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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 1685 Introduced in Senate (IS)]

104th CONGRESS
  2d Session
                                S. 1685

To provide income and economic security to the American family, and for 
                            other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             April 18, 1996

   Mr. Kerry introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL

 
To provide income and economic security to the American family, and for 
                            other purposes.

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

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``American Family 
Income and Economic Security Act of 1996''.
    (b) Amendment of  1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--

Sec. 1. Short title; amendment of 1986 Code; table of contents.
               TITLE I--AMERICAN FAMILY ECONOMIC SECURITY

                       Subtitle A--Wage Security

Sec. 101. Increase in the minimum wage rate.
                    Subtitle B--Retirement Security

                         Part I--IRA Deduction

Sec. 111. Increase in income limitations.
Sec. 112. Inflation adjustment for deductible amount and income 
                            limitations.
Sec. 113. Coordination of IRA deduction limit with elective deferral 
                            limit.
                  Part II--Nondeductible Tax-Free IRAs

Sec. 116. Establishment of nondeductible tax-free individual retirement 
                            accounts.
                  Part III--Penalty-Free Distributions

Sec. 121. Distributions from certain plans may be used without penalty 
                            to purchase first homes, to pay higher 
                            education or financially devastating 
                            medical expenses, or by the unemployed.
Sec. 122. Contributions must be held at least 5 years in certain cases.
                          Part IV--Plan Loans

Sec. 126. Loan requirements for defined contribution plans.
                      Subtitle C--Health Security

                          Part I--Definitions

Sec. 131. Definitions.
       Part II--Healtsubpart a--group market rulesnd Renewability
Sec. 135. Guaranteed availability of health coverage.
Sec. 136. Guaranteed renewability of health coverage.
Sec. 137. Portability of health coverage and limitation on preexisting 
                            condition exclusions.
Sec. 138. Special enrollment periods.
Sec. 139. Disclosursubpart b--individual market rules
Sec. 141. Individual health plan portability.
Sec. 142. Guaranteed renewability of individual health coverage.
Sec. 143. State flexibility in individual market reforms.
Sec. 144. Definitionsubpart c--cobra clarifications
Sec. 151.subpart d--private health plan purchasing cooperatives
Sec. 161. Private health plan purchasing cooperatives.
           Part II--Application and Enforcement of Standards

Sec. 171. Applicability.
Sec. 172. Enforcement of standards.
                   Part III--Miscellaneous Provisions

Sec. 181. HMOs allowed to offer plans with deductibles to individuals 
                            with medical savings accounts.
Sec. 182. Health coverage availability study.
Sec. 183. Sense of the committee concerning medicare.
Sec. 184. Effective date.
Sec. 185. Severability.
                     Subtitle D--Employee Security

Sec. 191. Allowance of credit for employer expenses for certain on-site 
                            day-care facilities.
Sec. 192. Exclusion for group legal services made permanent.
Sec. 193. One-time exclusion of gain from sale of principal residence 
                            if individual or spouse is terminally ill.
               TITLE II--INCENTIVES FOR LIFELONG LEARNING

Sec. 201. Credit for employee training.
Sec. 202. Permanent extension of educational assistance exclusion.
Sec. 203. Deduction for higher education expenses.
            TITLE III--HIGH-WAGE JOBS FOR AMERICAN FAMILIES

                    Subtitle A--Business Incentives

Sec. 301. Exclusion for gain from small business stock.
Sec. 302. Permanent extension of research credit.
               Subtitle B--Preservation of American Jobs

Sec. 311. Taxation of income of controlled foreign corporations 
                            attributable to imported property.
Sec. 312. Debarment of Federal contractors not in compliance with 
                            Immigration and Nationality Act employment 
                            provisions.
 Sec. 313. Sense of Congress relating to stock options for employees 
                            who are laid off.
 Subtitle C--Promotion of Long-Term Investments in American Businesses

Part I--Long-term Investment, Competitiveness, Pension Protection, and 
                       Corporate Takeover Reform

Sec. 321. Findings.
Sec. 322. Long-term investments and pension protection.
Sec. 323. Protection of workers.
Sec. 324. Williams Act reforms.
Sec. 325. Anti-greenmail/short-swing profits.
Sec. 326. Additional reserve requirements.
Sec. 327. Leveraged buyout and going private transactions.
Sec. 328. Firm financing and financing disclosures.
Sec. 329. Role of State law.
               Part II--Restrictions on Harmful Takeovers

Sec. 331. Disallowance of deduction for merger and acquisition 
                            expenses.
                       Part III--Other Provisions

Sec. 341. $1,000,000 compensation deduction limit extended to all 
                            employers of all corporations.
Sec. 342. Level of participation in guaranteed loans under export 
                            working capital program.
                   TITLE IV--MISCELLANEOUS PROVISIONS

Sec. 401. Deduction for local sewer and water fees.

               TITLE I--AMERICAN FAMILY ECONOMIC SECURITY

                       Subtitle A--Wage Security

SEC. 101. INCREASE IN THE MINIMUM WAGE RATE.

    Section 6(a)(1) of the Fair Labor Standards Act of 1938 (29 U.S.C. 
206(a)(1)) is amended to read as follows:
            ``(1) except as otherwise provided in this section, not 
        less than $4.25 an hour during the period ending July 3, 1995, 
        not less than $4.70 an hour during the year beginning July 4, 
        1995, and not less than $5.15 an hour after July 3, 1996;''.

                    Subtitle B--Retirement Security

                         PART I--IRA DEDUCTION

SEC. 111. INCREASE IN INCOME LIMITATIONS.

    (a) In General.--Subparagraph (B) of section 219(g)(3) is amended--
            (1) by striking ``$40,000'' in clause (i) and inserting 
        ``$80,000'', and
            (2) by striking ``$25,000'' in clause (ii) and inserting 
        ``$50,000''.
    (b) Phase-Out of Limitations.--Clause (ii) of section 219(g)(2)(A) 
is amended by striking ``$10,000'' and inserting ``an amount equal to 
10 times the dollar amount applicable for the taxable year under 
subsection (b)(1)(A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 112. INFLATION ADJUSTMENT FOR DEDUCTIBLE AMOUNT AND INCOME 
              LIMITATIONS.

    (a) In General.--Section 219 is amended by redesignating subsection 
(h) as subsection (i) and by inserting after subsection (g) the 
following new subsection:
    ``(h) Cost-of-Living Adjustments.--
            ``(1) In general.--In the case of any taxable year 
        beginning in a calendar year after 1996, each dollar amount to 
        which this subsection applies shall be increased by an amount 
        equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting 
                `calendar year 1995' for `calendar year 1992' in 
                subparagraph (B) thereof.
            ``(2) Dollar amounts to which subsection applies.--This 
        subsection shall apply to--
                    ``(A) the $2,000 amounts under subsection (b)(1)(A) 
                and (c), and
                    ``(B) the applicable dollar amounts under 
                subsection (g)(3)(B).
            ``(3) Rounding rules.--
                    ``(A) Deduction amounts.--If any amount referred to 
                in paragraph (2)(A) as adjusted under paragraph (1) is 
                not a multiple of $500, such amount shall be rounded to 
                the next lowest multiple of $500.
                    ``(B) Applicable dollar amounts.--If any amount 
                referred to in paragraph (2)(B) as adjusted under 
                paragraph (1) is not a multiple of $5,000, such amount 
                shall be rounded to the next lowest multiple of 
                $5,000.''
    (b) Conforming Amendments.--
            (1) Clause (i) of section 219(c)(2)(A) is amended to read 
        as follows:
                            ``(i) the sum of $250 and the dollar amount 
                        in effect for the taxable year under subsection 
                        (b)(1)(A), or''.
            (2) Section 408(a)(1) is amended by striking ``in excess of 
        $2,000 on behalf of any individual'' and inserting ``on behalf 
        of any individual in excess of the amount in effect for such 
        taxable year under section 219(b)(1)(A)''.
            (3) Section 408(b)(2)(B) is amended by striking ``$2,000'' 
        and inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
            (4) Subparagraph (A) of section 408(d)(5) is amended by 
        striking ``$2,250'' and inserting ``the dollar amount in effect 
        for the taxable year under section 219(c)(2)(A)(i)''.
            (5) Section 408(j) is amended by striking ``$2,000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 113. COORDINATION OF IRA DEDUCTION LIMIT WITH ELECTIVE DEFERRAL 
              LIMIT.

    (a) In General.--Section 219(b) (relating to maximum amount of 
deduction) is amended by adding at the end the following new paragraph:
            ``(4) Coordination with elective deferral limit.--The 
        amount determined under paragraph (1) or subsection (c)(2) with 
        respect to any individual for any taxable year shall not exceed 
        the excess (if any) of--
                    ``(A) the limitation applicable for the taxable 
                year under section 402(g)(1), over
                    ``(B) the elective deferrals (as defined in section 
                402(g)(3)) of such individual for such taxable year.''
    (b) Conforming Amendment.--Section 219(c) is amended by adding at 
the end the following new paragraph:
    ``(3) Cross Reference.--

                                ``For reduction in paragraph (2) 
amount, see subsection (b)(4).''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

                  PART II--NONDEDUCTIBLE TAX-FREE IRAs

SEC. 116. ESTABLISHMENT OF NONDEDUCTIBLE TAX-FREE INDIVIDUAL RETIREMENT 
              ACCOUNTS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
(relating to pension, profit-sharing, stock bonus plans, etc.) is 
amended by inserting after section 408 the following new section:

``SEC. 408A. SPECIAL INDIVIDUAL RETIREMENT ACCOUNTS.

    ``(a) General Rule.--Except as provided in this chapter, a special 
individual retirement account shall be treated for purposes of this 
title in the same manner as an individual retirement plan.
    ``(b) Special Individual Retirement Account.--For purposes of this 
title, the term `special individual retirement account' means an 
individual retirement plan which is designated at the time of 
establishment of the plan as a special individual retirement account.
    ``(c) Treatment of Contributions.--
            ``(1) No deduction allowed.--No deduction shall be allowed 
        under section 219 for a contribution to a special individual 
        retirement account.
            ``(2) Contribution limit.--The aggregate amount of 
        contributions for any taxable year to all special individual 
        retirement accounts maintained for the benefit of an individual 
        shall not exceed the excess (if any) of--
                    ``(A) the maximum amount allowable as a deduction 
                under section 219 with respect to such individual for 
                such taxable year, over
                    ``(B) the amount so allowed.
            ``(3) Special rules for qualified transfers.--
                    ``(A) In general.--No rollover contribution may be 
                made to a special individual retirement account unless 
                it is a qualified transfer.
                    ``(B) Limit not to apply.--The limitation under 
                paragraph (2) shall not apply to a qualified transfer 
                to a special individual retirement account.
    ``(d) Tax Treatment of Distributions.--
            ``(1) In general.--Except as provided in this subsection, 
        any amount paid or distributed out of a special individual 
        retirement account shall not be included in the gross income of 
        the distributee.
            ``(2) Exception for earnings on contributions held less 
        than 5 years.--
                    ``(A) In general.--Any amount distributed out of a 
                special individual retirement account which consists of 
                earnings allocable to contributions made to the account 
                during the 5-year period ending on the day before such 
                distribution shall be included in the gross income of 
                the distributee for the taxable year in which the 
                distribution occurs.
                    ``(B) Ordering rule.--
                            ``(i) First-in, first-out rule.--
                        Distributions from a special individual 
                        retirement account shall be treated as having 
                        been made--
                                    ``(I) first from the earliest 
                                contribution (and earnings allocable 
                                thereto) remaining in the account at 
                                the time of the distribution, and
                                    ``(II) then from other 
                                contributions (and earnings allocable 
                                thereto) in the order in which made.
                            ``(ii) Allocations between contributions 
                        and earnings.--Any portion of a distribution 
                        allocated to a contribution (and earnings 
                        allocable thereto) shall be treated as 
allocated first to the earnings and then to the contribution.
                            ``(iii) Allocation of earnings.--Earnings 
                        shall be allocated to a contribution in such 
                        manner as the Secretary may by regulations 
                        prescribe.
                            ``(iv) Contributions in same year.--Except 
                        as provided in regulations, all contributions 
                        made during the same taxable year may be 
                        treated as 1 contribution for purposes of this 
                        subparagraph.
                    ``(C) Cross reference.--

                                ``For additional tax for early 
withdrawal, see section 72(t).
            ``(3) Qualified transfer.--
                    ``(A) In general.--Paragraph (2) shall not apply to 
                any distribution which is transferred in a qualified 
                transfer to another special individual retirement 
                account.
                    ``(B) Contribution period.--For purposes of 
                paragraph (2), the special individual retirement 
                account to which any contributions are transferred 
                shall be treated as having held such contributions 
                during any period such contributions were held (or are 
                treated as held under this subparagraph) by the special 
                individual retirement account from which transferred.
            ``(4) Special rules relating to certain transfers.--
                    ``(A) In general.--Notwithstanding any other 
                provision of law, in the case of a qualified transfer 
                to a special individual retirement account from an 
individual retirement plan which is not a special individual retirement 
account--
                            ``(i) there shall be included in gross 
                        income any amount which, but for the qualified 
                        transfer, would be includible in gross income, 
                        but
                            ``(ii) section 72(t) shall not apply to 
                        such amount.
                    ``(B) Time for inclusion.--In the case of any 
                qualified transfer which occurs before January 1, 1997, 
                any amount includible in gross income under 
                subparagraph (A) with respect to such contribution 
                shall be includible ratably over the 4-taxable year 
                period beginning in the taxable year in which the 
                amount was paid or distributed out of the individual 
                retirement plan.
    ``(e) Qualified Transfer.--
            ``(1) In general.--The term `qualified transfer' means a 
        transfer to a special individual retirement account from 
        another such account or from an individual retirement plan but 
        only if such transfer meets the requirements of section 
        408(d)(3).
            ``(2) Limitation.--A transfer otherwise described in 
        paragraph (1) shall not be treated as a qualified transfer if 
        the taxpayer's adjusted gross income for the taxable year of 
        the transfer exceeds the sum of--
                    ``(A) the applicable dollar amount, plus
                    ``(B) the dollar amount applicable for the taxable 
                year under section 219(g)(2)(A)(ii).
        This paragraph shall not apply to a transfer from a special 
        individual retirement account to another special individual 
        retirement account.
            ``(3) Definitions.--For purposes of this subsection, the 
        terms `adjusted gross income' and `applicable dollar amount' 
        have the meanings given such terms by section 219(g)(3), except 
        subparagraph (A)(ii) thereof shall be applied without regard to 
        the phrase `or the deduction allowable under this section'.''
    (b) Early Withdrawal Penalty.--Section 72(t) is amended by adding 
at the end the following new paragraph:
            ``(6) Rules relating to special individual retirement 
        accounts.--In the case of a special individual retirement 
        account under section 408A--
                    ``(A) this subsection shall only apply to 
                distributions out of such account which consist of 
                earnings allocable to contributions made to the account 
                during the 5-year period ending on the day before such 
                distribution, and
                    ``(B) paragraph (2)(A)(i) shall not apply to any 
                distribution described in subparagraph (A).''
    (c) Excess Contributions.--Section 4973(b) is amended by adding at 
the end the following new sentence: ``For purposes of paragraphs (1)(B) 
and (2)(C), the amount allowable as a deduction under section 219 shall 
be computed without regard to section 408A.''
    (d) Conforming Amendment.--The table of sections for subpart A of 
part I of subchapter D of chapter 1 is amended by inserting after the 
item relating to section 408 the following new item:

                              ``Sec. 408A. Special individual 
                                        retirement accounts.''
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

                  PART III--PENALTY-FREE DISTRIBUTIONS

SEC. 121. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT PENALTY 
              TO PURCHASE FIRST HOMES, TO PAY HIGHER EDUCATION OR 
              FINANCIALLY DEVASTATING MEDICAL EXPENSES, OR BY THE 
              UNEMPLOYED.

    (a) In General.--Paragraph (2) of section 72(t) (relating to 
exceptions to 10-percent additional tax on early distributions from 
qualified retirement plans) is amended by adding at the end the 
following new subparagraph:
                    ``(D) Distributions from certain plans for first 
                home purchases or educational expenses.--Distributions 
                to an individual from an individual retirement plan--
                            ``(i) which are qualified first-time 
                        homebuyer distributions (as defined in 
                        paragraph (7)); or
                            ``(ii) to the extent such distributions do 
                        not exceed the qualified higher education 
                        expenses (as defined in paragraph (8)) of the 
                        taxpayer for the taxable year.''
    (b) Financially Devastating Medical Expenses.--
            (1) In general.--Section 72(t)(3)(A) is amended by striking 
        ``(B),''.
            (2) Certain lineal descendants and ancestors treated as 
        dependents and long-term care services treated as medical 
        care.--Subparagraph (B) of section 72(t)(2) is amended by 
        striking ``medical care'' and all that follows and inserting 
        ``medical care determined--
                            ``(i) without regard to whether the 
                        employee itemizes deductions for such taxable 
                        year, and
                            ``(ii) in the case of an individual 
                        retirement plan--
                                    ``(I) by treating such employee's 
                                dependents as including all children, 
                                grandchildren and ancestors of the 
                                employee or such employee's spouse and
                                    ``(II) by treating qualified long-
                                term care services (as defined in 
                                paragraph (9)) as medical care for 
                                purposes of this subparagraph (B).''
            (3) Conforming amendment.--Subparagraph (B) of section 
        72(t)(2) is amended by striking ``or (C)'' and inserting ``, 
        (C) or (D)''.
    (c) Definitions.--Section 72(t), as amended by this Act, is amended 
by adding at the end the following new paragraphs:
            ``(7) Qualified first-time homebuyer distributions.--For 
        purposes of paragraph (2)(D)(i):
                    ``(A) In general.--The term `qualified first-time 
                homebuyer distribution' means any payment or 
                distribution received by an individual to the extent 
                such payment or distribution is used by the individual 
                before the close of the 60th day after the day on which 
                such payment or distribution is received to pay 
                qualified acquisition costs with respect to a principal 
                residence of a first-time homebuyer who is such 
                individual or the spouse, child (as defined in section 
                151(c)(3)), or grandchild of such individual.
                    ``(B) Qualified acquisition costs.--For purposes of 
                this paragraph, the term `qualified acquisition costs' 
                means the costs of acquiring, constructing, or 
                reconstructing a residence. Such term includes any 
                usual or reasonable settlement, financing, or other 
                closing costs.
                    ``(C) First-time homebuyer; other definitions.--For 
                purposes of this paragraph:
                            ``(i) First-time homebuyer.--The term 
                        `first-time homebuyer' means any individual 
                        if--
                                    ``(I) such individual (and if 
                                married, such individual's spouse) had 
                                no present ownership interest in a 
                                principal residence during the 3-year 
                                period ending on the date of 
                                acquisition of the principal residence 
                                to which this paragraph applies, and
                                    ``(II) subsection (h) or (k) of 
                                section 1034 did not suspend the 
                                running of any period of time specified 
                                in section 1034 with respect to such 
                                individual on the day before the date 
                                the distribution is applied pursuant to 
                                subparagraph (A).
                        In the case of an individual described in 
                        section 143(i)(1)(C) for any year, an ownership 
                        interest shall not include any interest under a 
                        contract of deed described in such section. An 
                        individual who loses an ownership interest in a 
                        principal residence incident to a divorce or 
                        legal separation is deemed for purposes of this 
                        subparagraph to have had no ownership interest 
                        in such principal residence within the period 
                        referred to in subparagraph (A)(II).
                            ``(ii) Principal residence.--The term 
                        `principal residence' has the same meaning as 
                        when used in section 1034.
                            ``(iii) Date of acquisition.--The term 
                        `date of acquisition' means the date--
                                    ``(I) on which a binding contract 
                                to acquire the principal residence to 
                                which subparagraph (A) applies is 
                                entered into, or
                                    ``(II) on which construction or 
                                reconstruction of such a principal 
                                residence is commenced.
                    ``(D) Special rule where delay in acquisition.--If 
                any distribution from any individual retirement plan 
                fails to meet the requirements of subparagraph (A) 
                solely by reason of a delay or cancellation of the 
                purchase or construction of the residence, the amount 
                of the distribution may be contributed to an individual 
                retirement plan as provided in section 408(d)(3)(A)(i) 
                (determined by substituting `120 days' for `60 days' in 
                such section), except that--
                            ``(i) section 408(d)(3)(B) shall not be 
                        applied to such contribution, and
                            ``(ii) such amount shall not be taken into 
                        account in determining whether section 
                        408(d)(3)(A)(i) applies to any other amount.
            ``(8) Qualified higher education expenses.--For purposes of 
        paragraph (2)(D)(ii)--
                    ``(A) In general.--The term `qualified higher 
                education expenses' means tuition and fees required for 
                the enrollment or attendance of--
                            ``(i) the taxpayer,
                            ``(ii) the taxpayer's spouse,
                            ``(iii) a dependent of the taxpayer with 
                        respect to whom the taxpayer is allowed a 
                        deduction under section 151, or
                            ``(iv) the taxpayer's child (as defined in 
                        section 151(c)(3)) or grandchild,
                as an eligible student at an institution of higher 
                education (as defined in paragraphs (1)(D) and (2) of 
                section 220(c)).
                    ``(B) Exceptions.--The term `qualified higher 
                education expenses' does not include expenses described 
                in subparagraphs (B) and (C) of section 220(c)(1).
                    ``(C) Coordination with savings bond provisions.--
                The amount of qualified higher education expenses for 
                any taxable year shall be reduced by any amount 
excludable from gross income under section 135.
            ``(9) Qualified long-term care services.--For purposes of 
        paragraph (2)(B):
                    ``(A) In general.--The term `qualified long-term 
                care services' means necessary diagnostic, curing, 
                mitigating, treating, preventive, therapeutic, and 
                rehabilitative services, and maintenance and personal 
                care services (whether performed in a residential or 
                nonresidential setting) which--
                            ``(i) are required by an individual during 
                        any period the individual is an incapacitated 
                        individual (as defined in subparagraph (B)),
                            ``(ii) have as their primary purpose--
                                    ``(I) the provision of needed 
                                assistance with 1 or more activities of 
                                daily living (as defined in 
                                subparagraph (C)), or
                                    ``(II) protection from threats to 
                                health and safety due to severe 
                                cognitive impairment, and
                            ``(iii) are provided pursuant to a 
                        continuing plan of care prescribed by a 
                        licensed professional (as defined in 
                        subparagraph (D)).
                    ``(B) Incapacitated individual.--The term 
                `incapacitated individual' means any individual who--
                            ``(i) is unable to perform, without 
                        substantial assistance from another individual 
                        (including assistance involving cueing or 
                        substantial supervision), at least 2 activities 
                        of daily living as defined in subparagraph (C), 
                        or
                            ``(ii) has severe cognitive impairment as 
                        defined by the Secretary in consultation with 
                        the Secretary of Health and Human Services.
                Such term shall not include any individual otherwise 
                meeting the requirements of the preceding sentence 
                unless a licensed professional within the preceding 12-
                month period has certified that such individual meets 
                such requirements.
                    ``(C) Activities of daily living.--Each of the 
                following is an activity of daily living:
                            ``(i) Eating.
                            ``(ii) Toileting.
                            ``(iii) Transferring.
                            ``(iv) Bathing.
                            ``(v) Dressing.
                    ``(D) Licensed professional.--The term `licensed 
                professional' means--
                            ``(i) a physician or registered 
                        professional nurse, or
                            ``(ii) any other individual who meets such 
                        requirements as may be prescribed by the 
Secretary after consultation with the Secretary of Health and Human 
Services.
                    ``(E) Certain services not included.--The term 
                `qualified long-term care services' shall not include 
                any services provided to an individual--
                            ``(i) by a relative (directly or through a 
                        partnership, corporation, or other entity) 
                        unless the relative is a licensed professional 
                        with respect to such services, or
                            ``(ii) by a corporation or partnership 
                        which is related (within the meaning of section 
                        267(b) or 707(b)) to the individual.
                For purposes of this subparagraph, the term `relative' 
                means an individual bearing a relationship to the 
                individual which is described in paragraphs (1) through 
                (8) of section 152(a).''
    (d) Penalty-Free Distributions for Certain Unemployed 
Individuals.--Paragraph (2) of section 72(t) is amended by adding at 
the end the following new subparagraph:
                    ``(E) Distributions to unemployed individuals.--A 
                distribution from an individual retirement plan to an 
                individual after separation from employment, if--
                            ``(i) such individual has received 
                        unemployment compensation for 12 consecutive 
                        weeks under any Federal or State unemployment 
                        compensation law by reason of such separation, 
                        and
                            ``(ii) such distributions are made during 
                        any taxable year during which such unemployment 
                        compensation is paid or the succeeding taxable 
                        year.''
    (e) Effective Date.--The amendments made by this section shall 
apply to payments and distributions after December 31, 1995.

SEC. 122. CONTRIBUTIONS MUST BE HELD AT LEAST 5 YEARS IN CERTAIN CASES.

    (a) In General.--Section 72(t), as amended by this Act, is amended 
by adding at the end the following new paragraph:
            ``(10) Certain contributions must be held 5 years.--
                    ``(A) In general.--Paragraph (2)(A)(i) shall not 
                apply to any amount distributed out of an individual 
                retirement plan (other than a special individual 
                retirement account) which is allocable to contributions 
                made to the plan during the 5-year period ending on the 
                date of such distribution (and earnings on such 
                contributions).
                    ``(B) Ordering rule.--For purposes of this 
                paragraph, distributions shall be treated as having 
                been made--
                            ``(i) first from the earliest contribution 
                        (and earnings allocable thereto) remaining in 
                        the account at the time of the distribution, 
                        and
                            ``(ii) then from other contributions (and 
                        earnings allocable thereto) in the order in 
                        which made.
                Earnings shall be allocated to contributions in such 
                manner as the Secretary may prescribe.
                    ``(C) Special rule for rollovers.--
                            ``(i) Pension plans.--Subparagraph (A) 
                        shall not apply to distributions out of an 
                        individual retirement plan which are allocable 
                        to rollover contributions to which section 
                        402(c), 403(a)(4), or 403(b)(8) applied.
                            ``(ii) Contribution period.--For purposes 
                        of subparagraph (A), amounts shall be treated 
                        as having been held by a plan during any period 
                        such contributions were held (or are treated as 
                        held under this clause) by any individual 
                        retirement plan from which transferred.
                    ``(D) Special accounts.--For rules applicable to 
                special individual retirement accounts under section 
                408A, see paragraph (8).''
    (b) Effective Date.--The amendment made by this section shall apply 
to contributions (and earnings allocable thereto) which are made after 
December 31, 1995.

                          PART IV--PLAN LOANS

SEC. 126. LOAN REQUIREMENTS FOR DEFINED CONTRIBUTION PLANS.

    (a) In General.--Section 401(a) is amended by inserting after 
paragraph (34) the following new paragraph:
            ``(35) Loan requirements for defined contribution plans.--A 
        trust which is part of a defined contribution plan shall not 
        constitute a qualified trust under this section unless the plan 
        provides that a participant may, subject to the provisions of 
        section 72(p), obtain a loan from the plan for the purpose of--
                    ``(A) purchasing a principal residence,
                    ``(B) paying qualified higher education expenses 
                (as defined in section 72(t)(8)),
                    ``(C) paying for medical expenses described in 
                section 72(t)(2)(B), or
                    ``(D) alleviating financial hardship.
        In no event shall a plan be required to make a loan to a 
        participant under this paragraph in an amount in excess of the 
        nonforfeitable balance to the credit of the participant under 
        the plan.''
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 1996, except that any plan 
amendment by reason of such amendment shall not required to be made 
before January 1, 1998, if the plan is operated in accordance with such 
amendment for years beginning in 1997.

                      Subtitle C--Health Security

                          PART I--DEFINITIONS

SEC. 131. DEFINITIONS.

    As used in this subtitle:
            (1) Beneficiary.--The term ``beneficiary'' has the meaning 
        given such term under section 3(8) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1002(8)).
            (2) Employee.--The term ``employee'' has the meaning given 
        such term under section 3(6) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1002(6)).
            (3) Employer.--The term ``employer'' has the meaning given 
        such term under section 3(5) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1002(5)), except that such term 
        shall include only employers of two or more employees.
            (4) Employee health benefit plan.--
                    (A) In general.--The term ``employee health benefit 
                plan'' means any employee welfare benefit plan, 
                governmental plan, or church plan (as defined under 
                paragraphs (1), (32), and (33) of section 3 of the 
                Employee Retirement Income Security Act of 1974 (29 
                U.S.C. 1002 (1), (32), and (33))) that provides or pays 
                for health benefits (such as provider and hospital 
                benefits) for participants and beneficiaries whether--
                            (i) directly;
                            (ii) through a group health plan offered by 
                        a health plan issuer as defined in paragraph 
                        (8); or
                            (iii) otherwise.
                    (B) Rule of construction.--An employee health 
                benefit plan shall not be construed to be a group 
                health plan, an individual health plan, or a health 
                plan issuer.
                    (C) Arrangements not included.--Such term does not 
                include the following, or any combination thereof:
                            (i) Coverage only for accident, or 
                        disability income insurance, or any combination 
                        thereof.
                            (ii) Medicare supplemental health insurance 
                        (as defined under section 1882(g)(1) of the 
                        Social Security Act).
                            (iii) Coverage issued as a supplement to 
                        liability insurance.
                            (iv) Liability insurance, including general 
                        liability insurance and automobile liability 
                        insurance.
                            (v) Workers compensation or similar 
                        insurance.
                            (vi) Automobile medical payment insurance.
                            (vii) Coverage for a specified disease or 
                        illness.
                            (viii) Hospital or fixed indemnity 
                        insurance.
                            (ix) Short-term limited duration insurance.
                            (x) Credit-only, dental-only, or vision-
                        only insurance.
                            (xi) A health insurance policy providing 
                        benefits only for long-term care, nursing home 
                        care, home health care, community-based care, 
                        or any combination thereof.
            (5) Family.--
                    (A) In general.--The term ``family'' means an 
                individual, the individual's spouse, and the child of 
                the individual (if any).
                    (B) Child.--For purposes of subparagraph (A), the 
                term ``child'' means any individual who is a child 
                within the meaning of section 151(c)(3) of the Internal 
                Revenue Code of 1986.
            (6) Group health plan.--
                    (A) In general.--The term ``group health plan'' 
                means any contract, policy, certificate or other 
                arrangement offered by a health plan issuer to a group 
                purchaser that provides or pays for health benefits 
                (such as provider and hospital benefits) in connection 
                with an employee health benefit plan.
                    (B) Arrangements not included.--Such term does not 
                include the following, or any combination thereof:
                            (i) Coverage only for accident, or 
                        disability income insurance, or any combination 
                        thereof.
                            (ii) Medicare supplemental health insurance 
                        (as defined under section 1882(g)(1) of the 
                        Social Security Act).
                            (iii) Coverage issued as a supplement to 
                        liability insurance.
                            (iv) Liability insurance, including general 
                        liability insurance and automobile liability 
                        insurance.
                            (v) Workers compensation or similar 
                        insurance.
                            (vi) Automobile medical payment insurance.
                            (vii) Coverage for a specified disease or 
                        illness.
                            (viii) Hospital or fixed indemnity 
                        insurance.
                            (ix) Short-term limited duration insurance.
                            (x) Credit-only, dental-only, or vision-
                        only insurance.
                            (xi) A health insurance policy providing 
                        benefits only for long-term care, nursing home 
                        care, home health care, community-based care, 
                        or any combination thereof.
            (7) Group purchaser.--The term ``group purchaser'' means 
        any person (as defined under paragraph (9) of section 3 of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1002(9)) or entity that purchases or pays for health benefits 
        (such as provider or hospital benefits) on behalf of two or 
        more participants or beneficiaries in connection with an 
        employee health benefit plan. A health plan purchasing 
        cooperative established under section 131 shall not be 
        considered to be a group purchaser.
            (8) Health plan issuer.--The term ``health plan issuer'' 
        means any entity that is licensed (prior to or after the date 
        of enactment of this Act) by a State to offer a group health 
        plan or an individual health plan.
            (9) Participant.--The term ``participant'' has the meaning 
        given such term under section 3(7) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1002(7)).
            (10) Plan sponsor.--The term ``plan sponsor'' has the 
        meaning given such term under section 3(16)(B) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1002(16)(B)).
            (11) Secretary.--The term ``Secretary'', unless 
        specifically provided otherwise, means the Secretary of Labor.
            (12) State.--The term ``State'' means each of the several 
        States, the District of Columbia, Puerto Rico, the United 
        States Virgin Islands, Guam, American Samoa, and the 
        Commonwealth of the Northern Mariana Islands.

       PART II--HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY

                     Subpart A--Group Market Rules

SEC. 135. GUARANTEED AVAILABILITY OF HEALTH COVERAGE.

    (a) In General.--
            (1) Nondiscrimination.--Except as provided in subsection 
        (b), sections 136 and 137--
                    (A) a health plan issuer offering a group health 
                plan may not decline to offer whole group coverage to a 
                group purchaser desiring to purchase such coverage; and
                    (B) an employee health benefit plan or a health 
                plan issuer offering a group health plan may establish 
                eligibility, continuation of eligibility, enrollment, 
                or premium contribution requirements under the terms of 
                such plan, except that such requirements shall not be 
                based on health status, medical condition, claims 
                experience, receipt of health care, medical history, 
                evidence of insurability, or disability.
            (2) Health promotion and disease prevention.--Nothing in 
        this subsection shall prevent an employee health benefit plan 
        or a health plan issuer from establishing premium discounts or 
        modifying otherwise applicable copayments or deductibles in 
        return for adherence to programs of health promotion and 
        disease prevention.
    (b) Application of Capacity Limits.--
            (1) In general.--Subject to paragraph (2), a health plan 
        issuer offering a group health plan may cease offering coverage 
        to group purchasers under the plan if--
                    (A) the health plan issuer ceases to offer coverage 
                to any additional group purchasers; and
                    (B) the health plan issuer can demonstrate to the 
                applicable certifying authority (as defined in section 
                172(d)), if required, that its financial or provider 
                capacity to serve previously covered participants and 
                beneficiaries (and additional participants and 
                beneficiaries who will be expected to enroll because of 
                their affiliation with a group purchaser or such 
                previously covered participants or beneficiaries) will 
                be impaired if the health plan issuer is required to 
                offer coverage to additional group purchasers.
        Such health plan issuer shall be prohibited from offering 
        coverage after a cessation in offering coverage under this 
        paragraph for a 6-month period or until the health plan issuer 
        can demonstrate to the applicable certifying authority (as 
        defined in section 172(d)) that the health plan issuer has 
        adequate capacity, whichever is later.
            (2) First-come-first-served.--A health plan issuer offering 
        a group health plan is only eligible to exercise the 
        limitations provided for in paragraph (1) if the health plan 
        issuer offers coverage to group purchasers under such plan on a 
        first-come-first-served basis or other basis established by a 
        State to ensure a fair opportunity to enroll in the plan and 
        avoid risk selection.
    (c) Construction.--
            (1) Marketing of group health plans.--Nothing in this 
        section shall be construed to prevent a State from requiring 
        health plan issuers offering group health plans to actively 
        market such plans.
            (2) Involuntary offering of group health plans.--Nothing in 
        this section shall be construed to require a health plan issuer 
        to involuntarily offer group health plans in a particular 
        market. For the purposes of this paragraph, the term ``market'' 
        means either the large employer market or the small employer 
        market (as defined under applicable State law, or if not so 
        defined, an employer with not more than 50 employees).

SEC. 136. GUARANTEED RENEWABILITY OF HEALTH COVERAGE.

    (a) In General.--
            (1) Group purchaser.--Subject to subsections (b) and (c), a 
        group health plan shall be renewed or continued in force by a 
        health plan issuer at the option of the group purchaser, except 
        that the requirement of this subparagraph shall not apply in 
        the case of--
                    (A) the nonpayment of premiums or contributions by 
                the group purchaser in accordance with the terms of the 
                group health plan or where the health plan issuer has 
                not received timely premium payments;
                    (B) fraud or misrepresentation of material fact on 
                the part of the group purchaser;
                    (C) the termination of the group health plan in 
                accordance with subsection (b); or
                    (D) the failure of the group purchaser to meet 
                contribution or participation requirements in 
                accordance with paragraph (3).
            (2) Participant.--Subject to subsections (b) and (c), 
        coverage under an employee health benefit plan or group health 
        plan shall be renewed or continued in force, if the group 
        purchaser elects to continue to provide coverage under such 
        plan, at the option of the participant (or beneficiary where 
        such right exists under the terms of the plan or under 
        applicable law), except that the requirement of this paragraph 
        shall not apply in the case of--
                    (A) the nonpayment of premiums or contributions by 
                the participant or beneficiary in accordance with the 
                terms of the employee health benefit plan or group 
                health plan or where such plan has not received timely 
                premium payments;
                    (B) fraud or misrepresentation of material fact on 
                the part of the participant or beneficiary relating to 
                an application for coverage or claim for benefits;
                    (C) the termination of the employee health benefit 
                plan or group health plan;
                    (D) loss of eligibility for continuation coverage 
                as described in part 6 of subtitle B of title I of the 
                Employee Retirement Income Security Act of 1974 (29 
                U.S.C. 1161 et seq.); or
                    (E) failure of a participant or beneficiary to meet 
                requirements for eligibility for coverage under an 
                employee health benefit plan or group health plan that 
                are not prohibited by this Act.
            (3) Rules of construction.--Nothing in this subsection, nor 
        in section 135(a), shall be construed to--
                    (A) preclude a health plan issuer from establishing 
                employer contribution rules or group participation 
                rules for group health plans as allowed under 
                applicable State law;
                    (B) preclude a plan defined in section 3(37) of the 
                Employee Retirement Income Security Act of 1974 (29 
                U.S.C. 1102(37)) from establishing employer 
                contribution rules or group participation rules; or
                    (C) permit individuals to decline coverage under an 
                employee health benefit plan if such right is not 
                otherwise available under such plan.
    (b) Termination of Group Health Plans.--
            (1) Particular type of group health plan not offered.--In 
        any case in which a health plan issuer decides to discontinue 
        offering a particular type of group health plan, a group health 
        plan of such type may be discontinued by the health plan issuer 
        only if--
                    (A) the health plan issuer provides notice to each 
                group purchaser covered under a group health plan of 
                this type (and participants and beneficiaries covered 
                under such group health plan) of such discontinuation 
                at least 90 days prior to the date of the 
                discontinuation of such plan;
                    (B) the health plan issuer offers to each group 
                purchaser covered under a group health plan of this 
                type, the option to purchase any other group health 
                plan currently being offered by the health plan issuer; 
                and
                    (C) in exercising the option to discontinue a group 
                health plan of this type and in offering one or more 
                replacement plans, the health plan issuer acts 
                uniformly without regard to the health status or 
                insurability of participants or beneficiaries covered 
                under the group health plan, or new participants or 
                beneficiaries who may become eligible for coverage 
                under the group health plan.
            (2) Discontinuance of all group health plans.--
                    (A) In general.--In any case in which a health plan 
                issuer elects to discontinue offering all group health 
                plans in a State, a group health plan may be 
                discontinued by the health plan issuer only if--
                            (i) the health plan issuer provides notice 
                        to the applicable certifying authority (as 
                        defined in section 172(d)) and to each group 
                        purchaser (and participants and beneficiaries 
                        covered under such group health plan) of such 
                        discontinuation at least 180 days prior to the 
                        date of the expiration of such plan; and
                            (ii) all group health plans issued or 
                        delivered for issuance in the State are 
                        discontinued and coverage under such plans is 
                        not renewed.
                    (B) Application of provisions.--The provisions of 
                this paragraph and paragraph (3) may be applied 
                separately by a health plan issuer--
                            (i) to all group health plans offered to 
                        small employers (as defined under applicable 
                        State law, or if not so defined, an employer 
                        with not more than 50 employees); or
                            (ii) to all other group health plans 
                        offered by the health plan issuer in the State.
            (3) Prohibition on market reentry.--In the case of a 
        discontinuation under paragraph (2), the health plan issuer may 
        not provide for the issuance of any group health plan in the 
        market sector (as described in paragraph (2)(B)) in which 
        issuance of such group health plan was discontinued in the 
        State involved during the 5-year period beginning on the date 
        of the discontinuation of the last group health plan not so 
        renewed.
    (c) Treatment of Network Plans.--
            (1) Geographic limitations.--A network plan (as defined in 
        paragraph (2)) may deny continued participation under such plan 
        to participants or beneficiaries who neither live, reside, nor 
        work in an area in which such network plan is offered, but only 
        if such denial is applied uniformly, without regard to health 
        status or the insurability of particular participants or 
        beneficiaries.
            (2) Network plan.--As used in paragraph (1), the term 
        ``network plan'' means an employee health benefit plan or a 
        group health plan that arranges for the financing and delivery 
        of health care services to participants or beneficiaries 
        covered under such plan, in whole or in part, through 
        arrangements with providers.
    (d) COBRA Coverage.--Nothing in subsection (a)(2)(E) or subsection 
(c) shall be construed to affect any right to COBRA continuation 
coverage as described in part 6 of subtitle B of title I of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1161 et 
seq.).

SEC. 137. PORTABILITY OF HEALTH COVERAGE AND LIMITATION ON PREEXISTING 
              CONDITION EXCLUSIONS.

    (a) In General.--An employee health benefit plan or a health plan 
issuer offering a group health plan may impose a limitation or 
exclusion of benefits relating to treatment of a preexisting condition 
based on the fact that the condition existed prior to the coverage of 
the participant or beneficiary under the plan only if--
            (1) the limitation or exclusion extends for a period of not 
        more than 12 months after the date of enrollment in the plan;
            (2) the limitation or exclusion does not apply to an 
        individual who, within 30 days of the date of birth or 
        placement for adoption (as determined under section 
        609(c)(3)(B) of the Employee Retirement Income Security Act of 
        1974 (29 U.S.C. 1169(c)(3)(B)), was covered under the plan; and
            (3) the limitation or exclusion does not apply to a 
        pregnancy.
    (b) Crediting of Previous Qualifying Coverage.--
            (1) In general.--Subject to paragraph (4), an employee 
        health benefit plan or a health plan issuer offering a group 
        health plan shall provide that if a participant or beneficiary 
        is in a period of previous qualifying coverage as of the date 
        of enrollment under such plan, any period of exclusion or 
        limitation of coverage with respect to a preexisting condition 
        shall be reduced by 1 month for each month in which the 
        participant or beneficiary was in the period of previous 
        qualifying coverage. With respect to an individual described in 
        subsection (a)(2) who maintains continuous coverage, no 
        limitation or exclusion of benefits relating to treatment of a 
        preexisting condition may be applied to a child within the 
        child's first 12 months of life or within 12 months after the 
        placement of a child for adoption.
            (2) Discharge of duty.--An employee health benefit plan 
        shall provide documentation of coverage to participants and 
        beneficiaries whose coverage is terminated under the plan. 
        Pursuant to regulations promulgated by the Secretary, the duty 
        of an employee health benefit plan to verify previous 
        qualifying coverage with respect to a participant or 
        beneficiary is effectively discharged when such employee health 
        benefit plan provides documentation to a participant or 
        beneficiary that includes the following information:
                    (A) the dates that the participant or beneficiary 
                was covered under the plan; and
                    (B) the benefits and cost-sharing arrangement 
                available to the participant or beneficiary under such 
                plan.
        An employee health benefit plan shall retain the documentation 
        provided to a participant or beneficiary under subparagraphs 
        (A) and (B) for at least the 12-month period following the date 
        on which the participant or beneficiary ceases to be covered 
        under the plan. Upon request, an employee health benefit plan 
        shall provide a second copy of such documentation to such 
        participant or beneficiary within the 12-month period following 
        the date of such ineligibility.
            (3) Definitions.--As used in this section:
                    (A) Previous qualifying coverage.--The term 
                ``previous qualifying coverage'' means the period 
                beginning on the date--
                            (i) a participant or beneficiary is 
                        enrolled under an employee health benefit plan 
                        or a group health plan, and ending on the date 
the participant or beneficiary is not so enrolled; or
                            (ii) an individual is enrolled under an 
                        individual health plan (as defined in section 
                        144) or under a public or private health plan 
                        established under Federal or State law, and 
                        ending on the date the individual is not so 
                        enrolled;
                for a continuous period of more than 30 days (without 
                regard to any waiting period).
                    (B) Limitation or exclusion of benefits relating to 
                treatment of a preexisting condition.--The term 
                ``limitation or exclusion of benefits relating to 
                treatment of a preexisting condition'' means a 
                limitation or exclusion of benefits imposed on an 
                individual based on a preexisting condition of such 
                individual.
            (4) Effect of previous coverage.--An employee health 
        benefit plan or a health plan issuer offering a group health 
        plan may impose a limitation or exclusion of benefits relating 
        to the treatment of a preexisting condition, subject to the 
        limits in subsection (a)(1), only to the extent that such 
        service or benefit was not previously covered under the group 
        health plan, employee health benefit plan, or individual health 
        plan in which the participant or beneficiary was enrolled 
        immediately prior to enrollment in the plan involved.
    (c) Late Enrollees.--Except as provided in section 138, with 
respect to a participant or beneficiary enrolling in an employee health 
benefit plan or a group health plan during a time that is other than 
the first opportunity to enroll during an enrollment period of at least 
30 days, coverage with respect to benefits or services relating to the 
treatment of a preexisting condition in accordance with subsections (a) 
and (b) may be excluded, except the period of such exclusion may not 
exceed 18 months beginning on the date of coverage under the plan.
    (d) Affiliation Periods.--With respect to a participant or 
beneficiary who would otherwise be eligible to receive benefits under 
an employee health benefit plan or a group health plan but for the 
operation of a preexisting condition limitation or exclusion, if such 
plan does not utilize a limitation or exclusion of benefits relating to 
the treatment of a preexisting condition, such plan may impose an 
affiliation period on such participant or beneficiary not to exceed 60 
days (or in the case of a late participant or beneficiary described in 
subsection (c), 90 days) from the date on which the participant or 
beneficiary would otherwise be eligible to receive benefits under the 
plan. An employee health benefit plan or a health plan issuer offering 
a group health plan may also use alternative methods to address adverse 
selection as approved by the applicable certifying authority (as 
defined in section 172(d)). During such an affiliation period, the plan 
may not be required to provide health care services or benefits and no 
premium shall be charged to the participant or beneficiary.
    (e)  Preexisting Condition.--For purposes of this section, the term 
``preexisting condition'' means a condition, regardless of the cause of 
the condition, for which medical advice, diagnosis, care, or treatment 
was recommended or received within the 6-month period ending on the day 
before the effective date of the coverage (without regard to any 
waiting period).
    (f) State Flexibility.--Nothing in this section shall be construed 
to preempt State laws that--
            (1) require health plan issuers to impose a limitation or 
        exclusion of benefits relating to the treatment of a 
        preexisting condition for periods that are shorter than those 
        provided for under this section; or
            (2) allow individuals, participants, and beneficiaries to 
        be considered to be in a period of previous qualifying coverage 
        if such individual, participant, or beneficiary experiences a 
        lapse in coverage that is greater than the 30-day period 
        provided for under subsection (b)(3);
unless such laws are preempted by section 514 of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1144).

SEC. 138. SPECIAL ENROLLMENT PERIODS.

    In the case of a participant, beneficiary or family member who--
            (1) through marriage, separation, divorce, death, birth or 
        placement of a child for adoption, experiences a change in 
        family composition affecting eligibility under a group health 
        plan, individual health plan, or employee health benefit plan;
            (2) experiences a change in employment status, as described 
        in section 603(2) of the Employee Retirement Income Security 
        Act of 1974 (29 U.S.C. 1163(2)), that causes the loss of 
        eligibility for coverage, other than COBRA continuation 
        coverage under a group health plan, individual health plan, or 
employee health benefit plan; or
            (3) experiences a loss of eligibility under a group health 
        plan, individual health plan, or employee health benefit plan 
        because of a change in the employment status of a family 
        member;
each employee health benefit plan and each group health plan shall 
provide for a special enrollment period extending for a reasonable time 
after such event that would permit the participant to change the 
individual or family basis of coverage or to enroll in the plan if 
coverage would have been available to such individual, participant, or 
beneficiary but for failure to enroll during a previous enrollment 
period. Such a special enrollment period shall ensure that a child born 
or placed for adoption shall be deemed to be covered under the plan as 
of the date of such birth or placement for adoption if such child is 
enrolled within 30 days of the date of such birth or placement for 
adoption.

SEC. 139. DISCLOSURE OF INFORMATION.

    (a) Disclosure of Information by Health Plan Issuers.--
            (1) In general.--In connection with the offering of any 
        group health plan to a small employer (as defined under 
        applicable State law, or if not so defined, an employer with 
        not more than 50 employees), a health plan issuer shall make a 
        reasonable disclosure to such employer, as part of its 
        solicitation and sales materials, of--
                    (A) the provisions of such group health plan 
                concerning the health plan issuer's right to change 
                premium rates and the factors that may affect changes 
                in premium rates;
                    (B) the provisions of such group health plan 
                relating to renewability of coverage;
                    (C) the provisions of such group health plan 
                relating to any preexisting condition provision; and
                    (D) descriptive information about the benefits and 
                premiums available under all group health plans for 
                which the employer is qualified.
        Information shall be provided to small employers under this 
        paragraph in a manner determined to be understandable by the 
        average small employer, and shall be sufficiently accurate and 
        comprehensive to reasonably inform small employers, 
        participants and beneficiaries of their rights and obligations 
        under the group health plan.
            (2) Exception.--With respect to the requirement of 
        paragraph (1), any information that is proprietary and trade 
        secret information under applicable law shall not be subject to 
        the disclosure requirements of such paragraph.
            (3) Construction.--Nothing in this subsection shall be 
        construed to preempt State reporting and disclosure 
        requirements to the extent that such requirements are not 
        preempted under section 514 of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1144).
    (b) Disclosure of Information to Participants and Beneficiaries.--
            (1) In general.--Section 104(b)(1) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1024(b)(1)) 
        is amended in the matter following subparagraph (B)--
                    (A) by striking ``102(a)(1),'' and inserting 
                ``102(a)(1) that is not a material reduction in covered 
                services or benefits provided,''; and
                    (B) by adding at the end thereof the following new 
                sentences: ``If there is a modification or change 
                described in section 102(a)(1) that is a material 
                reduction in covered services or benefits provided, a 
                summary description of such modification or change 
                shall be furnished to participants not later than 60 
                days after the date of the adoption of the modification 
                or change. In the alternative, the plan sponsors may 
                provide such description at regular intervals of not 
                more than 90 days. The Secretary shall issue 
                regulations within 180 days after the date of enactment 
                of the American Family Income and Economic Security Act 
                of 1996, providing alternative mechanisms to delivery 
                by mail through which employee health benefit plans may 
                notify participants of material reductions in covered 
                services or benefits.''
            (2) Plan description and summary.--Section 102(b) of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1022(b)) is amended--
                    (A) by inserting ``including the office or title of 
                the individual who is responsible for approving or 
                denying claims for coverage of benefits'' after ``type 
                of administration of the plan'';
                    (B) by inserting ``including the name of the 
                organization responsible for financing claims'' after 
                ``source of financing of the plan''; and
                    (C) by inserting ``including the office, contact, 
                or title of the individual at the Department of Labor 
                through which participants may seek assistance or 
                information regarding their rights under this Act and 
                subtitle C of title I of the American Family Income and 
                Economic Security Act of 1996 with respect to health 
                benefits that are not offered through a group health 
plan.'' after ``benefits under the plan''.

                   Subpart B--Individual Market Rules

SEC. 141. INDIVIDUAL HEALTH PLAN PORTABILITY.

    (a) Limitation on Requirements.--
            (1) In general.--With respect to an individual desiring to 
        enroll in an individual health plan, if such individual is in a 
        period of previous qualifying coverage (as defined in section 
        137(b)(3)(A)(i)) under one or more group health plans or 
        employee health benefit plans that commenced 18 or more months 
        prior to the date on which such individual desires to enroll in 
        the individual plan, a health plan issuer described in 
        paragraph (3) may not decline to offer coverage to such 
        individual, or deny enrollment to such individual based on the 
        health status, medical condition, claims experience, receipt of 
        health care, medical history, evidence of insurability, or 
        disability of the individual, except as described in 
        subsections (b) and (c).
            (2) Health promotion and disease prevention.--Nothing in 
        this subsection shall be construed to prevent a health plan 
        issuer offering an individual health plan from establishing 
        premium discounts or modifying otherwise applicable copayments 
        or deductibles in return for adherence to programs of health 
        promotion or disease prevention.
            (3) Health plan issuer.--A health plan issuer described in 
        this paragraph is a health plan issuer that issues or renews 
        individual health plans.
            (4) Premiums.--Nothing in this subsection shall be 
        construed to affect the determination of a health plan issuer 
        as to the amount of the premium payable under an individual 
        health plan under applicable State law.
    (b) Eligibility for Other Group Coverage.--The provisions of 
subsection (a) shall not apply to an individual who is eligible for 
coverage under a group health plan or an employee health benefit plan, 
or who has had coverage terminated under a group health plan or 
employee health benefit plan for failure to make required premium 
payments or contributions, or for fraud or misrepresentation of 
material fact, or who is otherwise eligible for continuation coverage 
as described in part 6 of subtitle B of title I of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1161 et seq.) or 
under an equivalent State program.
    (c) Application of Capacity Limits.--
            (1) In general.--Subject to paragraph (2), a health plan 
        issuer offering coverage to individuals under an individual 
        health plan may cease enrolling individuals under the plan if--
                    (A) the health plan issuer ceases to enroll any new 
                individuals; and
                    (B) the health plan issuer can demonstrate to the 
                applicable certifying authority (as defined in section 
                172(d)), if required, that its financial or provider 
                capacity to serve previously covered individuals will 
                be impaired if the health plan issuer is required to 
                enroll additional individuals.
        Such a health plan issuer shall be prohibited from offering 
        coverage after a cessation in offering coverage under this 
        paragraph for a 6-month period or until the health plan issuer 
        can demonstrate to the applicable certifying authority (as 
        defined in section 172(d)) that the health plan issuer has 
        adequate capacity, whichever is later.
            (2) First-come-first-served.--A health plan issuer offering 
        coverage to individuals under an individual health plan is only 
        eligible to exercise the limitations provided for in paragraph 
        (1) if the health plan issuer provides for enrollment of 
        individuals under such plan on a first-come-first-served basis 
or other basis established by a State to ensure a fair opportunity to 
enroll in the plan and avoid risk selection.
    (d) Market Requirements.--
            (1) In general.--The provisions of subsection (a) shall not 
        be construed to require that a health plan issuer offering 
        group health plans to group purchasers offer individual health 
        plans to individuals.
            (2) Conversion policies.--A health plan issuer offering 
        group health plans to group purchasers under this Act shall not 
        be deemed to be a health plan issuer offering an individual 
        health plan solely because such health plan issuer offers a 
        conversion policy.
            (3) Marketing of plans.--Nothing in this section shall be 
        construed to prevent a State from requiring health plan issuers 
        offering coverage to individuals under an individual health 
        plan to actively market such plan.

SEC. 142. GUARANTEED RENEWABILITY OF INDIVIDUAL HEALTH COVERAGE.

    (a) In General.--Subject to subsections (b) and (c), coverage for 
individuals under an individual health plan shall be renewed or 
continued in force by a health plan issuer at the option of the 
individual, except that the requirement of this subsection shall not 
apply in the case of--
            (1) the nonpayment of premiums or contributions by the 
        individual in accordance with the terms of the individual 
        health plan or where the health plan issuer has not received 
        timely premium payments;
            (2) fraud or misrepresentation of material fact on the part 
        of the individual; or
            (3) the termination of the individual health plan in 
        accordance with subsection (b).
    (b) Termination of Individual Health Plans.--
            (1) Particular type of individual health plan not 
        offered.--In any case in which a health plan issuer decides to 
        discontinue offering a particular type of individual health 
        plan to individuals, an individual health plan may be 
        discontinued by the health plan issuer only if--
                    (A) the health plan issuer provides notice to each 
                individual covered under the plan of such 
                discontinuation at least 90 days prior to the date of 
                the expiration of the plan;
                    (B) the health plan issuer offers to each 
                individual covered under the plan the option to 
                purchase any other individual health plan currently 
                being offered by the health plan issuer to individuals; 
                and
                    (C) in exercising the option to discontinue the 
                individual health plan and in offering one or more 
                replacement plans, the health plan issuer acts 
                uniformly without regard to the health status or 
                insurability of particular individuals.
            (2) Discontinuance of all individual health plans.--In any 
        case in which a health plan issuer elects to discontinue all 
        individual health plans in a State, an individual health plan 
        may be discontinued by the health plan issuer only if--
                    (A) the health plan issuer provides notice to the 
                applicable certifying authority (as defined in section 
                172(d)) and to each individual covered under the plan 
                of such discontinuation at least 180 days prior to the 
                date of the discontinuation of the plan; and
                    (B) all individual health plans issued or delivered 
                for issuance in the State are discontinued and coverage 
                under such plans is not renewed.
            (3) Prohibition on market reentry.--In the case of a 
        discontinuation under paragraph (2), the health plan issuer may 
        not provide for the issuance of any individual health plan in 
        the State involved during the 5-year period beginning on the 
        date of the discontinuation of the last plan not so renewed.
    (c) Treatment of Network Plans.--
            (1) Geographic limitations.--A health plan issuer which 
        offers a network plan (as defined in paragraph (2)) may deny 
        continued participation under the plan to individuals who 
        neither live, reside, nor work in an area in which the 
        individual health plan is offered, but only if such denial is 
        applied uniformly, without regard to health status or the 
        insurability of particular individuals.
            (2) Network plan.--As used in paragraph (1), the term 
        ``network plan'' means an individual health plan that arranges 
        for the financing and delivery of health care services to 
        individuals covered under such health plan, in whole or in 
        part, through arrangements with providers.

SEC. 143. STATE FLEXIBILITY IN INDIVIDUAL MARKET REFORMS.

    (a) In General.--With respect to any State law with respect to 
which the Governor of the State notifies the Secretary of Health and 
Human Services that such State law will achieve the goals of sections 
141 and 142, and that is in effect on, or enacted after, the date of 
enactment of this Act (such as laws providing for guaranteed issue, 
open enrollment by one or more health plan issuers, high-risk pools, or 
mandatory conversion policies), such State law shall apply in lieu of 
the standards described in sections 141 and 142 unless the Secretary of 
Health and Human Services determines, after considering the criteria 
described in subsection (b)(1), in consultation with the Governor and 
Insurance Commissioner or chief insurance regulatory official of the 
State, that such State law does not achieve the goals of providing 
access to affordable health care coverage for those individuals 
described in sections 141 and 142.
    (b) Determination.--
            (1) In general.--In making a determination under subsection 
        (a), the Secretary of Health and Human Services shall only--
                    (A) evaluate whether the State law or program 
                provides guaranteed access to affordable coverage to 
                individuals described in sections 141 and 142;
                    (B) evaluate whether the State law or program 
                provides coverage for preexisting conditions (as 
                defined in section 137(e)) that were covered under the 
                individuals' previous group health plan or employee 
                health benefit plan for individuals described in 
                sections 141 and 142;
                    (C) evaluate whether the State law or program 
                provides individuals described in sections 141 and 142 
                with a choice of health plans or a health plan 
                providing comprehensive coverage; and
                    (D) evaluate whether the application of the 
                standards described in sections 141 and 142 will have 
                an adverse impact on the number of individuals in such 
                State having access to affordable coverage.
            (2) Notice of intent.--If, within 6 months after the date 
        of enactment of this Act, the Governor of a State notifies the 
        Secretary of Health and Human Services that the State intends 
        to enact a law, or modify an existing law, described in 
        subsection (a), the Secretary of Health and Human Services may 
        not make a determination under such subsection until the 
        expiration of the 12-month period beginning on the date on 
        which such notification is made, or until January 1, 1997, 
        whichever is later. With respect to a State that provides 
        notice under this paragraph and that has a legislature that 
        does not meet within the 12-month period beginning on the date 
        of enactment of this Act, the Secretary shall not make a 
        determination under subsection (a) prior to January 1, 1998.
            (3) Notice to state.--If the Secretary of Health and Human 
        Services determines that a State law or program does not 
        achieve the goals described in subsection (a), the Secretary of 
        Health and Human Services shall provide the State with adequate 
        notice and reasonable opportunity to modify such law or program 
        to achieve such goals prior to making a final determination 
        under subsection (a).
    (c) Adoption of NAIC Model.--If, not later than 9 months after the 
date of enactment of this Act--
            (1) the National Association of Insurance Commissioners 
        (hereafter referred to as the ``NAIC''), through a process 
        which the Secretary of Health and Human Services determines has 
        included consultation with representatives of the insurance 
        industry and consumer groups, adopts a model standard 
or standards for reform of the individual health insurance market; and
            (2) the Secretary of Health and Human Services determines, 
        within 30 days of the adoption of such NAIC standard or 
        standards, that such standards comply with the goals of 
        sections 141 and 142;
a State that elects to adopt such model standards or substantially 
adopt such model standards shall be deemed to have met the requirements 
of sections 141 and 142 and shall not be subject to a determination 
under subsection (a).

SEC. 144. DEFINITION.

    (a) In General.--As used in this part, the term ``individual health 
plan'' means any contract, policy, certificate or other arrangement 
offered to individuals by a health plan issuer that provides or pays 
for health benefits (such as provider and hospital benefits) and that 
is not a group health plan under section 131(6).
    (b) Arrangements Not Included.--Such term does not include the 
following, or any combination thereof:
            (1) Coverage only for accident, or disability income 
        insurance, or any combination thereof.
            (2) Medicare supplemental health insurance (as defined 
        under section 1882(g)(1) of the Social Security Act).
            (3) Coverage issued as a supplement to liability insurance.
            (4) Liability insurance, including general liability 
        insurance and automobile liability insurance.
            (5) Workers' compensation or similar insurance.
            (6) Automobile medical payment insurance.
            (7) Coverage for a specified disease or illness.
            (8) Hospital or fixed indemnity insurance.
            (9) Short-term limited duration insurance.
            (10) Credit-only, dental-only, or vision-only insurance.
            (11) A health insurance policy providing benefits only for 
        long-term care, nursing home care, home health care, community-
        based care, or any combination thereof.

                    Subpart C--COBRA Clarifications

SEC. 151. COBRA CLARIFICATIONS.

    (a) Public Health Service Act.--
            (1) Period of coverage.--Section 2202(2) of the Public 
        Health Service Act (42 U.S.C. 300bb-2(2)) is amended--
                    (A) in subparagraph (A)--
                            (i) by transferring the sentence 
                        immediately preceding clause (iv) so as to 
                        appear immediately following such clause (iv); 
                        and
                            (ii) in the last sentence (as so 
                        transferred)--
                                    (I) by inserting ``, or a 
                                beneficiary-family member of the 
                                individual,'' after ``an individual''; 
                                and
                                    (II) by striking ``at the time of a 
                                qualifying event described in section 
                                2203(2)'' and inserting ``at any time 
                                during the initial 18-month period of 
                                continuing coverage under this title'';
                    (B) in subparagraph (D)(i), by inserting before ``, 
                or'' the following: ``, except that the exclusion or 
                limitation contained in this clause shall not be 
                considered to apply to a plan under which a preexisting 
                condition or exclusion does not apply to an individual 
                otherwise eligible for continuation coverage under this 
                section because of the provision of subtitle C of title 
                I of the American Family Income and Economic Security 
                Act of 1996''; and
                    (C) in subparagraph (E), by striking ``at the time 
                of a qualifying event described in section 2203(2)'' 
                and inserting ``at any time during the initial 18-month 
                period of continuing coverage under this title''.
            (2) Election.--Section 2205(1)(C) of the Public Health 
        Service Act (42 U.S.C. 300bb-5(1)(C)) is amended--
                    (A) in clause (i), by striking ``or'' at the end 
                thereof;
                    (B) in clause (ii), by striking the period and 
                inserting ``, or''; and
                    (C) by adding at the end thereof the following new 
                clause:
                            ``(iii) in the case of an individual 
                        described in the last sentence of section 
                        2202(2)(A), or a beneficiary-family member of 
                        the individual, the date such individual is 
                        determined to have been disabled.''
            (3) Notices.--Section 2206(3) of the Public Health Service 
        Act (42 U.S.C. 300bb-6(3)) is amended by striking ``at the time 
        of a qualifying event described in section 2203(2)'' and 
        inserting ``at any time during the initial 18-month period of 
        continuing coverage under this title''.
            (4) Birth or adoption of a child.--Section 2208(3)(A) of 
        the Public Health Service Act (42 U.S.C. 300bb-8(3)(A)) is 
amended by adding at the end thereof the following new flush sentence:
        ``Such term shall also include a child who is born to or placed 
        for adoption with the covered employee during the period of 
        continued coverage under this title.''
    (b) Employee Retirement Income Security Act of 1974.--
            (1) Period of coverage.--Section 602(2) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1162(2)) is 
        amended--
                    (A) in the last sentence of subparagraph (A)--
                            (i) by inserting ``, or a beneficiary-
                        family member of the individual,'' after ``an 
                        individual''; and
                            (ii) by striking ``at the time of a 
                        qualifying event described in section 603(2)'' 
                        and inserting ``at any time during the initial 
                        18-month period of continuing coverage under 
                        this part'';
                    (B) in subparagraph (D)(i), by inserting before ``, 
                or'' the following: ``, except that the exclusion or 
                limitation contained in this clause shall not be 
                considered to apply to a plan under which a preexisting 
                condition or exclusion does not apply to an individual 
                otherwise eligible for continuation coverage under this 
                section because of the provision of subtitle C of title 
                I of the American Family Income and Economic Security 
                Act of 1996''; and
                    (C) in subparagraph (E), by striking ``at the time 
                of a qualifying event described in section 603(2)'' and 
                inserting ``at any time during the initial 18-month 
                period of continuing coverage under this part''.
            (2) Election.--Section 605(1)(C) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1165(1)(C)) is amended--
                    (A) in clause (i), by striking ``or'' at the end 
                thereof;
                    (B) in clause (ii), by striking the period and 
                inserting ``, or''; and
                    (C) by adding at the end thereof the following new 
                clause:
                            ``(iii) in the case of an individual 
                        described in the last sentence of section 
                        602(2)(A), or a beneficiary-family member of 
                        the individual, the date such individual is 
                        determined to have been disabled.''
            (3) Notices.--Section 606(3) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1166(3)) is amended by 
        striking ``at the time of a qualifying event described in 
        section 603(2)'' and inserting ``at any time during the initial 
        18-month period of continuing coverage under this part''.
            (4) Birth or adoption of a child.--Section 607(3)(A) of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1167(3)) is amended by adding at the end thereof the following 
        new flush sentence:
        ``Such term shall also include a child who is born to or placed 
        for adoption with the covered employee during the period of 
        continued coverage under this part.''
    (c) Internal Revenue Code of 1986.--
            (1) Period of coverage.--Section 4980B(f)(2)(B) of the 
        Internal Revenue Code of 1986 is amended--
                    (A) in the last sentence of clause (i) by striking 
                ``at the time of a qualifying event described in 
                paragraph (3)(B)'' and inserting ``at any time during 
                the initial 18-month period of continuing coverage 
                under this section'';
                    (B) in clause (iv)(I), by inserting before ``, or'' 
                the following: ``, except that the exclusion or 
                limitation contained in this subclause shall not be 
                considered to apply to a plan under which a preexisting 
                condition or exclusion does not apply to an individual 
                otherwise eligible for continuation coverage under this 
                subsection because of the provision of subtitle C of 
                title I of the American Family Income and Economic 
                Security Act of 1996''; and
                    (C) in clause (v), by striking ``at the time of a 
                qualifying event described in paragraph (3)(B)'' and 
                inserting ``at any time during the initial 18-month 
                period of continuing coverage under this section''.
            (2) Election.--Section 4980B(f)(5)(A)(iii) of the Internal 
        Revenue Code of 1986 is amended--
                    (A) in subclause (I), by striking ``or'' at the end 
                thereof;
                    (B) in subclause (II), by striking the period and 
                inserting ``, or''; and
                    (C) by adding at the end thereof the following new 
                subclause:
                                    ``(III) in the case of an qualified 
                                beneficiary described in the last 
                                sentence of paragraph (2)(B)(i), the 
                                date such individual is determined to 
                                have been disabled.''
            (3) Notices.--Section 4980B(f)(6)(C) of the Internal 
        Revenue Code of 1986 is amended by striking ``at the time of a 
        qualifying event described in paragraph (3)(B)'' and inserting 
        ``at any time during the initial 18-month period of continuing 
        coverage under this section''.
            (4) Birth or adoption of a child.--Section 4980B(g)(1)(A) 
        of the Internal Revenue Code of 1986 is amended by adding at 
        the end thereof the following new flush sentence:
                        ``Such term shall also include a child who is 
                        born to or placed for adoption with the covered 
                        employee during the period of continued 
                        coverage under this section.''
    (d) Effective Date.--The amendments made by this section shall 
apply to qualifying events occurring on or after the date of the 
enactment of this Act for plan years beginning after December 31, 1996.
    (e) Notification of Changes.--Not later than 60 days prior to the 
date on which this section becomes effective, each group health plan 
(covered under title XXII of the Public Health Service Act, part 6 of 
subtitle B of title I of the Employee Retirement Income Security Act of 
1974, and section 4980B(f) of the Internal Revenue Code of 1986) shall 
notify each qualified beneficiary who has elected continuation coverage 
under such title, part or section of the amendments made by this 
section.

         Subpart D--Private Health Plan Purchasing Cooperatives

SEC. 161. PRIVATE HEALTH PLAN PURCHASING COOPERATIVES.

    (a) Definition.--As used in this subtitle, the term ``health plan 
purchasing cooperative'' means a group of individuals or employers 
that, on a voluntary basis and in accordance with this section, form a 
cooperative for the purpose of purchasing individual health plans or 
group health plans offered by health plan issuers. A health plan 
issuer, agent, broker or any other individual or entity engaged in the 
sale of insurance may not underwrite a cooperative.
    (b) Certification.--
            (1) In general.--If a group described in subsection (a) 
        desires to form a health plan purchasing cooperative in 
        accordance with this section and such group appropriately 
        notifies the State and the Secretary of such desire, the State, 
        upon a determination that such group meets the requirements of 
        this section, shall certify the group as a health plan 
        purchasing cooperative. The State shall make a determination of 
        whether such group meets the requirements of this section in a 
        timely fashion. Each such cooperative shall also be registered 
        with the Secretary.
            (2) State refusal to certify.--If a State fails to 
        implement a program for certifying health plan purchasing 
        cooperatives in accordance with the standards under this 
        subtitle, the Secretary shall certify and oversee the 
        operations of such cooperatives in such State.
            (3) Interstate cooperatives.--For purposes of this section, 
        a health plan purchasing cooperative operating in more than one 
        State shall be certified by the State in which the cooperative 
        is domiciled. States may enter into cooperative agreements for 
        the purpose of certifying and overseeing the operation of such 
        cooperatives. For purposes of this subsection, a cooperative 
        shall be considered to be domiciled in the State in which most 
        of the members of the cooperative reside.
    (c) Board of Directors.--
            (1) In general.--Each health plan purchasing cooperative 
        shall be governed by a Board of Directors that shall be 
        responsible for ensuring the performance of the duties of the 
        cooperative under this section. The Board shall be composed of 
        a broad cross-section of representatives of employers, 
        employees, and individuals participating in the cooperative. A 
        health plan issuer, agent, broker, or any other individual or 
        entity engaged in the sale of individual health plans or group 
        health plans may not hold or control any right to vote with 
        respect to a cooperative.
            (2) Limitation on compensation.--A health plan purchasing 
        cooperative may not provide compensation to members of the 
        Board of Directors. The cooperative may provide reimbursements 
        to such members for the reasonable and necessary expenses 
        incurred by the members in the performance of their duties as 
        members of the Board.
            (3) Conflict of interest.--No member of the Board of 
        Directors (or family members of such members) nor any 
        management personnel of the cooperative may be employed by, be 
        a consultant for, be a member of the board of directors of, be 
        affiliated with an agent of, or otherwise be a representative 
        of any health plan issuer, health care provider, or agent or 
        broker. Nothing in the preceding sentence shall limit a member 
        of the Board from purchasing coverage offered through the 
        cooperative.
    (d) Membership and Marketing Area.--
            (1) Membership.--A health plan purchasing cooperative may 
        establish limits on the maximum size of employers who may 
        become members of the cooperative, and may determine whether to 
        permit individuals to become members. Upon the establishment of 
        such membership requirements, the cooperative shall, except as 
        provided in paragraph (2), accept all employers (or 
        individuals) residing within the area served by the cooperative 
        who meet such requirements as members on a first-come, first-
        served basis, or on another basis established by the State to 
        ensure equitable access to the cooperative.
            (2) Marketing area.--A State may establish rules regarding 
        the geographic area that must be served by a health plan 
        purchasing cooperative. With respect to a State that has not 
        established such rules, a health plan purchasing cooperative 
        operating in the State shall define the boundaries of the area 
        to be served by the cooperative, except that such boundaries 
        may not be established on the basis of health status or 
        insurability of the populations that reside in the area.
    (e) Duties and Responsibilities.--
            (1) In general.--A health plan purchasing cooperative 
        shall--
                    (A) enter into agreements with multiple, 
                unaffiliated health plan issuers, except that the 
                requirement of this subparagraph shall not apply in 
                regions (such as remote or frontier areas) in which 
                compliance with such requirement is not possible;
                    (B) enter into agreements with employers and 
                individuals who become members of the cooperative;
                    (C) participate in any program of risk-adjustment 
                or reinsurance, or any similar program, that is 
                established by the State;
                    (D) prepare and disseminate comparative health plan 
                materials (including information about cost, quality, 
                benefits, and other information concerning group health 
                plans and individual health plans offered through the 
                cooperative);
                    (E) actively market to all eligible employers and 
                individuals residing within the service area; and
                    (F) act as an ombudsman for group health plan or 
                individual health plan enrollees.
            (2) Permissible activities.--A health plan purchasing 
        cooperative may perform such other functions as necessary to 
        further the purposes of this subtitle, including--
                    (A) collecting and distributing premiums and 
                performing other administrative functions;
                    (B) collecting and analyzing surveys of enrollee 
                satisfaction;
                    (C) charging membership fee to enrollees (such fees 
                may not be based on health status) and charging 
                participation fees to health plan issuers;
                    (D) cooperating with (or accepting as members) 
                employers who provide health benefits directly to 
                participants and beneficiaries only for the purpose of 
                negotiating with providers; and
                    (E) negotiating with health care providers and 
                health plan issuers.
    (f) Limitations on Cooperative Activities.--A health plan 
purchasing cooperative shall not--
            (1) perform any activity relating to the licensing of 
        health plan issuers;
            (2) assume financial risk directly or indirectly on behalf 
        of members of a health plan purchasing cooperative relating to 
        any group health plan or individual health plan;
            (3) establish eligibility, continuation of eligibility, 
        enrollment, or premium contribution requirements for 
        participants, beneficiaries, or individuals based on health 
        status, medical condition, claims experience, receipt of health 
        care, medical history, evidence of insurability, or disability;
            (4) operate on a for-profit or other basis where the legal 
        structure of the cooperative permits profits to be made and not 
        returned to the members of the cooperative, except that a for-
        profit health plan purchasing cooperative may be formed by a 
        nonprofit organization--
                    (A) in which membership in such organization is not 
                based on health status, medical condition, claims 
                experience, receipt of health care, medical history, 
                evidence of insurability, or disability; and
                    (B) that accepts as members all employers or 
                individuals on a first-come, first-served basis, 
                subject to any established limit on the maximum size of 
                an employer that may become a member; or
            (5) perform any other activities that conflict or are 
        inconsistent with the performance of its duties under this 
        subtitle.
    (g) Limited Preemption of Certain State Laws.--
            (1) In general.--With respect to a health plan purchasing 
        cooperative that meets the requirements of this section, State 
        fictitious group laws shall be preempted.
            (2) Health plan issuers.--
                    (A) Rating.--With respect to a health plan issuer 
                offering a group health plan or individual health plan 
                through a health plan purchasing cooperative that meets 
                the requirements of this section, State premium rating 
                requirement laws, except to the extent provided under 
                subparagraph (B), shall be preempted unless such laws 
                permit premium rates negotiated by the cooperative to 
                be less than rates that would otherwise be permitted 
                under State law, if such rating differential is not 
                based on differences in health status or demographic 
                factors.
                    (B) Exception.--State laws referred to in 
                subparagraph (A) shall not be preempted if such laws--
                            (i) prohibit the variance of premium rates 
                        among employers, plan sponsors, or individuals 
                        that are members of a health plan purchasing 
                        cooperative in excess of the amount of such 
                        variations that would be permitted under such 
                        State rating laws among employers, plan 
                        sponsors, and individuals that are not members 
                        of the cooperative; and
                            (ii) prohibit a percentage increase in 
                        premium rates for a new rating period that is 
                        in excess of that which would be permitted 
                        under State rating laws.
                    (C) Benefits.--Except as provided in subparagraph 
                (D), a health plan issuer offering a group health plan 
                or individual health plan through a health plan 
                purchasing cooperative shall comply with all State 
                mandated benefit laws that require the offering of any 
                services, category or care, or services of any class or 
                type of provider.
                    (D) Exception.--In those States that have enacted 
                laws authorizing the issuance of alternative benefit 
                plans to small employers, health plan issuers may offer 
                such alternative benefit plans through a health plan 
                purchasing cooperative that meets the requirements of 
                this section.
    (h) Rules of Construction.--Nothing in this section shall be 
construed to--
            (1) require that a State organize, operate, or otherwise 
        create health plan purchasing cooperatives;
            (2) otherwise require the establishment of health plan 
        purchasing cooperatives;
            (3) require individuals, plan sponsors, or employers to 
        purchase group health plans or individual health plans through 
        a health plan purchasing cooperative;
            (4) require that a health plan purchasing cooperative be 
        the only type of purchasing arrangement permitted to operate in 
        a State;
            (5) confer authority upon a State that the State would not 
        otherwise have to regulate health plan issuers or employee 
        health benefits plans; or
            (6) confer authority upon a State (or the Federal 
        Government) that the State (or Federal Government) would not 
        otherwise have to regulate group purchasing arrangements, 
        coalitions, or other similar entities that do not desire to 
        become a health plan purchasing cooperative in accordance with 
        this section.
    (i) Application of ERISA.--For purposes of enforcement only, the 
requirements of parts 4 and 5 of subtitle B of title I of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1101) shall apply to 
a health plan purchasing cooperative as if such plan were an employee 
welfare benefit plan.

           PART II--APPLICATION AND ENFORCEMENT OF STANDARDS

SEC. 171. APPLICABILITY.

    (a) Construction.--
            (1) Enforcement.--
                    (A) In general.--A requirement or standard imposed 
                under this subtitle on a group health plan or 
                individual health plan offered by a health plan issuer 
                shall be deemed to be a requirement or standard imposed 
                on the health plan issuer. Such requirements or 
                standards shall be enforced by the State insurance 
                commissioner for the State involved or the official or 
                officials designated by the State to enforce the 
                requirements of this subtitle. In the case of a group 
                health plan offered by a health plan issuer in 
                connection with an employee health benefit plan, the 
                requirements or standards imposed under this subtitle 
                shall be enforced with respect to the health plan 
                issuer by the State insurance commissioner for the 
                State involved or the official or officials designated 
                by the State to enforce the requirements of this 
                subtitle.
                    (B) Limitation.--Except as provided in subsection 
                (c), the Secretary shall not enforce the requirements 
                or standards of this subtitle as they relate to health 
                plan issuers, group health plans, or individual health 
                plans. In no case shall a State enforce the 
                requirements or standards of this subtitle as they 
                relate to employee health benefit plans.
            (2) Preemption of state law.--Nothing in this subtitle 
        shall be construed to prevent a State from establishing, 
        implementing, or continuing in effect standards and 
        requirements--
                    (A) not prescribed in this subtitle; or
                    (B) related to the issuance, renewal, or 
                portability of health insurance or the establishment or 
                operation of group purchasing arrangements, that are 
                consistent with, and are not in direct conflict with, 
                this subtitle and provide greater protection or benefit 
                to participants, beneficiaries or individuals.
    (b) Rule of Construction.--Nothing in this subtitle shall be 
construed to affect or modify the provisions of section 514 of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1144).
    (c) Continuation.--Nothing in this subtitle shall be construed as 
requiring a group health plan or an employee health benefit plan to 
provide benefits to a particular participant or beneficiary in excess 
of those provided under the terms of such plan.

SEC. 172. ENFORCEMENT OF STANDARDS.

    (a) Health Plan Issuers.--Each State shall require that each group 
health plan and individual health plan issued, sold, renewed, offered 
for sale or operated in such State by a health plan issuer meet the 
standards established under this subtitle pursuant to an enforcement 
plan filed by the State with the Secretary. A State shall submit such 
information as required by the Secretary demonstrating effective 
implementation of the State enforcement plan.
    (b) Employee Health Benefit Plans.--With respect to employee health 
benefit plans, the Secretary shall enforce the reform standards 
established under this subtitle in the same manner as provided for 
under sections 502, 504, 506, and 510 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1132, 1134, 1136, and 1140). The civil 
penalties contained in paragraphs (1) and (2) of section 502(c) of such 
Act (29 U.S.C. 1132(c)(1) and (2)) shall apply to any information 
required by the Secretary to be disclosed and reported under this 
section.
    (c) Failure To Implement Plan.--In the case of the failure of a 
State to substantially enforce the standards and requirements set forth 
in this subtitle with respect to group health plans and individual 
health plans as provided for under the State enforcement plan filed 
under subsection (a), the Secretary, in consultation with the Secretary 
of Health and Human Services, shall implement an enforcement plan 
meeting the standards of this subtitle in such State. In the case of a 
State that fails to substantially enforce the standards and 
requirements set forth in this subtitle, each health plan issuer 
operating in such State shall be subject to civil enforcement as 
provided for under sections 502, 504, 506, and 510 of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1132, 1134, 1136, and 
1140). The civil penalties contained in paragraphs (1) and (2) of 
section 502(c) of such Act (29 U.S.C. 1132(c)(1) and (2)) shall apply 
to any information required by the Secretary to be disclosed and 
reported under this section.
    (d) Applicable Certifying Authority.--As used in this part, the 
term ``applicable certifying authority'' means, with respect to--
            (1) health plan issuers, the State insurance commissioner 
        or official or officials designated by the State to enforce the 
        requirements of this subtitle for the State involved; and
            (2) an employee health benefit plan, the Secretary.
    (e) Regulations.--The Secretary may promulgate such regulations as 
may be necessary or appropriate to carry out this subtitle.
    (f) Technical Amendment.--Section 508 of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1138) is amended by inserting 
``and under subtitle C of title I of the American Family Income and 
Economic Security Act of 1996'' before the period.

                   PART III--MISCELLANEOUS PROVISIONS

SEC. 181. HMOS ALLOWED TO OFFER PLANS WITH DEDUCTIBLES TO INDIVIDUALS 
              WITH MEDICAL SAVINGS ACCOUNTS.

    (a) In General.--Section 1301(b) of the Public Health Service Act 
(42 U.S.C. 300e(b)) is amended by adding at the end the following new 
paragraph:
            ``(6)(A) If a member certifies that a medical savings 
        account has been established for the benefit of such member, a 
        health maintenance organization may, at the request of such 
        member reduce the basic health services payment otherwise 
        determined under paragraph (1) by requiring the payment of a 
        deductible by the member for basic health services.
            ``(B) For purposes of this paragraph, the term `medical 
        savings account' means an account which, by its terms, allows 
        the deposit of funds and the use of such funds and income 
        derived from the investment of such funds for the payment of 
        the deductible described in subparagraph (A).''
    (b) Medical Savings Accounts.--It is the sense of the Committee on 
Labor and Human Resources of the Senate that the establishment of 
medical savings accounts, including those defined in section 
1301(b)(6)(B) of the Public Health Service Act (42 U.S.C. 
300e(b)(6)(B)), should be encouraged as part of any health insurance 
reform legislation passed by the Senate through the use of tax 
incentives relating to contributions to, the income growth of, and the 
qualified use of, such accounts.
    (c) Sense of the Senate.--It is the sense of the Senate that the 
Congress should take measures to further the purposes of this Act, 
including any necessary changes to the Internal Revenue Code of 1986 to 
encourage groups and individuals to obtain health coverage, and to 
promote access, equity, portability, affordability, and security of 
health benefits.

SEC. 182. HEALTH COVERAGE AVAILABILITY STUDY.

    (a) In General.--The Secretary of Health and Human Services, in 
consultation with the Secretary, representatives of State officials, 
consumers, and other representatives of individuals and entities that 
have expertise in health insurance and employee benefits, shall conduct 
a two-part study, and prepare and submit reports, in accordance with 
this section.
    (b) Evaluation of Availability.--Not later than January 1, 1997, 
the Secretary of Health and Human Services shall prepare and submit to 
the appropriate committees of Congress a report, concerning--
            (1) an evaluation, based on the experience of States, 
        expert opinions, and such additional data as may be available, 
        of the various mechanisms used to ensure the availability of 
reasonably priced health coverage to employers purchasing group 
coverage and to individuals purchasing coverage on a non-group basis; 
and
            (2) whether standards that limit the variation in premiums 
        will further the purposes of this subtitle.
    (c) Evaluation of Effectiveness.--Not later than January 1, 1998, 
the Secretary of Health and Human Services shall prepare and submit to 
the appropriate committees of Congress a report, concerning the 
effectiveness of the provisions of this subtitle and the various State 
laws, in ensuring the availability of reasonably priced health coverage 
to employers purchasing group coverage and individuals purchasing 
coverage on a non-group basis.

SEC. 183. SENSE OF THE COMMITTEE CONCERNING MEDICARE.

    (a) Findings.--The Committee on Labor and Human Resources of the 
Senate finds that the Public Trustees of Medicare concluded in their 
1995 Annual Report that--
            (1) the medicare program is clearly unsustainable in its 
        present form;
            (2) ``the Hospital Insurance Trust Fund, which pays 
        inpatient hospital expenses, will be able to pay benefits for 
        only about 7 years and is severely out of financial balance in 
        the long range''; and
            (3) the Public Trustees ``strongly recommend that the 
        crisis presented by the financial condition of the Medicare 
        trust fund be urgently addressed on a comprehensive basis, 
        including a review of the programs's financing methods, benefit 
        provisions, and delivery mechanisms''.
    (b) Sense of the Committee.--It is the Sense of the Committee on 
Labor and Human Resources of the Senate that the Senate should take 
measures necessary to reform the Medicare program, to provide increased 
choice for seniors, and to respond to the findings of the Public 
Trustees by protecting the short-term solvency and long-term 
sustainability of the Medicare program.

SEC. 184. EFFECTIVE DATE.

    Except as otherwise provided for in this subtitle, the provisions 
of this subtitle shall apply as follows:
            (1) With respect to group health plans and individual 
        health plans, such provisions shall apply to plans offered, 
        sold, issued, renewed, in effect, or operated on or after 
        January 1, 1996.
            (2) With respect to employee health benefit plans, on the 
        first day of the first plan year beginning on or after January 
        1, 1996.

SEC. 185. SEVERABILITY.

    If any provision of this subtitle or the application of such 
provision to any person or circumstance is held to be unconstitutional, 
the remainder of this subtitle and the application of the provisions of 
such to any person or circumstance shall not be affected thereby.

                     Subtitle D--Employee Security

SEC. 191. ALLOWANCE OF CREDIT FOR EMPLOYER EXPENSES FOR CERTAIN ON-SITE 
              DAY-CARE FACILITIES.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits) is amended by adding at the end 
thereof the following new section:

``SEC. 45C. EMPLOYER ON-SITE DAY-CARE FACILITY CREDIT.

    ``(a) In General.--For purposes of section 38, the employer on-site 
day-care facility credit determined under this section for the taxable 
year is an amount equal to 50 percent of the qualified investment in 
property placed in service during such taxable year as part of a 
qualified day-care facility.
    ``(b) Limitation.--The credit allowable under subsection (a) with 
respect to any qualified day-care facility shall not exceed $150,000.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Qualified investment.--The term `qualified 
        investment' means the amount paid or incurred to acquire, 
        construct, rehabilitate, or expand property--
                    ``(A) which is to be used as part of a qualified 
                day-care facility, and
                    ``(B) with respect to which a deduction for 
                depreciation (or amortization in lieu of depreciation) 
                is allowable.
        Such term includes only amounts properly chargeable to capital 
        account.
            ``(2) Qualified day-care facility.--
                    ``(A) In general.--The term `qualified day-care 
                facility' means a facility--
                            ``(i) operated by an employer to provide 
                        dependent care assistance for enrollees, at 
                        least 30 percent of whom are dependents of 
                        employees of employers to which a credit under 
                        subsection (a) with respect to the facility is 
                        allowable,
                            ``(ii) the principal use of which is to 
                        provide dependent care assistance described in 
                        clause (i),
                            ``(iii) located on the premises of such 
                        employer,
                            ``(iv) which meets the requirements of all 
                        applicable laws and regulations of the State or 
                        local government in which it is located, 
                        including, but not limited to, the licensing of 
                        the facility as a day-care facility, and
                            ``(v) the use of which (or the eligibility 
                        to use) does not discriminate in favor of 
                        employees who are highly compensated employees 
                        (within the meaning of section 414(q)).
                    ``(B) Multiple employers.--With respect to a 
                facility jointly operated by more than 1 employer, the 
                term `qualified day-care facility' shall include any 
                facility located on the premises of 1 employer and 
                within a reasonable distance from the premises of the 
                other employers.
    ``(d) Recapture of Credit.--
            ``(1) In general.--If, as of the close of any taxable year, 
        there is a recapture event with respect to any qualified day-
        care facility, then the tax of the taxpayer under this chapter 
        for such taxable year shall be increased by an amount equal to 
        the product of--
                    ``(A) the applicable recapture percentage, and
                    ``(B) the aggregate decrease in the credits allowed 
                under section 38 for all prior taxable years which 
                would have resulted if the qualified on-site day-care 
                expenses of the taxpayer with respect to such facility 
                had been zero.
            ``(2) Applicable recapture percentage.--
                    ``(A) In general.--For purposes of this subsection, 
                the applicable recapture percentage shall be determined 
                from the following table:

  
                                                         The applicable
  
                                                              recapture
            ``If the recapture event occurs in:
                                                         percentage is:
                Years 1-3............................          100     
                Year 4...............................           85     
                Year 5...............................           70     
                Year 6...............................           55     
                Year 7...............................           40     
                Year 8...............................           25     
                Years 9 and 10.......................           10     
                Years 11 and thereafter..............            0.    
                    ``(B) Years.--For purposes of subparagraph (A), 
                year 1 shall begin on the first day of the taxable year 
                in which the qualified day-care facility is placed in 
                service by the taxpayer.
            ``(3) Recapture event defined.--For purposes of this 
        subsection, the term `recapture event' means--
                    ``(A) Cessation of operation.--The cessation of the 
                operation of the facility as a qualified day-care 
                facility.
                    ``(B) Change in ownership.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), the disposition of a taxpayer's 
                        interest in a qualified day-care facility with 
                        respect to which the credit described in 
                        subsection (a) was allowable.
                            ``(ii) Agreement to assume recapture 
                        liability.--Clause (i) shall not apply if the 
                        person acquiring such interest in the facility 
                        agrees in writing to assume the recapture 
                        liability of the person disposing of such 
                        interest in effect immediately before such 
                        disposition. In the event of such an 
                        assumption, the person acquiring the interest 
                        in the facility shall be treated as the 
                        taxpayer for purposes of assessing any 
                        recapture liability (computed as if there had 
                        been no change in ownership).
            ``(4) Special rules.--
                    ``(A) Tax benefit rule.--The tax for the taxable 
                year shall be increased under paragraph (1) only with 
                respect to credits allowed by reason of this section 
                which were used to reduce tax liability. In the case of 
                credits not so used to reduce tax liability, the 
                carryforwards and carrybacks under section 39 shall be 
                appropriately adjusted.
                    ``(B) No credits against tax.--Any increase in tax 
                under this subsection shall not be treated as a tax 
                imposed by this chapter for purposes of determining the 
                amount of any credit under subpart A, B, or D of this 
                part.
                    ``(C) No recapture by reason of casualty loss.--The 
                increase in tax under this subsection shall not apply 
                to a cessation of operation of the facility as a 
                qualified day-care facility by reason of a casualty 
                loss to the extent such loss is restored by 
                reconstruction or replacement within a reasonable 
                period established by the Secretary.
    ``(e) Special Allocation Rules.--For purposes of this section--
            ``(1) Allocation in case of multiple employers.--In the 
        case of multiple employers jointly operating a qualified day-
care facility, the credit allowable by this section to each such 
employer shall be its proportionate share of the qualified on-site day-
care expenses giving rise to the credit.
            ``(2) Pass-thru in the case of estates and trusts.--Under 
        regulations prescribed by the Secretary, rules similar to the 
        rules of subsection (d) of section 52 shall apply.
            ``(3) Allocation in the case of partnerships.--In the case 
        of partnerships, the credit shall be allocated among partners 
        under regulations prescribed by the Secretary.
    ``(f) No Double Benefit.--
            ``(1) Reduction in basis.--For purposes of this subtitle--
                    ``(A) In general.--If a credit is determined under 
                this section with respect to any property, the basis of 
                such property shall be reduced by the amount of the 
                credit so determined.
                    ``(B) Certain dispositions.--If during any taxable 
                year there is a recapture amount determined with 
                respect to any property the basis of which was reduced 
                under paragraph (1), the basis of such property 
                (immediately before the event resulting in such 
                recapture) shall be increased by an amount equal to 
                such recapture amount. For purposes of the preceding 
                sentence, the term `recapture amount' means any 
                increase in tax (or adjustment in carrybacks or 
                carryovers) determined under subsection (d).
            ``(2) Other deductions and credits.--No deduction or credit 
        shall be allowed under any other provision of this chapter with 
        respect to the amount of the credit determined under this 
        section.''
    (b) Conforming Amendments.--
            (1) Section 38(b) is amended--
                    (A) by striking ``plus'' at the end of paragraph 
                (10),
                    (B) by striking the period at the end of paragraph 
                (11), and inserting a comma and ``plus'', and
                    (C) by adding at the end the following new 
                paragraph:
            ``(12) the employer on-site day-care facility credit 
        determined under section 45A.''
            (2) The table of sections for subpart D of part IV of 
        subchapter A of chapter 1 is amended by adding at the end the 
        following new item:

                              ``Sec. 45C. Employer on-site day-care 
                                        facility credit.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 192. EXCLUSION FOR GROUP LEGAL SERVICES MADE PERMANENT.

    (a) General Rule.--Section 120 of the Internal Revenue Code of 1986 
(relating to amounts received under qualified group legal services 
plans) is amended by striking subsection (e) and by redesignating 
subsection (f) as subsection (e).
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to taxable years beginning after December 31, 1995.

SEC. 193. ONE-TIME EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE 
              IF INDIVIDUAL OR SPOUSE IS TERMINALLY ILL.

    (a) In General.--Paragraph (1) of section 121(a) (relating to one-
time exclusion of gain from sale of principal residence by individual 
who has attained age 55) is amended to read as follows:
            ``(1)(A) the taxpayer has attained the age of 55 years 
        before the date of such sale or exchange, or
            ``(B) the individual, or the individual's spouse, is 
        terminally ill on the date of the sale or exchange, and''.
    (b) Definition of Terminally Ill.--Subsection (d) of section 121 is 
amended by adding at the end the following new paragraph:
            ``(10) Terminally ill.--
                    ``(A) In general.--Subject to subparagraph (B), an 
                individual shall be treated as terminally ill for 
                purposes of subsection (a) if such individual has an 
                illness or physical condition which can reasonably be 
                expected to result in death in 24 months or less.
                    ``(B) Proof requirements.--No individual shall be 
                treated as terminally ill for purposes of subsection 
                (a) unless proof that the individual is terminally ill 
                is furnished to the Secretary at such time and in such 
                manner as the Secretary may prescribe.''
    (c) Clerical and Conforming Amendments.--
            (1) The heading of section 121 is amended to read as 
        follows:

``SEC. 121. ONE-TIME EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE 
              BY INDIVIDUAL WHO HAS ATTAINED AGE 55 OR IS TERMINALLY 
              ILL.''

            (2) The table of sections for part III of subchapter B of 
        chapter 1 is amended by amending the item relating to section 
        121 to read as follows:

                              ``Sec. 121. One-time exclusion of gain 
                                        from sale of principal 
                                        residence by individual who has 
                                        attained age 55 or is 
                                        terminally ill.''
    (d) Effective Date.--The amendments made by this section shall 
apply to sales and exchanges occurring after the date of the enactment 
of this Act.

               TITLE II--INCENTIVES FOR LIFELONG LEARNING

SEC. 201. CREDIT FOR EMPLOYEE TRAINING.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits), as amended by section 191, is 
amended by adding at the end the following new section:

``SEC. 45D. EMPLOYEE TRAINING CREDIT.

    ``(a) In General.--For purposes of section 38, the amount of the 
employee training credit determined under this section for any taxable 
year shall be an amount equal to 50 percent of the qualified training 
expenses of the taxpayer for such taxable year.
    ``(b) Qualified Training Expenses.--For purposes of this section--
            ``(1) In general.--The term `qualified training expenses' 
        means the aggregate amount of expenses paid or incurred by the 
        taxpayer during the taxable year in connection with the 
        training of employees under any approved training program.
            ``(2) Only first $2,500 of qualified training expenses 
        taken into account.--The amount of the qualified training 
        expenses which may be taken into account with respect to any 
        employee shall not exceed $2,500.
            ``(3) Approved training programs.--The term `approved 
        training program' means--
                    ``(A) any apprenticeship program registered with or 
                approved by any Federal or State agency or department,
                    ``(B) any employer-designed or employer-sponsored 
                program which meets such minimum requirements with 
                respect to supervised on-the-job experience and 
                classroom instruction as the Secretary of Labor shall 
                prescribe by regulations,
                    ``(C) any cooperative education (within the meaning 
                given to such term by section 521(8) of the Carl D. 
                Perkins Vocational Education Act),
                    ``(D) any training program designated by the 
                Secretary of Labor which is carried out under the 
                supervision of an institution of higher education 
                (within the meaning given to such term by section 
                1201(a) of the Higher Education Act of 1965), or
                    ``(E) any other program for improving job skills 
                directly related to employment which the Secretary of 
                Labor may approve under regulations prescribed by such 
                Secretary.
    ``(c) Special Rules.--For purposes of this section--
            ``(1) Aggregation of qualified training expenses.--
                    ``(A) Controlled group of corporations.--
                            ``(i) In general.--In determining the 
                        amount of the credit under this section--
                                    ``(I) all members of the same 
                                controlled group of corporations shall 
                                be treated as a single taxpayer, and
                                    ``(II) the credit (if any) 
                                allowable by this section to each such 
                                member shall be its proportionate share 
                                of the qualified training expenses 
                                giving rise to the credit.
                            ``(ii) Controlled group of corporations 
                        defined.--The term `controlled group of 
                        corporations' has the same meaning given to 
                        such term by section 1563(a), except that--
                                    ``(I) `more than 50 percent' shall 
                                be substituted for `at least 80 
                                percent' each place it appears in 
                                section 1563(a)(1), and
                                    ``(II) the determination shall be 
                                made without regard to subsections 
                                (a)(4) and (e)(3)(C) of section 1563.
                    ``(B) Common control.--Under regulations prescribed 
                by the Secretary, in determining the amount of the 
                credit under this section--
                            ``(i) all trades or businesses (whether or 
                        not incorporated) which are under common 
                        control shall be treated as a single taxpayer, 
                        and
                            ``(ii) the credit (if any) allowable by 
                        this section to each such trade or business 
                        shall be its proportionate share of the 
                        qualified training expenses giving rise to the 
                        credit.
                The regulations prescribed under this subparagraph 
                shall be based on principles similar to the principles 
                which apply in the case of subparagraph (A).
            ``(2) Allocations.--
                    ``(A) Pass-thru in the case of estates and 
                trusts.--Under regulations prescribed by the Secretary, 
                rules similar to the rules of subsection (d) of section 
                52 shall apply.
                    ``(B) Allocation in the case of partnerships.--In 
                the case of partnerships, the credit shall be allocated 
                among partners under regulations prescribed by the 
                Secretary.
    ``(d) Additional Benefit.--The credit allowable under this section 
with respect to qualified training expenses of the taxpayer shall be in 
addition to any deduction or credit allowed the taxpayer under any 
other provision of this chapter with respect to such expenses.''
    (b) Employee Training Credit Treated As Other Business Credits.--
Section 38(b) of the Internal Revenue Code of 1986 (defining current 
year business credit) is amended by striking ``plus'' at the end of 
paragraph (11), by striking the period at the end of paragraph (12) and 
inserting ``, plus'', and by adding at the end the following new 
paragraph:
            ``(13) the employee training credit determined under 
        section 45C(a).''
    (c) Clerical Amendment.--The table of sections for subpart A of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by adding at the end the following new item:

                              ``Sec. 45D. Employee training credit.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 202. PERMANENT EXTENSION OF EDUCATIONAL ASSISTANCE EXCLUSION.

    (a) In General.--Section 127 (relating to exclusion for educational 
assistance programs) is amended by striking subsection (d) and by 
redesignating subsection (e) as subsection (d).
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1994.

SEC. 203. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

    (a) Deduction Allowed.--Part VII of subchapter B of chapter 1 
(relating to additional itemized deductions for individuals) is amended 
by redesignating section 220 as section 221 and by inserting after 
section 219 the following new section:

``SEC. 220. HIGHER EDUCATION TUITION AND FEES; INTEREST ON STUDENT 
              LOANS.

    ``(a) Allowance of Deduction.--In the case of an individual, there 
shall be allowed as a deduction an amount equal to the sum of--
            ``(1) the qualified higher education expenses, plus
            ``(2) interest on qualified higher education loans, paid by 
        the taxpayer during the taxable year.
    ``(b) Qualified Higher Education Expenses.--For purposes of this 
section--
            ``(1) Qualified higher education expenses.--
                    ``(A) In general.--The term `qualified higher 
                education expenses' means tuition and fees required for 
                the enrollment or attendance of--
                            ``(i) the taxpayer,
                            ``(ii) the taxpayer's spouse, or
                            ``(iii) any dependent of the taxpayer with 
                        respect to whom the taxpayer is allowed a 
                        deduction under section 151, as an eligible 
                        student at an institution of higher education.
                    ``(B) Exception for education involving sports, 
                etc.--Such term does not include expenses with respect 
                to any course or other education involving sports, 
                games, or hobbies unless such expenses--
                            ``(I) are part of a degree program, or
                            ``(II) are deductible under this chapter 
                        without regard to this section.
                    ``(C) Exception for nonacademic fees.--Such term 
                does not include any student activity fees, athletic 
                fees, insurance expenses, or other expenses unrelated 
                to a student's academic course of instruction.
                    ``(D) Eligible student.--For purposes of 
                subparagraph (A), the term `eligible student' means a 
                student who meets the requirements of section 484(a)(1) 
                of the Higher Education Act of 1965 (20 U.S.C. 
                1091(a)(1)).
            ``(2) Dollar limitation.--
                    ``(A) In general.--The amount taken into account 
                under paragraph (1) for any taxable year shall not 
                exceed $10,000.
                    ``(B) Phase-in.--In the case of taxable years 
                beginning in 1996, 1997, 1998, and 1999, the following 
                amounts shall be substituted for `$10,000' in 
                subparagraph (A):

``For taxable years                                      The substitute
beginning in:                                                amount is:
    1996..........................................              $2,000 
    1997..........................................               4,000 
    1998..........................................               6,000 
    1999..........................................               8,000.
            ``(3) Limitation based on modified adjusted gross income.--
                    ``(A) In general.--If the modified adjusted gross 
                income of the taxpayer for the taxable year exceeds 
                $70,000 ($100,000 in the case of a joint return), the 
                amount which would (but for this paragraph) be taken 
                into account under paragraph (1) shall be reduced (but 
                not below zero) by the amount which bears the same 
                ratio to the amount which would be taken into account 
                as such excess bears to $20,000.
                    ``(B) Inflation adjustment.--In the case of any 
                taxable year beginning in a calendar year after 1996, 
                the $70,000 and $100,000 amounts contained in 
                subparagraph (A) shall be increased by an amount equal 
                to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment under 
                        section 1(f)(3) for the calendar year in which 
                        the taxable year begins, except that section 
                        1(f)(3)(B) shall be applied by substituting 
                        `1995' for `1992'.
                    ``(C) Rounding.--If any amount as adjusted under 
                subparagraph (B) is not a multiple of $50, such amount 
                shall be rounded to the nearest multiple of $50 (or if 
                such amount is a multiple of $25, such amount shall be 
                rounded to the next highest multiple of $50).
                    ``(D) Modified adjusted gross income.--The term 
                `modified adjusted gross income' means the adjusted 
                gross income of the taxpayer for the taxable year 
                determined--
                            ``(i) without regard to this section and 
                        sections 911, 931, and 933, and
                            ``(ii) after the application of sections 
                        86, 135, 219, and 469.
            ``(4) Institution of higher education.--The term 
        `institution of higher education' means an institution which--
                    ``(A) is described in section 481 of the Higher 
                Education Act of 1965 (20 U.S.C. 1088), and
                    ``(B) is eligible to participate in programs under 
                title IV of such Act.
    ``(c) Qualified Higher Education Loan.--For purposes of this 
section--
            ``(1) In general.--The term `qualified higher education 
        loan' means a loan to a student which is--
                    ``(A) made, insured, or guaranteed by the Federal 
                Government,
                    ``(B) made by a State or a political subdivision of 
                a State,
                    ``(C) made from the proceeds of a qualified student 
                loan bond under section 144(b), or
                    ``(D) made by an institution of higher education 
                (as defined in section 1201(a) of the Higher Education 
                Act of 1965 (20 U.S.C. 1141(a))).
            ``(2) Limitation.--
                    ``(A) In general.--The amount of interest on a 
                qualified higher education loan which is taken into 
                account under subsection (a)(2) shall be reduced by the 
                amount which bears the same ratio to such amount of 
                interest as--
                            ``(i) the proceeds from such loan used for 
                        qualified higher education expenses, bears to
                            ``(ii) the total proceeds from such loan.
                    ``(B) Qualified higher education expenses.--For 
                purposes of subparagraph (A), the term `qualified 
                higher education expenses' has the meaning given such 
                term by subsection (b), except that--
                            ``(i) such term shall include reasonable 
                        living expenses while away from home, and
                            ``(ii) the limitations of paragraphs (2) 
                        and (3) of subsection (b) shall not apply.
    ``(d) Coordination With Other Provisions.--
            ``(1) No double benefit.--
                    ``(A) In general.--No deduction shall be allowed 
                under subsection (a) for qualified higher education 
                expenses or interest on qualified higher education 
                loans with respect to which a deduction is allowed 
                under any other provision of this chapter.
                    ``(B) Savings bond exclusion.--A deduction shall be 
                allowed under subsection (a)(1) for qualified higher 
education expenses only to the extent the amount of such expenses 
exceeds the amount excludable under section 135 for the taxable year.
            ``(2) Qualified residence interest.--If a deduction is 
        allowed under subsection (a)(2) for interest which is also 
        qualified residence interest under section 163(h), such 
        interest shall not be taken into account under section 163(h).
    ``(e) Special Rules.--
            ``(1) Election.--If a deduction is allowable under more 
        than one provision of this chapter with respect to qualified 
        higher education expenses, the taxpayer may elect the provision 
        under which the deduction is allowed.
            ``(2) Limitation on taxable year of deduction.--
                    ``(A) In general.--A deduction shall be allowed 
                under subsection (a)(1) for any taxable year only to 
                the extent the qualified higher education expenses are 
                in connection with attendance at an institution of 
                higher education during the taxable year.
                    ``(B) Certain prepayments allowed.--Subparagraph 
                (A) shall not apply to qualified higher education 
                expenses paid during a taxable year which are in 
                connection with attendance at an institution of higher 
                education which begins during the first 2 months of the 
                following taxable year.
            ``(3) Adjustment for certain scholarships and veterans' 
        benefits.--The amount of qualified higher education expenses 
        otherwise taken into account under subsection (a)(1) with 
        respect to the education of an individual shall be reduced 
        (before the application of subsection (b)) by the sum of the 
        amounts received with respect to such individual for the 
        taxable year as--
                    ``(A) a qualified scholarship which under section 
                117 is not includable in gross income,
                    ``(B) an educational assistance allowance under 
                chapter 30, 31, 32, 34, or 35 of title 38, United 
                States Code, or
                    ``(C) a payment (other than a gift, bequest, 
                devise, or inheritance within the meaning of section 
                102(a)) for educational expenses, or attributable to 
                attendance at an eligible educational institution, 
                which is exempt from income taxation by any law of the 
                United States.
            ``(4) No deduction for married individuals filing separate 
        returns.--If the taxpayer is a married individual (within the 
        meaning of section 7703), this section shall apply only if the 
        taxpayer and his spouse file a joint return for the taxable 
        year.
            ``(5) Regulations.--The Secretary may prescribe such 
        regulations as may be necessary or appropriate to carry out 
        this section, including regulations requiring recordkeeping and 
        information reporting.''
    (b) Deduction Allowed in Computing Adjusted Gross Income.--Section 
62(a) is amended by inserting after paragraph (15) the following new 
paragraph:
            ``(16) Higher education tuition and fees.--The deduction 
        allowed by section 219.''
    (c) Conforming Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 is amended by striking the item relating to 
section 220 and inserting:

``Sec. 220. Higher education tuition and fees.
``Sec. 221. Cross reference.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

            TITLE III--HIGH-WAGE JOBS FOR AMERICAN FAMILIES

                    Subtitle A--Business Incentives

SEC. 301. EXCLUSION FOR GAIN FROM SMALL BUSINESS STOCK.

    (a) Increase in Exclusion for Critical Technologies Small Business 
Stock Held More Than Ten Years.--
            (1) In general.--Subsection (a) of section 1202 (relating 
        to exclusion for gain from certain small business stock) is 
        amended to read as follows:
    ``(a) Exclusion.--In the case of a taxpayer other than a 
corporation, gross income shall not include the sum of--
            ``(1) 50 percent of any gain from the sale or exchange of 
        qualified small business stock which is held for more than 5 
        years and to which paragraph (2) does not apply, plus
            ``(2) 100 percent of any gain from the sale or exchange of 
        qualified small business stock--
                    ``(A) which is held for more than 10 years, and
                    ``(B) substantially all of the active business 
                activities of which during substantially all of the 
                taxpayer's holding period for such stock are 
in connection with critical technologies (as defined in section 2491(6) 
of title 10, United States Code) or with environmental technologies for 
pollution minimization, remediation, or waste management.''
            (2) Conforming amendments.--Each of the following 
        provisions are amended by striking ``50-Percent'':
                    (A) The heading for section 1202.
                    (B) The heading for section 1202(a).
                    (C) The item relating to section 1202 in the table 
                of sections for part I of subchapter P of chapter 1.
    (b) Exclusion Limited to Stock in Companies Creating American 
Jobs.--Section 1202(c) (defining qualified small business stock) is 
amended by adding at the end the following new paragraph:
            ``(4) United states job requirement.--Stock in a 
        corporation shall not be treated as qualified small business 
        stock unless, during substantially all of the taxpayer's 
        holding period after December 31, 1996, at least 75 percent of 
        employees hired after such date perform substantially all of 
        their services for the corporation within the United States.''
    (c) Effective Date.--The amendments made by this section apply to 
sales or exchanges after December 31, 1995, in taxable years ending 
after such date.

SEC. 302. PERMANENT EXTENSION OF RESEARCH CREDIT.

    (a) In General.--Section 41 of the Internal Revenue Code of 1986 
(relating to credit for research activities) is amended by striking 
subsection (h).
    (b)  Conforming Amendment.--Section 28(b)(1) of the Internal 
Revenue Code of 1986 is amended by striking subparagraph (D).
    (c)  Effective Date.--The amendments made by this section shall 
apply to taxable years ending after June 30, 1995.

               Subtitle B--Preservation of American Jobs

SEC. 311. TAXATION OF INCOME OF CONTROLLED FOREIGN CORPORATIONS 
              ATTRIBUTABLE TO IMPORTED PROPERTY.

    (a) General Rule.--Subsection (a) of section 954 (defining foreign 
base company income) is amended by striking ``and'' at the end of 
paragraph (4), by striking the period at the end of paragraph (5) and 
inserting ``, and'', and by adding at the end the following new 
paragraph:
            ``(6) imported property income for the taxable year 
        (determined under subsection (h) and reduced as provided in 
        subsection (b)(5)).''
    (b) Definition of Imported Property Income.--Section 954 is amended 
by adding at the end the following new subsection:
    ``(h) Imported Property Income.--
            ``(1) In general.--For purposes of subsection (a)(6), the 
        term `imported property income' means income (whether in the 
        form of profits, commissions, fees, or otherwise) derived in 
        connection with--
                    ``(A) manufacturing, producing, growing, or 
                extracting imported property,
                    ``(B) the sale, exchange, or other disposition of 
                imported property, or
                    ``(C) the lease, rental, or licensing of imported 
                property.
        Such term shall not include any foreign oil and gas extraction 
        income (within the meaning of section 907(c)) or any foreign 
        oil related income (within the meaning of section 907(c)).
            ``(2) Imported property.--For purposes of this subsection--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the term `imported property' means 
                property which is imported into the United States by 
                the controlled foreign corporation or a related person.
                    ``(B) Imported property includes certain property 
                imported by unrelated persons.--The term `imported 
                property' includes any property imported into the 
                United States by an unrelated person if, when such 
                property was sold to the unrelated person by the 
                controlled foreign corporation (or a related person), 
                it was reasonable to expect that--
                            ``(i) such property would be imported into 
                        the United States, or
                            ``(ii) such property would be used as a 
                        component in other property which would be 
                        imported into the United States.
                    ``(C) Exception for property subsequently 
                exported.--The term `imported property' does not 
                include any property which is imported into the United 
                States and which--
                            ``(i) before substantial use in the United 
                        States, is sold, leased, or rented by the 
                        controlled foreign corporation or a related 
                        person for direct use, consumption, or 
                        disposition outside the United States, or
                            ``(ii) is used by the controlled foreign 
                        corporation or a related person as a component 
                        in other property which is so sold, leased, or 
                        rented.
            ``(3) Definitions and special rules.--
                    ``(A) Import.--For purposes of this subsection, the 
                term `import' means entering, or withdrawal from 
                warehouse, for consumption or use. Such term includes 
                any grant of the right to use an intangible (as defined 
                in section 936(b)(3)(B)) in the United States.
                    ``(B) Unrelated person.--For purposes of this 
                subsection, the term `unrelated person' means any 
                person who is not a related person with respect to the 
                controlled foreign corporation.
                    ``(C) Coordination with foreign base company sales 
                income.--For purposes of this section, the term 
                `foreign base company sales income' shall not include 
                any imported property income.''
    (c) Separate Application of Limitations on Foreign Tax Credit for 
Imported Property Income.--
            (1) In general.--Paragraph (1) of section 904(d) (relating 
        to separate application of section with respect to certain 
        categories of income) is amended by striking ``and'' at the end 
        of subparagraph (H), by redesignating subparagraph (I) as 
        subparagraph (J), and by inserting after subparagraph (H) the 
        following new subparagraph:
                    ``(I) imported property income, and''.
            (2) Imported property income defined.--Paragraph (2) of 
        section 904(d) is amended by redesignating subparagraphs (H) 
        and (I) as subparagraphs (I) and (J), respectively, and by 
        inserting after subparagraph (G) the following new 
        subparagraph:
                    ``(H) Imported property income.--The term `imported 
                property income' means any income received or accrued 
                by any person which is of a kind which would be 
                imported property income (as defined in section 
                954(h)).''
            (3) Look-thru rules to apply.--Clause (i) of section 
        904(d)(3)(F) is amended by striking ``or (E)'' and inserting 
        ``(E), or (H)''.
    (d) Technical Amendments.--
            (1) Clause (iii) of section 952(c)(1)(B) (relating to 
        certain prior year deficits may be taken into account) is 
        amended by inserting the following subclause after subclause 
        (II) (and by redesignating the following subclauses 
        accordingly):
                                    ``(III) imported property 
                                income,''.
            (2) Paragraph (5) of section 954(b) of such Code (relating 
        to deductions to be taken into account) is amended by striking 
        ``and the foreign base company oil related income'' and 
        inserting ``the foreign base company oil related income, and 
        the imported property income''.
    (e) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years of 
        foreign corporations beginning after December 31, 1994, and to 
        taxable years of United States shareholders within which or 
        with which such taxable years of such foreign corporations end.
            (2) Subsection (c).--The amendments made by subsection (c) 
        shall apply to taxable years beginning after December 31, 1994.

SEC. 312. DEBARMENT OF FEDERAL CONTRACTORS NOT IN COMPLIANCE WITH 
              IMMIGRATION AND NATIONALITY ACT EMPLOYMENT PROVISIONS.

    (a) Policy.--It is the policy of the United States that--
            (1) the heads of executive agencies in procuring goods and 
        services should not contract with an employer that has not 
        complied with paragraphs (1)(A) and (2) of section 274A(a) of 
        the Immigration and Nationality Act (8 U.S.C. 1324a(a)) 
        (hereafter in this section referred to as the ``INA employment 
        provisions''), which prohibit unlawful employment of aliens; 
        and
            (2) the Attorney General should fully and aggressively 
        enforce the antidiscrimination provisions of the Immigration 
        and Nationality Act.
    (b) Enforcement.--
            (1) Authority.--
                    (A) In general.-- Using the procedures established 
                pursuant to section 274A(e) of the Immigration and 
                Nationality Act (8 U.S.C. 1324a(e)), the Attorney 
                General may conduct such investigations as are 
                necessary to determine whether a contractor or an 
                organizational unit of a contractor is not complying 
                with the INA employment provisions.
                    (B) Complaints and hearings.--The Attorney 
                General--
                            (i) shall receive and may investigate any 
                        complaint by an employee of any such entity 
                        that alleges noncompliance by such entity with 
                        the INA employment provisions; and
                            (ii) in conducting the investigation, shall 
                        hold such hearings as are necessary to 
                        determine whether that entity is not in 
                        compliance with the INA employment provisions.
            (2) Actions on determinations of noncompliance.--
                    (A) Attorney general.--Whenever the Attorney 
                General determines that a contractor or an 
                organizational unit of a contractor is not in 
                compliance with the INA employment provisions, the 
                Attorney General shall transmit that determination to 
                the head of each executive agency that contracts with 
                the contractor and the heads of other executive 
                agencies that the Attorney General determines it 
                appropriate to notify.
                    (B) Head of contracting agency.--Upon receipt of 
                the determination, the head of a contracting executive 
                agency shall consider the contractor or an 
                organizational unit of the contractor for debarment, 
                and shall take such other action as may be appropriate, 
                in accordance with applicable procedures and standards 
                set forth in the Federal Acquisition Regulation.
                    (C) Nonreviewability of determination.--The 
                Attorney General's determination is not reviewable in 
                debarment proceedings.
    (c) Debarment.--
            (1) Authority.--The head of an executive agency may debar a 
        contractor or an organizational unit of a contractor on the 
        basis of a determination of the Attorney General that it is not 
        in compliance with the INA employment provisions.
            (2) Scope.--The scope of the debarment generally should be 
        limited to those organizational units of a contractor that the 
        Attorney General determines are not in compliance with the INA 
        employment provisions.
            (3) Period.--The period of a debarment under this 
        subsection shall be one year, except that the head of the 
        executive agency may extend the debarment for additional 
        periods of one year each if, using the procedures established 
        pursuant to section 274A(e) of the Immigration and Nationality 
        Act (8 U.S.C. 1324a(e)), the Attorney General determines that 
        the organizational unit of the contractor concerned continues 
        not to comply with the INA employment provisions.
            (4) Listing.--The Administrator of General Services shall 
        list each debarred contractor and each debarred organizational 
        unit of a contractor on the List of Parties Excluded from 
        Federal Procurement and Nonprocurement Programs that is 
        maintained by the Administrator. No debarred contractor and no 
        debarred organizational unit of a contractor shall be eligible 
        to participate in any procurement, nor in any nonprocurement 
        activities, of the Federal Government.
    (d) Regulations and Orders.--
            (1) Attorney general.--
                    (A) Authority.--The Attorney General may prescribe 
                such regulations and issue such orders as the Attorney 
                General considers necessary to carry out the 
                responsibilities of the Attorney General under this 
                section.
                    (B) Consultation.--In proposing regulations or 
                orders that affect the executive agencies, the Attorney 
                General shall consult with the Secretary of Defense, 
                the Secretary of Labor, the Administrator of General 
                Services, the Administrator of the National Aeronautics 
                and Space Administration, the Administrator for Federal 
                Procurement Policy, and the heads of any other 
                executive agencies that the Attorney General considers 
                appropriate.
            (2) Federal acquisition regulation.--The Federal 
        Acquisition Regulatory Council shall amend the Federal 
        Acquisition Regulation to the extent necessary to provide for 
        implementation of the debarment responsibility and other 
        related responsibilities assigned to heads of executive 
        agencies under this section.
    (e) Interagency Cooperation.--The head of each executive agency 
shall cooperate with, and provide such information and assistance to, 
the Attorney General as is necessary for the Attorney General to 
perform the duties of the Attorney General under this section.
    (f) Delegation.--The Attorney General, the Secretary of Defense, 
the Administrator of General Services, the Administrator of the 
National Aeronautics and Space Administration, and the head of any 
other executive agency may delegate the performance of any of the 
functions or duties of that official under this section to any 
officer or employee of the executive agency under the jurisdiction of 
that official.
    (g) Implementation Not To Burden Procurement Process Excessively.--
This section shall be implemented in a manner that least burdens the 
procurement process of the Federal Government.
    (h) Construction.--
            (1) Antidiscrimination.--Nothing in this section relieves 
        employers of the obligation to avoid unfair immigration-related 
        employment practices as required by--
                    (A) the antidiscrimination provisions of section 
                274B of the Immigration and Nationality Act (8 U.S.C. 
                1324b), including the provisions of subsection (a)(6) 
                of that section concerning the treatment of certain 
                documentary practices as unfair immigration-related 
                employment practices; and
                    (B) all other antidiscrimination requirements of 
                applicable law.
            (2) Contract terms.--This section neither authorizes nor 
        requires any additional certification provision, clause, or 
        requirement to be included in any contract or contract 
        solicitation.
            (3) No new rights and benefits.--This section may not be 
        construed to create any right or benefit, substantive or 
        procedural, enforceable at law by a party against the United 
        States, including any department or agency, officer, or 
        employee of the United States.
            (4) Judicial review.--This section does not preclude 
        judicial review of a final agency decision in accordance with 
        chapter 7 of title 5, United States Code.
    (i) Definitions.--In this section:
            (1) Executive agency.--The term ``executive agency'' has 
        the meaning given that term in section 4 of the Office of 
        Federal Procurement Policy Act (41 U.S.C. 403).
            (2) Contractor.--The term ``contractor'' means any 
        individual or other legal entity that--
                    (A) directly or indirectly (through an affiliate or 
                otherwise), submits offers for or is awarded, or 
                reasonably may be expected to submit offers for or be 
                awarded, a Federal Government contract, including a 
                contract for carriage under Federal Government or 
                commercial bills of lading, or a subcontract under a 
                Federal Government contract; or
                    (B) conducts business, or reasonably may be 
                expected to conduct business, with the Federal 
                Government as an agent or representative of another 
                contractor.

SEC. 313. SENSE OF CONGRESS RELATING TO STOCK OPTIONS FOR EMPLOYEES WHO 
              ARE LAID OFF.

    (a) Findings.--The Congress finds that--
            (1) the rationale behind many corporate downsizings is to 
        increase earnings and thereby increase the value of the stock 
        of the corporation,
            (2) corporate managers have ample experience in granting 
        stock incentives to themselves, and
            (3) employees who are laid off in the corporate downsizings 
        should benefit from the increase in value of corporate stock 
        attributable to their losing their jobs.
    (b) Sense of Congress.--It is the sense of the Congress that 
employees who are laid off in a corporate downsizing should be given 
stock options at the time of their termination which may be exercised 
at a price equal to the value of the stock on the day before the 
downsizing is announced.

 Subtitle C--Promotion of Long-Term Investments in American Businesses

PART I--LONG-TERM INVESTMENT, COMPETITIVENESS, PENSION PROTECTION, AND 
                       CORPORATE TAKEOVER REFORM

SEC. 321. FINDINGS.

    The Congress makes the following findings:
            (1) Managers of American corporations have been criticized 
        for their short-term focus, leading to a lack of investment in 
        research and development, and plants and equipment that are 
        necessary to maintain our competitive position worldwide.
            (2) The short-term horizon of our corporate managers can be 
        traced, in part, to changes in the capital markets away from 
        ownership by individuals to ownership by large pension funds 
        and institutional investors, and in part to threats of hostile 
        takeovers.
            (3) Pension funds, with assets of almost 
        $2,000,000,000,000, and institutional investors are playing an 
        ever increasing role in the country's economic system, with 
        estimates that by the year 2000, as much as two-thirds of all 
        corporate equities will be held by pension funds. The pressure 
        on such pension fund managers and other institutional investors 
        to perform better than the market and the high turnover rate in 
        some pension funds has raised concerns that the accumulation of 
        large blocks of stock in fewer hands may be contributing to the 
        number of mergers and acquisitions and to a shorter term focus 
        on the part of management.
            (4) The surplus assets in many company pension plans have 
        too often become tools in the financing of takeovers and 
        leveraged buy outs, a practice which placed the pensions of 
        workers at an unacceptable risk.
            (5) Too little emphasis has been placed on ensuring the 
        fair treatment and job security of workers following a takeover 
        or leveraged buy out.
            (6) On an aggregate basis, corporate takeovers and 
        leveraged buy outs have been a factor in an enormous increase 
        in corporate debt. Debt for nonfinancial businesses rose from 
        $500,000,000,000 in 1970 to $3,100,000,000,000 by the end of 
        the third quarter of 1988, a more than sixfold increase. In 
        addition, for the period 1984 through the third quarter of 
        1988, a total of $794,000,000,000 of corporate debt has been 
        added, while a total of $422,300,000,000 of corporate equity 
has been withdrawn.
            (7) The large amount of debt incurred by corporations 
        either as a result of, or to stave off, takeovers or leveraged 
        buy outs has resulted in a decrease in research and development 
        budgets and needed investments in plant improvements and 
        equipment at a time when United States industry is struggling 
        to maintain its international competitiveness.
            (8) Long-term investment and planning are essential to 
        sustained economic growth, yet numerous economic factors are 
        pushing corporate managers and investors to take an 
        increasingly short-term view.
            (9) The integrity of our financial markets and the 
        confidence of the public in them have been undermined by the 
        conduct of parties in tenders offers and leveraged buy outs.
            (10) Therefore, in order to protect the public interest, it 
        is necessary to correct inadequacies in, and curb abuses of, 
        our existing securities laws.

SEC. 322. LONG-TERM INVESTMENTS AND PENSION PROTECTION.

    (a) Antichurning Rule.--Section 406(a)(1) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1106(a)(1)) is 
amended--
            (1) by striking ``or'' at the end of subparagraph (D),
            (2) by striking the period at the end of subparagraph (E) 
        and inserting a semicolon, and
            (3) by adding at the end the following new subparagraph:
                    ``(F) sale or disposition of--
                            ``(i) stock or securities (as defined in 
                        section 29(a)(36) of the Investment Company Act 
                        of 1940), or
                            ``(ii) options, futures, or forward 
                        contracts, which were held for less than 3 
                        months unless less than 30 percent of such 
                        plan's gross income for the fiscal year is 
                        derived from such sale or disposition.''
    (b) ERISA Amendments.--
            (1) Section 404 of the Employee Retirement Income Security 
        Act of 1974 (29 U.S.C. 1104) is amended by adding at the end 
        the following:
    ``(d) In voting on a merger, combination, or sale of substantially 
all the assets of, or in tendering or refraining from tendering 
securities in a tender offer for, a publicly owned business the 
securities of which constitute assets of a plan, a fiduciary shall take 
into consideration the long-term as well as the short-term interests of 
the participants and beneficiaries of the plan and shall not be deemed 
to have violated this part solely because the fiduciary takes such 
interests into consideration.''
            (2) Section 4044 of such Act (29 U.S.C. 1344) is amended by 
        adding at the end the following new subsection:
    ``(e)(1) Notwithstanding subsection (d)(1), a distribution 
otherwise permitted pursuant to such subsection shall be prohibited for 
a period of 5 years following:
            ``(A) any acquisition of the securities of the employer 
        pursuant to a tender offer subject to section 14(d) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78n(d)) by any 
        person, or
            ``(B) any acquisition of the securities of the employer in 
        a transaction to which section 13(e) of such Act (15 U.S.C. 
        78m(e)) applies;
    ``(2) Notwithstanding subsection (d)(1) and subject to paragraph 
(3), a distribution otherwise permitted pursuant to such subsection 
shall be prohibited if any part of the residual assets of the plan are 
used to finance, directly or indirectly--
            ``(A) any acquisition of the securities of the employer 
        pursuant to a tender offer subject to section 14(d) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78n(d)) by any 
        person, or
            ``(B) any acquisition of the securities of the employer in 
        a transaction to which section 123(e) of such Act (15 U.S.C. 
        78m(e)) applies,
including the repayment, redemption, or refinancing of any indebtedness 
incurred by such person in connection with any such acquisitions.
    ``(3) Paragraph (1) does not apply to a transaction described in 
section 4980(c)(3) of the International Revenue Code of 1986 (as in 
effect on the date of enactment of this subsection) if--
            ``(A) the transfer of assets to the plan is approved by a 
        majority vote of all participants of the employer plan;
            ``(B) prior to the vote, there is disclosure to the 
        participants of all material facts concerning the transfer of 
        assets to the plan and the acquisition of employer securities 
        by the plan, including--
                    ``(i) the terms of the employee stock ownership 
                plan,
                    ``(ii) the terms of the plan from which the assets 
                are being transferred, and
                    ``(iii) whether or not a new plan will be 
                established in place of the plan from which the assets 
                are being transferred; and
            ``(C) the vote by the participants is confidential, and 
        takes place within a reasonable period of time following the 
        disclosure required under subparagraph (B).

SEC. 323. PROTECTION OF WORKERS.

    Section 14(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
78n(d)) is amended by adding at the end the following:
            ``(  )(A) Any person who acquires ownership or control of 
        any plant, facility, or other property of an issuer, either 
        directly in his own name or indirectly, through a transaction 
        in response, or otherwise related, to the filing of a statement 
        under section 13(d) of this title announcing an intent to seek 
        a change in control of the issuer or a statement under this 
        section announcing a tender offer for the issuer's securities 
        shall have the following minimum statutory obligations to the 
        employees of the plant, facility or property who are, at the 
        time the transaction is consummated, covered by a collective 
        bargaining agreement (the `preacquisition agreement'):
                    ``(i) If the acquiring person uses the plant, 
                facility, or property in a manner which is not 
                fundamentally different from its preacquisition use, 
                the person--
                            ``(I) shall abide by the terms of the 
                        preacquisition agreement, regardless of its 
                        expiration date, for a period of 180 days after 
                        the date the acquirer commences operations at 
                        the plant, facility or property; and
                            ``(II) shall, if the preacquisition 
                        agreement was not due to expire within one year 
                        of the date of the consummation of the 
                        acquisition transaction, negotiate in good 
                        faith with the employees' exclusive bargaining 
                        representative for a collective bargaining 
                        agreement covering the unexpired term of the 
                        preacquisition agreement and shall submit to 
                        binding arbitration on all unresolved issues if 
                        the parties are unable, within 120 days of the 
                        acquisition, to negotiate a new agreement.
                    ``(ii) If the acquiring person uses the plant, 
                facility or property in a manner which is fundamentally 
                different from its preacquisition use, the acquirer 
                shall provide to any employee, who was covered by the 
                preacquisition agreement and whose employment is 
                involuntarily terminated by reason of the acquisition 
                transaction, severance pay in an amount equal to six 
                times his monthly compensation at the time of 
                termination.
            ``(B) In the event of arbitration of unresolved issues 
        pursuant to subparagraph (A)(i)(II), the parties shall select 
        an arbitrator from a special roster of arbitrators prepared by 
        an appropriate agency of the Federal Government which engages 
        in the mediation and conciliation of labor-management disputes 
        in the industry designated by the Secretary of Labor and the 
        arbitrator shall within the 180-day period stated in 
        subparagraph (a)(i)(I) issue a final and binding award on all 
        unresolved issues, based upon the acquiring person's experience 
        under the terms of the preacquisition agreement and on 
        collective bargaining agreements covering comparable plants, 
        facilities and properties.
            ``(C) For purposes of this paragraph--
                    ``(i) the property of an issuer includes property 
                owned by an entity controlled by the issuer;
                    ``(ii) the obligations created herein apply to each 
                succeeding transferee of the issuer's property in the 
                same manner as to the original acquirer of the property 
                by reason of a transaction covered by subparagraph (A); 
                and
                    ``(iii) any condition, stipulation, or provision in 
                any contract purporting to waive the rights and 
                obligations created in this section shall be void.
            ``(D) Any person seeking to enforce the rights and 
        obligations created by this section may sue at law or in equity 
        in any court of competent jurisdiction. In any suit under this 
        subsection, the court may, in its discretion, assess reasonable 
        costs, including attorneys' fees in favor of the prevailing 
        party.''

SEC. 324. WILLIAMS ACT REFORMS.

    (a) 10-Day Window.--Section 13(d)(1) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78m(d)(1)) is amended--
            (1) by striking ``shall, within ten days after such 
        acquisition'' and inserting ``shall, within 5 days after such 
        acquisition'';
            (2) by inserting after ``send to each exchange'' the 
        following: ``and registered national securities association''; 
        and
            (3) by adding at the end the following: ``Any person 
        required to send and file such a statement may not acquire or 
        agree to acquire, directly or indirectly, the beneficial 
        ownership of any additional amount of such equity securities 
        after the transaction that required such person to send and 
        file such statement until after such statement has been filed 
        with the Commission.''
    (b) Tender Offers.--Section 14(d) of the Securities Exchange Act of 
1934 (15 U.S.C. 78n(d)) is amended--
            (1) by redesignating paragraphs (2) through (8) as 
        paragraphs (6) through (12), and
            (2) by inserting after paragraph (1) the following new 
        paragraphs:
    ``(2) Any person making a tender offer for or a request or 
invitation for tender offers of any class of any such equity security 
shall hold such offer, request, or invitation open for a period of at 
least forty-five business days from the date on which such offer, 
request, or invitation is first published, sent, or given to security 
holders, or such longer period as the Commission may, by rule, 
prescribe.
    ``(3) In the case of a well-financed offer, the preceding sentence 
shall be applied by substituting `thirty' for `forty-five'. For the 
purpose of the preceding sentence, a well-financed offer is an offer 
that would not, if consummated, constitute a highly leveraged 
transaction as defined by the appropriate regulatory agencies (other 
than the Commission).
    ``(4)(A) If, during the forty-five-day period described in 
paragraph (2), a qualified employee stock ownership plan notifies the 
offeror, the issuer, or the Commission, of the plan's intent to acquire 
additional securities of the issuer on terms which are substantially 
equivalent to other offers, paragraph (2) shall be applied by 
substituting `ninety-five' for `forty-five'.
    ``(B) For purposes of this subsection, the term `qualified employee 
stock ownership plan' means an employee stock ownership plan defined in 
section 4975(e)(7) of the Internal Revenue Code of 1986 which--
            ``(i) is sponsored by the issuer (or a member of the 
        controlled group) of the equity securities to which the request 
        or invitation for tenders described in paragraph (1) is made,
            ``(ii) meets the requirements of section 410(b) of the 
        Internal Revenue Code of 1986, and
            ``(iii) owns securities of the issuer representing at least 
        5 per centum of the outstanding voting securities (of the 
        issuer) on the day on which the forty-five-day period begins to 
        run and has held such 5 per centum for a period beginning at 
        least six months before such forty-five-day period begins to 
        run.
    ``(C) The provisions of this paragraph shall not apply to any 
acquisition or proposed acquisition of a security if--
            ``(i) the acquisition of such security, together with all 
        other acquisitions by the same person of securities of the same 
        class during the preceding 12 months, would not exceed 2 per 
        centum of that class;
            ``(ii) a block of 10 per centum or more of the outstanding 
        shares is acquired and such shares were held by the seller for 
        at least 2 years prior to the sale;
            ``(iii) such acquisition is from one family member to 
        another;
            ``(iv) such acquisition is made by a person who owned more 
        than 50 per centum of the outstanding shares prior to such 
        purchase; or
            ``(v) the Commission, by rule or regulation, or by order, 
        has exempted such acquisition from the provisions of this 
        subsection as it determines to be necessary or appropriate and 
        consistent with the public interest, the protection of 
        investors, and the purposes of this paragraph.''
    (c) Conforming Amendment.--Section 14 of the Securities Exchange 
Act of 1934 (15 U.S.C. 78n) is amended by striking the heading of such 
section and inserting the following:

                     ``proxies and tender offers''.

SEC. 325. ANTI-GREENMAIL/SHORT-SWING PROFITS.

    Section 16 of the Securities Exchange Act of 1934 (15 U.S.C. 78p) 
is amended--
            (1) in the caption, by striking ``and principal 
        stockholders'' and inserting ``principal stockholders and 
        holders of more than 5 per centum'';
            (2) in subsection (b)--
                    (A) by inserting ``(1)(A)'' after ``(b)''; and
                    (B) by striking ``Suit'' and all that follows 
                through the end period and inserting the following:
    ``(B) For the purpose of discouraging manipulative tender offer 
practices, any profit realized by any person from any disposition, 
directly or indirectly, of equity securities described in section 
13(d)(1), shall inure to and be recoverable by the issuer of such 
securities, if such person, (i) was the beneficial owner, at the time 
of such disposition, of more than 5 per centum of the class of 
securities so disposed of, (ii) made a tender offer for such securities 
within 6 months preceding the disposition, and (iii) had held any or 
all of such securities for less than six months prior to the 
disposition thereof. The preceding sentence does not apply if (I) such 
disposition was a purchase by the issuer of the securities and has been 
approved by the affirmative vote of a majority of the aggregate 
outstanding voting securities of the issuer, or (II) the same offer to 
purchase is made available to all shareholders.
    ``(2) Suit to recover such profit may be instituted at law or in 
equity in any court of competent jurisdiction by the issuer, or by the 
owner of any security of the issuer in the name and in behalf of the 
issuer if the issuer shall fail or refuse to bring such suit within 60 
days after request or shall fail diligently to prosecute the same 
thereafter; but no such suit shall be brought more than 2 years after 
the date such profit was realized. This subsection shall not be 
construed to cover any transaction where such beneficial owner was not 
such both at the time of the purchase and sale, or the sale and 
purchase, of the security involved, or any transaction or transactions 
which the Commission by rules and regulations may exempt as not 
comprehended within the purpose of this subsection.
    ``(3) The Commission shall, by rule, regulation, or by order upon 
application, conditionally or unconditionally exempt any person, 
security, or transaction from any or all of the provisions of paragraph 
(1)(B) as it determines to be necessary or appropriate and consistent 
with the public interest, the protection of investors, and the purposes 
of this subsection.''

SEC. 326. ADDITIONAL RESERVE REQUIREMENTS.

    (a) In General.--Each appropriate Federal banking agency shall 
review the exposure to risk of United States depository institutions 
arising from the medium- and long-term loans made by such institutions 
that are outstanding in connection with highly leveraged transactions, 
as defined by the appropriate Federal banking agency. Each agency shall 
provide directions to such institutions regarding additions to general 
reserves, if the agency determines that such additions to general 
reserves are necessary to protect the safety and soundness of the 
institution, based on a determination by the agency that such 
institution's loans with respect to highly leveraged transactions are 
unduly concentrated.
    (b) Determination of Institutional Exposure to Risk.--In 
determining the exposure of an institution to risk for purposes of 
subsection (a), the appropriate Federal banking agency--
            (1) may exempt, in full or in part, from reserve 
        requirements established pursuant to subsection (a), any loan 
        that is secured, in whole or in part, by appropriate collateral 
        for payment of interest or principal; and
            (2) take into account any other factors which bear on such 
        exposure and the particular circumstances of the institution.
    (c) Timing and Report.--
            (1) Determined by agency.--Except as provided in paragraph 
        (3), each appropriate Federal banking agency shall determine 
        the timing of any addition to reserves required by subsection 
        (a).
            (2) Report.--Each appropriate Federal banking agency shall 
        transmit to the Congress not later than December 1 of each year 
        a report on the actions taken pursuant to this section.
            (3) Deadline.--Each Federal agency required to undertake a 
        review described in subsection (a) shall complete the review 
        not later than December 31, 1990.
    (d) Definition.--As used in this section, the term ``appropriate 
Federal banking agency'' means the Comptroller of the Currency, the 
Office of Thrift Supervision, the Federal Deposit Insurance 
Corporation, and the Board of Governors of the Federal Reserve System.

SEC. 327. LEVERAGED BUYOUT AND GOING PRIVATE TRANSACTIONS.

    Section 14 of the Securities Exchange Act of 1934 (15 U.S.C. 78n) 
is amended by adding at the end thereof the following new subsection:
    ``(h)(1) It shall be unlawful for one or more officers, directors, 
employees, or affiliates of an issuer of any security which is 
registered pursuant to section 12 of this title, or which would have 
been required to be so registered except for the exemption contained in 
section 12(g)(2)(G) of this title, or of any closed-end investment 
company registered under the Investment Company Act of 1940, to acquire 
all or substantially all of the shares of a class of such issuer's or 
such company's equity securities unless--
            ``(A) at least forty-five days have elapsed between the day 
        on which the proposed acquisition is publicly announced and the 
        day on which the acquisition occurs;
            ``(B) such issuer or company has obtained a report by an 
        independent appraiser, as provided in paragraph (2), on the 
        proposed acquisition; and
            ``(C) the report is made available to all shareholders and 
        all members of the board of directors of the issuer in 
        accordance with such rules as the Commission may prescribe, but 
        not later than twenty days before the day on which the 
        acquisition occurs.
    ``(2) For the purpose of paragraph (1)(B), any officers, directors, 
employees, or affiliates intending to purchase all or substantially all 
of the shares of a class of such issuer's or such company's equity 
securities shall obtain an independent appraisal of such issuer from a 
nationally accredited accounting firm which has no financial interest 
in the outcome of such restructuring transaction and whose fees for 
performing such appraisal are not related to the outcome of such 
restructuring transaction. Any firm preparing an appraisal pursuant to 
this subparagraph shall be given access by the issuer to any and all of 
the issuer's books, records and premises.
    ``(3) For the purpose of this subsection, the term `affiliate' 
means any person who becomes affiliated with one or more of the 
officers, directors or employees of the issuer in a transaction in 
which such officer, director or employee will own, in the aggregate, 
directly or indirectly, within 3 years of such purchase of such equity 
security, 5 per centum or more of the equity of the surviving 
corporation or continuing business.''

SEC. 328. FIRM FINANCING AND FINANCING DISCLOSURES.

    (a) Financing of Takeovers.--Section 14 of the Securities Exchange 
Act of 1934 (15 U.S.C. 78n), as amended by section 327, is amended by 
adding at the end thereof the following new subsection:
    ``(i)(1) It shall be unlawful for any person, directly or 
indirectly, by use of the mails or by any means or instrumentality of 
interstate commerce or of any facility of a national securities 
exchange or otherwise, to make a tender offer for, or a request or 
invitation for tenders of, any equity security of a class described in 
subsection (d)(1) of this section unless 50 per centum or more of the 
consideration to be offered consists of cash. For purposes of the 
preceding sentence, 50 per centum or more of the consideration shall 
qualify as cash, if--
            ``(A) such cash is at the time of announcement of the 
        tender offer on deposit in an account of the tendering person 
        at a bank or trust company organized under the laws of the 
        United States, or the District of Columbia; or
            ``(B) the offering person has entered into a legally 
        enforceable, unconditional, and irrevocable commitment (not 
        subject to execution of a further definitive agreement) to 
        provide such cash from such bank or trust company, which 
        commitment is not contingent in any manner upon the success or 
        failure of such tender offer or request or invitation for 
        tenders.
    ``(2) The provisions of paragraph (1) shall not apply to a tender 
offer for, or a request or invitation for tenders--
            ``(A) of equity securities of the tendering person,
            ``(B) of equity securities of a class the total value of 
        which is less than $100,000,000, or
            ``(C) in connection with borrowings or the incurrence of 
        debt or the issuance of bonds, notes, debentures, 
        participations, other debt securities, or other obligations to 
        pay money (or money's worth in one or more other forms) to 
        provide for the purchase of `qualifying employee security' 
        purchased or acquired by an `employer stock ownership plan' (as 
        defined in section 4975(e)(7) of the Internal Revenue Code of 
        1986).
    ``(3) The Board of Governors of the Federal Reserve System, in 
consultation with the Commission, shall prescribe rules and regulations 
to effectuate the purpose of this subsection. The Board of Governors is 
empowered to grant exceptions to the provisions of this subsection by 
order. In acting on an application for an exception, the Board of 
Governors shall consider the positive economic aspects of the 
transaction, the fairness of the transaction to shareholders, 
debtholders, and creditors of both the acquired and acquiring 
corporation, and the economic dislocation, including unemployment 
risks, likely to be caused by consummation of the transaction. The 
Board of Governors shall respond affirmatively or negatively within 20 
business days after receiving an application for an exception. 
Decisions of the Board of Governors denying such exceptions shall not 
be reviewable in any court, nor shall they be considered by any court 
by reason of any extraordinary writ or remedy.
    ``(4)(A) Any person that violates or conspires to violate paragraph 
(1) of this subsection shall be subject to a civil penalty of not less 
than 5 per centum of the borrowings such person has publicly 
represented it would need to fund the entire proposed transaction.
    ``(B) On application by any person, any United States district 
court may issue an injunction or other order to prevent a violation of 
this subsection.''
    (b) Financing Disclosures.--Section 13(d)(1)(B) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m(d)(1)(B)) is amended by striking 
out ``security, a description of the transaction and the names of the 
parties thereto, except that where a source of funds is a loan made in 
the ordinary course of business by a bank, as defined in section 
3(a)(6) of this title, if the person filing such statement so requests, 
the name of the bank shall not be made available to the public'' and 
inserting in lieu thereof the following: ``security--
                    ``(i) a summary of each agreement or arrangement 
                relating to the extension of credit, the issuance of 
                securities for cash, or the other acquisition of such 
                funds, including the identity of the parties, the term, 
                the collateral, the stated and effective interest 
                rates, all fees to be paid in connection with the 
                agreement or arrangement to any person providing or 
                arranging for the provision of such funds or other 
                consideration, and all other material terms or 
                conditions relative to such loan agreement or 
                arrangement; and
                    ``(ii) any plans or arrangements to finance or 
                repay any amount of such funds representing 
                indebtedness incurred or to be incurred, or if no such 
                plans or arrangements have been made, a statement to 
                that effect.''
    (c) Itemized Statement of Expenses.--Section 13(d)(1) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78m(d)(1)) is amended--
            (1) by striking ``and'' at the end of subparagraph (D);
            (2) by striking the period at the end of subparagraph (E) 
        and inserting ``; and''; and
            (3) by inserting after subparagraph (E) the following:
            ``(____) a reasonably itemized statement of all expenses 
        incurred or estimated to be incurred in connection with the 
        acquisition of such beneficial ownership, including expenses 
        for legal, accounting, financing, and investment banking 
        services, filing fees, and all other similar fees and expenses, 
        indicating whether or not such person has paid or will be 
        responsible for paying any or all such expenses.''
    (d) Disclosure of Expenses.--Section 14(d)(____) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78n(d)(8)) is amended by adding at the 
end the following: ``Such rules and regulations shall require 
appropriate disclosures by officers or directors of the issuer of all 
expenses incurred or estimated to be incurred in connection with the 
tender offer or request or invitation for tenders, including expenses 
for legal, accounting, financial, and investment banking services, 
filing fees, and all other similar fees and expenses, indicating 
whether or not such person has paid or will be responsible for paying 
any or all such expenses.''

SEC. 329. ROLE OF STATE LAW.

    The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
amended by adding at the end thereof the following:

                          ``role of state law

    ``Sec. 36. The Congress declares that the internal affairs or 
governance of corporations shall be subject to regulation by the laws 
of the State under which such corporation is organized. Nothing 
contained in section 13 or 14 of this title or any rules or regulations 
thereunder shall be construed to invalidate, impair, or supersede any 
law enacted by any State regulating the internal affairs or governance 
or contests for control of any corporation organized under its laws, 
except where compliance with such law would preclude compliance with 
the filing, disclosure, procedural, or antifraud requirements of 
sections 13 and 14 of this title.''

               PART II--RESTRICTIONS ON HARMFUL TAKEOVERS

SEC. 331. DISALLOWANCE OF DEDUCTION FOR MERGER AND ACQUISITION 
              EXPENSES.

    (a) Deduction Disallowed.--Part IX of subchapter B of chapter 1 of 
subtitle A (relating to items not deductible) is amended by adding at 
the end the following new section:

``SEC. 280I. DISALLOWANCE OF DEDUCTION FOR MERGER AND ACQUISITION 
              EXPENSES.

    ``(a) In General.--No deduction otherwise allowable under this 
chapter shall be allowed for any amount paid or incurred in connection 
with an applicable acquisition.
    ``(b) Applicable Acquisition.--For purposes of this section--
            ``(1) In general.--The term `applicable acquisition' means 
        the acquisition by a person of ownership interests in, or 
        assets used in the active conduct of a trade or business by, an 
        entity if--
                    ``(A) such acquisition occurs during the 3-year 
                period ending on the date the person acquires control 
                of the entity or the person acquires more than one-half 
                of the assets used in the trade or business, and
                    ``(B) there is a 15 percent or greater reduction in 
                employees of such entity or trade or business in 
                connection with such acquisition.
            ``(2) Exceptions.--The term `applicable acquisition' shall 
        not include--
                    ``(A) except as provided in paragraph (3), any 
                acquisition by a person from an entity which it 
                controls (or which controlled it) immediately before 
                the acquisition, or
                    ``(B) any acquisition described in clause (i), 
                (ii), or (iii) of section 382(l)(3)(B).
            ``(3) Related transactions.--The term `applicable 
        acquisition' shall include any acquisition after the 
        acquisition described in paragraph (1)(A) if such acquisitions 
        are part of a series of related transactions.
    ``(c) Other Definitions and Rules.--For purposes of this section:
            ``(1) Control.--A person shall be treated as in control of 
        another entity if--
                    ``(A) in the case of a corporation, it possesses 
                more than 50 per centum of the stock of the corporation 
                (by vote or value), or
                    ``(B) in the case of any other entity, it possesses 
                ownership interests representing more than 50 per 
centum of the capital or profits interest in the entity.
            ``(2) Constructive ownership rules.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the following rules shall apply:
                            ``(i) in the case of a corporation, the 
                        rules of section 267(c);
                            ``(ii) in the case of a partnership, the 
                        rules of section 707(b); and
                            ``(iii) in the case of any other entity, 
                        rules prescribed by the Secretary based on the 
                        principles of the rules described in clauses 
                        (i) and (ii).
                    ``(B) Options.--Except as provided in regulations, 
                a person shall be treated as possessing stock or assets 
                if the person has an option to acquire the stock or 
                assets.
            ``(3) Related parties.--All persons treated as the employer 
        under subsection (a) or (b) of section 52 shall be treated as 1 
        person for purposes of this section.''
    (b) Clerical Amendment.--The table of sections for such part IX is 
amended by adding after the item relating to section 280H the following 
new item:

                              ``Sec. 280I. Disallowance of deduction 
                                        for merger and acquisition 
                                        expenses.''
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after December 31, 1996, for taxable 
years ending after such date.

                       PART III--OTHER PROVISIONS

SEC. 341. $1,000,000 COMPENSATION DEDUCTION LIMIT EXTENDED TO ALL 
              EMPLOYERS OF ALL CORPORATIONS.

    (a) In General.--Section 162(m) is amended--
            (1) by striking ``publicly held corporation'' in paragraph 
        (1) and inserting ``taxpayer (other than personal service 
        corporations)'',
            (2) by striking ``covered employee'' each place it appears 
        in paragraphs (1) and (4) and inserting ``employee'', and
            (3) by striking paragraphs (2) and (3) and redesignating 
        paragraph (4) as paragraph (2).
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995, except that 
there shall not be taken into account with respect to any employee to 
whom section 162(m) of the Internal Revenue Code of 1986 applies solely 
by reason of such amendments remuneration payable under a written 
binding contract which was in effect on October 25, 1995, and which was 
not modified thereafter in any material respect before such 
remuneration is paid.

SEC. 342. LEVEL OF PARTICIPATION IN GUARANTEED LOANS UNDER EXPORT 
              WORKING CAPITAL PROGRAM.

    Section 7(a)(2) of the Small Business Act (15 U.S.C. 636(a)(2)) is 
amended by adding at the end the following new subparagraph:
                    ``(D) Participation under export working capital 
                program.--Notwithstanding subparagraph (A), in an 
                agreement to participate in a loan on a deferred basis 
                under the Export Working Capital Program established 
                pursuant to paragraph (14)(A), such participation by 
                the Administration shall be equal to the rate specified 
                under this paragraph as in effect on the day before the 
                date of the enactment of this subparagraph.''

                   TITLE IV--MISCELLANEOUS PROVISIONS

SEC. 401. DEDUCTION FOR LOCAL SEWER AND WATER FEES.

    (a) In General.--Subsection (b) of section 164 is amended by 
redesignating paragraphs (3) and (4) as paragraphs (4) and (5), 
respectively, and by inserting after paragraph (2) the following new 
paragraph:
            ``(3) Deduction allowed for local sewer and water fees.--
                    ``(A) In general.--To the extent that the amount of 
                local sewer and water fees paid or accrued during any 
                taxable year exceeds 1 percent of adjusted gross 
                income, such fees shall be allowed as a deduction under 
                subsection (a) in the same manner as local real 
                property taxes.
                    ``(B) Definition.--For purposes of subparagraph 
                (A), the term `local sewer and water fees' means any 
                amount imposed by a local government, State government 
                (or any agency or instrumentality thereof), or by the 
                District of Columbia as a charge for sewer or water 
                service. Such term shall not include any amount 
                allowable as a deduction without regard to this 
                paragraph.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1995.
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