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106TH CONGRESS

1ST SESSION H. R. 554

To amend the Internal Revenue Code of 1986 to allow rollover contributions

to individual retirement plans from deferred compensation plans maintained by States and local governments and to allow State and local

governments to maintain 401(k) plans.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 3, 1999

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

Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to allow rollover contributions to individual retirement plans from

deferred compensation plans maintained by States and

local governments and to allow State and local governments to maintain 401(k) plans.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. ROLLOVER CONTRIBUTIONS FROM DEFERRED

4 COMPENSATION PLANS OF STATE AND

5 LOCAL GOVERNMENTS.

6 (a) ROLLOVERS FROM SECTION 457 PLANS.—
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1 (1) IN GENERAL.—Section 457(e) of the Inter2 nal Revenue Code of 1986 (relating to other defini3 tions and special rules) is amended by adding at the

4 end the following:

5 ‘‘(16) ROLLOVER AMOUNTS.—

6 ‘‘(A) GENERAL RULE.—In the case of an

7 eligible deferred compensation plan of an eligi8 ble employer described in paragraph (1)(A),

9 if—

10 ‘‘(i) any portion of the balance to the

11 credit of an employee in such plan is paid

12 to such employee in a rollover distribution

13 (other than a distribution described in sub14 section (d)(1)(A)(iii) or in subparagraph

15 (A) or (B) of section 402(c)(4)),

16 ‘‘(ii) the employee transfers any por17 tion of the property such employee receives

18 in such distribution to an individual retire19 ment plan (as defined in section

20 7701(a)(37)), and

21 ‘‘(iii) in the case of a distribution of

22 property other than money, the amount so

23 transferred consists of the property distrib24 uted,
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1 then such distribution (to the extent so trans2 ferred) shall not be includible in gross income

3 for the taxable year in which paid.

4 ‘‘(B) CERTAIN RULES MADE APPLICA5 BLE.—Rules similar to the rules of section

6 401(a)(31), paragraphs (2), (3), (5), (6), (7),

7 and (9) of section 402(c), and section 402(f)

8 shall apply for purposes of subparagraph (A).’’.

9 (2) DISTRIBUTION REQUIREMENTS.—Section

10 457(d)(1)(A) of such Code (relating to distribution

11 requirements) is amended by inserting ‘‘except as

12 provided in subsection (e)(16),’’ after ‘‘(A)’’.

13 (3) CONFORMING AMENDMENTS.—

14 (A) Section 72(o)(4) of such Code is

15 amended—

16 (i) by striking ‘‘and 408(d)(3)’’ and

17 inserting ‘‘408(d)(3), and 457(e)(16)’’,

18 (ii) by inserting ‘‘or excludable’’ after

19 ‘‘deductible’’ each place it appears, and

20 (iii) in the heading by inserting ‘‘OR

21 EXCLUDABLE’’ after ‘‘DEDUCTIBLE’’.

22 (B) Section 219(d)(2) of such Code is

23 amended by striking ‘‘or 408(d)(3)’’ and insert24 ing ‘‘408(d)(3), or 457(e)(16)’’.
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1 (C) Section 401(a)(31)(B) of such Code is

2 amended by striking ‘‘and 403(a)(4)’’ and in3 serting ‘‘, 403(a)(4), and 457(e)(16)’’.

4 (D) Paragraph (4) of section 402(c) of

5 such Code is amended by inserting ‘‘or in an el6 igible deferred compensation plan (as defined in

7 section 457(b)) of an eligible employer de8 scribed in section 457(e)(1)(A)’’ after ‘‘qualified

9 trust’’.

10 (E) Section 408(a)(1) of such Code is

11 amended by striking ‘‘or 403(b)(8)’’ and insert12 ing ‘‘, 403(b)(8), or 457(e)(16)’’.

13 (F) Section 408(d)(3)(A)(ii) of such Code

14 is amended by striking ‘‘or’’ after ‘‘501(a)’’ and

15 inserting a comma, and by inserting ‘‘, or from

16 an eligible deferred compensation plan described

17 in section 457(b)’’ after ‘‘contribution)’’.

18 (G) The first sentence of subsection (e) of

19 section 408A of such Code is amended—

20 (i) by inserting ‘‘, from an eligible de21 ferred compensation plan (as defined in

22 section 457(b)),’’ after ‘‘account’’, and

23 (ii) by inserting before the period the

24 following: ‘‘or in the case of such eligible
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1 deferred compensation plan section

2 457(e)(16)’’.

3 (H) Subparagraphs (A) and (B) of section

4 415(b)(2) of such Code are each amended by

5 striking ‘‘and 408(d)(3)’’ and inserting

6 ‘‘408(d)(3), and 457(e)(16)’’.

7 (I) Section 4973(b)(1)(A) of such Code is

8 amended by striking ‘‘or 408(d)(3)’’ and insert9 ing ‘‘408(d)(3), or 457(e)(16)’’.

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

11 this section shall apply to distributions after December 31,

12 1998.

13 SEC. 2. STATE AND LOCAL GOVERNMENTS ELIGIBLE

14 UNDER SECTION 401(k).

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

16 401(k)(4) of the Internal Revenue Code of 1986 (relating

17 to eligibility of State and local governments and tax-ex18 empt organizations) is amended by striking clause (ii) and

19 redesignating clause (iii) as clause (ii).

20 (b) CONFORMING AMENDMENT.—Clause (i) of sec21 tion 401(k)(4)(B) of such Code is amended by striking

22 ‘‘Except as provided in clause (ii), any’’ and inserting

23 ‘‘Any’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to plan years beginning after De3 cember 31, 1998.

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