of 1974

4 (as added by subsection (a)(6)) shall take effect on

5 the date of enactment of this Act.

6 SEC. 2035. CLARIFICATION OF FIDUCIARY PENALTIES.

7 (a) MODIFICATION OF PROHIBITION OF ASSIGNMENT

8 OR ALIENATION.—

9 (1) AMENDMENT TO ERISA.—Section 206(d)

10 (29 U.S.C. 1056(d)) is amended by adding at the

11 end the following new paragraphs:

12 ‘‘(4) Paragraph (1) shall not apply to any offset of

13 a participant’s accrued benefit in an employee pension

14 benefit plan against an amount that the participant is or15 dered or required to pay to the plan if—

16 ‘‘(A) the order or requirement to pay arises—

17 ‘‘(i) under a judgment of conviction for a

18 crime involving such plan,

19 ‘‘(ii) under a civil judgment (including a

20 consent order or decree) entered by a court in

21 an action brought in connection with a violation

22 (or alleged violation) of part 4 of this subtitle,

23 or

24 ‘‘(iii) pursuant to a settlement agreement

25 between the Secretary and the participant, or a
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1 settlement agreement between the Pension Ben2 efit Guaranty Corporation and the participant,

3 in connection with a violation (or alleged viola4 tion) of part 4 of this subtitle,

5 ‘‘(B) the judgment, order, decree, or settlement

6 agreement expressly provides for the offset of all or

7 part of the amount ordered or required to be paid

8 to the plan against the participant’s accrued benefit

9 in the plan, and

10 ‘‘(C) if the participant has a spouse at the time

11 at which the offset is to be made—

12 ‘‘(i) such spouse has consented in writing

13 to such offset and such consent is witnessed by

14 a notary public or representative of the plan,

15 ‘‘(ii) such spouse is ordered or required in

16 such judgment, order, decree, or settlement to

17 pay an amount to the plan in connection with

18 a violation of part 4 of this title, or

19 ‘‘(iii) in such judgment, order, decree, or

20 settlement, such spouse retains the right to re21 ceive the value of the survivor annuity under a

22 qualified joint and survivor annuity provided

23 pursuant to section 205(a)(1) and under a

24 qualified preretirement survivor annuity pro-
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1 vided pursuant to section 205(a)(2), determined

2 in accordance with paragraph (5).

3 ‘‘(5)(A) The value of the survivor annuity described

4 in paragraph (4)(C)(iii) shall be determined as if—

5 ‘‘(i) the participant terminated employment on

6 the date of the offset,

7 ‘‘(ii) there was no offset,

8 ‘‘(iii) the plan permitted retirement only on or

9 after normal retirement age,

10 ‘‘(iv) the plan provided only the minimum-re11 quired qualified joint and survivor annuity, and

12 ‘‘(v) the amount of the qualified preretirement

13 survivor annuity under the plan is equal to the

14 amount of the survivor annuity payable under the

15 minimum-required qualified joint and survivor annu16 ity.

17 ‘‘(B) For purposes of this paragraph, the term ‘mini18 mum-required qualified joint and survivor annuity’ means

19 the qualified joint and survivor annuity which is the actu20 arial equivalent of a single annuity for the life of the par21 ticipant and under which the survivor annuity is 50 per22 cent of the amount of the annuity which is payable during

23 the joint lives of the participant and the spouse.’’

24 (2) EFFECTIVE DATE.—The amendment made

25 by this subsection shall apply to judgments, orders,
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1 and decrees issued, and settlement agreements en2 tered into, on or after the date of enactment of this

3 Act.

4 (b) CIVIL PENALTIES FOR BREACH OF FIDUCIARY

5 RESPONSIBILITY.—

6 (1) IMPOSITION AND AMOUNT OF PENALTY

7 MADE DISCRETIONARY.—Section 502(l)(1) (29

8 U.S.C. 1132(l)(1)) is amended—

9 (A) by striking ‘‘shall’’ and inserting

10 ‘‘may’’, and

11 (B) by striking ‘‘equal to’’ and inserting

12 ‘‘not greater than’’.

13 (2) APPLICABLE RECOVERY AMOUNT.—Section

14 502(l)(2) (29 U.S.C. 1132(l)(2)) is amended to read

15 as follows:

16 ‘‘(2) For purposes of paragraph (1), the term ‘appli17 cable recovery amount’ means any amount which is recov18 ered from (or on behalf of) any fiduciary or other person

19 with respect to a breach or violation described in para20 graph (1) on or after the 30th day following receipt by

21 such fiduciary or other person of written notice from the

22 Secretary of the violation, whether paid voluntarily or by

23 order of a court in a judicial proceeding instituted by the

24 Secretary under subsection (a)(2) or (a)(5). The Secretary
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1 may, in the Secretary’s sole discretion, extend the 30-day

2 period described in the preceding sentence.’’

3 (3) OTHER RULES.—Section 502(l) (29 U.S.C.

4 1132(l)) is amended by adding at the end the follow5 ing new paragraphs:

6 ‘‘(5) A person shall be jointly and severally liable for

7 the penalty described in paragraph (1) to the same extent

8 that such person is jointly and severally liable for the ap9 plicable recovery amount on which the penalty is based.

10 ‘‘(6) No penalty shall be assessed under this sub11 section unless the person against whom the penalty is as12 sessed is given notice and opportunity for a hearing with

13 respect to the violation and applicable recovery amount.’’

14 (4) EFFECTIVE DATES.—

15 (A) IN GENERAL.—The amendments made

16 by this subsection shall apply to any breach of

17 fiduciary responsibility or other violation of part

18 4 of subtitle B of title I of the Employee Re19 tirement Income Security Act of 1974 occurring

20 on or after the date of enactment of this Act.

21 (B) TRANSITION RULE.—In applying the

22 amendment made by paragraph (2) (relating to

23 applicable recovery amount), a breach or other

24 violation occurring before the date of the enact25 ment of this Act which continues after the
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1 180th day after such date (and which may have

2 been discontinued at any time during its exist3 ence) shall be treated as having occurred after

4 such date of enactment.

5 TITLE III—ADDITIONAL RETIRE6 MENT PARTICIPATION AND

7 PAYMENT OPTIONS FOR FED8 ERAL EMPLOYEES

9 SEC. 3001. IMMEDIATE PARTICIPATION IN THE THRIFT SAV10 INGS PLAN FOR FEDERAL EMPLOYEES.

11 (a) ELIMINATION OF CERTAIN WAITING PERIODS

12 FOR PURPOSES OF EMPLOYEE CONTRIBUTIONS.—Para13 graph (4) of section 8432(b) of title 5, United States

14 Code, is amended to read as follows:

15 ‘‘(4) The Executive Director shall prescribe such reg16 ulations as may be necessary to carry out the following:

17 ‘‘(A) Notwithstanding subparagraph (A) of

18 paragraph (2), an employee or Member described in

19 such subparagraph shall be afforded a reasonable

20 opportunity to first make an election under this sub21 section beginning on the date of commencing service

22 or, if that is not administratively feasible, beginning

23 on the earliest date thereafter that such an election

24 becomes administratively feasible, as determined by

25 the Executive Director.
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1 ‘‘(B) An employee or Member described in sub2 paragraph (B) of paragraph (2) shall be afforded a

3 reasonable opportunity to first make an election

4 under this subsection (based on the appointment or

5 election described in such subparagraph) beginning

6 on the date of commencing service pursuant to such

7 appointment or election or, if that is not administra8 tively feasible, beginning on the earliest date there9 after that such an election becomes administratively

10 feasible, as determined by the Executive Director.

11 ‘‘(C) Notwithstanding the preceding provisions

12 of this paragraph, contributions under paragraphs

13 (1) and (2) of subsection (c) shall not be payable

14 with respect to any pay period before the earliest

15 pay period for which such contributions would other16 wise be allowable under this subsection if this para17 graph had not been enacted.

18 ‘‘(D) Sections 8351(a)(2), 8440a(a)(2),

19 8440b(a)(2), 8440c(a)(2), and 8440d(a)(2) shall be

20 applied in a manner consistent with the purposes of

21 subparagraphs (A) and (B), to the extent those sub22 paragraphs can be applied with respect thereto.

23 ‘‘(E) Nothing in this paragraph shall affect

24 paragraph (3).’’.
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1 (b) TECHNICAL AND CONFORMING AMENDMENTS.—

2 (1) Section 8432(a) of title 5, United States Code, is

3 amended—

4 (A) in the first sentence by striking ‘‘(b)(1)’’

5 and inserting ‘‘(b)’’; and

6 (B) by amending the second sentence to read as

7 follows: ‘‘Contributions under this subsection pursu8 ant to such an election shall, with respect to each

9 pay period for which such election remains in effect,

10 be made in accordance with a program of regular

11 contributions provided in regulations prescribed by

12 the Executive Director.’’.

13 (2) Section 8432(b)(1)(B) of such title is amended

14 by inserting ‘‘(or any election allowable by virtue of para15 graph (4))’’ after ‘‘subparagraph (A)’’.

16 (3) Section 8432(b)(3) of such title is amended by

17 striking ‘‘Notwithstanding paragraph (2)(A), an’’ and in18 serting ‘‘An’’.

19 (4) Section 8432(i)(1)(B)(ii) of such title is amended

20 by striking ‘‘either elected to terminate individual con21 tributions to the Thrift Savings Fund within 2 months

22 before commencing military service or’’.

23 (5) Section 8439(a)(1) of such title is amended by

24 inserting ‘‘who makes contributions or’’ after ‘‘for each
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1 individual’’ and by striking ‘‘section 8432(c)(1)’’ and in2 serting ‘‘section 8432’’.

3 (6) Section 8439(c)(2) of such title is amended by

4 adding at the end the following: ‘‘Nothing in this para5 graph shall be considered to limit the dissemination of in6 formation only to the times required under the preceding

7 sentence.’’.

8 (7) Sections 8440a(a)(2) and 8440d(a)(2) of such

9 title are amended by striking all after ‘‘subject to’’ and

10 inserting ‘‘subject to this chapter.’’.

11 (c) EFFECTIVE DATE.—This section shall take effect

12 6 months after the date of the enactment of this Act or

13 such earlier date as the Executive Director may by regula14 tion prescribe.

15 SEC. 3002. DEFERRED ANNUITIES FOR SURVIVING SPOUSES

16 OF FEDERAL EMPLOYEES.

17 (a) IN GENERAL.—Section 8341 of title 5, United

18 States Code, is amended—

19 (1) in subsection (h)(1) by striking ‘‘section

20 8338(b) of this title’’ and inserting ‘‘section

21 8338(b), and a former spouse of a deceased former

22 employee who separated from the service with title

23 to a deferred annuity under section 8338 (if they

24 were married to one another prior to the date of sep25 aration),’’; and
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1 (2) by adding at the end the following:

2 ‘‘(j)(1) If a former employee dies after having sepa3 rated from the service with title to a deferred annuity

4 under section 8338 but before having established a valid

5 claim for annuity, and is survived by a spouse to whom

6 married on the date of separation, the surviving spouse

7 may elect to receive—

8 ‘‘(A) an annuity, commencing on what would

9 have been the former employee’s 62d birthday, equal

10 to 55 percent of the former employee’s deferred an11 nuity;

12 ‘‘(B) an annuity, commencing on the day after

13 the date of death of the former employee, such that,

14 to the extent practicable, the present value of the fu15 ture payments of the annuity would be actuarially

16 equivalent to the present value of the future pay17 ments under subparagraph (A) as of the day after

18 the former employee’s death; or

19 ‘‘(C) the lump-sum credit, if the surviving

20 spouse is the individual who would be entitled to the

21 lump-sum credit and if such surviving spouse files

22 application therefor.

23 ‘‘(2) An annuity under this subsection and the right

24 thereto terminate on the last day of the month before the
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1 surviving spouse remarries before becoming 55 years of

2 age, or dies.’’.

3 (b) CORRESPONDING AMENDMENT FOR FERS.—

4 Section 8445(a) of title 5, United States Code, is amend5 ed—

6 (1) by striking ‘‘(or of a former employee or’’

7 and inserting ‘‘(or of a former’’; and

8 (2) by striking ‘‘annuity)’’ and inserting ‘‘annu9 ity, or of a former employee who dies after having

10 separated from the service with title to a deferred

11 annuity under section 8413 but before having estab12 lished a valid claim for annuity (if such former

13 spouse was married to such former employee prior

14 to the date of separation))’’.

15 (c) EFFECTIVE DATE.—The amendments made by

16 this section shall apply with respect to surviving spouses

17 and former spouses (whose marriage, in the case of the

18 amendments made by subsection (a), terminated after

19 May 6, 1985) of former employees who die after the date

20 of the enactment of this Act.

21 SEC. 3003. PAYMENT OF LUMP-SUM CREDIT FOR FORMER

22 SPOUSES OF FEDERAL EMPLOYEES.

23 (a) IN GENERAL.—Title 5, United States Code, is

24 amended—
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1 (1) in section 8342(c) by striking ‘‘Lump-sum’’

2 and inserting ‘‘Except as provided in section

3 8345(j), lump-sum’’;

4 (2) in section 8345(j)—

5 (A) in paragraph (1) by inserting after

6 ‘‘that individual’’ the following: ‘‘, or be made

7 under section 8342(d) through (f) to an individ8 ual entitled under section 8342(c),’’; and

9 (B) by adding at the end the following:

10 ‘‘(4) Any payment under this subsection to a person

11 bars recovery by any other person.’’;

12 (3) in section 8424(d) by striking ‘‘Lump-sum’’

13 and inserting ‘‘Except as provided in section

14 8467(a), lump-sum’’; and

15 (4) in section 8467—

16 (A) in subsection (a) by inserting after

17 ‘‘that individual’’ the following: ‘‘, or be made

18 under section 8424(e) through (g) to an indi19 vidual entitled under section 8424(d),’’; and

20 (B) by adding at the end the following:

21 ‘‘(d) Any payment under this section to a person bars

22 recovery by any other person.’’.

23 (b) EFFECTIVE DATE.—The amendments made by

24 this section shall apply with respect to any death occurring
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1 after the 90th day after the date of the enactment of this

2 Act.

3 TITLE IV—CONFORMING RAIL4 ROAD RETIREMENT BENE5 FITS WITH SOCIAL SECURITY

6 SEC. 4001. CHILD’S ANNUITY.

7 (a) ELIGIBILITY FOR ANNUITY.—Section 2 of the

8 Railroad Retirement Act of 1974 is amended by adding

9 at the end the following new subsection:

10 ‘‘(i) The child (as defined in section 216(e) and (k)

11 of the Social Security Act) of an individual, if—

12 ‘‘(i)(I) such child will be less than 18 years of

13 age,

14 ‘‘(II) such child will be less than 19 years of

15 age and a full-time elementary or secondary school

16 student, or

17 ‘‘(III) such child will, without regard to his or

18 her age, be under a disability which began before the

19 child attained age 22 or before the 84th month fol20 lowing the month in which his most recent entitle21 ment to an annuity under this subsection terminated

22 because he or she ceased to be under a disability,

23 and

24 ‘‘(ii) such child is unmarried and dependent

25 upon the employee,
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1 shall be entitled to an annuity, if he or she has filed an

2 application therefor, in the amount provided under section

3 4 of this Act.’’

4 (b) AMOUNT OF ANNUITY.—Section 4 of such Act is

5 amended—

6 (1) in the heading, by adding at the end ‘‘AND

7 CHILD ANNUITIES’’; and

8 (2) by adding at the end the following new sub9 section:

10 ‘‘(j) The annuity of a child of an individual under

11 section 2(i) of this Act shall be in the amount that would

12 have been payable to the child under title II of the Social

13 Security Act if all of the individual’s service after Decem14 ber 31, 1936, had been included in the term ‘employment’

15 as defined in that Act reduced by any benefit payable

16 under title II of the Social Security Act.’’.

17 (c) TECHNICAL AMENDMENT.—The first sentence of

18 section 3(f)(3) of such Act is amended by striking ‘‘the

19 spouse and divorced wife’’ and inserting ‘‘the spouse,

20 child, and divorced wife’’.

21 SEC. 4002. ENTITLEMENT TO SPOUSAL ANNUITIES.

22 (a) ENTITLEMENT DESPITE CERTAIN AGE REQUIRE23 MENTS.—Section 2(c)(1) of the Railroad Retirement Act

24 of 1974 is amended by adding at the end the following:

25 ‘‘A spouse who is not entitled to an annuity by reason
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1 of paragraph (i)(B) of this subdivision, but who otherwise

2 meets the conditions for entitlement to an annuity under

3 this subsection, shall be entitled to an annuity in such

4 amount as would have been payable under title II of the

5 Social Security Act if all of the individual’s service after

6 December 31, 1936, had been included in the term ‘em7 ployment’ as defined in that Act reduced by any benefit

8 payable to the spouse under title II of the Social Security

9 Act.’’.

10 (b) REMOVAL OF AGE REQUIREMENT FOR DIVORCED

11 SPOUSES.—Section 2(c)(4) of such Act is amended by

12 striking paragraph (ii), by redesignating paragraph (iii)

13 as paragraph (ii), and by striking paragraph (i) and in14 serting the following:

15 ‘‘(i) such individual has completed 10 years

16 of service; and’’.

17 (c) ENTITLEMENT OF DIVORCED SPOUSE WHERE

18 WORKER’S ANNUITY IS NOT PAYABLE.—Section 2(e)(5)

19 of such Act is amended by striking ‘‘or divorced wife’’ in

20 the second sentence.
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1 SEC. 4003. CONTINUED PAYMENT TO SURVIVORS OF

2 WAIVED LUMP SUM BENEFITS IN AMOUNTS

3 EQUIVALENT TO SOCIAL SECURITY SURVI4 VOR BENEFITS

5 Section 6(c)(1) of the Railroad Retirement Act of

6 1974 is amended by striking all that follows ‘‘Provided,

7 however,’’ and inserting the following: ‘‘That if the em8 ployee is survived by a widow, widower, or parent who may

9 upon attaining the age of eligibility be entitled to benefits

10 under this Act, such lump sum shall not be paid unless

11 such widow, widower, or parent makes and files with the

12 Board an irrevocable election, in such form as the Board

13 may prescribe, to have such lump sum be paid in lieu of

14 all benefits, other than the amount of the benefits that

15 the widow, widower, or parent would have received under

16 title II of the Social Security Act if all of the employee’s

17 service after December 31, 1936, had been included in the

18 term ‘employment’ as defined in that Act. After a lump

19 sum with respect to the death of an employee is paid pur20 suant to an election filed with the Board under the provi21 sions of this subsection, no further benefits, other than

22 benefits in such amounts as would have been payable

23 under title II of the Social Security Act if all of the em24 ployee’s service after December 31, 1936, had been in25 cluded in the term ‘employment’ as defined in that Act,
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1 shall be paid under this Act on the basis of such employ2 ee’s compensation and service under this Act.’’.

3 SEC. 4004. LUMP SUM DEATH BENEFITS EQUIVALENT TO

4 SOCIAL SECURITY BENEFITS.

5 (a) IN GENERAL.—Section 6(b)(2) of the Railroad

6 Retirement Act of 1974 is amended to read as follows:

7 ‘‘(2) Upon the death of an individual who (A) will

8 have completed ten years of service at the time of his

9 death, and (B) will have had a current connection with

10 the railroad industry at the time of his death, a lump11 sum death payment shall be made in accordance with the

12 provisions of section 202(i) of the Social Security Act in

13 an amount equal to the amount which would have been

14 payable under such section 202(i) if such individual’s serv15 ice as an employee after December 31, 1936, were in16 cluded in the term ‘employment’ as defined in that Act.’’.

17 (b) CONFORMING AMENDMENT.—Section 6(b)(1) of

18 such Act is amended by inserting before the period at the

19 end of the first sentence the following: ‘‘less any lump20 sum benefit payable under subdivision (2) of this sub21 section’’.
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1 SEC. 4005. PAYMENT OF BENEFITS EQUIVALENT TO SOCIAL

2 SECURITY BENEFITS WITH RESPECT TO

3 SERVICE FOR WHICH CERTAIN RAILROAD RE4 TIREMENT ANNUITIES ARE NOT PAYABLE.

5 Section 2(e) of the Railroad Retirement Act of 1974

6 is amended by adding at the end the following new sub7 division:

8 ‘‘(6) A person who has filed an application for an an9 nuity under this Act, but whose annuity is not payable

10 for a month by reason of subdivision (1), (3), or (5) of

11 this subsection and who is entitled to a benefit under title

12 II of the Social Security Act for such month shall be enti13 tled to receive an annuity under this Act for such month

14 equal to the difference between the benefit under such title

15 II paid for such month and the benefit under such title

16 II that would have been paid for such month if all of the

17 individual’s service after December 31, 1936, had been in18 cluded in the term ‘employment’ as defined in that Act.’’.

19 SEC. 4006. EFFECTIVE DATE.

20 The amendments made by this title shall take effect

21 on January 1, 1997.

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