I

107TH CONGRESS

1ST SESSION H. R. 1018

To amend the Internal Revenue Code of 1986 to provide for economic growth

by providing tax relief.

IN THE HOUSE OF REPRESENTATIVES

MARCH 14, 2001

Mr. TOOMEY (for himself, Mr. RYAN of Wisconsin, Mr. ARMEY, Mr. FLAKE,

Mr. SHADEGG, Mr. SAM JOHNSON of Texas, Mr. DEMINT, Mr. PENCE,

Mr. BONILLA, Mr. SESSIONS, Mr. DOOLITTLE, Mr. RYUN of Kansas, Mr.

SOUDER, Mr. LARGENT, Mr. Otter, Mr. TANCREDO, Mr. CHABOT, Mr.

COX, Mrs. MYRICK, Mr. HAYWORTH, Mr. CANTOR, Mr. AKIN, Ms. HART,

Mr. SCHAFFER, Mr. GARY MILLER of California, Mr. ISTOOK, Mr.

HOSTETTLER, Mr. PITTS, Mr. BARTLETT of Maryland, Mr. HERGER, Mr.

ISSA, Mr. HEFLEY, Mr. KIRK, Mr. KELLER, Mr. JONES of North Carolina, Mrs. JO ANN DAVIS of Virginia, and Mr. BARR of Georgia) introduced the following bill; which was referred to the Committee on Ways

and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide

for economic growth by providing tax relief.

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

3 SECTION 1. SHORT TITLE.

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

5 ‘‘Economic Recovery and Growth Act of 2001’’.
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1 (b) AMENDMENT OF 1986 CODE.—Except as other2 wise expressly provided, whenever in this Act an amend3 ment or repeal is expressed in terms of an amendment

4 to, or repeal of, a section or other provision, the reference

5 shall be considered to be made to a section or other provi6 sion of the Internal Revenue Code of 1986.

7 (c) SECTION 15 NOT TO APPLY.—No amendment

8 made by this Act shall be treated as a change in a rate

9 of tax for purposes of section 15 of the Internal Revenue

10 Code of 1986.

11 (d) TABLE OF CONTENTS.—

Sec. 1. Short title.

TITLE I—INDIVIDUAL INCOME TAX RELIEF

Sec. 101. Reduction in marginal income tax rates for individuals.

Sec. 102. Repeal of alternative minimum tax on individuals.

TITLE II—INDIVIDUAL SAVINGS AND INVESTMENT TAX RELIEF

Subtitle A—Individual Savings and Investment Tax Relief

Sec. 201. Reduction in capital gains rates.

Sec. 202. Phaseout of estate and gift taxes.

Subtitle B—Pension Reform

CHAPTER 1—INDIVIDUAL RETIREMENT ACCOUNTS

Sec. 211. Modification of IRA contribution limits.

Sec. 212. Catchup contributions to IRAs by individuals age 50 or over.

Sec. 213. Modification of income limits on contributions and rollovers to Roth

IRAs.

Sec. 214. Deemed IRAs under employer plans.

CHAPTER 2—EXPANDING COVERAGE

Sec. 221. Increase in benefit and contribution limits.

Sec. 222. Plan loans for subchapter S owners, partners, and sole proprietors.

Sec. 223. Modification of top-heavy rules.

Sec. 224. Elective deferrals not taken into account for purposes of deduction

limits.

Sec. 225. Repeal of coordination requirements for deferred compensation plans

of State and local governments and tax-exempt organizations.
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Sec. 226. Elimination of user fee for requests to IRS regarding pension plans.

Sec. 227. Deduction limits.

Sec. 228. Option to treat elective deferrals as after-tax contributions.

CHAPTER 3—ENHANCING FAIRNESS FOR WOMEN

Sec. 231. Catch-up contributions for individuals age 50 or over.

Sec. 232. Equitable treatment for contributions of employees to defined contribution plans.

Sec. 233. Faster vesting of certain employer matching contributions.

Sec. 234. Simplify and update the minimum distribution rules.

Sec. 235. Clarification of tax treatment of division of section 457 plan benefits

upon divorce.

Sec. 236. Modification of safe harbor relief for hardship withdrawals from cash

or deferred arrangements.

CHAPTER 4—INCREASING PORTABILITY FOR PARTICIPANTS

Sec. 241. Rollovers allowed among various types of plans.

Sec. 242. Rollovers of IRAs into workplace retirement plans.

Sec. 243. Rollovers of after-tax contributions.

Sec. 244. Hardship exception to 60-day rule.

Sec. 245. Treatment of forms of distribution.

Sec. 246. Rationalization of restrictions on distributions.

Sec. 247. Purchase of service credit in governmental defined benefit plans.

Sec. 248. Employers may disregard rollovers for purposes of cash-out amounts.

Sec. 249. Minimum distribution and inclusion requirements for section 457

plans.

CHAPTER 5—STRENGTHENING PENSION SECURITY AND ENFORCEMENT

Sec. 251. Repeal of 150 percent of current liability funding limit.

Sec. 252. Maximum contribution deduction rules modified and applied to all defined benefit plans.

Sec. 253. Excise tax relief for sound pension funding.

Sec. 254. Excise tax on failure to provide notice by defined benefit plans significantly reducing future benefit accruals.

Sec. 255. Treatment of multiemployer plans under section 415.

Sec. 256. Prohibited allocations of stock in S corporation ESOP.

CHAPTER 6—REDUCING REGULATORY BURDENS

Sec. 261. Modification of timing of plan valuations.

Sec. 262. ESOP dividends may be reinvested without loss of dividend deduction.

Sec. 263. Repeal of transition rule relating to certain highly compensated employees.

Sec. 264. Employees of tax-exempt entities.

Sec. 265. Clarification of treatment of employer-provided retirement advice.

Sec. 266. Reporting simplification.

Sec. 267. Improvement of employee plans compliance resolution system.

Sec. 268. Repeal of the multiple use test.

Sec. 269. Flexibility in nondiscrimination, coverage, and line of business rules.

Sec. 270. Extension to all governmental plans of moratorium on application of

certain nondiscrimination rules applicable to State and local

plans.

Sec. 271. Notice and consent period regarding distributions.
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CHAPTER 7—PLAN AMENDMENTS

Sec. 281. Provisions relating to plan amendments.

TITLE III—FAMILY TAX RELIEF

Sec. 301. Elimination of marriage penalty in standard deduction.

Sec. 302. Phaseout of marriage penalty in income tax rate brackets.

Sec. 303. Modifications of child tax credit.

Sec. 304. Expansion of Education IRAs.

Sec. 305. Eligible educational institutions permitted to maintain qualified tuition programs.

Sec. 306. Exclusion from gross income of education distributions from qualified

tuition programs.

Sec. 307. Qualified tuition programs included in securities exemption.

Sec. 308. Expansion of credit for adoption expenses.

TITLE IV—CHARITABLE GIVING TAX RELIEF

Sec. 401. Deduction for portion of charitable contributions to be allowed to individuals who do not itemize deductions.

Sec. 402. Tax-free distributions from individual retirement accounts for charitable purposes.

Sec. 403. Higher limitation on corporate charitable contributions.

TITLE V—MISCELLANEOUS TAX RELIEF

Sec. 501. Repeal of 1993 income tax increase on social security benefits.

Sec. 502. Repeal of Federal communications excise tax.

Sec. 503. Deduction for 100 percent of health insurance costs of self-employed

individuals.

Sec. 504. Increased deduction for meal expenses.

Sec. 505. Increase in expense treatment for small businesses.

Sec. 506. Income averaging for farmers and fishermen not to increase alternative minimum tax liability.

Sec. 507. Repeal of occupational taxes relating to distilled spirits, wine, and

beer.

Sec. 508. Permanent extension of research credit.

Sec. 509. Farm, fishing, and ranch risk management accounts.

1 TITLE I—INDIVIDUAL INCOME

2 TAX RELIEF

3 SEC. 101. REDUCTION IN MARGINAL INCOME TAX RATES

4 FOR INDIVIDUALS.

5 (a) IN GENERAL.—Section 1 is amended by adding

6 at the end the following new subsection:

7 ‘‘(i) RATE REDUCTIONS AFTER 2000.—

8 ‘‘(1) NEW LOWEST RATE BRACKET.—
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1 ‘‘(A) IN GENERAL.—In the case of taxable

2 years beginning after December 31, 2000—

3 ‘‘(i) the rate of tax under subsections

4 (a), (b), (c), and (d) on taxable income not

5 over the initial bracket amount shall be 12

6 percent (as modified by paragraph (2)),

7 and

8 ‘‘(ii) the 15 percent rate of tax shall

9 apply only to taxable income over the ini10 tial bracket amount.

11 ‘‘(B) INITIAL BRACKET AMOUNT.—For

12 purposes of this subsection, the initial bracket

13 amount is—

14 ‘‘(i) $12,000 in the case of subsection

15 (a),

16 ‘‘(ii) $10,000 in the case of subsection

17 (b), and

‘‘(iii) 1 18 ⁄2 the amount applicable under

19 clause (i) in the case of subsections (c) and

20 (d).

21 ‘‘(C) INFLATION ADJUSTMENT.—In pre22 scribing the tables under subsection (f) which

23 apply with respect to taxable years beginning in

24 calendar years after 2001—
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1 ‘‘(i) the Secretary shall make no ad2 justment to the initial bracket amount for

3 any taxable year beginning before January

4 1, 2007,

5 ‘‘(ii) the cost-of-living adjustment

6 used in making adjustments to the initial

7 bracket amount for any taxable year begin8 ning after December 31, 2006, shall be de9 termined under subsection (f)(3) by sub10 stituting ‘2005’ for ‘1992’ in subparagraph

11 (B) thereof, and

12 ‘‘(iii) such adjustment shall not apply

13 to the amount referred to in subparagraph

14 (B)(iii).

15 If any amount after adjustment under the pre16 ceding sentence is not a multiple of $50, such

17 amount shall be rounded to the next lowest

18 multiple of $50.

19 ‘‘(2) ADDITIONAL REDUCTIONS.—In the case of

20 taxable years beginning in a calendar year after

21 2000, the corresponding percentage specified for

22 such calendar year in the following table shall be

23 substituted for the otherwise applicable tax rate in

24 the tables under subsections (a), (b), (c), (d), and,

25 to the extent applicable, (e).
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‘‘In the case of taxable years beginning

during calendar

year:

The corresponding percentages shall

be substituted for the following percentages:

12% 15% 28% 31% 36% 39.6%

2001 ......................... 12% 15% 26% 26% 34% 34%

2002 ......................... 12% 15% 26% 26% 34% 34%

2003 ......................... 12% 15% 26% 26% 34% 34%

2004 ......................... 12% 15% 26% 26% 34% 34%

2005 ......................... 11% 15% 26% 26% 34% 34%

2006......................... 10% 15% 25% 25% 33% 33%

2007 ......................... 10% 15% 25% 25% 33% 33%

2008 ......................... 10% 15% 25% 25% 33% 33%

2009 ......................... 10% 15% 25% 25% 33% 33%

2010 ......................... 9.5% 14.2% 23.7% 23.7% 31.3% 31.3%

2011 and thereafter 9% 13.5% 22.5% 22.5% 29.7% 29.7%

1 ‘‘(3) ADJUSTMENT OF TABLES.—The Secretary

2 shall adjust the tables prescribed under subsection

3 (f) to carry out this subsection.’’

4 (b) REPEAL OF REDUCTION OF REFUNDABLE TAX

5 CREDITS.—

6 (1) Subsection (d) of section 24 is amended by

7 striking paragraph (2) and redesignating paragraph

8 (3) as paragraph (2).

9 (2) Section 32 is amended by striking sub10 section (h).

11 (c) CONFORMING AMENDMENTS.—

12 (1) Subparagraph (B) of section 1(g)(7) is

13 amended—

14 (A) by striking ‘‘15 percent’’ in clause

15 (ii)(II) and inserting ‘‘the first bracket percent16 age’’, and

17 (B) by adding at the end the following

18 flush sentence:
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1 ‘‘For purposes of clause (ii), the first bracket

2 percentage is the percentage applicable to the

3 lowest income bracket in the table under sub4 section (c).’’

5 (2) Section 1(h) is amended—

6 (A) by striking ‘‘28 percent’’ both places it

7 appears in paragraphs (1)(A)(ii)(I) and

8 (1)(B)(i) and inserting ‘‘21.2 percent’’, and

9 (B) by striking paragraph (13).

10 (3) Section 15 is amended by adding at the end

11 the following new subsection:

12 ‘‘(f) RATE REDUCTIONS ENACTED BY ECONOMIC RE13 COVERY AND GROWTH ACT OF 2001.—This section shall

14 not apply to any change in rates under subsection (i) of

15 section 1 (relating to rate reductions after 2000).’’

16 (4) Section 531 is amended by striking ‘‘equal

17 to’’ and all that follows and inserting ‘‘equal to the

18 product of the highest rate of tax under section 1(c)

19 and the accumulated taxable income.’’.

20 (5) Section 541 of such Code is amended by

21 striking ‘‘equal to’’ and all that follows and inserting

22 ‘‘equal to the product of the highest rate of tax

23 under section 1(c) and the undistributed personal

24 holding company income.’’.
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1 (6) Section 3402(p)(1)(B) is amended by strik2 ing ‘‘7, 15, 28, or 31 percent’’ and inserting ‘‘7 per3 cent, any percentage applicable to any of the 3 low4 est income brackets in the table under section

5 1(c),’’.

6 (7) Section 3402(p)(2) is amended by striking

7 ‘‘equal to 15 percent of such payment’’ and inserting

8 ‘‘equal to the product of the lowest rate of tax under

9 section 1(c) and such payment’’.

10 (8) Section 3402(q)(1) is amended by striking

11 ‘‘equal to 28 percent of such payment’’ and inserting

12 ‘‘equal to the product of the third to the lowest rate

13 of tax under section 1(c) and such payment’’.

14 (9) Section 3402(r)(3) is amended by striking

15 ‘‘31 percent’’ and inserting ‘‘the third to the lowest

16 rate of tax under section 1(c)’’.

17 (10) Section 3406(a)(1) is amended by striking

18 ‘‘equal to 31 percent of such payment’’ and inserting

19 ‘‘equal to the product of the third to the lowest rate

20 of tax under section 1(c) and such payment’’.

21 (11) Section 13273 of the Revenue Reconcili22 ation Act of 1993 is amended by striking ‘‘28 per23 cent’’ and inserting ‘‘the third to the lowest rate of

24 tax under section 1(c) of the Internal Revenue Code

25 of 1986’’.
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1 (d) EFFECTIVE DATES.—

2 (1) IN GENERAL.—Except as provided in para3 graph (2), the amendments made by this section

4 shall apply to taxable years beginning after Decem5 ber 31, 2000.

6 (2) AMENDMENTS TO WITHHOLDING PROVI7 SIONS.—The amendments made by paragraphs (6),

8 (7), (8), (9), (10), and (11) of subsection (c) shall

9 apply to amounts paid after the 60th day after the

10 date of the enactment of this Act.

11 SEC. 102. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDI12 VIDUALS.

13 (a) IN GENERAL.—Subsection (a) of section 55 is

14 amended by adding at the end the following new flush sen15 tence:

16 ‘‘For purposes of this title, the tentative minimum tax on

17 any taxpayer other than a corporation for any taxable year

18 beginning after December 31, 2009, shall be zero.’’.

19 (b) REDUCTION OF TAX ON INDIVIDUALS PRIOR TO

20 REPEAL.—Section 55 is amended by adding at the end

21 the following new subsection:

22 ‘‘(f ) PHASEOUT OF TAX ON INDIVIDUALS.—

23 ‘‘(1) IN GENERAL.—The tax imposed by this

24 section on a taxpayer other than a corporation for

25 any taxable year beginning after December 31,
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1 2000, and before January 1, 2010, shall be the ap2 plicable percentage of the tax which would be im3 posed but for this subsection.

4 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes

5 of paragraph (1), the applicable percentage shall be

6 determined in accordance with the following table:

‘‘For taxable years beginning The applicable

in calendar year— percentage is—

2001, 2002, or 2003 ............................................................ 80

2004, 2005, or 2006............................................................ 70

2007 or 2008 ....................................................................... 60

2009 ..................................................................................... 50.’’.

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

8 this section shall apply to taxable years beginning after

9 December 31, 2000.

10 TITLE II—INDIVIDUAL SAVINGS

11 AND INVESTMENT TAX RE12 LIEF; PENSION REFORM

13 Subtitle A—Individual Savings and

14 Investment Tax Relief

15 SEC. 201. REDUCTION IN CAPITAL GAINS RATES.

16 (a) IN GENERAL.—Subsection (h) of section 1 is

17 amended—

18 (1) by striking ‘‘10 percent’’ in subparagraph

19 (B) and inserting ‘‘7.5 percent’’,

20 (2) by striking ‘‘20 percent’’ in subparagraph

21 (C) and inserting ‘‘15 percent’’,
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1 (3) by striking ‘‘25 percent’’ in subparagraph

2 (D) and inserting ‘‘20 percent’’, and

3 (4) by striking paragraph (2).

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

5 this section shall apply to taxable years beginning after

6 December 31, 2001.

7 SEC. 202. PHASEOUT OF ESTATE AND GIFT TAXES.

8 (a) REPEAL OF ESTATE AND GIFT TAXES.—Subtitle

9 B (relating to estate and gift taxes) is repealed effective

10 with respect to estates of decedents dying, and gifts made,

11 after December 31, 2008.

12 (b) PHASEOUT OF TAX.—Subsection (c) of section

13 2001 (relating to imposition and rate of tax) is amended

14 by adding at the end the following new paragraph:

15 ‘‘(3) PHASEOUT OF TAX.—In the case of es16 tates of decedents dying, and gifts made, during any

17 calendar year after 2001 and before 2009—

18 ‘‘(A) IN GENERAL.—The tentative tax

19 under this subsection shall be determined by

20 using a table prescribed by the Secretary (in

21 lieu of using the table contained in paragraph

22 (1)) which is the same as such table; except

23 that—

24 ‘‘(i) each of the rates of tax shall be

25 reduced (but not below zero) by the num-
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1 ber of percentage points determined under

2 subparagraph (B), and

3 ‘‘(ii) the amounts setting forth the tax

4 shall be adjusted to the extent necessary to

5 reflect the adjustments under clause (i).

6 ‘‘(B) PERCENTAGE POINTS OF REDUC7 TION.— The number of

‘‘For calendar year: percentage points is:

2002, 2003, 2004, or 2005 ...................................................... 15

2006......................................................................................... 20

2007 ......................................................................................... 30

2008 ......................................................................................... 40.

8 ‘‘(C) COORDINATION WITH PARAGRAPH

9 (2).—Paragraph (2) shall be applied by reduc10 ing the 55 percent percentage contained therein

11 by the number of percentage points determined

12 for such calendar year under subparagraph

13 (B).’’.

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

15 subsection (b) shall apply to estates of decedents dying,

16 and gifts made, after December 31, 2001.

17 Subtitle B—Pension Reform

18 CHAPTER 1—INDIVIDUAL RETIREMENT

19 ACCOUNTS

20 SEC. 211. MODIFICATION OF IRA CONTRIBUTION LIMITS.

21 (a) INCREASE IN CONTRIBUTION LIMIT.—

22 (1) IN GENERAL.—Paragraph (1)(A) of section

23 219(b) (relating to maximum amount of deduction)
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1 is amended by striking ‘‘$2,000’’ and inserting ‘‘the

2 deductible amount’’.

3 (2) DEDUCTIBLE AMOUNT.—Section 219(b) is

4 amended by adding at the end the following new

5 paragraph:

6 ‘‘(5) DEDUCTIBLE AMOUNT.—For purposes of

7 paragraph (1)(A)—

8 ‘‘(A) IN GENERAL.—The deductible

9 amount shall be determined in accordance with

10 the following table:

‘‘For taxable years The deductible

beginning in: amount is:

2002 ......................................................................................... $3,000

2003 ......................................................................................... $4,000

2004 and thereafter ................................................................. $5,000.

11 ‘‘(B) COST-OF-LIVING ADJUSTMENT.—

12 ‘‘(i) IN GENERAL.—In the case of any

13 taxable year beginning in a calendar year

14 after 2004, the $5,000 amount under sub15 paragraph (A) shall be increased by an

16 amount equal to—

17 ‘‘(I) such dollar amount, multi18 plied by

19 ‘‘(II) the cost-of-living adjust20 ment determined under section

21 1(f )(3) for the calendar year in which

22 the taxable year begins, determined by

23 substituting ‘calendar year 2003’ for
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1 ‘calendar year 1992’ in subparagraph

2 (B) thereof.

3 ‘‘(ii) ROUNDING RULES.—If any

4 amount after adjustment under clause (i)

5 is not a multiple of $100, such amount

6 shall be rounded to the next lower multiple

7 of $100.’’.

8 (b) CONFORMING AMENDMENTS.—

9 (1) Section 408(a)(1) is amended by striking

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

11 and inserting ‘‘on behalf of any individual in excess

12 of the amount in effect for such taxable year under

13 section 219(b)(1)(A)’’.

14 (2) Section 408(b)(2)(B) is amended by strik15 ing ‘‘$2,000’’ and inserting ‘‘the dollar amount in

16 effect under section 219(b)(1)(A)’’.

17 (3) Section 408(b) is amended by striking

18 ‘‘$2,000’’ in the matter following paragraph (4) and

19 inserting ‘‘the dollar amount in effect under section

20 219(b)(1)(A)’’.

21 (4) Section 408( j) is amended by striking

22 ‘‘$2,000’’.

23 (5) Section 408(p)(8) is amended by striking

24 ‘‘$2,000’’ and inserting ‘‘the dollar amount in effect

25 under section 219(b)(1)(A)’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 2001.

4 SEC. 212. CATCHUP CONTRIBUTIONS TO IRAS BY INDIVID5 UALS AGE 50 OR OVER.

6 (a) IN GENERAL.—Section 219(b) is amended fur7 ther by adding at the end the following new paragraph:

8 ‘‘(6) CATCHUP CONTRIBUTIONS.—

9 ‘‘(A) IN GENERAL.—In the case of an indi10 vidual who has attained the age of 50 before

11 the close of the taxable year, the dollar amount

12 in effect under paragraph (1)(A) for such tax13 able year shall be equal to the applicable per14 centage of such amount determined without re15 gard to this paragraph.

16 ‘‘(B) APPLICABLE PERCENTAGE.—For

17 purposes of this paragraph, the applicable per18 centage shall be determined in accordance with

19 the following table:

‘‘For taxable years The applicable

beginning in: percentage is:

2002 .........................................................................................110 percent

2003 .........................................................................................120 percent

2004 .........................................................................................130 percent

2005 .........................................................................................140 percent

2006 and thereafter .................................................................150 percent.’’.

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

21 this section shall apply to contributions in taxable years

22 beginning after December 31, 2001.
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1 SEC. 213. MODIFICATION OF INCOME LIMITS ON CON2 TRIBUTIONS AND ROLLOVERS TO ROTH IRAS.

3 (a) REPEAL OF AGI LIMIT ON CONTRIBUTIONS.—

4 Section 408A(c)(3) (relating to limits based on modified

5 adjusted gross income) is amended—

6 (1) by striking clause (ii) of subparagraph (A)

7 and inserting:

8 ‘‘(ii) $10,000.’’, and

9 (2) by striking clause (ii) of subparagraph (C)

10 and inserting:

11 ‘‘(ii) the applicable dollar amount is—

12 ‘‘(I) $200,000 in the case of a

13 taxpayer filing a joint return, and

14 ‘‘(II) $100,000 in the case of any

15 other taxpayer.’’.

16 (b) INCREASE IN AGI LIMIT FOR ROLLOVER CON17 TRIBUTIONS.—Section 408A(c)(3)(B) (relating to rollover

18 from IRA) is amended to read as follows:

19 ‘‘(B) ROLLOVER FROM IRA.—A taxpayer

20 shall not be allowed to make a qualified rollover

21 contribution from an individual retirement plan

22 other than a Roth IRA during any taxable year

23 if, for the taxable year of the distribution to

24 which the contribution relates, the taxpayer’s

25 adjusted gross income exceeds $100,000
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1 ($200,000 in the case of a taxpayer filing a

2 joint return).’’.

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

4 this section shall apply to taxable years beginning after

5 December 31, 2001.

6 SEC. 214. DEEMED IRAS UNDER EMPLOYER PLANS.

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

8 retirement accounts) is amended by redesignating sub9 section (q) as subsection (r) and by inserting after sub10 section (p) the following new subsection:

11 ‘‘(q) DEEMED IRAS UNDER QUALIFIED EMPLOYER

12 PLANS.—

13 ‘‘(1) GENERAL RULE.—If—

14 ‘‘(A) a qualified employer plan elects to

15 allow employees to make voluntary employee

16 contributions to a separate account or annuity

17 established under the plan, and

18 ‘‘(B) under the terms of the qualified em19 ployer plan, such account or annuity meets the

20 applicable requirements of this section or sec21 tion 408A for an individual retirement account

22 or annuity,

23 then such account or annuity shall be treated for

24 purposes of this title in the same manner as an indi25 vidual retirement plan (and contributions to such ac-
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1 count or annuity as contributions to an individual

2 retirement plan). For purposes of subparagraph (B),

3 the requirements of subsection (a)(5) shall not

4 apply.

5 ‘‘(2) SPECIAL RULES FOR QUALIFIED EM6 PLOYER PLANS.—For purposes of this title—

7 ‘‘(A) a qualified employer plan shall not

8 fail to meet any requirement of this title solely

9 by reason of establishing and maintaining a

10 program described in paragraph (1), and

11 ‘‘(B) any account or annuity described in

12 paragraph (1), and any contribution to the ac13 count or annuity, shall not be subject to any re14 quirement of this title applicable to a qualified

15 employer plan or taken into account in applying

16 any such requirement to any other contribu17 tions under the plan.

18 ‘‘(3) DEFINITIONS.—For purposes of this

19 subsection—

20 ‘‘(A) QUALIFIED EMPLOYER PLAN.—The

21 term ‘qualified employer plan’ has the meaning

22 given such term by section 72(p)(4).

23 ‘‘(B) VOLUNTARY EMPLOYEE CONTRIBU24 TION.—The term ‘voluntary employee contribu25 tion’ means any contribution (other than a
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1 mandatory contribution within the meaning of

2 section 411(c)(2)(C))—

3 ‘‘(i) which is made by an individual as

4 an employee under a qualified employer

5 plan which allows employees to elect to

6 make contributions described in paragraph

7 (1), and

8 ‘‘(ii) with respect to which the indi9 vidual has designated the contribution as a

10 contribution to which this subsection ap11 plies.’’.

12 (b) AMENDMENT OF ERISA.—

13 (1) IN GENERAL.—Section 4 of the Employee

14 Retirement Income Security Act of 1974 (29 U.S.C.

15 1003) is amended by adding at the end the following

16 new subsection:

17 ‘‘(c) If a pension plan allows an employee to elect to

18 make voluntary employee contributions to accounts and

19 annuities as provided in section 408(q) of the Internal

20 Revenue Code of 1986, such accounts and annuities (and

21 contributions thereto) shall not be treated as part of such

22 plan (or as a separate pension plan) for purposes of any

23 provision of this title other than section 403(c), 404, or

24 405 (relating to exclusive benefit, and fiduciary and co25 fiduciary responsibilities).’’.
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1 (2) CONFORMING AMENDMENT.—Section 4(a)

2 of such Act (29 U.S.C. 1003(a)) is amended by in3 serting ‘‘or (c)’’ after ‘‘subsection (b)’’.

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

5 this section shall apply to plan years beginning after De6 cember 31, 2001.

7 CHAPTER 2—EXPANDING COVERAGE

8 SEC. 221. INCREASE IN BENEFIT AND CONTRIBUTION

9 LIMITS.

10 (a) DEFINED BENEFIT PLANS.—

11 (1) DOLLAR LIMIT.—

12 (A) Subparagraph (A) of section 415(b)(1)

13 (relating to limitation for defined benefit plans)

14 is amended by striking ‘‘$90,000’’ and inserting

15 ‘‘$160,000’’.

16 (B) Subparagraphs (C) and (D) of section

17 415(b)(2) are each amended by striking

18 ‘‘$90,000’’ each place it appears in the head19 ings and the text and inserting ‘‘$160,000’’.

20 (C) Paragraph (7) of section 415(b) (relat21 ing to benefits under certain collectively bar22 gained plans) is amended by striking ‘‘the

23 greater of $68,212 or one-half the amount oth24 erwise applicable for such year under paragraph

25 (1)(A) for ‘$90,000’ ’’ and inserting ‘‘one-half
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1 the amount otherwise applicable for such year

2 under paragraph (1)(A) for ‘$160,000’ ’’.

3 (2) LIMIT REDUCED WHEN BENEFIT BEGINS

4 BEFORE AGE 62.—Subparagraph (C) of section

5 415(b)(2) is amended by striking ‘‘the social security

6 retirement age’’ each place it appears in the heading

7 and text and inserting ‘‘age 62’’.

8 (3) LIMIT INCREASED WHEN BENEFIT BEGINS

9 AFTER AGE 65.—Subparagraph (D) of section

10 415(b)(2) is amended by striking ‘‘the social security

11 retirement age’’ each place it appears in the heading

12 and text and inserting ‘‘age 65’’.

13 (4) COST-OF-LIVING ADJUSTMENTS.—Sub14 section (d) of section 415 (related to cost-of-living

15 adjustments) is amended—

16 (A) by striking ‘‘$90,000’’ in paragraph

17 (1)(A) and inserting ‘‘$160,000’’; and

18 (B) in paragraph (3)(A)—

19 (i) by striking ‘‘$90,000’’ in the head20 ing and inserting ‘‘$160,000’’; and

21 (ii) by striking ‘‘October 1, 1986’’ and

22 inserting ‘‘July 1, 2001’’.

23 (5) CONFORMING AMENDMENT.—Section

24 415(b)(2) is amended by striking subparagraph (F).

25 (b) DEFINED CONTRIBUTION PLANS.—
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1 (1) DOLLAR LIMIT.—Subparagraph (A) of sec2 tion 415(c)(1) (relating to limitation for defined con3 tribution plans) is amended by striking ‘‘$30,000’’

4 and inserting ‘‘$40,000’’.

5 (2) COST-OF-LIVING ADJUSTMENTS.—Sub6 section (d) of section 415 (related to cost-of-living

7 adjustments) is amended—

8 (A) by striking ‘‘$30,000’’ in paragraph

9 (1)(C) and inserting ‘‘$40,000’’; and

10 (B) in paragraph (3)(D)—

11 (i) by striking ‘‘$30,000’’ in the head12 ing and inserting ‘‘$40,000’’; and

13 (ii) by striking ‘‘October 1, 1993’’ and

14 inserting ‘‘July 1, 2001’’.

15 (c) QUALIFIED TRUSTS.—

16 (1) COMPENSATION LIMIT.—Sections

17 401(a)(17), 404(l), 408(k), and 505(b)(7) are each

18 amended by striking ‘‘$150,000’’ each place it ap19 pears and inserting ‘‘$200,000’’.

20 (2) BASE PERIOD AND ROUNDING OF COST-OF21 LIVING ADJUSTMENT.—Subparagraph (B) of section

22 401(a)(17) is amended—

23 (A) by striking ‘‘October 1, 1993’’ and in24 serting ‘‘July 1, 2001’’; and
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1 (B) by striking ‘‘$10,000’’ both places it

2 appears and inserting ‘‘$5,000’’.

3 (d) ELECTIVE DEFERRALS.—

4 (1) IN GENERAL.—Paragraph (1) of section

5 402(g) (relating to limitation on exclusion for elec6 tive deferrals) is amended to read as follows:

7 ‘‘(1) IN GENERAL.—

8 ‘‘(A) LIMITATION.—Notwithstanding sub9 sections (e)(3) and (h)(1)(B), the elective defer10 rals of any individual for any taxable year shall

11 be included in such individual’s gross income to

12 the extent the amount of such deferrals for the

13 taxable year exceeds the applicable dollar

14 amount.

15 ‘‘(B) APPLICABLE DOLLAR AMOUNT.—For

16 purposes of subparagraph (A), the applicable

17 dollar amount shall be the amount determined

18 in accordance with the following table:

‘‘For taxable years The applicable

beginning in dollar amount:

calendar year:

2002 ............................................................................. $11,000

2003 ............................................................................. $12,000

2004 ............................................................................. $13,000

2005 ............................................................................. $14,000

2006 or thereafter ........................................................ $15,000.’’.

19 (2) COST-OF-LIVING ADJUSTMENT.—Paragraph

20 (5) of section 402(g) is amended to read as follows:
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1 ‘‘(5) COST-OF-LIVING ADJUSTMENT.—In the

2 case of taxable years beginning after December 31,

3 2006, the Secretary shall adjust the $15,000

4 amount under paragraph (1)(B) at the same time

5 and in the same manner as under section 415(d),

6 except that the base period shall be the calendar

7 quarter beginning July 1, 2005, and any increase

8 under this paragraph which is not a multiple of

9 $500 shall be rounded to the next lowest multiple of

10 $500.’’.

11 (3) CONFORMING AMENDMENTS.—

12 (A) Section 402(g) (relating to limitation

13 on exclusion for elective deferrals), as amended

14 by paragraphs (1) and (2), is further amended

15 by striking paragraph (4) and redesignating

16 paragraphs (5), (6), (7), (8), and (9) as para17 graphs (4), (5), (6), (7), and (8), respectively.

18 (B) Paragraph (2) of section 457(c) is

19 amended by striking ‘‘402(g)(8)(A)(iii)’’ and in20 serting ‘‘402(g)(7)(A)(iii)’’.

21 (C) Clause (iii) of section 501(c)(18)(D) is

22 amended by striking ‘‘(other than paragraph

23 (4) thereof)’’.
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1 (e) DEFERRED COMPENSATION PLANS OF STATE

2 AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANI3 ZATIONS.—

4 (1) IN GENERAL.—Section 457 (relating to de5 ferred compensation plans of State and local govern6 ments and tax-exempt organizations) is amended—

7 (A) in subsections (b)(2)(A) and (c)(1) by

8 striking ‘‘$7,500’’ each place it appears and in9 serting ‘‘the applicable dollar amount’’; and

10 (B) in subsection (b)(3)(A) by striking

11 ‘‘$15,000’’ and inserting ‘‘twice the dollar

12 amount in effect under subsection (b)(2)(A)’’.

13 (2) APPLICABLE DOLLAR AMOUNT; COST-OF14 LIVING ADJUSTMENT.—Paragraph (15) of section

15 457(e) is amended to read as follows:

16 ‘‘(15) APPLICABLE DOLLAR AMOUNT.—

17 ‘‘(A) IN GENERAL.—The applicable dollar

18 amount shall be the amount determined in ac19 cordance with the following table:

‘‘For taxable years The applicable

beginning in dollar amount:

calendar year:

2002 ............................................................................. $11,000

2003 ............................................................................. $12,000

2004 ............................................................................. $13,000

2005 ............................................................................. $14,000

2006 or thereafter ........................................................ $15,000.

20 ‘‘(B) COST-OF-LIVING ADJUSTMENTS.—In

21 the case of taxable years beginning after De-
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1 cember 31, 2006, the Secretary shall adjust the

2 $15,000 amount specified in the table in sub3 paragraph (A) at the same time and in the

4 same manner as under section 415(d), except

5 that the base period shall be the calendar quar6 ter beginning July 1, 2005, and any increase

7 under this paragraph which is not a multiple of

8 $500 shall be rounded to the next lowest mul9 tiple of $500.’’.

10 (f) SIMPLE RETIREMENT ACCOUNTS.—

11 (1) LIMITATION.—Clause (ii) of section

12 408(p)(2)(A) (relating to general rule for qualified

13 salary reduction arrangement) is amended by strik14 ing ‘‘$6,000’’ and inserting ‘‘the applicable dollar

15 amount’’.

16 (2) APPLICABLE DOLLAR AMOUNT.—Subpara17 graph (E) of 408(p)(2) is amended to read as fol18 lows:

19 ‘‘(E) APPLICABLE DOLLAR AMOUNT; COST20 OF-LIVING ADJUSTMENT.—

21 ‘‘(i) IN GENERAL.—For purposes of

22 subparagraph (A)(ii), the applicable dollar

23 amount shall be the amount determined in

24 accordance with the following table:
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‘‘For taxable years The applicable

beginning in dollar amount:

calendar year:

2002 ...................................................................... $7,000

2003 ...................................................................... $8,000

2004 ...................................................................... $9,000

2005 or thereafter ................................................ $10,000.

1 ‘‘(ii) COST-OF-LIVING ADJUSTMENT.—

2 In the case of a year beginning after De3 cember 31, 2005, the Secretary shall ad4 just the $10,000 amount under clause (i)

5 at the same time and in the same manner

6 as under section 415(d), except that the

7 base period taken into account shall be the

8 calendar quarter beginning July 1, 2004,

9 and any increase under this subparagraph

10 which is not a multiple of $500 shall be

11 rounded to the next lower multiple of

12 $500.’’.

13 (3) CONFORMING AMENDMENTS.—

14 (A) Clause (I) of section 401(k)(11)(B)(i)

15 is amended by striking ‘‘$6,000’’ and inserting

16 ‘‘the amount in effect under section

17 408(p)(2)(A)(ii)’’.

18 (B) Section 401(k)(11) is amended by

19 striking subparagraph (E).

20 (g) ROUNDING RULE RELATING TO DEFINED BEN21 EFIT PLANS AND DEFINED CONTRIBUTION PLANS.—
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1 Paragraph (4) of section 415(d) is amended to read as

2 follows:

3 ‘‘(4) ROUNDING.—

4 ‘‘(A) $160,000 AMOUNT.—Any increase

5 under subparagraph (A) of paragraph (1) which

6 is not a multiple of $5,000 shall be rounded to

7 the next lowest multiple of $5,000.

8 ‘‘(B) $40,000 AMOUNT.—Any increase

9 under subparagraph (C) of paragraph (1) which

10 is not a multiple of $1,000 shall be rounded to

11 the next lowest multiple of $1,000.’’.

12 (h) EFFECTIVE DATE.—The amendments made by

13 this section shall apply to years beginning after December

14 31, 2001.

15 SEC. 222. PLAN LOANS FOR SUBCHAPTER S OWNERS, PART16 NERS, AND SOLE PROPRIETORS.

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

18 4975(f)(6) (relating to exemptions not to apply to certain

19 transactions) is amended by adding at the end the fol20 lowing new clause:

21 ‘‘(iii) LOAN EXCEPTION.—For pur22 poses of subparagraph (A)(i), the term

23 ‘owner-employee’ shall only include a per24 son described in subclause (II) or (III) of

25 clause (i).’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to loans made after December 31,

3 2001.

4 SEC. 223. MODIFICATION OF TOP-HEAVY RULES.

5 (a) SIMPLIFICATION OF DEFINITION OF KEY EM6 PLOYEE.—

7 (1) IN GENERAL.—Section 416(i)(1)(A) (defin8 ing key employee) is amended—

9 (A) by striking ‘‘or any of the 4 preceding

10 plan years’’ in the matter preceding clause (i);

11 (B) by striking clause (i) and inserting the

12 following:

13 ‘‘(i) an officer of the employer having

14 an annual compensation greater than

15 $150,000,’’;

16 (C) by striking clause (ii) and redesig17 nating clauses (iii) and (iv) as clauses (ii) and

18 (iii), respectively; and

19 (D) by striking the second sentence in the

20 matter following clause (iii), as redesignated by

21 subparagraph (C).

22 (2) CONFORMING AMENDMENT.—Section

23 416(i)(1)(B)(iii) is amended by striking ‘‘and sub24 paragraph (A)(ii)’’.
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1 (b) MATCHING CONTRIBUTIONS TAKEN INTO AC2 COUNT FOR MINIMUM CONTRIBUTION REQUIREMENTS.—

3 Section 416(c)(2)(A) (relating to defined contribution

4 plans) is amended by adding at the end the following:

5 ‘‘Employer matching contributions (as defined in section

6 401(m)(4)(A)) shall be taken into account for purposes

7 of this subparagraph.’’.

8 (c) DISTRIBUTIONS DURING LAST YEAR BEFORE

9 DETERMINATION DATE TAKEN INTO ACCOUNT.—

10 (1) IN GENERAL.—Paragraph (3) of section

11 416(g) is amended to read as follows:

12 ‘‘(3) DISTRIBUTIONS DURING LAST YEAR BE13 FORE DETERMINATION DATE TAKEN INTO AC14 COUNT.—

15 ‘‘(A) IN GENERAL.—For purposes of

16 determining—

17 ‘‘(i) the present value of the cumu18 lative accrued benefit for any employee, or

19 ‘‘(ii) the amount of the account of any

20 employee,

21 such present value or amount shall be increased

22 by the aggregate distributions made with re23 spect to such employee under the plan during

24 the 1-year period ending on the determination

25 date. The preceding sentence shall also apply to
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1 distributions under a terminated plan which if

2 it had not been terminated would have been re3 quired to be included in an aggregation group.

4 ‘‘(B) 5-YEAR PERIOD IN CASE OF IN-SERV5 ICE DISTRIBUTION.—In the case of any dis6 tribution made for a reason other than separa7 tion from service, death, or disability, subpara8 graph (A) shall be applied by substituting ‘5-

9 year period’ for ‘1-year period’.’’.

10 (2) BENEFITS NOT TAKEN INTO ACCOUNT.—

11 Subparagraph (E) of section 416(g)(4) is

12 amended—

13 (A) by striking ‘‘LAST 5 YEARS’’ in the

14 heading and inserting ‘‘LAST YEAR BEFORE DE15 TERMINATION DATE’’; and

16 (B) by striking ‘‘5-year period’’ and insert17 ing ‘‘1-year period’’.

18 (d) DEFINITION OF TOP-HEAVY PLANS.—Paragraph

19 (4) of section 416(g) (relating to other special rules for

20 top-heavy plans) is amended by adding at the end the fol21 lowing new subparagraph:

22 ‘‘(H) CASH OR DEFERRED ARRANGEMENTS

23 USING ALTERNATIVE METHODS OF MEETING

24 NONDISCRIMINATION REQUIREMENTS.—The
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1 term ‘top-heavy plan’ shall not include a plan

2 which consists solely of—

3 ‘‘(i) a cash or deferred arrangement

4 which meets the requirements of section

5 401(k)(12), and

6 ‘‘(ii) matching contributions with re7 spect to which the requirements of section

8 401(m)(11) are met.

9 If, but for this subparagraph, a plan would be

10 treated as a top-heavy plan because it is a

11 member of an aggregation group which is a top12 heavy group, contributions under the plan may

13 be taken into account in determining whether

14 any other plan in the group meets the require15 ments of subsection (c)(2).’’.

16 (e) FROZEN PLAN EXEMPT FROM MINIMUM BEN17 EFIT REQUIREMENT.—Subparagraph (C) of section

18 416(c)(1) (relating to defined benefit plans) is amended—

19 (A) by striking ‘‘clause (ii)’’ in clause (i)

20 and inserting ‘‘clause (ii) or (iii)’’; and

21 (B) by adding at the end the following:

22 ‘‘(iii) EXCEPTION FOR FROZEN

23 PLAN.—For purposes of determining an

24 employee’s years of service with the em25 ployer, any service with the employer shall
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1 be disregarded to the extent that such

2 service occurs during a plan year when the

3 plan benefits (within the meaning of sec4 tion 410(b)) no employee or former em5 ployee.’’.

6 (f) ELIMINATION OF FAMILY ATTRIBUTION.—Sec7 tion 416(i)(1)(B) (defining 5-percent owner) is amended

8 by adding at the end the following new clause:

9 ‘‘(iv) FAMILY ATTRIBUTION DIS10 REGARDED.—Solely for purposes of apply11 ing this paragraph (and not for purposes

12 of any provision of this title which incor13 porates by reference the definition of a key

14 employee or 5-percent owner under this

15 paragraph), section 318 shall be applied

16 without regard to subsection (a)(1) thereof

17 in determining whether any person is a 5-

18 percent owner.’’.

19 (g) EFFECTIVE DATE.—The amendments made by

20 this section shall apply to years beginning after December

21 31, 2001.
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1 SEC. 224. ELECTIVE DEFERRALS NOT TAKEN INTO AC2 COUNT FOR PURPOSES OF DEDUCTION LIM3 ITS.

4 (a) IN GENERAL.—Section 404 (relating to deduction

5 for contributions of an employer to an employees’ trust

6 or annuity plan and compensation under a deferred pay7 ment plan) is amended by adding at the end the following

8 new subsection:

9 ‘‘(n) ELECTIVE DEFERRALS NOT TAKEN INTO AC10 COUNT FOR PURPOSES OF DEDUCTION LIMITS.—Elective

11 deferrals (as defined in section 402(g)(3)) shall not be

12 subject to any limitation contained in paragraph (3), (7),

13 or (9) of subsection (a), and such elective deferrals shall

14 not be taken into account in applying any such limitation

15 to any other contributions.’’.

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

17 this section shall apply to years beginning after December

18 31, 2001.

19 SEC. 225. REPEAL OF COORDINATION REQUIREMENTS FOR

20 DEFERRED COMPENSATION PLANS OF STATE

21 AND LOCAL GOVERNMENTS AND TAX-EX22 EMPT ORGANIZATIONS.

23 (a) IN GENERAL.—Subsection (c) of section 457 (re24 lating to deferred compensation plans of State and local

25 governments and tax-exempt organizations), as amended

26 by section 201, is amended to read as follows:
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1 ‘‘(c) LIMITATION.—The maximum amount of the

2 compensation of any one individual which may be deferred

3 under subsection (a) during any taxable year shall not ex4 ceed the amount in effect under subsection (b)(2)(A) (as

5 modified by any adjustment provided under subsection

6 (b)(3)).’’.

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

8 subsection (a) shall apply to years beginning after Decem9 ber 31, 2001.

10 SEC. 226. ELIMINATION OF USER FEE FOR REQUESTS TO

11 IRS REGARDING PENSION PLANS.

12 (a) ELIMINATION OF CERTAIN USER FEES.—The

13 Secretary of the Treasury or the Secretary’s delegate shall

14 not require payment of user fees under the program estab15 lished under section 7527 of the Internal Revenue Code

16 of 1986 for requests to the Internal Revenue Service for

17 determination letters with respect to the qualified status

18 of a pension benefit plan maintained solely by one or more

19 eligible employers or any trust which is part of the plan.

20 The preceding sentence shall not apply to any request—

21 (1) made after the fifth plan year the pension

22 benefit plan is in existence; or

23 (2) made by the sponsor of any prototype or

24 similar plan which the sponsor intends to market to

25 participating employers.
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1 (b) PENSION BENEFIT PLAN.—For purposes of this

2 section, the term ‘‘pension benefit plan’’ means a pension,

3 profit-sharing, stock bonus, annuity, or employee stock

4 ownership plan.

5 (c) ELIGIBLE EMPLOYER.—For purposes of this sec6 tion, the term ‘‘eligible employer’’ has the same meaning

7 given such term in section 408(p)(2)(C)(i)(I) of the Inter8 nal Revenue Code of 1986. The determination of whether

9 an employer is an eligible employer under this section shall

10 be made as of the date of the request described in sub11 section (a).

12 (d) EFFECTIVE DATE.—The provisions of this sec13 tion shall apply with respect to requests made after De14 cember 31, 2001.

15 SEC. 227. DEDUCTION LIMITS.

16 (a) IN GENERAL.—

17 (1) STOCK BONUS AND PROFIT SHARING

18 TRUSTS.—Subclause (I) of section 404(a)(3)(A)(i)

19 (relating to stock bonus and profit sharing trusts) is

20 amended by striking ‘‘15 percent’’ and inserting ‘‘20

21 percent’’.

22 (2) COMPENSATION.—Section 404(a) (relating

23 to general rule) is amended by adding at the end the

24 following:
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1 ‘‘(12) DEFINITION OF COMPENSATION.—For

2 purposes of paragraphs (3), (7), (8), and (9), the

3 term ‘compensation otherwise paid or accrued dur4 ing the taxable year’ shall include amounts treated

5 as ‘participant’s compensation’ under subparagraph

6 (C) or (D) of section 415(c)(3).’’.

7 (b) CONFORMING AMENDMENTS.—

8 (1) Subparagraph (B) of section 404(a)(3) is

9 amended by striking the last sentence thereof.

10 (2) Subparagraph (C) of section 404(h)(1) is

11 amended by striking ‘‘15 percent’’ each place it ap12 pears and inserting ‘‘20 percent’’.

13 (3) Clause (i) of section 4972(c)(6)(B) is

14 amended by striking ‘‘(within the meaning of section

15 404(a))’’ and inserting ‘‘(within the meaning of sec16 tion 404(a) and as adjusted under section

17 404(a)(12))’’.

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

19 this section shall apply to years beginning after December

20 31, 2001.

21 SEC. 228. OPTION TO TREAT ELECTIVE DEFERRALS AS

22 AFTER-TAX CONTRIBUTIONS.

23 (a) IN GENERAL.—Subpart A of part I of subchapter

24 D of chapter 1 (relating to deferred compensation, etc.)
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1 is amended by inserting after section 402 the following

2 new section:

3 ‘‘SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFER4 RALS AS PLUS CONTRIBUTIONS.

5 ‘‘(a) GENERAL RULE.—If an applicable retirement

6 plan includes a qualified plus contribution program—

7 ‘‘(1) any designated plus contribution made by

8 an employee pursuant to the program shall be treat9 ed as an elective deferral for purposes of this chap10 ter, except that such contribution shall not be ex11 cludable from gross income, and

12 ‘‘(2) such plan (and any arrangement which is

13 part of such plan) shall not be treated as failing to

14 meet any requirement of this chapter solely by rea15 son of including such program.

16 ‘‘(b) QUALIFIED PLUS CONTRIBUTION PROGRAM.—

17 For purposes of this section—

18 ‘‘(1) IN GENERAL.—The term ‘qualified plus

19 contribution program’ means a program under which

20 an employee may elect to make designated plus con21 tributions in lieu of all or a portion of elective defer22 rals the employee is otherwise eligible to make under

23 the applicable retirement plan.

24 ‘‘(2) SEPARATE ACCOUNTING REQUIRED.—A

25 program shall not be treated as a qualified plus con-
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1 tribution program unless the applicable retirement

2 plan—

3 ‘‘(A) establishes separate accounts (‘des4 ignated plus accounts’) for the designated plus

5 contributions of each employee and any earn6 ings properly allocable to the contributions, and

7 ‘‘(B) maintains separate recordkeeping

8 with respect to each account.

9 ‘‘(c) DEFINITIONS AND RULES RELATING TO DES10 IGNATED PLUS CONTRIBUTIONS.—For purposes of this

11 section—

12 ‘‘(1) DESIGNATED PLUS CONTRIBUTION.—The

13 term ‘designated plus contribution’ means any elec14 tive deferral which—

15 ‘‘(A) is excludable from gross income of an

16 employee without regard to this section, and

17 ‘‘(B) the employee designates (at such time

18 and in such manner as the Secretary may pre19 scribe) as not being so excludable.

20 ‘‘(2) DESIGNATION LIMITS.—The amount of

21 elective deferrals which an employee may designate

22 under paragraph (1) shall not exceed the excess (if

23 any) of—

24 ‘‘(A) the maximum amount of elective de25 ferrals excludable from gross income of the em-
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1 ployee for the taxable year (without regard to

2 this section), over

3 ‘‘(B) the aggregate amount of elective de4 ferrals of the employee for the taxable year

5 which the employee does not designate under

6 paragraph (1).

7 ‘‘(3) ROLLOVER CONTRIBUTIONS.—

8 ‘‘(A) IN GENERAL.—A rollover contribu9 tion of any payment or distribution from a des10 ignated plus account which is otherwise allow11 able under this chapter may be made only if the

12 contribution is to—

13 ‘‘(i) another designated plus account

14 of the individual from whose account the

15 payment or distribution was made, or

16 ‘‘(ii) a Roth IRA of such individual.

17 ‘‘(B) COORDINATION WITH LIMIT.—Any

18 rollover contribution to a designated plus ac19 count under subparagraph (A) shall not be

20 taken into account for purposes of paragraph

21 (1).

22 ‘‘(d) DISTRIBUTION RULES.—For purposes of this

23 title—
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1 ‘‘(1) EXCLUSION.—Any qualified distribution

2 from a designated plus account shall not be includ3 ible in gross income.

4 ‘‘(2) QUALIFIED DISTRIBUTION.—For purposes

5 of this subsection—

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

7 distribution’ has the meaning given such term

8 by section 408A(d)(2)(A) (without regard to

9 clause (iv) thereof).

10 ‘‘(B) DISTRIBUTIONS WITHIN NONEXCLU11 SION PERIOD.—A payment or distribution from

12 a designated plus account shall not be treated

13 as a qualified distribution if such payment or

14 distribution is made within the 5-taxable-year

15 period beginning with the earlier of—

16 ‘‘(i) the first taxable year for which

17 the individual made a designated plus con18 tribution to any designated plus account

19 established for such individual under the

20 same applicable retirement plan, or

21 ‘‘(ii) if a rollover contribution was

22 made to such designated plus account from

23 a designated plus account previously estab24 lished for such individual under another

25 applicable retirement plan, the first taxable
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1 year for which the individual made a des2 ignated plus contribution to such pre3 viously established account.

4 ‘‘(C) DISTRIBUTIONS OF EXCESS DEFER5 RALS AND EARNINGS.—The term ‘qualified dis6 tribution’ shall not include any distribution of

7 any excess deferral under section 402(g)(2) and

8 any income on the excess deferral.

9 ‘‘(3) AGGREGATION RULES.—Section 72 shall

10 be applied separately with respect to distributions

11 and payments from a designated plus account and

12 other distributions and payments from the plan.

13 ‘‘(e) OTHER DEFINITIONS.—For purposes of this

14 section—

15 ‘‘(1) APPLICABLE RETIREMENT PLAN.—The

16 term ‘applicable retirement plan’ means—

17 ‘‘(A) an employees’ trust described in sec18 tion 401(a) which is exempt from tax under

19 section 501(a), and

20 ‘‘(B) a plan under which amounts are con21 tributed by an individual’s employer for an an22 nuity contract described in section 403(b).

23 ‘‘(2) ELECTIVE DEFERRAL.—The term ‘elective

24 deferral’ means any elective deferral described in

25 subparagraph (A) or (C) of section 402(g)(3).’’.
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1 (b) EXCESS DEFERRALS.—Section 402(g) (relating

2 to limitation on exclusion for elective deferrals) is

3 amended—

4 (1) by adding at the end of paragraph (1) the

5 following new sentence: ‘‘The preceding sentence

6 shall not apply to so much of such excess as does

7 not exceed the designated plus contributions of the

8 individual for the taxable year.’’; and

9 (2) by inserting ‘‘(or would be included but for

10 the last sentence thereof)’’ after ‘‘paragraph (1)’’ in

11 paragraph (2)(A).

12 (c) ROLLOVERS.—Subparagraph (B) of section

13 402(c)(8) is amended by adding at the end the following:

14 ‘‘If any portion of an eligible rollover distribu15 tion is attributable to payments or distributions

16 from a designated plus account (as defined in

17 section 402A), an eligible retirement plan with

18 respect to such portion shall include only an19 other designated plus account and a Roth

20 IRA.’’.

21 (d) REPORTING REQUIREMENTS.—

22 (1) W–2 INFORMATION.—Section 6051(a)(8) is

23 amended by inserting ‘‘, including the amount of

24 designated plus contributions (as defined in section

25 402A)’’ before the comma at the end.
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1 (2) INFORMATION.—Section 6047 is amended

2 by redesignating subsection (f) as subsection (g) and

3 by inserting after subsection (e) the following new

4 subsection:

5 ‘‘(f) DESIGNATED PLUS CONTRIBUTIONS.—The Sec6 retary shall require the plan administrator of each applica7 ble retirement plan (as defined in section 402A) to make

8 such returns and reports regarding designated plus con9 tributions (as so defined) to the Secretary, participants

10 and beneficiaries of the plan, and such other persons as

11 the Secretary may prescribe.’’.

12 (e) CONFORMING AMENDMENTS.—

13 (1) Section 408A(e) is amended by adding after

14 the first sentence the following new sentence: ‘‘Such

15 term includes a rollover contribution described in

16 section 402A(c)(3)(A).’’.

17 (2) The table of sections for subpart A of part

18 I of subchapter D of chapter 1 is amended by insert19 ing after the item relating to section 402 the fol20 lowing new item:

‘‘Sec. 402A. Optional treatment of elective deferrals as plus contributions.’’.

21 (f) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to taxable years beginning after

23 December 31, 2001.
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1 CHAPTER 3—ENHANCING FAIRNESS FOR

2 WOMEN

3 SEC. 231. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS

4 AGE 50 OR OVER.

5 (a) IN GENERAL.—Section 414 (relating to defini6 tions and special rules) is amended by adding at the end

7 the following new subsection:

8 ‘‘(v) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS

9 AGE 50 OR OVER.—

10 ‘‘(1) IN GENERAL.—An applicable employer

11 plan shall not be treated as failing to meet any re12 quirement of this title solely because the plan per13 mits an eligible participant to make additional elec14 tive deferrals in any plan year.

15 ‘‘(2) LIMITATION ON AMOUNT OF ADDITIONAL

16 DEFERRALS.—A plan shall not permit additional

17 elective deferrals under paragraph (1) for any year

18 in an amount greater than the lesser of—

19 ‘‘(A) $5,000, or

20 ‘‘(B) the excess (if any) of—

21 ‘‘(i) the participant’s compensation for

22 the year, over

23 ‘‘(ii) any other elective deferrals of the

24 participant for such year which are made

25 without regard to this subsection.
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1 ‘‘(3) TREATMENT OF CONTRIBUTIONS.—In the

2 case of any contribution to a plan under paragraph

3 (1), such contribution shall not, with respect to the

4 year in which the contribution is made—

5 ‘‘(A) be subject to any otherwise applicable

6 limitation contained in section 402(g),

7 402(h)(2), 404(a), 404(h), 408(p)(2)(A)(ii),

8 415, or 457, or

9 ‘‘(B) be taken into account in applying

10 such limitations to other contributions or bene11 fits under such plan or any other such plan.

12 ‘‘(4) ELIGIBLE PARTICIPANT.—For purposes of

13 this subsection, the term ‘eligible participant’ means,

14 with respect to any plan year, a participant in a

15 plan—

16 ‘‘(A) who has attained the age of 50 before

17 the close of the plan year, and

18 ‘‘(B) with respect to whom no other elec19 tive deferrals may (without regard to this sub20 section) be made to the plan for the plan year

21 by reason of the application of any limitation or

22 other restriction described in paragraph (3) or

23 comparable limitation contained in the terms of

24 the plan.
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1 ‘‘(5) OTHER DEFINITIONS AND RULES.—For

2 purposes of this subsection—

3 ‘‘(A) APPLICABLE EMPLOYER PLAN.—The

4 term ‘applicable employer plan’ means—

5 ‘‘(i) an employees’ trust described in

6 section 401(a) which is exempt from tax

7 under section 501(a),

8 ‘‘(ii) a plan under which amounts are

9 contributed by an individual’s employer for

10 an annuity contract described in section

11 403(b),

12 ‘‘(iii) an eligible deferred compensa13 tion plan under section 457 of an eligible

14 employer as defined in section

15 457(e)(1)(A), and

16 ‘‘(iv) an arrangement meeting the re17 quirements of section 408 (k) or (p).

18 ‘‘(B) ELECTIVE DEFERRAL.—The term

19 ‘elective deferral’ has the meaning given such

20 term by subsection (u)(2)(C).

21 ‘‘(C) EXCEPTION FOR SECTION 457

22 PLANS.—This subsection shall not apply to an

23 applicable employer plan described in subpara24 graph (A)(iii) for any year to which section

25 457(b)(3) applies.
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•HR 1018 IH

1 ‘‘(D) COST-OF-LIVING ADJUSTMENT.—For

2 years beginning after December 31, 2005, the

3 Secretary shall adjust annually the $5,000

4 amount in subparagraph (A) for increases in

5 the cost-of-living at the same time and in the

6 same manner as adjustments under section

7 415(d); except that the base period shall be the

8 calendar quarter beginning July 1, 2004, and

9 any increase which is not a multiple of $500

10 shall be rounded to the next lowest multiple of

11 $500.’’.

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

13 this section shall apply to contributions in taxable years

14 beginning after December 31, 2001.

15 SEC. 232. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF

16 EMPLOYEES TO DEFINED CONTRIBUTION

17 PLANS.

18 (a) EQUITABLE TREATMENT.—

19 (1) IN GENERAL.—Subparagraph (B) of section

20 415(c)(1) (relating to limitation for defined con21 tribution plans) is amended by striking ‘‘25 percent’’

22 and inserting ‘‘100 percent’’.

23 (2) APPLICATION TO SECTION 403(b).—Section

24 403(b) is amended—
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•HR 1018 IH

1 (A) by striking ‘‘the exclusion allowance

2 for such taxable year’’ in paragraph (1) and in3 serting ‘‘the applicable limit under section

4 415’’;

5 (B) by striking paragraph (2); and

6 (C) by inserting ‘‘or any amount received

7 by a former employee after the fifth taxable

8 year following the taxable year in which such

9 employee was terminated’’ before the period at

10 the end of the second sentence of paragraph

11 (3).

12 (3) CONFORMING AMENDMENTS.—

13 (A) Subsection (f) of section 72 is amend14 ed by striking ‘‘section 403(b)(2)(D)(iii))’’ and

15 inserting ‘‘section 403(b)(2)(D)(iii), as in effect

16 before the enactment of the Comprehensive Re17 tirement Security and Pension Reform Act of

18 2000)’’.

19 (B) Section 404(a)(10)(B) is amended by

20 striking ‘‘, the exclusion allowance under sec21 tion 403(b)(2),’’.

22 (C) Section 415(a)(2) is amended by strik23 ing ‘‘, and the amount of the contribution for

24 such portion shall reduce the exclusion allow25 ance as provided in section 403(b)(2)’’.
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1 (D) Section 415(c)(3) is amended by add2 ing at the end the following new subparagraph:

3 ‘‘(E) ANNUITY CONTRACTS.—In the case

4 of an annuity contract described in section

5 403(b), the term ‘participant’s compensation’

6 means the participant’s includible compensation

7 determined under section 403(b)(3).’’.

8 (E) Section 415(c) is amended by striking

9 paragraph (4).

10 (F) Section 415(c)(7) is amended to read

11 as follows:

12 ‘‘(7) CERTAIN CONTRIBUTIONS BY CHURCH

13 PLANS NOT TREATED AS EXCEEDING LIMIT.—

14 ‘‘(A) IN GENERAL.—Notwithstanding any

15 other provision of this subsection, at the elec16 tion of a participant who is an employee of a

17 church or a convention or association of church18 es, including an organization described in sec19 tion 414(e)(3)(B)(ii), contributions and other

20 additions for an annuity contract or retirement

21 income account described in section 403(b) with

22 respect to such participant, when expressed as

23 an annual addition to such participant’s ac24 count, shall be treated as not exceeding the lim-
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•HR 1018 IH

1 itation of paragraph (1) if such annual addition

2 is not in excess of $10,000.

3 ‘‘(B) $40,000 AGGREGATE LIMITATION.—

4 The total amount of additions with respect to

5 any participant which may be taken into ac6 count for purposes of this subparagraph for all

7 years may not exceed $40,000.

8 ‘‘(C) ANNUAL ADDITION.—For purposes of

9 this paragraph, the term ‘annual addition’ has

10 the meaning given such term by paragraph

11 (2).’’.

12 (G) Subparagraph (B) of section 402(g)(7)

13 (as redesignated by section 211) is amended by

14 inserting before the period at the end the fol15 lowing: ‘‘(as in effect before the enactment of

16 the Comprehensive Retirement Security and

17 Pension Reform Act of 2000)’’.

18 (3) EFFECTIVE DATE.—The amendments made

19 by this subsection shall apply to years beginning

20 after December 31, 2001.

21 (b) SPECIAL RULES FOR SECTIONS 403(b) AND

22 408.—

23 (1) IN GENERAL.—Subsection (k) of section

24 415 is amended by adding at the end the following

25 new paragraph:
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•HR 1018 IH

1 ‘‘(4) SPECIAL RULES FOR SECTIONS 403(b) AND

2 408.—For purposes of this section, any annuity con3 tract described in section 403(b) for the benefit of

4 a participant shall be treated as a defined contribu5 tion plan maintained by each employer with respect

6 to which the participant has the control required

7 under subsection (b) or (c) of section 414 (as modi8 fied by subsection (h)). For purposes of this section,

9 any contribution by an employer to a simplified em10 ployee pension plan for an individual for a taxable

11 year shall be treated as an employer contribution to

12 a defined contribution plan for such individual for

13 such year.’’.

14 (2) EFFECTIVE DATE.—

15 (A) IN GENERAL.—The amendment made

16 by paragraph (1) shall apply to limitation years

17 beginning after December 31, 2001.

18 (B) EXCLUSION ALLOWANCE.—Effective

19 for limitation years beginning in 2002, in the

20 case of any annuity contract described in sec21 tion 403(b) of the Internal Revenue Code of

22 1986, the amount of the contribution disquali23 fied by reason of section 415(g) of such Code

24 shall reduce the exclusion allowance as provided

25 in section 403(b)(2) of such Code.
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•HR 1018 IH

1 (3) MODIFICATION OF 403(b) EXCLUSION AL2 LOWANCE TO CONFORM TO 415 MODIFICATION.—The

3 Secretary of the Treasury shall modify the regula4 tions regarding the exclusion allowance under section

5 403(b)(2) of the Internal Revenue Code of 1986 to

6 render void the requirement that contributions to a

7 defined benefit pension plan be treated as previously

8 excluded amounts for purposes of the exclusion al9 lowance. For taxable years beginning after Decem10 ber 31, 2001, such regulations shall be applied as if

11 such requirement were void.

12 (c) DEFERRED COMPENSATION PLANS OF STATE

13 AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANI14 ZATIONS.—

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

16 457(b)(2) (relating to salary limitation on eligible

17 deferred compensation plans) is amended by striking

‘‘331 18 ⁄3 percent’’ and inserting ‘‘100 percent’’.

19 (2) EFFECTIVE DATE.—The amendment made

20 by this subsection shall apply to years beginning

21 after December 31, 2001.

22 SEC. 233. FASTER VESTING OF CERTAIN EMPLOYER

23 MATCHING CONTRIBUTIONS.

24 (a) IN GENERAL.—Section 411(a) (relating to min25 imum vesting standards) is amended—
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•HR 1018 IH

1 (1) in paragraph (2), by striking ‘‘A plan’’ and

2 inserting ‘‘Except as provided in paragraph (12), a

3 plan’’; and

4 (2) by adding at the end the following:

5 ‘‘(12) FASTER VESTING FOR MATCHING CON6 TRIBUTIONS.—In the case of matching contributions

7 (as defined in section 401(m)(4)(A)), paragraph (2)

8 shall be applied—

9 ‘‘(A) by substituting ‘3 years’ for ‘5 years’

10 in subparagraph (A), and

11 ‘‘(B) by substituting the following table for

12 the table contained in subparagraph (B):

The nonforfeitable

‘‘Years of service: percentage is:

2 ................................................................................... 20

3 ................................................................................... 40

4 ................................................................................... 60

5 ................................................................................... 80

6................................................................................... 100.’’.

13 (b) EFFECTIVE DATES.—

14 (1) IN GENERAL.—Except as provided in para15 graph (2), the amendments made by this section

16 shall apply to contributions for plan years beginning

17 after December 31, 2001.

18 (2) COLLECTIVE BARGAINING AGREEMENTS.—

19 In the case of a plan maintained pursuant to one or

20 more collective bargaining agreements between em21 ployee representatives and one or more employers

22 ratified by the date of the enactment of this Act, the
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•HR 1018 IH

1 amendments made by this section shall not apply to

2 contributions on behalf of employees covered by any

3 such agreement for plan years beginning before the

4 earlier of—

5 (A) the later of—

6 (i) the date on which the last of such

7 collective bargaining agreements termi8 nates (determined without regard to any

9 extension thereof on or after such date of

10 the enactment); or

11 (ii) January 1, 2001; or

12 (B) January 1, 2005.

13 (3) SERVICE REQUIRED.—With respect to any

14 plan, the amendments made by this section shall not

15 apply to any employee before the date that such em16 ployee has 1 hour of service under such plan in any

17 plan year to which the amendments made by this

18 section apply.

19 SEC. 234. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBU20 TION RULES.

21 (a) SIMPLIFICATION AND FINALIZATION OF MIN22 IMUM DISTRIBUTION REQUIREMENTS.—

23 (1) IN GENERAL.—The Secretary of the Treas24 ury shall—
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•HR 1018 IH

1 (A) simplify and finalize the regulations re2 lating to minimum distribution requirements

3 under sections 401(a)(9), 408 (a)(6) and

4 (b)(3), 403(b)(10), and 457(d)(2) of the Inter5 nal Revenue Code of 1986; and

6 (B) modify such regulations to—

7 (i) reflect current life expectancy; and

8 (ii) revise the required distribution

9 methods so that, under reasonable assump10 tions, the amount of the required minimum

11 distribution does not decrease over a par12 ticipant’s life expectancy.

13 (2) FRESH START.—Notwithstanding subpara14 graph (D) of section 401(a)(9) of such Code, during

15 the first year that regulations are in effect under

16 this subsection, required distributions for future

17 years may be redetermined to reflect changes under

18 such regulations. Such redetermination shall include

19 the opportunity to choose a new designated bene20 ficiary and to elect a new method of calculating life

21 expectancy.

22 (3) EFFECTIVE DATE FOR REGULATIONS.—

23 Regulations referred to in paragraph (1) shall be ef24 fective for years beginning after December 31, 2001,

25 and shall apply in such years without regard to
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1 whether an individual had previously begun receiving

2 minimum distributions.

3 (b) REPEAL OF RULE WHERE DISTRIBUTIONS HAD

4 BEGUN BEFORE DEATH OCCURS.—

5 (1) IN GENERAL.—Subparagraph (B) of section

6 401(a)(9) is amended by striking clause (i) and re7 designating clauses (ii), (iii), and (iv) as clauses (i),

8 (ii), and (iii), respectively.

9 (2) CONFORMING CHANGES.—

10 (A) Clause (i) of section 401(a)(9)(B) (as

11 so redesignated) is amended—

12 (i) by striking ‘‘FOR OTHER CASES’’ in

13 the heading; and

14 (ii) by striking ‘‘the distribution of the

15 employee’s interest has begun in accord16 ance with subparagraph (A)(ii)’’ and in17 serting ‘‘his entire interest has been dis18 tributed to him’’.

19 (B) Clause (ii) of section 401(a)(9)(B) (as

20 so redesignated) is amended by striking ‘‘clause

21 (ii)’’ and inserting ‘‘clause (i)’’.

22 (C) Clause (iii) of section 401(a)(9)(B) (as

23 so redesignated) is amended—

24 (i) by striking ‘‘clause (iii)(I)’’ and in25 serting ‘‘clause (ii)(I)’’;
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•HR 1018 IH

1 (ii) by striking ‘‘clause (iii)(III)’’ in

2 subclause (I) and inserting ‘‘clause

3 (ii)(III)’’;

4 (iii) by striking ‘‘the date on which

5 the employee would have attained age

701 6 ⁄2,’’ in subclause (I) and inserting

7 ‘‘April 1 of the calendar year following the

8 calendar year in which the spouse attains

701 9 ⁄2,’’; and

10 (iv) by striking ‘‘the distributions to

11 such spouse begin,’’ in subclause (II) and

12 inserting ‘‘his entire interest has been dis13 tributed to him,’’.

14 (3) EFFECTIVE DATE.—The amendments made

15 by this subsection shall apply to years beginning

16 after December 31, 2001.

17 (c) REDUCTION IN EXCISE TAX.—

18 (1) IN GENERAL.—Subsection (a) of section

19 4974 is amended by striking ‘‘50 percent’’ and in20 serting ‘‘10 percent’’.

21 (2) EFFECTIVE DATE.—The amendment made

22 by this subsection shall apply to years beginning

23 after December 31, 2001.
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1 SEC. 235. CLARIFICATION OF TAX TREATMENT OF DIVISION

2 OF SECTION 457 PLAN BENEFITS UPON DI3 VORCE.

4 (a) IN GENERAL.—Section 414(p)(11) (relating to

5 application of rules to governmental and church plans) is

6 amended—

7 (1) by inserting ‘‘or an eligible deferred com8 pensation plan (within the meaning of section

9 457(b))’’ after ‘‘subsection (e))’’; and

10 (2) in the heading, by striking ‘‘GOVERN11 MENTAL AND CHURCH PLANS’’ and inserting ‘‘CER12 TAIN OTHER PLANS’’.

13 (b) WAIVER OF CERTAIN DISTRIBUTION REQUIRE14 MENTS.—Paragraph (10) of section 414(p) is amended by

15 striking ‘‘and section 409(d)’’ and inserting ‘‘section

16 409(d), and section 457(d)’’.

17 (c) TAX TREATMENT OF PAYMENTS FROM A SEC18 TION 457 PLAN.—Subsection (p) of section 414 is amend19 ed by redesignating paragraph (12) as paragraph (13) and

20 inserting after paragraph (11) the following new para21 graph:

22 ‘‘(12) TAX TREATMENT OF PAYMENTS FROM A

23 SECTION 457 PLAN.—If a distribution or payment

24 from an eligible deferred compensation plan de25 scribed in section 457(b) is made pursuant to a

26 qualified domestic relations order, rules similar to
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1 the rules of section 402(e)(1)(A) shall apply to such

2 distribution or payment.’’.

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

4 this section shall apply to transfers, distributions, and

5 payments made after December 31, 2001.

6 SEC. 236. MODIFICATION OF SAFE HARBOR RELIEF FOR

7 HARDSHIP WITHDRAWALS FROM CASH OR

8 DEFERRED ARRANGEMENTS.

9 (a) IN GENERAL.—The Secretary of the Treasury

10 shall revise the regulations relating to hardship distribu11 tions under section 401(k)(2)(B)(i)(IV) of the Internal

12 Revenue Code of 1986 to provide that the period an em13 ployee is prohibited from making elective and employee

14 contributions in order for a distribution to be deemed nec15 essary to satisfy financial need shall be equal to 6 months.

16 (b) EFFECTIVE DATE.—The revised regulations

17 under subsection (a) shall apply to years beginning after

18 December 31, 2001.

19 CHAPTER 4—INCREASING PORTABILITY

20 FOR PARTICIPANTS

21 SEC. 241. ROLLOVERS ALLOWED AMONG VARIOUS TYPES

22 OF PLANS.

23 (a) ROLLOVERS FROM AND TO SECTION 457

24 PLANS.—

25 (1) ROLLOVERS FROM SECTION 457 PLANS.—
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1 (A) IN GENERAL.—Section 457(e) (relat2 ing to other definitions and special rules) is

3 amended by adding at the end the following:

4 ‘‘(16) ROLLOVER AMOUNTS.—

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

6 eligible deferred compensation plan established

7 and maintained by an employer described in

8 subsection (e)(1)(A), if—

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

10 credit of an employee in such plan is paid

11 to such employee in an eligible rollover dis12 tribution (within the meaning of section

13 402(c)(4) without regard to subparagraph

14 (C) thereof),

15 ‘‘(ii) the employee transfers any por16 tion of the property such employee receives

17 in such distribution to an eligible retire18 ment plan described in section

19 402(c)(8)(B), and

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

21 property other than money, the amount so

22 transferred consists of the property distrib23 uted,
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1 then such distribution (to the extent so trans2 ferred) shall not be includible in gross income

3 for the taxable year in which paid.

4 ‘‘(B) CERTAIN RULES MADE APPLICA5 BLE.—The rules of paragraphs (2) through (7)

6 (other than paragraph (4)(C)) and (9) of sec7 tion 402(c) and section 402(f) shall apply for

8 purposes of subparagraph (A).

9 ‘‘(C) REPORTING.—Rollovers under this

10 paragraph shall be reported to the Secretary in

11 the same manner as rollovers from qualified re12 tirement plans (as defined in section

13 4974(c)).’’.

14 (B) DEFERRAL LIMIT DETERMINED WITH15 OUT REGARD TO ROLLOVER AMOUNTS.—Section

16 457(b)(2) (defining eligible deferred compensa17 tion plan) is amended by inserting ‘‘(other than

18 rollover amounts)’’ after ‘‘taxable year’’.

19 (C) DIRECT ROLLOVER.—Paragraph (1) of

20 section 457(d) is amended by striking ‘‘and’’ at

21 the end of subparagraph (A), by striking the

22 period at the end of subparagraph (B) and in23 serting ‘‘, and’’, and by inserting after subpara24 graph (B) the following:
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•HR 1018 IH

1 ‘‘(C) in the case of a plan maintained by

2 an employer described in subsection (e)(1)(A),

3 the plan meets requirements similar to the re4 quirements of section 401(a)(31).

5 Any amount transferred in a direct trustee-to-trust6 ee transfer in accordance with section 401(a)(31)

7 shall not be includible in gross income for the tax8 able year of transfer.’’.

9 (D) WITHHOLDING.—

10 (i) Paragraph (12) of section 3401(a)

11 is amended by adding at the end the fol12 lowing:

13 ‘‘(E) under or to an eligible deferred com14 pensation plan which, at the time of such pay15 ment, is a plan described in section 457(b)

16 maintained by an employer described in section

17 457(e)(1)(A); or’’.

18 (ii) Paragraph (3) of section 3405(c)

19 is amended to read as follows:

20 ‘‘(3) ELIGIBLE ROLLOVER DISTRIBUTION.—For

21 purposes of this subsection, the term ‘eligible roll22 over distribution’ has the meaning given such term

23 by section 402(f)(2)(A).’’.

24 (iii) LIABILITY FOR WITHHOLDING.—

25 Subparagraph (B) of section 3405(d)(2) is
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•HR 1018 IH

1 amended by striking ‘‘or’’ at the end of

2 clause (ii), by striking the period at the

3 end of clause (iii) and inserting ‘‘, or’’, and

4 by adding at the end the following:

5 ‘‘(iv) section 457(b).’’.

6 (2) ROLLOVERS TO SECTION 457 PLANS.—

7 (A) IN GENERAL.—Section 402(c)(8)(B)

8 (defining eligible retirement plan) is amended

9 by striking ‘‘and’’ at the end of clause (iii), by

10 striking the period at the end of clause (iv) and

11 inserting ‘‘, and’’, and by inserting after clause

12 (iv) the following new clause:

13 ‘‘(v) an eligible deferred compensation

14 plan described in section 457(b) of an em15 ployer described in section 457(e)(1)(A).’’.

16 (B) SEPARATE ACCOUNTING.—Section

17 402(c) is amended by adding at the end the fol18 lowing new paragraph:

19 ‘‘(11) SEPARATE ACCOUNTING.—Unless a plan

20 described in clause (v) of paragraph (8)(B) agrees to

21 separately account for amounts rolled into such plan

22 from eligible retirement plans not described in such

23 clause, the plan described in such clause may not ac24 cept transfers or rollovers from such retirement

25 plans.’’.
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1 (C) 10 PERCENT ADDITIONAL TAX.—Sub2 section (t) of section 72 (relating to 10-percent

3 additional tax on early distributions from quali4 fied retirement plans) is amended by adding at

5 the end the following new paragraph:

6 ‘‘(9) SPECIAL RULE FOR ROLLOVERS TO SEC7 TION 457 PLANS.—For purposes of this subsection,

8 a distribution from an eligible deferred compensation

9 plan (as defined in section 457(b)) of an employer

10 described in section 457(e)(1)(A) shall be treated as

11 a distribution from a qualified retirement plan de12 scribed in 4974(c)(1) to the extent that such dis13 tribution is attributable to an amount transferred to

14 an eligible deferred compensation plan from a quali15 fied retirement plan (as defined in section

16 4974(c)).’’.

17 (b) ALLOWANCE OF ROLLOVERS FROM AND TO

18 403(b) PLANS.—

19 (1) ROLLOVERS FROM SECTION 403(b)

20 PLANS.—Section 403(b)(8)(A)(ii) (relating to roll21 over amounts) is amended by striking ‘‘such dis22 tribution’’ and all that follows and inserting ‘‘such

23 distribution to an eligible retirement plan described

24 in section 402(c)(8)(B), and’’.
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1 (2) ROLLOVERS TO SECTION 403(b) PLANS.—

2 Section 402(c)(8)(B) (defining eligible retirement

3 plan), as amended by subsection (a), is amended by

4 striking ‘‘and’’ at the end of clause (iv), by striking

5 the period at the end of clause (v) and inserting ‘‘,

6 and’’, and by inserting after clause (v) the following

7 new clause:

8 ‘‘(vi) an annuity contract described in

9 section 403(b).’’.

10 (c) EXPANDED EXPLANATION TO RECIPIENTS OF

11 ROLLOVER DISTRIBUTIONS.—Paragraph (1) of section

12 402(f) (relating to written explanation to recipients of dis13 tributions eligible for rollover treatment) is amended by

14 striking ‘‘and’’ at the end of subparagraph (C), by striking

15 the period at the end of subparagraph (D) and inserting

16 ‘‘, and’’, and by adding at the end the following new sub17 paragraph:

18 ‘‘(E) of the provisions under which dis19 tributions from the eligible retirement plan re20 ceiving the distribution may be subject to re21 strictions and tax consequences which are dif22 ferent from those applicable to distributions

23 from the plan making such distribution.’’.

24 (d) SPOUSAL ROLLOVERS.—Section 402(c)(9) (relat25 ing to rollover where spouse receives distribution after
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1 death of employee) is amended by striking ‘‘; except that’’

2 and all that follows up to the end period.

3 (e) CONFORMING AMENDMENTS.—

4 (1) Section 72(o)(4) is amended by striking

5 ‘‘and 408(d)(3)’’ and inserting ‘‘403(b)(8),

6 408(d)(3), and 457(e)(16)’’.

7 (2) Section 219(d)(2) is amended by striking

8 ‘‘or 408(d)(3)’’ and inserting ‘‘408(d)(3), or

9 457(e)(16)’’.

10 (3) Section 401(a)(31)(B) is amended by strik11 ing ‘‘and 403(a)(4)’’ and inserting ‘‘, 403(a)(4),

12 403(b)(8), and 457(e)(16)’’.

13 (4) Subparagraph (A) of section 402(f)(2) is

14 amended by striking ‘‘or paragraph (4) of section

15 403(a)’’ and inserting ‘‘, paragraph (4) of section

16 403(a), subparagraph (A) of section 403(b)(8), or

17 subparagraph (A) of section 457(e)(16)’’.

18 (5) Paragraph (1) of section 402(f) is amended

19 by striking ‘‘from an eligible retirement plan’’.

20 (6) Subparagraphs (A) and (B) of section

21 402(f)(1) are amended by striking ‘‘another eligible

22 retirement plan’’ and inserting ‘‘an eligible retire23 ment plan’’.

24 (7) Subparagraph (B) of section 403(b)(8) is

25 amended to read as follows:
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1 ‘‘(B) CERTAIN RULES MADE APPLICA2 BLE.—The rules of paragraphs (2) through (7)

3 and (9) of section 402(c) and section 402(f)

4 shall apply for purposes of subparagraph (A),

5 except that section 402(f) shall be applied to

6 the payor in lieu of the plan administrator.’’.

7 (8) Section 408(a)(1) is amended by striking

8 ‘‘or 403(b)(8),’’ and inserting ‘‘403(b)(8), or

9 457(e)(16)’’.

10 (9) Subparagraphs (A) and (B) of section

11 415(b)(2) are each amended by striking ‘‘and

12 408(d)(3)’’ and inserting ‘‘403(b)(8), 408(d)(3), and

13 457(e)(16)’’.

14 (10) Section 415(c)(2) is amended by striking

15 ‘‘and 408(d)(3)’’ and inserting ‘‘408(d)(3), and

16 457(e)(16)’’.

17 (11) Section 4973(b)(1)(A) is amended by

18 striking ‘‘or 408(d)(3)’’ and inserting ‘‘408(d)(3), or

19 457(e)(16)’’.

20 (f) EFFECTIVE DATE; SPECIAL RULE.—

21 (1) EFFECTIVE DATE.—The amendments made

22 by this section shall apply to distributions after De23 cember 31, 2001.

24 (2) SPECIAL RULE.—Notwithstanding any other

25 provision of law, subsections (h)(3) and (h)(5) of
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1 section 1122 of the Tax Reform Act of 1986 shall

2 not apply to any distribution from an eligible retire3 ment plan (as defined in clause (iii) or (iv) of section

4 402(c)(8)(B) of the Internal Revenue Code of 1986)

5 on behalf of an individual if there was a rollover to

6 such plan on behalf of such individual which is per7 mitted solely by reason of any amendment made by

8 this section.

9 SEC. 242. ROLLOVERS OF IRAS INTO WORKPLACE RETIRE10 MENT PLANS.

11 (a) IN GENERAL.—Subparagraph (A) of section

12 408(d)(3) (relating to rollover amounts) is amended by

13 adding ‘‘or’’ at the end of clause (i), by striking clauses

14 (ii) and (iii), and by adding at the end the following:

15 ‘‘(ii) the entire amount received (in16 cluding money and any other property) is

17 paid into an eligible retirement plan for

18 the benefit of such individual not later

19 than the 60th day after the date on which

20 the payment or distribution is received, ex21 cept that the maximum amount which may

22 be paid into such plan may not exceed the

23 portion of the amount received which is in24 cludible in gross income (determined with25 out regard to this paragraph).
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1 For purposes of clause (ii), the term ‘eligible re2 tirement plan’ means an eligible retirement plan

3 described in clause (iii), (iv), (v), or (vi) of sec4 tion 402(c)(8)(B).’’.

5 (b) CONFORMING AMENDMENTS.—

6 (1) Paragraph (1) of section 403(b) is amended

7 by striking ‘‘section 408(d)(3)(A)(iii)’’ and inserting

8 ‘‘section 408(d)(3)(A)(ii)’’.

9 (2) Clause (i) of section 408(d)(3)(D) is amend10 ed by striking ‘‘(i), (ii), or (iii)’’ and inserting ‘‘(i)

11 or (ii)’’.

12 (3) Subparagraph (G) of section 408(d)(3) is

13 amended to read as follows:

14 ‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—In

15 the case of any payment or distribution out of

16 a simple retirement account (as defined in sub17 section (p)) to which section 72(t)(6) applies,

18 this paragraph shall not apply unless such pay19 ment or distribution is paid into another simple

20 retirement account.’’.

21 (c) EFFECTIVE DATE; SPECIAL RULE.—

22 (1) EFFECTIVE DATE.—The amendments made

23 by this section shall apply to distributions after De24 cember 31, 2001.
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1 (2) SPECIAL RULE.—Notwithstanding any other

2 provision of law, subsections (h)(3) and (h)(5) of

3 section 1122 of the Tax Reform Act of 1986 shall

4 not apply to any distribution from an eligible retire5 ment plan (as defined in clause (iii) or (iv) of section

6 402(c)(8)(B) of the Internal Revenue Code of 1986)

7 on behalf of an individual if there was a rollover to

8 such plan on behalf of such individual which is per9 mitted solely by reason of the amendments made by

10 this section.

11 SEC. 243. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

12 (a) ROLLOVERS FROM EXEMPT TRUSTS.—Para13 graph (2) of section 402(c) (relating to maximum amount

14 which may be rolled over) is amended by adding at the

15 end the following: ‘‘The preceding sentence shall not apply

16 to such distribution to the extent—

17 ‘‘(A) such portion is transferred in a direct

18 trustee-to-trustee transfer to a qualified trust

19 which is part of a plan which is a defined con20 tribution plan and which agrees to separately

21 account for amounts so transferred, including

22 separately accounting for the portion of such

23 distribution which is includible in gross income

24 and the portion of such distribution which is

25 not so includible, or
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1 ‘‘(B) such portion is transferred to an eli2 gible retirement plan described in clause (i) or

3 (ii) of paragraph (8)(B).’’.

4 (b) OPTIONAL DIRECT TRANSFER OF ELIGIBLE

5 ROLLOVER DISTRIBUTIONS.—Subparagraph (B) of sec6 tion 401(a)(31) (relating to limitation) is amended by add7 ing at the end the following: ‘‘The preceding sentence shall

8 not apply to such distribution if the plan to which such

9 distribution is transferred—

10 ‘‘(i) agrees to separately account for

11 amounts so transferred, including sepa12 rately accounting for the portion of such

13 distribution which is includible in gross in14 come and the portion of such distribution

15 which is not so includible, or

16 ‘‘(ii) is an eligible retirement plan de17 scribed in clause (i) or (ii) of section

18 402(c)(8)(B).’’.

19 (c) RULES FOR APPLYING SECTION 72 TO IRAS.—

20 Paragraph (3) of section 408(d) (relating to special rules

21 for applying section 72) is amended by inserting at the

22 end the following:

23 ‘‘(H) APPLICATION OF SECTION 72.—

24 ‘‘(i) IN GENERAL.—If—
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1 ‘‘(I) a distribution is made from

2 an individual retirement plan, and

3 ‘‘(II) a rollover contribution is

4 made to an eligible retirement plan

5 described in section 402(c)(8)(B)(iii),

6 (iv), (v), or (vi) with respect to all or

7 part of such distribution,

8 then, notwithstanding paragraph (2), the

9 rules of clause (ii) shall apply for purposes

10 of applying section 72.

11 ‘‘(ii) APPLICABLE RULES.—In the

12 case of a distribution described in clause

13 (i)—

14 ‘‘(I) section 72 shall be applied

15 separately to such distribution,

16 ‘‘(II) notwithstanding the pro

17 rata allocation of income on, and in18 vestment in, the contract to distribu19 tions under section 72, the portion of

20 such distribution rolled over to an eli21 gible retirement plan described in

22 clause (i) shall be treated as from in23 come on the contract (to the extent of

24 the aggregate income on the contract
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1 from all individual retirement plans of

2 the distributee), and

3 ‘‘(III) appropriate adjustments

4 shall be made in applying section 72

5 to other distributions in such taxable

6 year and subsequent taxable years.’’.

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

8 this section shall apply to distributions made after Decem9 ber 31, 2001.

10 SEC. 244. HARDSHIP EXCEPTION TO 60-DAY RULE.

11 (a) EXEMPT TRUSTS.—Paragraph (3) of section

12 402(c) (relating to transfer must be made within 60 days

13 of receipt) is amended to read as follows:

14 ‘‘(3) TRANSFER MUST BE MADE WITHIN 60

15 DAYS OF RECEIPT.—

16 ‘‘(A) IN GENERAL.—Except as provided in

17 subparagraph (B), paragraph (1) shall not

18 apply to any transfer of a distribution made

19 after the 60th day following the day on which

20 the distributee received the property distrib21 uted.

22 ‘‘(B) HARDSHIP EXCEPTION.—The Sec23 retary may waive the 60-day requirement under

24 subparagraph (A) where the failure to waive

25 such requirement would be against equity or
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•HR 1018 IH

1 good conscience, including casualty, disaster, or

2 other events beyond the reasonable control of

3 the individual subject to such requirement.’’.

4 (b) IRAS.—Paragraph (3) of section 408(d) (relating

5 to rollover contributions), as amended by section 403, is

6 amended by adding after subparagraph (H) the following

7 new subparagraph:

8 ‘‘(I) WAIVER OF 60-DAY REQUIREMENT.—

9 The Secretary may waive the 60-day require10 ment under subparagraphs (A) and (D) where

11 the failure to waive such requirement would be

12 against equity or good conscience, including

13 casualty, disaster, or other events beyond the

14 reasonable control of the individual subject to

15 such requirement.’’.

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

17 this section shall apply to distributions after December 31,

18 2001.

19 SEC. 245. TREATMENT OF FORMS OF DISTRIBUTION.

20 (a) PLAN TRANSFERS.—

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

22 411(d) (relating to accrued benefit not to be de23 creased by amendment) is amended by adding at the

24 end the following:

25 ‘‘(D) PLAN TRANSFERS.—
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1 ‘‘(i) IN GENERAL.—A defined con2 tribution plan (in this subparagraph re3 ferred to as the ‘transferee plan’) shall not

4 be treated as failing to meet the require5 ments of this subsection merely because

6 the transferee plan does not provide some

7 or all of the forms of distribution pre8 viously available under another defined

9 contribution plan (in this subparagraph re10 ferred to as the ‘transferor plan’) to the

11 extent that—

12 ‘‘(I) the forms of distribution

13 previously available under the trans14 feror plan applied to the account of a

15 participant or beneficiary under the

16 transferor plan that was transferred

17 from the transferor plan to the trans18 feree plan pursuant to a direct trans19 fer rather than pursuant to a distribu20 tion from the transferor plan,

21 ‘‘(II) the terms of both the trans22 feror plan and the transferee plan au23 thorize the transfer described in sub24 clause (I),
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1 ‘‘(III) the transfer described in

2 subclause (I) was made pursuant to a

3 voluntary election by the participant

4 or beneficiary whose account was

5 transferred to the transferee plan,

6 ‘‘(IV) the election described in

7 subclause (III) was made after the

8 participant or beneficiary received a

9 notice describing the consequences of

10 making the election,

11 ‘‘(V) if the transferor plan pro12 vides for an annuity as the normal

13 form of distribution under the plan in

14 accordance with section 417, the

15 transfer is made with the consent of

16 the participant’s spouse (if any), and

17 such consent meets requirements simi18 lar to the requirements imposed by

19 section 417(a)(2), and

20 ‘‘(VI) the transferee plan allows

21 the participant or beneficiary de22 scribed in subclause (III) to receive

23 any distribution to which the partici24 pant or beneficiary is entitled under
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1 the transferee plan in the form of a

2 single sum distribution.

3 ‘‘(ii) EXCEPTION.—Clause (i) shall

4 apply to plan mergers and other trans5 actions having the effect of a direct trans6 fer, including consolidations of benefits at7 tributable to different employers within a

8 multiple employer plan.

9 ‘‘(E) ELIMINATION OF FORM OF DISTRIBU10 TION.—Except to the extent provided in regula11 tions, a defined contribution plan shall not be

12 treated as failing to meet the requirements of

13 this section merely because of the elimination of

14 a form of distribution previously available there15 under. This subparagraph shall not apply to the

16 elimination of a form of distribution with re17 spect to any participant unless—

18 ‘‘(i) a single sum payment is available

19 to such participant at the same time or

20 times as the form of distribution being

21 eliminated, and

22 ‘‘(ii) such single sum payment is

23 based on the same or greater portion of

24 the participant’s account as the form of

25 distribution being eliminated.’’.
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1 (2) EFFECTIVE DATE.—The amendment made

2 by this subsection shall apply to years beginning

3 after December 31, 2001.

4 (b) REGULATIONS.—

5 (1) IN GENERAL.—The last sentence of para6 graph (6)(B) of section 411(d) (relating to accrued

7 benefit not to be decreased by amendment) is

8 amended to read as follows: ‘‘The Secretary shall by

9 regulations provide that this subparagraph shall not

10 apply to any plan amendment that does not ad11 versely affect the rights of participants in a material

12 manner.’’.

13 (2) SECRETARY DIRECTED.—Not later than

14 December 31, 2002, the Secretary of the Treasury

15 is directed to issue final regulations under section

16 411(d)(6) of the Internal Revenue Code of 1986, in17 cluding the regulations required by the amendments

18 made by this subsection. Such regulations shall

19 apply to plan years beginning after December 31,

20 2002, or such earlier date as is specified by the Sec21 retary of the Treasury.

22 SEC. 246. RATIONALIZATION OF RESTRICTIONS ON DIS23 TRIBUTIONS.

24 (a) MODIFICATION OF SAME DESK EXCEPTION.—

25 (1) SECTION 401(k).—
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1 (A) Section 401(k)(2)(B)(i)(I) (relating to

2 qualified cash or deferred arrangements) is

3 amended by striking ‘‘separation from service’’

4 and inserting ‘‘severance from employment’’.

5 (B) Subparagraph (A) of section

6 401(k)(10) (relating to distributions upon ter7 mination of plan or disposition of assets or sub8 sidiary) is amended to read as follows:

9 ‘‘(A) IN GENERAL.—An event described in

10 this subparagraph is the termination of the

11 plan without establishment or maintenance of

12 another defined contribution plan (other than

13 an employee stock ownership plan as defined in

14 section 4975(e)(7)).’’.

15 (C) Section 401(k)(10) is amended—

16 (i) in subparagraph (B)—

17 (I) by striking ‘‘An event’’ in

18 clause (i) and inserting ‘‘A termi19 nation’’; and

20 (II) by striking ‘‘the event’’ in

21 clause (i) and inserting ‘‘the termi22 nation’’;

23 (ii) by striking subparagraph (C); and

24 (iii) by striking ‘‘OR DISPOSITION OF

25 ASSETS OR SUBSIDIARY’’ in the heading.
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1 (2) SECTION 403(b).—

2 (A) Paragraphs (7)(A)(ii) and (11)(A) of

3 section 403(b) are each amended by striking

4 ‘‘separates from service’’ and inserting ‘‘has a

5 severance from employment’’.

6 (B) The heading for paragraph (11) of

7 section 403(b) is amended by striking ‘‘SEPARA8 TION FROM SERVICE’’ and inserting ‘‘SEVER9 ANCE FROM EMPLOYMENT’’.

10 (3) SECTION 457.—Clause (ii) of section

11 457(d)(1)(A) is amended by striking ‘‘is separated

12 from service’’ and inserting ‘‘has a severance from

13 employment’’.

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

15 this section shall apply to distributions after December 31,

16 2001.

17 SEC. 247. PURCHASE OF SERVICE CREDIT IN GOVERN18 MENTAL DEFINED BENEFIT PLANS.

19 (a) 403(b) PLANS.—Subsection (b) of section 403 is

20 amended by adding at the end the following new para21 graph:

22 ‘‘(13) TRUSTEE-TO-TRUSTEE TRANSFERS TO

23 PURCHASE PERMISSIVE SERVICE CREDIT.—No

24 amount shall be includible in gross income by reason

25 of a direct trustee-to-trustee transfer to a defined
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1 benefit governmental plan (as defined in section

2 414(d)) if such transfer is—

3 ‘‘(A) for the purchase of permissive service

4 credit (as defined in section 415(n)(3)(A))

5 under such plan, or

6 ‘‘(B) a repayment to which section 415

7 does not apply by reason of subsection (k)(3)

8 thereof.’’.

9 (b) 457 PLANS.—Subsection (e) of section 457 is

10 amended by adding after paragraph (16) the following

11 new paragraph:

12 ‘‘(17) TRUSTEE-TO-TRUSTEE TRANSFERS TO

13 PURCHASE PERMISSIVE SERVICE CREDIT.—No

14 amount shall be includible in gross income by reason

15 of a direct trustee-to-trustee transfer to a defined

16 benefit governmental plan (as defined in section

17 414(d)) if such transfer is—

18 ‘‘(A) for the purchase of permissive service

19 credit (as defined in section 415(n)(3)(A))

20 under such plan, or

21 ‘‘(B) a repayment to which section 415

22 does not apply by reason of subsection (k)(3)

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

2 this section shall apply to trustee-to-trustee transfers after

3 December 31, 2001.

4 SEC. 248. EMPLOYERS MAY DISREGARD ROLLOVERS FOR

5 PURPOSES OF CASH-OUT AMOUNTS.

6 (a) QUALIFIED PLANS.—Section 411(a)(11) (relating

7 to restrictions on certain mandatory distributions) is

8 amended by adding at the end the following:

9 ‘‘(D) SPECIAL RULE FOR ROLLOVER CON10 TRIBUTIONS.—A plan shall not fail to meet the

11 requirements of this paragraph if, under the

12 terms of the plan, the present value of the non13 forfeitable accrued benefit is determined with14 out regard to that portion of such benefit which

15 is attributable to rollover contributions (and

16 earnings allocable thereto). For purposes of this

17 subparagraph, the term ‘rollover contributions’

18 means any rollover contribution under sections

19 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii),

20 and 457(e)(16).’’.

21 (b) ELIGIBLE DEFERRED COMPENSATION PLANS.—

22 Clause (i) of section 457(e)(9)(A) is amended by striking

23 ‘‘such amount’’ and inserting ‘‘the portion of such amount

24 which is not attributable to rollover contributions (as de25 fined in section 411(a)(11)(D))’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to distributions after December 31,

3 2001.

4 SEC. 249. MINIMUM DISTRIBUTION AND INCLUSION RE5 QUIREMENTS FOR SECTION 457 PLANS.

6 (a) MINIMUM DISTRIBUTION REQUIREMENTS.—

7 Paragraph (2) of section 457(d) (relating to distribution

8 requirements) is amended to read as follows:

9 ‘‘(2) MINIMUM DISTRIBUTION REQUIRE10 MENTS.—A plan meets the minimum distribution re11 quirements of this paragraph if such plan meets the

12 requirements of section 401(a)(9).’’.

13 (b) INCLUSION IN GROSS INCOME.—

14 (1) YEAR OF INCLUSION.—Subsection (a) of

15 section 457 (relating to year of inclusion in gross in16 come) is amended to read as follows:

17 ‘‘(a) YEAR OF INCLUSION IN GROSS INCOME.—

18 ‘‘(1) IN GENERAL.—Any amount of compensa19 tion deferred under an eligible deferred compensa20 tion plan, and any income attributable to the

21 amounts so deferred, shall be includible in gross in22 come only for the taxable year in which such com23 pensation or other income—
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1 ‘‘(A) is paid to the participant or other

2 beneficiary, in the case of a plan of an eligible

3 employer described in subsection (e)(1)(A), and

4 ‘‘(B) is paid or otherwise made available to

5 the participant or other beneficiary, in the case

6 of a plan of an eligible employer described in

7 subsection (e)(1)(B).

8 ‘‘(2) SPECIAL RULE FOR ROLLOVER

9 AMOUNTS.—To the extent provided in section

10 72(t)(9), section 72(t) shall apply to any amount in11 cludible in gross income under this subsection.’’.

12 (2) CONFORMING AMENDMENTS.—

13 (A) So much of paragraph (9) of section

14 457(e) as precedes subparagraph (A) is amend15 ed to read as follows:

16 ‘‘(9) BENEFITS OF TAX EXEMPT ORGANIZATION

17 PLANS NOT TREATED AS MADE AVAILABLE BY REA18 SON OF CERTAIN ELECTIONS, ETC.—In the case of

19 an eligible deferred compensation plan of an em20 ployer described in subsection (e)(1)(B)—’’.

21 (B) Section 457(d) is amended by adding

22 at the end the following new paragraph:

23 ‘‘(3) SPECIAL RULE FOR GOVERNMENT PLAN.—

24 An eligible deferred compensation plan of an em25 ployer described in subsection (e)(1)(A) shall not be
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1 treated as failing to meet the requirements of this

2 subsection solely by reason of making a distribution

3 described in subsection (e)(9)(A).’’.

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

5 this section shall apply to distributions after December 31,

6 2001.

7 CHAPTER 5—STRENGTHENING PENSION

8 SECURITY AND ENFORCEMENT

9 SEC. 251. REPEAL OF 150 PERCENT OF CURRENT LIABILITY

10 FUNDING LIMIT.

11 (a) IN GENERAL.—Section 412(c)(7) (relating to

12 full-funding limitation) is amended—

13 (1) by striking ‘‘the applicable percentage’’ in

14 subparagraph (A)(i)(I) and inserting ‘‘in the case of

15 plan years beginning before January 1, 2005, the

16 applicable percentage’’; and

17 (2) by amending subparagraph (F) to read as

18 follows:

19 ‘‘(F) APPLICABLE PERCENTAGE.—For

20 purposes of subparagraph (A)(i)(I), the applica21 ble percentage shall be determined in accord22 ance with the following table:

‘‘In the case of any plan year The applicable

beginning in— percentage is—

2002 ............................................................................. 160

2003 ............................................................................. 165

2004 ............................................................................. 170.’’.
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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to plan years beginning after De3 cember 31, 2001.

4 SEC. 252. MAXIMUM CONTRIBUTION DEDUCTION RULES

5 MODIFIED AND APPLIED TO ALL DEFINED

6 BENEFIT PLANS.

7 (a) IN GENERAL.—Subparagraph (D) of section

8 404(a)(1) (relating to special rule in case of certain plans)

9 is amended to read as follows:

10 ‘‘(D) SPECIAL RULE IN CASE OF CERTAIN

11 PLANS.—

12 ‘‘(i) IN GENERAL.—In the case of any

13 defined benefit plan, except as provided in

14 regulations, the maximum amount deduct15 ible under the limitations of this paragraph

16 shall not be less than the unfunded termi17 nation liability (determined as if the pro18 posed termination date referred to in sec19 tion 4041(b)(2)(A)(i)(II) of the Employee

20 Retirement Income Security Act of 1974

21 were the last day of the plan year).

22 ‘‘(ii) PLANS WITH LESS THAN 100

23 PARTICIPANTS.—For purposes of this sub24 paragraph, in the case of a plan which has

25 less than 100 participants for the plan
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1 year, termination liability shall not include

2 the liability attributable to benefit in3 creases for highly compensated employees

4 (as defined in section 414(q)) resulting

5 from a plan amendment which is made or

6 becomes effective, whichever is later, within

7 the last 2 years before the termination

8 date.

9 ‘‘(iii) RULE FOR DETERMINING NUM10 BER OF PARTICIPANTS.—For purposes of

11 determining whether a plan has more than

12 100 participants, all defined benefit plans

13 maintained by the same employer (or any

14 member of such employer’s controlled

15 group (within the meaning of section

16 412(l)(8)(C))) shall be treated as one plan,

17 but only employees of such member or em18 ployer shall be taken into account.

19 ‘‘(iv) PLANS ESTABLISHED AND MAIN20 TAINED BY PROFESSIONAL SERVICE EM21 PLOYERS.—Clause (i) shall not apply to a

22 plan described in section 4021(b)(13) of

23 the Employee Retirement Income Security

24 Act of 1974.’’.
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1 (b) CONFORMING AMENDMENT.—Paragraph (6) of

2 section 4972(c) is amended to read as follows:

3 ‘‘(6) EXCEPTIONS.—In determining the amount

4 of nondeductible contributions for any taxable year,

5 there shall not be taken into account so much of the

6 contributions to one or more defined contribution

7 plans which are not deductible when contributed

8 solely because of section 404(a)(7) as does not ex9 ceed the greater of—

10 ‘‘(A) the amount of contributions not in

11 excess of 6 percent of compensation (within the

12 meaning of section 404(a)) paid or accrued

13 (during the taxable year for which the contribu14 tions were made) to beneficiaries under the

15 plans, or

16 ‘‘(B) the sum of—

17 ‘‘(i) the amount of contributions de18 scribed in section 401(m)(4)(A), plus

19 ‘‘(ii) the amount of contributions de20 scribed in section 402(g)(3)(A).

21 For purposes of this paragraph, the deductible limits

22 under section 404(a)(7) shall first be applied to

23 amounts contributed to a defined benefit plan and

24 then to amounts described in subparagraph (B).’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to plan years beginning after De3 cember 31, 2001.

4 SEC. 253. EXCISE TAX RELIEF FOR SOUND PENSION FUND5 ING.

6 (a) IN GENERAL.—Subsection (c) of section 4972

7 (relating to nondeductible contributions) is amended by

8 adding at the end the following new paragraph:

9 ‘‘(7) DEFINED BENEFIT PLAN EXCEPTION.—In

10 determining the amount of nondeductible contribu11 tions for any taxable year, an employer may elect for

12 such year not to take into account any contributions

13 to a defined benefit plan except to the extent that

14 such contributions exceed the full-funding limitation

15 (as defined in section 412(c)(7), determined without

16 regard to subparagraph (A)(i)(I) thereof). For pur17 poses of this paragraph, the deductible limits under

18 section 404(a)(7) shall first be applied to amounts

19 contributed to defined contribution plans and then

20 to amounts described in this paragraph. If an em21 ployer makes an election under this paragraph for a

22 taxable year, paragraph (6) shall not apply to such

23 employer for such taxable year.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to years beginning after December

3 31, 2001.

4 SEC. 254. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY

5 DEFINED BENEFIT PLANS SIGNIFICANTLY

6 REDUCING FUTURE BENEFIT ACCRUALS.

7 (a) IN GENERAL.—Chapter 43 (relating to qualified

8 pension, etc., plans) is amended by adding at the end the

9 following new section:

10 ‘‘SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING

11 BENEFIT ACCRUALS TO SATISFY NOTICE RE12 QUIREMENTS.

13 ‘‘(a) IMPOSITION OF TAX.—There is hereby imposed

14 a tax on the failure of any applicable pension plan to meet

15 the requirements of subsection (e) with respect to any ap16 plicable individual.

17 ‘‘(b) AMOUNT OF TAX.—

18 ‘‘(1) IN GENERAL.—The amount of the tax im19 posed by subsection (a) on any failure with respect

20 to any applicable individual shall be $100 for each

21 day in the noncompliance period with respect to such

22 failure.

23 ‘‘(2) NONCOMPLIANCE PERIOD.—For purposes

24 of this section, the term ‘noncompliance period’

25 means, with respect to any failure, the period begin-
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1 ning on the date the failure first occurs and ending

2 on the date the failure is corrected.

3 ‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—

4 ‘‘(1) OVERALL LIMITATION FOR UNINTEN5 TIONAL FAILURES.—In the case of failures that are

6 due to reasonable cause and not to willful neglect,

7 the tax imposed by subsection (a) for failures during

8 the taxable year of the employer (or, in the case of

9 a multiemployer plan, the taxable year of the trust

10 forming part of the plan) shall not exceed $500,000.

11 For purposes of the preceding sentence, all multiem12 ployer plans of which the same trust forms a part

13 shall be treated as one plan. For purposes of this

14 paragraph, if not all persons who are treated as a

15 single employer for purposes of this section have the

16 same taxable year, the taxable years taken into ac17 count shall be determined under principles similar to

18 the principles of section 1561.

19 ‘‘(2) WAIVER BY SECRETARY.—In the case of a

20 failure which is due to reasonable cause and not to

21 willful neglect, the Secretary may waive part or all

22 of the tax imposed by subsection (a) to the extent

23 that the payment of such tax would be excessive rel24 ative to the failure involved.
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1 ‘‘(d) LIABILITY FOR TAX.—The following shall be lia2 ble for the tax imposed by subsection (a):

3 ‘‘(1) In the case of a plan other than a multi4 employer plan, the employer.

5 ‘‘(2) In the case of a multiemployer plan, the

6 plan.

7 ‘‘(e) NOTICE REQUIREMENTS FOR PLANS SIGNIFI8 CANTLY REDUCING BENEFIT ACCRUALS.—

9 ‘‘(1) IN GENERAL.—If an applicable pension

10 plan is amended to provide for a significant reduc11 tion in the rate of future benefit accrual, the plan

12 administrator shall provide written notice to each

13 applicable individual (and to each employee organi14 zation representing applicable individuals).

15 ‘‘(2) NOTICE.—The notice required by para16 graph (1) shall be written in a manner calculated to

17 be understood by the average plan participant and

18 shall provide sufficient information (as determined

19 in accordance with regulations prescribed by the

20 Secretary) to allow applicable individuals to under21 stand the effect of the plan amendment.

22 ‘‘(3) TIMING OF NOTICE.—Except as provided

23 in regulations, the notice required by paragraph (1)

24 shall be provided within a reasonable time before the

25 effective date of the plan amendment.
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1 ‘‘(4) DESIGNEES.—Any notice under paragraph

2 (1) may be provided to a person designated, in writ3 ing, by the person to which it would otherwise be

4 provided.

5 ‘‘(5) NOTICE BEFORE ADOPTION OF AMEND6 MENT.—A plan shall not be treated as failing to

7 meet the requirements of paragraph (1) merely be8 cause notice is provided before the adoption of the

9 plan amendment if no material modification of the

10 amendment occurs before the amendment is adopt11 ed.

12 ‘‘(f) APPLICABLE INDIVIDUAL; APPLICABLE PEN13 SION PLAN.—For purposes of this section—

14 ‘‘(1) APPLICABLE INDIVIDUAL.—The term ‘ap15 plicable individual’ means, with respect to any plan

16 amendment—

17 ‘‘(A) any participant in the plan, and

18 ‘‘(B) any beneficiary who is an alternate

19 payee (within the meaning of section 414(p)(8))

20 under an applicable qualified domestic relations

21 order (within the meaning of section

22 414(p)(1)(A)),

23 who may reasonably be expected to be affected by

24 such plan amendment.
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1 ‘‘(2) APPLICABLE PENSION PLAN.—The term

2 ‘applicable pension plan’ means—

3 ‘‘(A) any defined benefit plan, or

4 ‘‘(B) an individual account plan which is

5 subject to the funding standards of section 412,

6 which had 100 or more participants who had ac7 crued a benefit, or with respect to whom contribu8 tions were made, under the plan (whether or not

9 vested) as of the last day of the plan year preceding

10 the plan year in which the plan amendment becomes

11 effective. Such term shall not include a governmental

12 plan (within the meaning of section 414(d)) or a

13 church plan (within the meaning of section 414(e))

14 with respect to which the election provided by sec15 tion 410(d) has not been made.’’.

16 (b) CLERICAL AMENDMENT.—The table of sections

17 for chapter 43 is amended by adding at the end the fol18 lowing new item:

‘‘Sec. 4980F. Failure of applicable plans reducing benefit accruals

to satisfy notice requirements.’’.

19 (c) EFFECTIVE DATES.—

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

21 this section shall apply to plan amendments taking

22 effect on or after the date of the enactment of this

23 Act.
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1 (2) TRANSITION.—Until such time as the Sec2 retary of the Treasury issues regulations under sec3 tions 4980F(e)(2) and (3) of the Internal Revenue

4 Code of 1986 (as added by the amendments made

5 by this section), a plan shall be treated as meeting

6 the requirements of such sections if it makes a good

7 faith effort to comply with such requirements.

8 (3) SPECIAL RULE.—The period for providing

9 any notice required by the amendments made by this

10 section shall not end before the date which is 3

11 months after the date of the enactment of this Act.

12 (d) STUDY.—The Secretary of the Treasury shall

13 prepare a report on the effects of conversions of tradi14 tional defined benefit plans to cash balance or hybrid for15 mula plans. Such study shall examine the effect of such

16 conversions on longer service participants, including the

17 incidence and effects of ‘‘wear away’’ provisions under

18 which participants earn no additional benefits for a period

19 of time after the conversion. As soon as practicable, but

20 not later than 60 days after the date of the enactment

21 of this Act, the Secretary shall submit such report, to22 gether with recommendations thereon, to the Committee

23 on Ways and Means of the House of Representatives and

24 the Committee on Finance of the Senate.
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1 SEC. 255. TREATMENT OF MULTIEMPLOYER PLANS UNDER

2 SECTION 415.

3 (a) COMPENSATION LIMIT.—Paragraph (11) of sec4 tion 415(b) (relating to limitation for defined benefit

5 plans) is amended to read as follows:

6 ‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN7 MENTAL AND MULTIEMPLOYER PLANS.—In the case

8 of a governmental plan (as defined in section

9 414(d)) or a multiemployer plan (as defined in sec10 tion 414(f)), subparagraph (B) of paragraph (1)

11 shall not apply.’’.

12 (b) COMBINING AND AGGREGATION OF PLANS.—

13 (1) COMBINING OF PLANS.—Subsection (f) of

14 section 415 (relating to combining of plans) is

15 amended by adding at the end the following:

16 ‘‘(3) EXCEPTION FOR MULTIEMPLOYER

17 PLANS.—Notwithstanding paragraph (1) and sub18 section (g), a multiemployer plan (as defined in sec19 tion 414(f)) shall not be combined or aggregated

20 with any other plan maintained by an employer for

21 purposes of applying the limitations established in

22 this section, except that such plan shall be combined

23 or aggregated with another plan which is not such

24 a multiemployer plan solely for purposes of deter25 mining whether such other plan meets the require26 ments of subsections (b)(1)(A) and (c).’’.
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1 (2) CONFORMING AMENDMENT FOR AGGREGA2 TION OF PLANS.—Subsection (g) of section 415 (re3 lating to aggregation of plans) is amended by strik4 ing ‘‘The Secretary’’ and inserting ‘‘Except as pro5 vided in subsection (f)(3), the Secretary’’.

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

7 this section shall apply to years beginning after December

8 31, 2001.

9 SEC. 256. PROHIBITED ALLOCATIONS OF STOCK IN S COR10 PORATION ESOP.

11 (a) IN GENERAL.—Section 409 (relating to qualifica12 tions for tax credit employee stock ownership plans) is

13 amended by redesignating subsection (p) as subsection (q)

14 and by inserting after subsection (o) the following new

15 subsection:

16 ‘‘(p) PROHIBITED ALLOCATIONS OF SECURITIES IN

17 AN S CORPORATION.—

18 ‘‘(1) IN GENERAL.—An employee stock owner19 ship plan holding employer securities consisting of

20 stock in an S corporation shall provide that no por21 tion of the assets of the plan attributable to (or allo22 cable in lieu of) such employer securities may, dur23 ing a nonallocation year, accrue (or be allocated di24 rectly or indirectly under any plan of the employer
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1 meeting the requirements of section 401(a)) for the

2 benefit of any disqualified person.

3 ‘‘(2) FAILURE TO MEET REQUIREMENTS.—

4 ‘‘(A) IN GENERAL.—If a plan fails to meet

5 the requirements of paragraph (1), the plan

6 shall be treated as having distributed to any

7 disqualified person the amount allocated to the

8 account of such person in violation of para9 graph (1) at the time of such allocation.

10 ‘‘(B) CROSS REFERENCE.—

‘‘For excise tax relating to violations of paragraph

(1) and ownership of synthetic equity, see section

4979A.

11 ‘‘(3) NONALLOCATION YEAR.—For purposes of

12 this subsection—

13 ‘‘(A) IN GENERAL.—The term ‘nonalloca14 tion year’ means any plan year of an employee

15 stock ownership plan if, at any time during

16 such plan year—

17 ‘‘(i) such plan holds employer securi18 ties consisting of stock in an S corpora19 tion, and

20 ‘‘(ii) disqualified persons own at least

21 50 percent of the number of shares of

22 stock in the S corporation.

23 ‘‘(B) ATTRIBUTION RULES.—For purposes

24 of subparagraph (A)—
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1 ‘‘(i) IN GENERAL.—The rules of sec2 tion 318(a) shall apply for purposes of de3 termining ownership, except that—

4 ‘‘(I) in applying paragraph (1)

5 thereof, the members of an individ6 ual’s family shall include members of

7 the family described in paragraph

8 (4)(D), and

9 ‘‘(II) paragraph (4) thereof shall

10 not apply.

11 ‘‘(ii) DEEMED-OWNED SHARES.—Not12 withstanding the employee trust exception

13 in section 318(a)(2)(B)(i), individual shall

14 be treated as owning deemed-owned shares

15 of the individual.

16 Solely for purposes of applying paragraph (5),

17 this subparagraph shall be applied after the at18 tribution rules of paragraph (5) have been ap19 plied.

20 ‘‘(4) DISQUALIFIED PERSON.—For purposes of

21 this subsection—

22 ‘‘(A) IN GENERAL.—The term ‘disqualified

23 person’ means any person if—

24 ‘‘(i) the aggregate number of deemed25 owned shares of such person and the mem-
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1 bers of such person’s family is at least 20

2 percent of the number of deemed-owned

3 shares of stock in the S corporation, or

4 ‘‘(ii) in the case of a person not de5 scribed in clause (i), the number of

6 deemed-owned shares of such person is at

7 least 10 percent of the number of deemed8 owned shares of stock in such corporation.

9 ‘‘(B) TREATMENT OF FAMILY MEMBERS.—

10 In the case of a disqualified person described in

11 subparagraph (A)(i), any member of such per12 son’s family with deemed-owned shares shall be

13 treated as a disqualified person if not otherwise

14 treated as a disqualified person under subpara15 graph (A).

16 ‘‘(C) DEEMED-OWNED SHARES.—

17 ‘‘(i) IN GENERAL.—The term

18 ‘deemed-owned shares’ means, with respect

19 to any person—

20 ‘‘(I) the stock in the S corpora21 tion constituting employer securities

22 of an employee stock ownership plan

23 which is allocated to such person

24 under the plan, and
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1 ‘‘(II) such person’s share of the

2 stock in such corporation which is

3 held by such plan but which is not al4 located under the plan to participants.

5 ‘‘(ii) PERSON’S SHARE OF

6 UNALLOCATED STOCK.—For purposes of

7 clause (i)(II), a person’s share of

8 unallocated S corporation stock held by

9 such plan is the amount of the unallocated

10 stock which would be allocated to such per11 son if the unallocated stock were allocated

12 to all participants in the same proportions

13 as the most recent stock allocation under

14 the plan.

15 ‘‘(D) MEMBER OF FAMILY.—For purposes

16 of this paragraph, the term ‘member of the

17 family’ means, with respect to any individual—

18 ‘‘(i) the spouse of the individual,

19 ‘‘(ii) an ancestor or lineal descendant

20 of the individual or the individual’s spouse,

21 ‘‘(iii) a brother or sister of the indi22 vidual or the individual’s spouse and any

23 lineal descendant of the brother or sister,

24 and
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1 ‘‘(iv) the spouse of any individual de2 scribed in clause (ii) or (iii).

3 A spouse of an individual who is legally sepa4 rated from such individual under a decree of di5 vorce or separate maintenance shall not be

6 treated as such individual’s spouse for purposes

7 of this subparagraph.

8 ‘‘(5) TREATMENT OF SYNTHETIC EQUITY.—For

9 purposes of paragraphs (3) and (4), in the case of

10 a person who owns synthetic equity in the S corpora11 tion, except to the extent provided in regulations, the

12 shares of stock in such corporation on which such

13 synthetic equity is based shall be treated as out14 standing stock in such corporation and deemed15 owned shares of such person if such treatment of

16 synthetic equity of 1 or more such persons results

17 in—

18 ‘‘(A) the treatment of any person as a dis19 qualified person, or

20 ‘‘(B) the treatment of any year as a non21 allocation year.

22 For purposes of this paragraph, synthetic equity

23 shall be treated as owned by a person in the same

24 manner as stock is treated as owned by a person

25 under the rules of paragraphs (2) and (3) of section
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1 318(a). If, without regard to this paragraph, a per2 son is treated as a disqualified person or a year is

3 treated as a nonallocation year, this paragraph shall

4 not be construed to result in the person or year not

5 being so treated.

6 ‘‘(6) DEFINITIONS.—For purposes of this

7 subsection—

8 ‘‘(A) EMPLOYEE STOCK OWNERSHIP

9 PLAN.—The term ‘employee stock ownership

10 plan’ has the meaning given such term by sec11 tion 4975(e)(7).

12 ‘‘(B) EMPLOYER SECURITIES.—The term

13 ‘employer security’ has the meaning given such

14 term by section 409(l).

15 ‘‘(C) SYNTHETIC EQUITY.—The term ‘syn16 thetic equity’ means any stock option, warrant,

17 restricted stock, deferred issuance stock right,

18 or similar interest or right that gives the holder

19 the right to acquire or receive stock of the S

20 corporation in the future. Except to the extent

21 provided in regulations, synthetic equity also in22 cludes a stock appreciation right, phantom

23 stock unit, or similar right to a future cash

24 payment based on the value of such stock or

25 appreciation in such value.
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1 ‘‘(7) REGULATIONS.—The Secretary shall pre2 scribe such regulations as may be necessary to carry

3 out the purposes of this subsection.’’.

4 (b) COORDINATION WITH SECTION 4975(e)(7).—The

5 last sentence of section 4975(e)(7) (defining employee

6 stock ownership plan) is amended by inserting ‘‘, section

7 409(p),’’ after ‘‘409(n)’’.

8 (c) EXCISE TAX.—

9 (1) APPLICATION OF TAX.—Subsection (a) of

10 section 4979A (relating to tax on certain prohibited

11 allocations of employer securities) is amended—

12 (A) by striking ‘‘or’’ at the end of para13 graph (1), and

14 (B) by striking all that follows paragraph

15 (2) and inserting the following:

16 ‘‘(3) there is any allocation of employer securi17 ties which violates the provisions of section 409(p),

18 or a nonallocation year described in subsection

19 (e)(2)(C) with respect to an employee stock owner20 ship plan, or

21 ‘‘(4) any synthetic equity is owned by a dis22 qualified person in any nonallocation year,

23 there is hereby imposed a tax on such allocation or owner24 ship equal to 50 percent of the amount involved.’’.
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1 (2) LIABILITY.—Section 4979A(c) (defining li2 ability for tax) is amended to read as follows:

3 ‘‘(c) LIABILITY FOR TAX.—The tax imposed by this

4 section shall be paid—

5 ‘‘(1) in the case of an allocation referred to in

6 paragraph (1) or (2) of subsection (a), by—

7 ‘‘(A) the employer sponsoring such plan, or

8 ‘‘(B) the eligible worker-owned cooperative,

9 which made the written statement described in sec10 tion 664(g)(1)(E) or in section 1042(b)(3)(B) (as

11 the case may be), and

12 ‘‘(2) in the case of an allocation or ownership

13 referred to in paragraph (3) or (4) of subsection (a),

14 by the S corporation the stock in which was so allo15 cated or owned.’’.

16 (3) DEFINITIONS.—Section 4979A(e) (relating

17 to definitions) is amended to read as follows:

18 ‘‘(e) DEFINITIONS AND SPECIAL RULES.—For pur19 poses of this section—

20 ‘‘(1) DEFINITIONS.—Except as provided in

21 paragraph (2), terms used in this section have the

22 same respective meanings as when used in sections

23 409 and 4978.
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1 ‘‘(2) SPECIAL RULES RELATING TO TAX IM2 POSED BY REASON OF PARAGRAPH (3) OR (4) OF

3 SUBSECTION (a).—

4 ‘‘(A) PROHIBITED ALLOCATIONS.—The

5 amount involved with respect to any tax im6 posed by reason of subsection (a)(3) is the

7 amount allocated to the account of any person

8 in violation of section 409(p)(1).

9 ‘‘(B) SYNTHETIC EQUITY.—The amount

10 involved with respect to any tax imposed by rea11 son of subsection (a)(4) is the value of the

12 shares on which the synthetic equity is based.

13 ‘‘(C) SPECIAL RULE DURING FIRST NON14 ALLOCATION YEAR.—For purposes of subpara15 graph (A), the amount involved for the first

16 nonallocation year of any employee stock owner17 ship plan shall be determined by taking into ac18 count the total value of all the deemed-owned

19 shares of all disqualified persons with respect to

20 such plan.

21 ‘‘(D) STATUTE OF LIMITATIONS.—The

22 statutory period for the assessment of any tax

23 imposed by this section by reason of paragraph

24 (3) or (4) of subsection (a) shall not expire be-
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1 fore the date which is 3 years from the later

2 of—

3 ‘‘(i) the allocation or ownership re4 ferred to in such paragraph giving rise to

5 such tax, or

6 ‘‘(ii) the date on which the Secretary

7 is notified of such allocation or owner8 ship.’’.

9 (d) EFFECTIVE DATES.—

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

11 this section shall apply to plan years beginning after

12 December 31, 2001.

13 (2) EXCEPTION FOR CERTAIN PLANS.—In the

14 case of any—

15 (A) employee stock ownership plan estab16 lished after July 11, 2000, or

17 (B) employee stock ownership plan estab18 lished on or before such date if employer securi19 ties held by the plan consist of stock in a cor20 poration with respect to which an election under

21 section 1362(a) of the Internal Revenue Code

22 of 1986 is not in effect on such date,

23 the amendments made by this section shall apply to

24 plan years ending after July 11, 2001.
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1 CHAPTER 6—REDUCING REGULATORY

2 BURDENS

3 SEC. 261. MODIFICATION OF TIMING OF PLAN VALUATIONS.

4 (a) IN GENERAL.—Paragraph (9) of section

5 412(c)(9) (relating to annual valuation) is amended to

6 read as follows:

7 ‘‘(9) ANNUAL VALUATION.—

8 ‘‘(A) IN GENERAL.—For purposes of this

9 section, a determination of experience gains and

10 losses and a valuation of the plan’s liability

11 shall be made not less frequently than once

12 every year, except that such determination shall

13 be made more frequently to the extent required

14 in particular cases under regulations prescribed

15 by the Secretary.

16 ‘‘(B) VALUATION DATE.—

17 ‘‘(i) CURRENT YEAR.—Except as pro18 vided in clause (ii), the valuation referred

19 to in subparagraph (A) shall be made as of

20 a date within the plan year to which the

21 valuation refers or within one month prior

22 to the beginning of such year.

23 ‘‘(ii) ELECTION TO USE PRIOR YEAR

24 VALUATION.—The valuation referred to in

25 subparagraph (A) may be made as of a
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1 date within the plan year prior to the year

2 to which the valuation refers if—

3 ‘‘(I) an election is in effect under

4 this clause with respect to the plan,

5 and

6 ‘‘(II) as of such date, the value

7 of the assets of the plan are not less

8 than 125 percent of the plan’s current

9 liability (as defined in paragraph

10 (7)(B)).

11 ‘‘(iii) ADJUSTMENTS.—Information

12 under clause (ii) shall, in accordance with

13 regulations, be actuarially adjusted to re14 flect significant differences in participants.

15 ‘‘(iv) ELECTION.—An election under

16 clause (ii), once made, shall be irrevocable

17 without the consent of the Secretary.’’.

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

19 this section shall apply to plan years beginning after De20 cember 31, 2001.

21 SEC. 262. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT

22 LOSS OF DIVIDEND DEDUCTION.

23 (a) IN GENERAL.—Section 404(k)(2)(A) (defining

24 applicable dividends) is amended by striking ‘‘or’’ at the

25 end of clause (ii), by redesignating clause (iii) as clause
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1 (iv), and by inserting after clause (ii) the following new

2 clause:

3 ‘‘(iii) is, at the election of such par4 ticipants or their beneficiaries—

5 ‘‘(I) payable as provided in clause

6 (i) or (ii), or

7 ‘‘(II) paid to the plan and rein8 vested in qualifying employer securi9 ties, or’’.

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

11 this section shall apply to taxable years beginning after

12 December 31, 2001.

13 SEC. 263. REPEAL OF TRANSITION RULE RELATING TO CER14 TAIN HIGHLY COMPENSATED EMPLOYEES.

15 (a) IN GENERAL.—Paragraph (4) of section 1114(c)

16 of the Tax Reform Act of 1986 is hereby repealed.

17 (b) EFFECTIVE DATE.—The repeal made by sub18 section (a) shall apply to plan years beginning after De19 cember 31, 2001.

20 SEC. 264. EMPLOYEES OF TAX-EXEMPT ENTITIES.

21 (a) IN GENERAL.—The Secretary of the Treasury

22 shall modify Treasury Regulations section 1.410(b)–6(g)

23 to provide that employees of an organization described in

24 section 403(b)(1)(A)(i) of the Internal Revenue Code of

25 1986 who are eligible to make contributions under section
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1 403(b) of such Code pursuant to a salary reduction agree2 ment may be treated as excludable with respect to a plan

3 under section 401(k) or (m) of such Code that is provided

4 under the same general arrangement as a plan under such

5 section 401(k), if—

6 (1) no employee of an organization described in

7 section 403(b)(1)(A)(i) of such Code is eligible to

8 participate in such section 401(k) plan or section

9 401(m) plan; and

10 (2) 95 percent of the employees who are not

11 employees of an organization described in section

12 403(b)(1)(A)(i) of such Code are eligible to partici13 pate in such plan under such section 401(k) or (m).

14 (b) EFFECTIVE DATE.—The modification required by

15 subsection (a) shall apply as of the same date set forth

16 in section 1426(b) of the Small Business Job Protection

17 Act of 1996.

18 SEC. 265. CLARIFICATION OF TREATMENT OF EMPLOYER19 PROVIDED RETIREMENT ADVICE.

20 (a) IN GENERAL.—Subsection (a) of section 132 (re21 lating to exclusion from gross income) is amended by

22 striking ‘‘or’’ at the end of paragraph (5), by striking the

23 period at the end of paragraph (6) and inserting ‘‘, or’’,

24 and by adding at the end the following new paragraph:

25 ‘‘(7) qualified retirement planning services.’’.
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1 (b) QUALIFIED RETIREMENT PLANNING SERVICES

2 DEFINED.—Section 132 is amended by redesignating sub3 section (m) as subsection (n) and by inserting after sub4 section (l) the following:

5 ‘‘(m) QUALIFIED RETIREMENT PLANNING SERV6 ICES.—

7 ‘‘(1) IN GENERAL.—For purposes of this sec8 tion, the term ‘qualified retirement planning serv9 ices’ means any retirement planning service provided

10 to an employee and his spouse by an employer main11 taining a qualified employer plan.

12 ‘‘(2) NONDISCRIMINATION RULE.—Subsection

13 (a)(7) shall apply in the case of highly compensated

14 employees only if such services are available on sub15 stantially the same terms to each member of the

16 group of employees normally provided education and

17 information regarding the employer’s qualified em18 ployer plan.

19 ‘‘(3) QUALIFIED EMPLOYER PLAN.—For pur20 poses of this subsection, the term ‘qualified employer

21 plan’ means a plan, contract, pension, or account de22 scribed in section 219(g)(5).’’.

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

24 this section shall apply to years beginning after December

25 31, 2001.
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1 SEC. 266. REPORTING SIMPLIFICATION.

2 (a) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR

3 OWNERS AND THEIR SPOUSES.—

4 (1) IN GENERAL.—The Secretary of the Treas5 ury shall modify the requirements for filing annual

6 returns with respect to one-participant retirement

7 plans to ensure that such plans with assets of

8 $250,000 or less as of the close of the plan year

9 need not file a return for that year.

10 (2) ONE-PARTICIPANT RETIREMENT PLAN DE11 FINED.—For purposes of this subsection, the term

12 ‘‘one-participant retirement plan’’ means a retire13 ment plan that—

14 (A) on the first day of the plan year—

15 (i) covered only the employer (and the

16 employer’s spouse) and the employer

17 owned the entire business (whether or not

18 incorporated); or

19 (ii) covered only one or more partners

20 (and their spouses) in a business partner21 ship (including partners in an S or C cor22 poration);

23 (B) meets the minimum coverage require24 ments of section 410(b) of the Internal Revenue

25 Code of 1986 without being combined with any
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1 other plan of the business that covers the em2 ployees of the business;

3 (C) does not provide benefits to anyone ex4 cept the employer (and the employer’s spouse)

5 or the partners (and their spouses);

6 (D) does not cover a business that is a

7 member of an affiliated service group, a con8 trolled group of corporations, or a group of

9 businesses under common control; and

10 (E) does not cover a business that leases

11 employees.

12 (3) OTHER DEFINITIONS.—Terms used in para13 graph (2) which are also used in section 414 of the

14 Internal Revenue Code of 1986 shall have the re15 spective meanings given such terms by such section.

16 (b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR

17 PLANS WITH FEWER THAN 25 EMPLOYEES.—In the case

18 of a retirement plan which covers less than 25 employees

19 on the first day of the plan year and meets the require20 ments described in subparagraphs (B), (D), and (E) of

21 subsection (a)(2), the Secretary of the Treasury shall pro22 vide for the filing of a simplified annual return that is

23 substantially similar to the annual return required to be

24 filed by a one-participant retirement plan.
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1 (c) EFFECTIVE DATE.—The provisions of this section

2 shall take effect on January 1, 2001.

3 SEC. 267. IMPROVEMENT OF EMPLOYEE PLANS COMPLI4 ANCE RESOLUTION SYSTEM.

5 The Secretary of the Treasury shall continue to up6 date and improve the Employee Plans Compliance Resolu7 tion System (or any successor program) giving special at8 tention to—

9 (1) increasing the awareness and knowledge of

10 small employers concerning the availability and use

11 of the program;

12 (2) taking into account special concerns and

13 circumstances that small employers face with respect

14 to compliance and correction of compliance failures;

15 (3) extending the duration of the self-correction

16 period under the Administrative Policy Regarding

17 Self-Correction for significant compliance failures;

18 (4) expanding the availability to correct insig19 nificant compliance failures under the Administra20 tive Policy Regarding Self-Correction during audit;

21 and

22 (5) assuring that any tax, penalty, or sanction

23 that is imposed by reason of a compliance failure is

24 not excessive and bears a reasonable relationship to

25 the nature, extent, and severity of the failure.
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1 SEC. 268. REPEAL OF THE MULTIPLE USE TEST.

2 (a) IN GENERAL.—Paragraph (9) of section 401(m)

3 is amended to read as follows:

4 ‘‘(9) REGULATIONS.—The Secretary shall pre5 scribe such regulations as may be necessary to carry

6 out the purposes of this subsection and subsection

7 (k), including regulations permitting appropriate ag8 gregation of plans and contributions.’’.

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

10 this section shall apply to years beginning after December

11 31, 2001.

12 SEC. 269. FLEXIBILITY IN NONDISCRIMINATION, COV13 ERAGE, AND LINE OF BUSINESS RULES.

14 (a) NONDISCRIMINATION.—

15 (1) IN GENERAL.—The Secretary of the Treas16 ury shall, by regulation, provide that a plan shall be

17 deemed to satisfy the requirements of section

18 401(a)(4) of the Internal Revenue Code of 1986 if

19 such plan satisfies the facts and circumstances test

20 under section 401(a)(4) of such Code, as in effect

21 before January 1, 1994, but only if—

22 (A) the plan satisfies conditions prescribed

23 by the Secretary to appropriately limit the

24 availability of such test; and
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1 (B) the plan is submitted to the Secretary

2 for a determination of whether it satisfies such

3 test.

4 Subparagraph (B) shall only apply to the extent pro5 vided by the Secretary.

6 (2) EFFECTIVE DATES.—

7 (A) REGULATIONS.—The regulation re8 quired by paragraph (1) shall apply to years be9 ginning after December 31, 2001.

10 (B) CONDITIONS OF AVAILABILITY.—Any

11 condition of availability prescribed by the Sec12 retary under paragraph (1)(A) shall not apply

13 before the first year beginning not less than

14 120 days after the date on which such condition

15 is prescribed.

16 (b) COVERAGE TEST.—

17 (1) IN GENERAL.—Section 410(b)(1) (relating

18 to minimum coverage requirements) is amended by

19 adding at the end the following:

20 ‘‘(D) In the case that the plan fails to

21 meet the requirements of subparagraphs (A),

22 (B) and (C), the plan—

23 ‘‘(i) satisfies subparagraph (B), as in

24 effect immediately before the enactment of

25 the Tax Reform Act of 1986,
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1 ‘‘(ii) is submitted to the Secretary for

2 a determination of whether it satisfies the

3 requirement described in clause (i), and

4 ‘‘(iii) satisfies conditions prescribed by

5 the Secretary by regulation that appro6 priately limit the availability of this sub7 paragraph.

8 Clause (ii) shall apply only to the extent pro9 vided by the Secretary.’’.

10 (2) EFFECTIVE DATES.—

11 (A) IN GENERAL.—The amendment made

12 by paragraph (1) shall apply to years beginning

13 after December 31, 2001.

14 (B) CONDITIONS OF AVAILABILITY.—Any

15 condition of availability prescribed by the Sec16 retary under regulations prescribed by the Sec17 retary under section 410(b)(1)(D) of the Inter18 nal Revenue Code of 1986 shall not apply be19 fore the first year beginning not less than 120

20 days after the date on which such condition is

21 prescribed.

22 (c) LINE OF BUSINESS RULES.—The Secretary of

23 the Treasury shall, on or before December 31, 2001, mod24 ify the existing regulations issued under section 414(r) of

25 the Internal Revenue Code of 1986 in order to expand
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1 (to the extent that the Secretary determines appropriate)

2 the ability of a pension plan to demonstrate compliance

3 with the line of business requirements based upon the

4 facts and circumstances surrounding the design and oper5 ation of the plan, even though the plan is unable to satisfy

6 the mechanical tests currently used to determine compli7 ance.

8 SEC. 270. EXTENSION TO ALL GOVERNMENTAL PLANS OF

9 MORATORIUM ON APPLICATION OF CERTAIN

10 NONDISCRIMINATION RULES APPLICABLE TO

11 STATE AND LOCAL PLANS.

12 (a) IN GENERAL.—

13 (1) Subparagraph (G) of section 401(a)(5) and

14 subparagraph (H) of section 401(a)(26) are each

15 amended by striking ‘‘section 414(d))’’ and all that

16 follows and inserting ‘‘section 414(d)).’’.

17 (2) Subparagraph (G) of section 401(k)(3) and

18 paragraph (2) of section 1505(d) of the Taxpayer

19 Relief Act of 1997 are each amended by striking

20 ‘‘maintained by a State or local government or polit21 ical subdivision thereof (or agency or instrumentality

22 thereof)’’.

23 (b) CONFORMING AMENDMENTS.—
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1 (1) The heading for subparagraph (G) of sec2 tion 401(a)(5) is amended to read as follows: ‘‘GOV3 ERNMENTAL PLANS’’.

4 (2) The heading for subparagraph (H) of sec5 tion 401(a)(26) is amended to read as follows: ‘‘EX6 CEPTION FOR GOVERNMENTAL PLANS’’.

7 (3) Subparagraph (G) of section 401(k)(3) is

8 amended by inserting ‘‘GOVERNMENTAL PLANS.—’’

9 after ‘‘(G)’’.

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

11 this section shall apply to years beginning after December

12 31, 2001.

13 SEC. 271. NOTICE AND CONSENT PERIOD REGARDING DIS14 TRIBUTIONS.

15 (a) EXPANSION OF PERIOD.—

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

17 417(a)(6) is amended by striking ‘‘90-day’’ and in18 serting ‘‘180-day’’.

19 (2) MODIFICATION OF REGULATIONS.—The

20 Secretary of the Treasury shall modify the regula21 tions under sections 402(f), 411(a)(11), and 417 of

22 the Internal Revenue Code of 1986 to substitute

23 ‘‘180 days’’ for ‘‘90 days’’ each place it appears in

24 Treasury Regulations sections 1.402(f)–1, 1.411(a)–

25 11(c), and 1.417(e)–1(b).
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1 (3) EFFECTIVE DATE.—The amendment made

2 by paragraph (1) and the modifications required by

3 paragraph (2) shall apply to years beginning after

4 December 31, 2001.

5 (b) CONSENT REGULATION INAPPLICABLE TO CER6 TAIN DISTRIBUTIONS.—

7 (1) IN GENERAL.—The Secretary of the Treas8 ury shall modify the regulations under section

9 411(a)(11) of the Internal Revenue Code of 1986 to

10 provide that the description of a participant’s right,

11 if any, to defer receipt of a distribution shall also de12 scribe the consequences of failing to defer such re13 ceipt.

14 (2) EFFECTIVE DATE.—The modifications re15 quired by paragraph (1) shall apply to years begin16 ning after December 31, 2001.

17 CHAPTER 7—PLAN AMENDMENTS

18 SEC. 281. PROVISIONS RELATING TO PLAN AMENDMENTS.

19 (a) IN GENERAL.—If this section applies to any plan

20 or contract amendment—

21 (1) such plan or contract shall be treated as

22 being operated in accordance with the terms of the

23 plan during the period described in subsection

24 (b)(2)(A); and
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1 (2) such plan shall not fail to meet the require2 ments of section 411(d)(6) of the Internal Revenue

3 Code of 1986 by reason of such amendment.

4 (b) AMENDMENTS TO WHICH SECTION APPLIES.—

5 (1) IN GENERAL.—This section shall apply to

6 any amendment to any plan or annuity contract

7 which is made—

8 (A) pursuant to any amendment made by

9 this title, or pursuant to any regulation issued

10 under this title, and

11 (B) on or before the last day of the first

12 plan year beginning on or after January 1,

13 2003.

14 In the case of a governmental plan (as defined in

15 section 414(d) of the Internal Revenue Code of

16 1986), this paragraph shall be applied by sub17 stituting ‘‘2005’’ for ‘‘2003’’.

18 (2) CONDITIONS.—This section shall not apply

19 to any amendment unless—

20 (A) during the period—

21 (i) beginning on the date the legisla22 tive or regulatory amendment described in

23 paragraph (1)(A) takes effect (or in the

24 case of a plan or contract amendment not

25 required by such legislative or regulatory
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1 amendment, the effective date specified by

2 the plan); and

3 (ii) ending on the date described in

4 paragraph (1)(B) (or, if earlier, the date

5 the plan or contract amendment is adopt6 ed),

7 the plan or contract is operated as if such plan

8 or contract amendment were in effect; and

9 (B) such plan or contract amendment ap10 plies retroactively for such period.

11 TITLE III—FAMILY TAX RELIEF

12 SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STAND13 ARD DEDUCTION.

14 (a) IN GENERAL.—Paragraph (2) of section 63(c)

15 (relating to standard deduction) is amended—

16 (1) by striking ‘‘$5,000’’ in subparagraph (A)

17 and inserting ‘‘200 percent of the dollar amount in

18 effect under subparagraph (C) for the taxable year’’,

19 (2) by adding ‘‘or’’ at the end of subparagraph

20 (B),

21 (3) by striking ‘‘in the case of’’ and all that fol22 lows in subparagraph (C) and inserting ‘‘in any

23 other case.’’, and

24 (4) by striking subparagraph (D).
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1 (b) PHASE-IN.—Subsection (c) of section 63 is

2 amended by adding at the end the following new para3 graph:

4 ‘‘(7) PHASE-IN OF INCREASE IN BASIC STAND5 ARD DEDUCTION.—In the case of taxable years be6 ginning before January 1, 2009—

7 ‘‘(A) paragraph (2)(A) shall be applied by

8 substituting for ‘200 percent’—

9 ‘‘(i) ‘175 percent’ in the case of tax10 able years beginning after 2000 and before

11 2007, and

12 ‘‘(ii) ‘190 percent’ in the case of tax13 able years beginning after 2006 and before

14 2009, and

15 ‘‘(B) the basic standard deduction for a

16 married individual filing a separate return shall

17 be one-half of the amount applicable under

18 paragraph (2)(A).

19 If any amount determined under subparagraph (A)

20 is not a multiple of $50, such amount shall be

21 rounded to the next lowest multiple of $50.’’.

22 (c) TECHNICAL AMENDMENTS.—

23 (1) Subparagraph (B) of section 1(f )(6) is

24 amended by striking ‘‘(other than with’’ and all that

25 follows through ‘‘shall be applied’’ and inserting
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1 ‘‘(other than with respect to sections 63(c)(4) and

2 151(d)(4)(A)) shall be applied’’.

3 (2) Paragraph (4) of section 63(c) is amended

4 by adding at the end the following flush sentence:

5 ‘‘The preceding sentence shall not apply to the

6 amount referred to in paragraph (2)(A).’’.

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

8 this section shall apply to taxable years beginning after

9 December 31, 2000.

10 SEC. 302. PHASEOUT OF MARRIAGE PENALTY IN INCOME

11 TAX RATE BRACKETS.

12 (a) IN GENERAL.—Subsection (f) of section 1 (relat13 ing to adjustments in tax tables so that inflation will not

14 result in tax increases) is amended by adding at the end

15 the following new paragraph:

16 ‘‘(8) PHASEOUT OF MARRIAGE PENALTY

17 BRACKETS.—

18 ‘‘(A) IN GENERAL.—With respect to tax19 able years beginning after December 31, 2000,

20 in prescribing the tables under paragraph (1)—

21 ‘‘(i) the minimum and maximum tax22 able income amounts in each rate bracket

23 in the table contained in subsection (a)

24 shall be the applicable percentage of the

25 comparable taxable income amounts in the
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1 table contained in subsection (c) (after any

2 other adjustment under this subsection),

3 and

4 ‘‘(ii) the comparable taxable income

5 amounts in the table contained in subsection (d) shall be 1 6 ⁄2 of the amounts de7 termined under clause (i).

8 ‘‘(B) APPLICABLE PERCENTAGE.—For

9 purposes of subparagraph (A), the applicable

10 percentage shall be determined in accordance

11 with the following table:

‘‘For taxable years beginning The applicable

in calendar year— percentage is—

2001, 2002, 2003, 2004, 2005, and 2006................... 175

2007 and 2008 ............................................................. 190

2009 and thereafter ..................................................... 200.

12 ‘‘(C) ROUNDING.—If any amount deter13 mined under subparagraph (A)(i) is not a mul14 tiple of $50, such amount shall be rounded to

15 the next lowest multiple of $50.’’.

16 (b) TECHNICAL AMENDMENTS.—

17 (1) Subparagraph (A) of section 1(f)(2) is

18 amended by inserting ‘‘except as provided in para19 graph (8),’’ before ‘‘by increasing’’.

20 (2) The heading for subsection (f) of section 1

21 is amended by inserting ‘‘PHASEOUT OF MARRIAGE

22 PENALTY IN RATE BRACKETS;’’ before ‘‘ADJUST23 MENTS’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 2000.

4 SEC. 303. MODIFICATIONS OF CHILD TAX CREDIT.

5 (a) IN GENERAL.—Subsection (a) of section 24 (re6 lating to child tax credit) is amended to read as follows:

7 ‘‘(a) ALLOWANCE OF CREDIT.—

8 ‘‘(1) IN GENERAL.—There shall be allowed as a

9 credit against the tax imposed by this chapter for

10 the taxable year with respect to each qualifying child

11 of the taxpayer an amount equal to the applicable

12 dollar amount for the calendar year in which such

13 taxable year begins.

14 ‘‘(2) APPLICABLE DOLLAR AMOUNT.—For pur15 poses of paragraph (1), the applicable dollar amount

16 for any calendar year shall be determined under the

17 following table:

Applicable

‘‘Calendar year: Dollar Amount:

2002 ......................................................................................... $600

2003 ......................................................................................... $700

2004 ......................................................................................... $800

2005 ......................................................................................... $900

2006 and thereafter ................................................................. $1,000.’’.

18 (b) INCREASE IN PHASE-OUT THRESHOLD.—

19 (1) BEFORE 2006.—Section 24(b)(2) is

20 amended—

21 (A) by inserting ‘‘, increased by $18,000

22 with respect to each taxable year beginning
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1 after December 31, 2001’’ after ‘‘return’’ in

2 subparagraph (A),

3 (B) by inserting ‘‘, increased by $25,000

4 with respect to each taxable year beginning

5 after December 31, 2001’’ after ‘‘married’’ in

6 subparagraph (B), and

7 (C) by inserting ‘‘, increased by $9,000

8 with respect to each taxable year beginning

9 after December 31, 2001’’ after ‘‘return’’ in

10 subparagraph (C).

11 (2) AFTER 2005.—Paragraph (2) of section

12 24(b) is amended to read as follows:

13 ‘‘(2) THRESHOLD AMOUNT.—For purposes of

14 paragraph (1), the term ‘threshold amount’ means

15 $200,000 ($100,000 in the case of a married indi16 vidual (as determined under section 7703) filing a

17 separate return).’’.

18 (c) REDUCTION IN PHASE-OUT RATE.—Section

19 24(b)(1) is amended by striking ‘‘$50’’ and inserting

20 ‘‘$20’’.

21 (d) REPEAL OF REDUCTION OF CREDIT FOR TAX22 PAYERS SUBJECT TO ALTERNATIVE MINIMUM TAX.—

23 Subsection (d) of section 24 is amended by striking para24 graph (2) and by redesignating paragraph (3) as para25 graph (2).
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1 (e) EFFECTIVE DATES.—

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

3 subsections (a), (b)(1), and (d) shall apply to taxable

4 years beginning after December 31, 2001.

5 (2) 2006 PHASE-OUT RATE AND AMOUNT.—The

6 amendments made by subsections (b)(2) and (c)

7 shall apply to taxable years beginning after Decem8 ber 31, 2005.

9 SEC. 304. EXPANSION OF EDUCATION IRAS.

10 (a) TAX-FREE EXPENDITURES FOR ELEMENTARY

11 AND SECONDARY SCHOOL EXPENSES.—

12 (1) IN GENERAL.—Section 530(b)(2) (defining

13 qualified higher education expenses) is amended to

14 read as follows:

15 ‘‘(2) QUALIFIED EDUCATION EXPENSES.—

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

17 education expenses’ means—

18 ‘‘(i) qualified higher education ex19 penses (as defined in section 529(e)(3));

20 and

21 ‘‘(ii) qualified elementary and sec22 ondary education expenses (as defined in

23 paragraph (4)).

24 Such expenses shall be reduced as provided in

25 section 25A(g)(2).
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1 ‘‘(B) QUALIFIED STATE TUITION PRO2 GRAMS.—Such term shall include amounts paid

3 or incurred to purchase tuition credits or cer4 tificates, or to make contributions to an ac5 count, under a qualified State tuition program

6 (as defined in section 529(b)) for the benefit of

7 the beneficiary of the account.’’.

8 (2) QUALIFIED ELEMENTARY AND SECONDARY

9 EDUCATION EXPENSES.—Section 530(b) (relating to

10 definitions and special rules) is amended by adding

11 at the end the following new paragraph:

12 ‘‘(4) QUALIFIED ELEMENTARY AND SECONDARY

13 EDUCATION EXPENSES.—

14 ‘‘(A) IN GENERAL.—The term ‘qualified el15 ementary and secondary education expenses’

16 means—

17 ‘‘(i) expenses for tuition, fees, aca18 demic tutoring, special needs services,

19 books, supplies, computer equipment (in20 cluding related software and services), and

21 other equipment which are incurred in con22 nection with the enrollment or attendance

23 of the designated beneficiary of the trust

24 as an elementary or secondary school stu-
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1 dent at a public, private, or religious

2 school, or

3 ‘‘(ii) expenses for room and board,

4 uniforms, transportation, and supple5 mentary items and services (including ex6 tended day programs) which are required

7 or provided by a public, private, or reli8 gious school in connection with such enroll9 ment or attendance.

10 ‘‘(B) SPECIAL RULE FOR

11 HOMESCHOOLING.—Such term shall include ex12 penses described in subparagraph (A)(i) in con13 nection with education provided by

14 homeschooling if the requirements of any appli15 cable State or local law are met with respect to

16 such education.

17 ‘‘(C) SCHOOL.—The term ‘school’ means

18 any school which provides elementary education

19 or secondary education (kindergarten through

20 grade 12), as determined under State law.’’.

21 (3) CONFORMING AMENDMENTS.—Subsections

22 (b)(1) and (d)(2) of section 530 are each amended

23 by striking ‘‘higher’’ each place it appears in the

24 text and heading thereof.

25 (b) MAXIMUM ANNUAL CONTRIBUTIONS.—
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1 (1) IN GENERAL.—Section 530(b)(1)(A)(iii)

2 (defining education individual retirement account) is

3 amended by striking ‘‘$500’’ and inserting ‘‘the ap4 plicable dollar amount for the calendar year in which

5 such taxable year begins’’.

6 (2) APPLICABLE DOLLAR AMOUNT.—Section

7 530(b) is amended by adding at the end the fol8 lowing new paragraph:

9 ‘‘(4) APPLICABLE DOLLAR AMOUNT.—For pur10 poses of paragraph (1)(A)(iii), the applicable dollar

11 amount for any calendar year shall be determined

12 under the following table:

Applicable

‘‘Calendar year: Dollar Amount:

2002 ......................................................................................... $1,000

2003 ......................................................................................... $2,000

2004 ......................................................................................... $3,000

2005 ......................................................................................... $4,000

2006 and thereafter ................................................................. $5,000.’’.

13 (3) CONFORMING AMENDMENT.—Section

14 4973(e)(1)(A) is amended by striking ‘‘$500’’ and

15 inserting ‘‘the applicable dollar amount for the cal16 endar year in which such taxable year begins’’.

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

18 this section shall apply to taxable years beginning after

19 December 31, 2001.
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1 SEC. 305. ELIGIBLE EDUCATIONAL INSTITUTIONS PER2 MITTED TO MAINTAIN QUALIFIED TUITION

3 PROGRAMS.

4 (a) IN GENERAL.—Section 529(b)(1) (defining quali5 fied State tuition program) is amended by inserting ‘‘or

6 by 1 or more eligible educational institutions or a consor7 tium that consists solely of eligible educational institu8 tions’’ after ‘‘maintained by a State or agency or instru9 mentality thereof’’.

10 (b) PRIVATE QUALIFIED TUITION PROGRAMS LIM11 ITED TO BENEFIT PLANS.—Clause (ii) of section

12 529(b)(1)(A) is amended by inserting ‘‘in the case of a

13 program established and maintained by a State or agency

14 or instrumentality thereof’’ before ‘‘may make’’.

15 (c) CONFORMING AMENDMENTS.—

16 (1) The text and headings of each of the sec17 tions 72(e)(9), 135(c)(2(C), 135(d)(1)(D), 529,

18 530(b)(2)(B), 4973(e), and 6693(a)(2)(C) is amend19 ed by striking ‘‘qualified State tuition’’ each place it

20 appears and inserting ‘‘qualified tuition’’.

21 (2)(A) The section heading of section 529 is

22 amended to read as follows:

23 ‘‘SEC. 529. QUALIFIED TUITION PROGRAMS.’’.

24 (B) The item relating to section 529 in the

25 table of sections for part VIII of subchapter F of

26 chapter 1 is amended by striking ‘‘State’’.
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1 (d) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 2001.

4 SEC. 306. EXCLUSION FROM GROSS INCOME OF EDUCATION

5 DISTRIBUTIONS FROM QUALIFIED TUITION

6 PROGRAMS.

7 (a) IN GENERAL.—Section 529(c)(3)(B) (relating to

8 distributions) is amended to read as follows:

9 ‘‘(B) DISTRIBUTIONS FOR QUALIFIED

10 HIGHER EDUCATION EXPENSES.—

11 ‘‘(i) IN GENERAL.—If a distributee

12 elects the application of this clause for any

13 taxable year—

14 ‘‘(I) no amount shall be includ15 ible in gross income under subpara16 graph (A) by reason of a distribution

17 which consists of providing a benefit

18 to the distributee which, if paid for by

19 the distributee, would constitute pay20 ment of a qualified higher education

21 expense, and

22 ‘‘(II) the amount which (but for

23 the election) would be includible in

24 gross income under subparagraph (A)

25 by reason of any other distribution
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1 shall not be so includible in an

2 amount which bears the same ratio to

3 the amount which would be so includ4 ible as such expenses bear to such ag5 gregate distributions.

6 ‘‘(ii) IN-KIND DISTRIBUTIONS.—Any

7 benefit furnished to a designated bene8 ficiary under a qualified State tuition pro9 gram shall be treated as a distribution to

10 the beneficiary for purposes of this para11 graph.

12 ‘‘(iii) DISALLOWANCE OF EXCLUDED

13 AMOUNTS AS CREDIT OR DEDUCTION.—No

14 deduction or credit shall be allowed to the

15 taxpayer under any other section of this

16 chapter for any qualified higher education

17 expenses to the extent taken into account

18 in determining the amount of the exclusion

19 under this subparagraph.’’.

20 (b) BENEFICIARY MAY CHANGE PROGRAM.—Section

21 529(c)(3)(C) (relating to change in beneficiaries) is

22 amended—

23 (1) in clause (i), by inserting ‘‘to another quali24 fied tuition program for the benefit of the des25 ignated beneficiary or’’ after ‘‘transferred’’, and
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1 (2) in the heading, by inserting ‘‘OR PRO2 GRAMS’’ after ‘‘BENEFICIARIES’’.

3 (c) ADDITIONAL TAX ON AMOUNTS NOT USED FOR

4 HIGHER EDUCATION EXPENSES.—Section 529(c)(3) (re5 lating to distributions) is amended by adding at the end

6 the following:

7 ‘‘(E) ADDITIONAL TAX ON AMOUNTS NOT

8 USED FOR HIGHER EDUCATION EXPENSES.—

9 The tax imposed by section 530(d)(4) shall

10 apply to payments and distributions from quali11 fied tuition programs in the same manner as

12 such tax applies to education individual retire13 ment accounts.’’.

14 (d) COORDINATION WITH EDUCATION CREDITS.—

15 Section 25A(e)(2) (relating to coordination with exclu16 sions) is amended—

17 (1) by inserting ‘‘a qualified tuition program

18 or’’ before ‘‘an education individual retirement ac19 count’’, and

20 (2) by striking ‘‘section 530(d)(2)’’ and insert21 ing ‘‘section 529(c)(3)(B) or 530(d)(2)’’.

22 (e) EFFECTIVE DATES.—

23 (1) IN GENERAL.—Except as provided in para24 graph (2), the amendments made by this section

25 shall apply to distributions made after December 31,
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1 2001, for education furnished in academic periods

2 beginning after such date.

3 (2) PRIVATE PROGRAMS.—In the case of a

4 qualified tuition program established and maintained

5 by an entity other than a State or agency or instru6 mentality thereof, the amendments made by sub7 sections (a), (c), and (d) shall apply to distributions

8 made after December 31, 2005, for education fur9 nished in academic periods beginning after such

10 date.

11 SEC. 307. QUALIFIED TUITION PROGRAMS INCLUDED IN SE12 CURITIES EXEMPTION.

13 (a) EXEMPTED SECURITIES.—Section 3(a)(4) of the

14 Securities Act of 1933 (15 U.S.C. 77c(a)(4)) is amended

15 by striking ‘‘individual;’’ and inserting ‘‘individual or any

16 security issued by a prepaid tuition program described in

17 section 529 of the Internal Revenue Code of 1986;’’.

18 (b) QUALIFIED TUITION PROGRAMS NOT INVEST19 MENT COMPANIES.—Section 3(c) of the Investment Com20 pany Act of 1940 (15 U.S.C. 80a–3(c)) is amended by

21 adding at the end the following:

22 ‘‘(15) Any prepaid tuition program described in

23 section 529 of the Internal Revenue Code of 1986.’’.
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1 SEC. 308. EXPANSION OF CREDIT FOR ADOPTION EX2 PENSES.

3 (a) INCREASE IN EXPENSES ALLOWABLE FOR ADOP4 TION.—Paragraph (1) of section 23(b) (relating to dollar

5 limitation) is amended to read as follows:

6 ‘‘(1) DOLLAR LIMITATION.—

7 ‘‘(A) IN GENERAL.—The aggregate

8 amount of qualified adoption expenses which

9 may be taken into account under subsection (a)

10 for all taxable years with respect to the adop11 tion of a child by the taxpayer shall not exceed

12 the applicable amount.

13 ‘‘(B) APPLICABLE AMOUNT.—For purposes

14 of subparagraph (A)—

15 ‘‘(i) CHILD WITH SPECIAL NEEDS.—

16 In the case of a child with special needs,

17 the applicable amount for a taxable year

18 shall be the amount determined in accord19 ance with the following table:

‘‘For taxable years The applicable

beginning in: amount is:

2002 ............................................................................. $8,000

2003 ............................................................................. $10,000

2004 and thereafter ..................................................... $12,000.

20 ‘‘(ii) OTHER CHILDREN.—In the case

21 of a child who is not a child with special

22 needs, the applicable amount for a taxable
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1 year shall be the amount determined in ac2 cordance with the following table:

‘‘For taxable years The applicable

beginning in: amount is:

2002 ............................................................................. $6,000

2003 ............................................................................. $7,000

2004 ............................................................................. $8,000

2005 ............................................................................. $9,000

2006 and thereafter ..................................................... $10,000.’’.

3 (b) INCREASE IN INCOME LIMITATION.—Clause (i) of

4 section 23(b)(2)(A) (relating to income limitation) is

5 amended by striking ‘‘$75,000’’ and inserting

6 ‘‘$150,000’’.

7 (c) EXTENSION OF SUNSET.—Subparagraph (B) of

8 section 23(d)(2) (relating to eligible child) is amended by

9 striking ‘‘2001’’ and inserting ‘‘2005’’.

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

11 this section shall apply to taxable years beginning after

12 December 31, 2001.

13 TITLE IV—CHARITABLE GIVING

14 TAX RELIEF

15 SEC. 401. DEDUCTION FOR PORTION OF CHARITABLE CON16 TRIBUTIONS TO BE ALLOWED TO INDIVID17 UALS WHO DO NOT ITEMIZE DEDUCTIONS.

18 (a) IN GENERAL.—Subsection (b) of section 63 is

19 amended by striking ‘‘and’’ at the end of paragraph (1),

20 by striking the period at the end of paragraph (2) and

21 inserting ‘‘, and’’, and by adding at the end the following:
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1 ‘‘(3) the applicable percentage of the deduction

2 provided by section 170 (relating to charitable, etc.,

3 contributions and gifts), in an amount not to exceed

4 the standard deduction.

5 For purposes of paragraph (3), the applicable percentage

6 shall be determined under the following table:

‘‘For taxable years beginning in

calendar year:

The applicable percentage

is:

2002 ......................................................................................... 20

2003 ......................................................................................... 40

2004 ......................................................................................... 60

2005 ......................................................................................... 80

2006 and thereafter ................................................................. 100.’’.

7 (b) CONFORMING AMENDMENT.—Subsection (d) of

8 section 63 is amended by striking ‘‘and’’ at the end of

9 paragraph (1), by striking the period at the end of para10 graph (2) and inserting ‘‘, and’’, and by adding at the

11 end thereof the following new paragraph:

12 ‘‘(3) the deduction provided by section 170 as

13 determined under subsection (b)(3).’’.

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

15 this section shall apply to taxable years beginning after

16 December 31, 2001.

17 SEC. 402. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RE18 TIREMENT ACCOUNTS FOR CHARITABLE

19 PURPOSES.

20 (a) IN GENERAL.—Subsection (d) of section 408 (re21 lating to individual retirement accounts) is amended by

22 adding at the end the following new paragraph:
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1 ‘‘(8) DISTRIBUTIONS FOR CHARITABLE PUR2 POSES.—

3 ‘‘(A) IN GENERAL.—No amount shall be

4 includible in gross income by reason of a quali5 fied charitable distribution from an individual

6 retirement account to an organization described

7 in section 170(c).

8 ‘‘(B) QUALIFIED CHARITABLE DISTRIBU9 TION.—For purposes of this paragraph, the

10 term ‘qualified charitable distribution’ means

11 any distribution from an individual retirement

12 account—

13 ‘‘(i) which is made on or after the

14 date that the individual for whose benefit

15 the account is maintained has attained age

591 16 ⁄2, and

17 ‘‘(ii) which is made directly from the

18 account to an organization described in

19 section 170(c).

20 ‘‘(C) DENIAL OF DEDUCTION.—The

21 amount allowable as a deduction under section

22 170 to the taxpayer for the taxable year shall

23 be reduced (but not below zero) by the sum of

24 the amounts of the qualified charitable distribu25 tions during such year which would be includ-
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1 ible in the gross income of the taxpayer for

2 such year but for this paragraph.’’.

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

4 this section shall apply to taxable years beginning after

5 December 31, 2001.

6 SEC. 403. HIGHER LIMITATION ON CORPORATE CHARI7 TABLE CONTRIBUTIONS.

8 (a) IN GENERAL.—Paragraph (2) of section 170(b)

9 (relating to percentage limitations) is amended by striking

10 ‘‘10 percent’’ and inserting ‘‘15 percent’’.

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

12 this section shall apply to taxable years beginning after

13 December 31, 2001.

14 TITLE V—MISCELLANEOUS TAX

15 RELIEF

16 SEC. 501. REPEAL OF 1993 INCOME TAX INCREASE ON SO17 CIAL SECURITY BENEFITS.

18 (a) REDUCTION OF INCREASE.—Clause (i) of section

19 86(a)(2)(A) is amended by striking ‘‘85 percent’’ and in20 serting ‘‘85 percent (75 percent in the case of taxable

21 years beginning after 2001 and before 2009 and 50 per22 cent in the case of taxable years beginning before 2010)’’.

23 (b) RESTORATION OF PRIOR LAW FORMULA IN

24 2010.—Subsection (a) of section 86 is amended to read

25 as follows:
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1 ‘‘(a) IN GENERAL.—Gross income for the taxable

2 year of any taxpayer described in subsection (b) (notwith3 standing section 207 of the Social Security Act) includes

4 Social Security benefits in an amount equal to the lesser

5 of—

6 ‘‘(1) one-half of the Social Security benefits re7 ceived during the taxable year, or

8 ‘‘(2) one-half of the excess described in sub9 section (b)(1).’’

10 (c) REPEAL OF ADJUSTED BASE AMOUNT.—Sub11 section (c) of section 86 is amended to read as follows:

12 ‘‘(c) BASE AMOUNT.—For purposes of this section,

13 the term ‘base amount’ means—

14 ‘‘(1) except as otherwise provided in this sub15 section, $25,000,

16 ‘‘(2) $32,000 in the case of a joint return, and

17 ‘‘(3) zero in the case of a taxpayer who—

18 ‘‘(A) is married as of the close of the tax19 able year (within the meaning of section 7703)

20 but does not file a joint return for such year,

21 and

22 ‘‘(B) does not live apart from his spouse at

23 all times during the taxable year.’’

24 (d) CONFORMING AMENDMENTS.—
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1 (1) Subparagraph (A) of section 871(a)(3) is

2 amended by striking ‘‘85 percent’’ and inserting ‘‘50

3 percent’’.

4 (2)(A) Subparagraph (A) of section 121(e)(1)

5 of the Social Security Amendments of 1983 (Public

6 Law 98–21) is amended—

7 (i) by striking ‘‘(A) There’’ and inserting

8 ‘‘There’’;

9 (ii) by striking ‘‘(i)’’ immediately following

10 ‘‘amounts equivalent to’’; and

11 (iii) by striking ‘‘, less (ii)’’ and all that

12 follows and inserting a period.

13 (B) Paragraph (1) of section 121(e) of such Act

14 is amended by striking subparagraph (B).

15 (C) Paragraph (3) of section 121(e) of such Act

16 is amended by striking subparagraph (B) and by re17 designating subparagraph (C) as subparagraph (B).

18 (D) Paragraph (2) of section 121(e) of such

19 Act is amended in the first sentence by striking

20 ‘‘paragraph (1)(A)’’ and inserting ‘‘paragraph (1)’’.

21 (e) EFFECTIVE DATE.—

22 (1) IN GENERAL.—Except as otherwise pro23 vided in this subsection, the amendments made by

24 this section shall apply to taxable years beginning

25 after December 31, 2009.
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1 (2) SUBSECTION (a).—The amendment made

2 by subsection (a) shall apply to taxable years begin3 ning after December 31, 2001.

4 (3) SUBSECTION (c)(1).—The amendment made

5 by subsection (c)(1) shall apply to benefits paid after

6 December 31, 2009.

7 (4) SUBSECTION (c)(2).—The amendments

8 made by subsection (c)(2) shall apply to tax liabil9 ities for taxable years beginning after December 31,

10 2000.

11 (e) MAINTENANCE OF TRANSFERS TO HOSPITAL IN12 SURANCE TRUST FUND.—

13 (1) IN GENERAL.—There are hereby appro14 priated to the Hospital Insurance Trust Fund estab15 lished under section 1817 of the Social Security Act

16 amounts equal to the reduction in revenues to the

17 Treasury by reason of the enactment of this section.

18 Amounts appropriated by the preceding sentence

19 shall be transferred from the general fund at such

20 times and in such manner as to replicate to the ex21 tent possible the transfers which would have oc22 curred to such Trust Fund had this Act not been

23 enacted.

24 (2) REPORTS.—The Secretary of the Treasury

25 or the Secretary’s delegate shall annually report to
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1 the Committee on Ways and Means of the House of

2 Representatives and the Committee on Finance of

3 the Senate the amounts and timing of the transfers

4 under this section.

5 SEC. 502. REPEAL OF FEDERAL COMMUNICATIONS EXCISE

6 TAX.

7 (a) IN GENERAL.—Chapter 33 (relating to facilities

8 and services) is amended by striking subchapter B.

9 (b) CONFORMING AMENDMENTS.—

10 (1) Section 4293 is amended by striking ‘‘chap11 ter 32 (other than the taxes imposed by sections

12 4064 and 4121) and subchapter B of chapter 33,’’

13 and inserting ‘‘and chapter 32 (other than the taxes

14 imposed by sections 4064 and 4121),’’.

15 (2)(A) Paragraph (1) of section 6302(e) is

16 amended by striking ‘‘section 4251 or’’.

17 (B) Paragraph (2) of section 6302(e) is amend18 ed by striking ‘‘imposed by—’’ and all that follows

19 through ‘‘with respect to’’ and inserting ‘‘imposed by

20 section 4261 or 4271 with respect to’’.

21 (C) The subsection heading for section 6302(e)

22 is amended by striking ‘‘COMMUNICATIONS SERV23 ICES AND’’.
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1 (3) Section 6415 is amended by striking ‘‘4251,

2 4261, or 4271’’ each place it appears and inserting

3 ‘‘4261 or 4271’’.

4 (4) Paragraph (2) of section 7871(a) is amend5 ed by inserting ‘‘or’’ at the end of subparagraph

6 (B), by striking subparagraph (C), and by redesig7 nating subparagraph (D) as subparagraph (C).

8 (5) The table of subchapters for chapter 33 is

9 amended by striking the item relating to subchapter

10 B.

11 (d) EFFECTIVE DATES.—The amendments made by

12 this section shall apply to amounts paid pursuant to bills

13 first rendered after September 30, 2001.

14 SEC. 503. DEDUCTION FOR 100 PERCENT OF HEALTH IN15 SURANCE COSTS OF SELF-EMPLOYED INDI16 VIDUALS.

17 (a) IN GENERAL.—Paragraph (1) of section 162(l)

18 is amended to read as follows:

19 ‘‘(1) ALLOWANCE OF DEDUCTION.—In the case

20 of an individual who is an employee within the

21 meaning of section 401(c)(1), there shall be allowed

22 as a deduction under this section an amount equal

23 to 100 percent of the amount paid during the tax24 able year for insurance which constitutes medical
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1 care for the taxpayer and the taxpayer’s spouse and

2 dependents.’’.

3 (b) CLARIFICATION OF LIMITATIONS ON OTHER COV4 ERAGE.—The first sentence of section 162(l)(2)(B) is

5 amended to read as follows: ‘‘Paragraph (1) shall not

6 apply to any taxpayer for any calendar month for which

7 the taxpayer participates in any subsidized health plan

8 maintained by any employer (other than an employer de9 scribed in section 401(c)(4)) of the taxpayer or the spouse

10 of the taxpayer.’’.

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

12 this section shall apply to taxable years beginning after

13 December 31, 2001.

14 SEC. 504. INCREASED DEDUCTION FOR MEAL EXPENSES.

15 (a) IN GENERAL.—Paragraph (1) of section 274(n)

16 (relating to only 50 percent of meal and entertainment

17 expenses allowed as deduction) is amended by striking ‘‘50

18 percent’’ in the text and inserting ‘‘the allowable percent19 age’’.

20 (b) ALLOWABLE PERCENTAGES.—Subsection (n) of

21 section 274 is amended by redesignating paragraphs (2)

22 and (3) as paragraphs (3) and (4), respectively, and by

23 inserting after paragraph (1) the following new paragraph:

24 ‘‘(2) ALLOWABLE PERCENTAGE.—For purposes

25 of paragraph (1), the allowable percentage is—
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1 ‘‘(A) in the case of amounts for items de2 scribed in paragraph (1)(B), 50 percent, and

3 ‘‘(B) in the case of expenses for food or

4 beverages, 80 percent (60 percent for taxable

5 years beginning after 2001 and before 2010).’’

6 (c) CONFORMING AMENDMENT.—The heading for

7 subsection (n) of section 274 is amended by striking ‘‘50

8 PERCENT’’ and inserting ‘‘LIMITED PERCENTAGES’’.

9 (d) EFFECTIVE DATE.—

10 (1) The amendments made by this section shall

11 apply to taxable years beginning after December 31,

12 2002.

13 (2) Section 274(n)(2)(B) of the Internal Rev14 enue Code of 1986 (as added by subsection (b))

15 shall apply to expenses incurred after the date of the

16 enactment of this Act.

17 SEC. 505. INCREASE IN EXPENSE TREATMENT FOR SMALL

18 BUSINESSES.

19 (a) IN GENERAL.—Paragraph (1) of section 179(b)

20 (relating to dollar limitation) is amended to read as fol21 lows:

22 ‘‘(1) DOLLAR LIMITATION.—The aggregate cost

23 which may be taken into account under subsection

24 (a) for any taxable year shall not exceed $30,000.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to taxable years beginning after

3 December 31, 2002.

4 SEC. 506. INCOME AVERAGING FOR FARMERS AND FISHER5 MEN NOT TO INCREASE ALTERNATIVE MIN6 IMUM TAX LIABILITY.

7 (a) IN GENERAL.—Section 55(c) (defining regular

8 tax) is amended by redesignating paragraph (2) as para9 graph (3) and by inserting after paragraph (1) the fol10 lowing:

11 ‘‘(2) COORDINATION WITH INCOME AVERAGING

12 FOR FARMERS AND FISHERMEN.—Solely for pur13 poses of this section, section 1301 (relating to aver14 aging of farm and fishing income) shall not apply in

15 computing the regular tax.’’.

16 (b) ALLOWING INCOME AVERAGING FOR FISHER17 MEN.—

18 (1) IN GENERAL.—Section 1301(a) is amended

19 by striking ‘‘farming business’’ and inserting ‘‘farm20 ing business or fishing business,’’.

21 (2) DEFINITION OF ELECTED FARM INCOME.—

22 (A) IN GENERAL.—Clause (i) of section

23 1301(b)(1)(A) is amended by inserting ‘‘or fish24 ing business’’ before the semicolon.
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1 (B) CONFORMING AMENDMENT.—Subpara2 graph (B) of section 1301(b)(1) is amended by

3 inserting ‘‘or fishing business’’ after ‘‘farming

4 business’’ both places it occurs.

5 (3) DEFINITION OF FISHING BUSINESS.—Sec6 tion 1301(b) is amended by adding at the end the

7 following new paragraph:

8 ‘‘(4) FISHING BUSINESS.—The term ‘fishing

9 business’ means the conduct of commercial fishing

10 as defined in section 3 of the Magnuson-Stevens

11 Fishery Conservation and Management Act (16

12 U.S.C. 1802).’’.

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

14 this section shall apply to taxable years beginning after

15 December 31, 2002.

16 SEC. 507. REPEAL OF OCCUPATIONAL TAXES RELATING TO

17 DISTILLED SPIRITS, WINE, AND BEER.

18 (a) REPEAL OF OCCUPATIONAL TAXES.—

19 (1) IN GENERAL.—The following provisions of

20 part II of subchapter A of chapter 51 of the Internal

21 Revenue Code of 1986 (relating to occupational

22 taxes) are hereby repealed:

23 (A) Subpart A (relating to proprietors of

24 distilled spirits plants, bonded wine cellars,

25 etc.).
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1 (B) Subpart B (relating to brewer).

2 (C) Subpart D (relating to wholesale deal3 ers) (other than sections 5114 and 5116).

4 (D) Subpart E (relating to retail dealers)

5 (other than section 5124).

6 (E) Subpart G (relating to general provi7 sions) (other than sections 5142, 5143, 5145,

8 and 5146).

9 (2) NONBEVERAGE DOMESTIC DRAWBACK.—

10 Section 5131 is amended by striking ‘‘, on payment

11 of a special tax per annum,’’.

12 (3) INDUSTRIAL USE OF DISTILLED SPIRITS.—

13 Section 5276 is hereby repealed.

14 (b) CONFORMING AMENDMENTS.—

15 (1)(A) The heading for part II of subchapter A

16 of chapter 51 and the table of subparts for such

17 part are amended to read as follows:

18 ‘‘PART II—MISCELLANEOUS PROVISIONS

‘‘Subpart A. Manufacturers of stills.

‘‘Subpart B. Nonbeverage domestic drawback claimants.

‘‘Subpart C. Recordkeeping by dealers.

‘‘Subpart D. Other provisions.’’

19 (B) The table of parts for such subchapter A

20 is amended by striking the item relating to part II

21 and inserting the following new item:

‘‘Part II. Miscellaneous provisions.’’
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1 (2) Subpart C of part II of such subchapter

2 (relating to manufacturers of stills) is redesignated

3 as subpart A.

4 (3)(A) Subpart F of such part II (relating to

5 nonbeverage domestic drawback claimants) is redes6 ignated as subpart B and sections 5131 through

7 5134 are redesignated as sections 5111 through

8 5114, respectively.

9 (B) The table of sections for such subpart B,

10 as so redesignated, is amended—

11 (i) by redesignating the items relating to

12 sections 5131 through 5134 as relating to sec13 tions 5111 through 5114, respectively, and

14 (ii) by striking ‘‘and rate of tax’’ in the

15 item relating to section 5111, as so redesig16 nated.

17 (C) Section 5111, as redesignated by subpara18 graph (A), is amended—

19 (i) by striking ‘‘AND RATE OF TAX’’ in

20 the section heading,

21 (ii) by striking ‘‘(a) ELIGIBILITY FOR

22 DRAWBACK.—’’, and

23 (iii) by striking subsection (b).
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1 (4) Part II of subchapter A of chapter 51 is

2 amended by adding after subpart B, as redesignated

3 by paragraph (3), the following new subpart:

4 ‘‘Subpart C—Recordkeeping by Dealers

‘‘Sec. 5121. Recordkeeping by wholesale dealers.

‘‘Sec. 5122. Recordkeeping by retail dealers.

‘‘Sec. 5123. Preservation and inspection of records, and entry of

premises for inspection.’’

5 (5)(A) Section 5114 (relating to records) is

6 moved to subpart C of such part II and inserted

7 after the table of sections for such subpart.

8 (B) Section 5114 is amended—

9 (i) by striking the section heading and in10 serting the following new heading:

11 ‘‘SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.’’,

12 and

13 (ii) by redesignating subsection (c) as sub14 section (d) and by inserting after subsection (b)

15 the following new subsection:

16 ‘‘(c) WHOLESALE DEALERS.—For purposes of this

17 part—

18 ‘‘(1) WHOLESALE DEALER IN LIQUORS.—The

19 term ‘wholesale dealer in liquors’ means any dealer

20 (other than a wholesale dealer in beer) who sells, or

21 offers for sale, distilled spirits, wines, or beer, to an22 other dealer.
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1 ‘‘(2) WHOLESALE DEALER IN BEER.—The term

2 ‘wholesale dealer in beer’ means any dealer who

3 sells, or offers for sale, beer, but not distilled spirits

4 or wines, to another dealer.

5 ‘‘(3) DEALER.—The term ‘dealer’ means any

6 person who sells, or offers for sale, any distilled spir7 its, wines, or beer.

8 ‘‘(4) PRESUMPTION IN CASE OF SALE OF 20

9 WINE GALLONS OR MORE.—The sale, or offer for

10 sale, of distilled spirits, wines, or beer, in quantities

11 of 20 wine gallons or more to the same person at

12 the same time, shall be presumptive evidence that

13 the person making such sale, or offer for sale, is en14 gaged in or carrying on the business of a wholesale

15 dealer in liquors or a wholesale dealer in beer, as the

16 case may be. Such presumption may be overcome by

17 evidence satisfactorily showing that such sale, or

18 offer for sale, was made to a person other than a

19 dealer.’’

20 (C) Paragraph (3) of section 5121(d), as so re21 designated, is amended by striking ‘‘section 5146’’

22 and inserting ‘‘section 5123’’.

23 (6)(A) Section 5124 (relating to records) is

24 moved to subpart C of part II of subchapter A of

25 chapter 51 and inserted after section 5121.
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1 (B) Section 5124 is amended—

2 (i) by striking the section heading and in3 serting the following new heading:

4 ‘‘SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.’’,

5 (ii) by striking ‘‘section 5146’’ in sub6 section (c) and inserting ‘‘section 5123’’, and

7 (iii) by redesignating subsection (c) as sub8 section (d) and inserting after subsection (b)

9 the following new subsection:

10 ‘‘(c) RETAIL DEALERS.—For purposes of this

11 section—

12 ‘‘(1) RETAIL DEALER IN LIQUORS.—The term

13 ‘retail dealer in liquors’ means any dealer (other

14 than a retail dealer in beer) who sells, or offers for

15 sale, distilled spirits, wines, or beer, to any person

16 other than a dealer.

17 ‘‘(2) RETAIL DEALER IN BEER.—The term ‘re18 tail dealer in beer’ means any dealer who sells, or of19 fers for sale, beer, but not distilled spirits or wines,

20 to any person other than a dealer.

21 ‘‘(3) DEALER.—The term ‘dealer’ has the

22 meaning given such term by section 5121(c)(3).’’

23 (7) Section 5146 is moved to subpart C of part

24 II of subchapter A of chapter 51, inserted after sec25 tion 5122, and redesignated as section 5123.
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1 (8) Part II of subchapter A of chapter 51 is

2 amended by inserting after subpart C the following

3 new subpart:

4 ‘‘Subpart D. Other Provisions

‘‘Sec. 5131. Packaging distilled spirits for industrial uses.

‘‘Sec. 5132. Prohibited purchases by dealers.’’

5 (9) Section 5116 is moved to subpart D of part

6 II of subchapter A of chapter 51, inserted after the

7 table of sections, redesignated as section 5131, and

8 amended by inserting ‘‘(as defined in section

9 5121(c))’’ after ‘‘dealer’’ in subsection (a).

10 (10) Subpart D of part II of subchapter A of

11 chapter 51 is amended by adding at the end thereof

12 the following new section:

13 ‘‘SEC. 5132. PROHIBITED PURCHASES BY DEALERS.

14 ‘‘(a) IN GENERAL.—Except as provided in regula15 tions prescribed by the Secretary, it shall be unlawful for

16 a dealer to purchase distilled spirits from any person other

17 than a wholesale dealer in liquors who is required to keep

18 the records prescribed by section 5121.

19 ‘‘(b) PENALTY AND FORFEITURE.—

‘‘For penalty and forfeiture provisions applicable

to violations of subsection (a), see sections 5687 and

7302.’’

20 (11) Subsection (b) of section 5002 is

21 amended—
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1 (A) by striking ‘‘section 5112(a)’’ and in2 serting ‘‘section 5121(c)(3)’’,

3 (B) by striking ‘‘section 5112’’ and insert4 ing ‘‘section 5121(c)’’, and

5 (C) by striking ‘‘section 5122’’ and insert6 ing ‘‘section 5122(c)’’.

7 (12) Subparagraph (A) of section 5010(c)(2) is

8 amended by striking ‘‘section 5134’’ and inserting

9 ‘‘section 5114’’.

10 (13) Subsection (d) of section 5052 is amended

11 to read as follows:

12 ‘‘(d) BREWER.—For purposes of this chapter, the

13 term ‘brewer’ means any person who brews beer or pro14 duces beer for sale. Such term shall not include any person

15 who produces only beer exempt from tax under section

16 5053(e).’’

17 (14) The text of section 5182 is amended to

18 read as follows:

‘‘For provisions requiring recordkeeping by

wholesale liquor dealers, see section 5112, and by

retail liquor dealers, see section 5122.’’

19 (15) Subsection (b) of section 5402 is amended

20 by striking ‘‘section 5092’’ and inserting ‘‘section

21 5052(d)’’.

22 (16) Section 5671 is amended by striking ‘‘or

23 5091’’.
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1 (17)(A) Part V of subchapter J of chapter 51

2 is hereby repealed.

3 (B) The table of parts for such subchapter J is

4 amended by striking the item relating to part V.

5 (18)(A) Sections 5142, 5143, and 5145 are

6 moved to subchapter D of chapter 52, inserted after

7 section 5731, redesignated as sections 5732, 5733,

8 and 5734, respectively, and amended—

9 (i) by striking ‘‘this part’’ each place it ap10 pears and inserting ‘‘this subchapter’’, and

11 (ii) by striking ‘‘this subpart’’ in section

12 5732(c)(2) (as so redesignated) and inserting

13 ‘‘this subchapter’’.

14 (B) Section 5732, as redesignated by subpara15 graph (A), is amended by striking ‘‘(except the tax

16 imposed by section 5131)’’ each place it appears.

17 (C) Subsection (c) of section 5733, as redesig18 nated by subparagraph (A), is amended by striking

19 paragraph (2) and by redesignating paragraph (3)

20 as paragraph (2).

21 (D) The table of sections for subchapter D of

22 chapter 52 is amended by adding at the end thereof

23 the following:

‘‘Sec. 5732. Payment of tax.

‘‘Sec. 5733. Provisions relating to liability for occupational taxes.

‘‘Sec. 5734. Application of State laws.’’
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1 (E) Section 5731 is amended by striking sub2 section (c) and by redesignating subsection (d) as

3 subsection (c).

4 (19) Subsection (c) of section 6071 is amended

5 by striking ‘‘section 5142’’ and inserting ‘‘section

6 5732’’.

7 (20) Paragraph (1) of section 7652(g) is

8 amended—

9 (A) by striking ‘‘subpart F’’ and inserting

10 ‘‘subpart B’’, and

11 (B) by striking ‘‘section 5131(a)’’ and in12 serting ‘‘section 5111(a)’’.

13 (21) The table of sections for subchapter D of

14 chapter 51 is amended by striking the item relating

15 to section 5276.

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

17 this section shall take effect on July 1, 2002, but shall

18 not apply to taxes imposed for periods before such date.

19 SEC. 508. PERMANENT EXTENSION OF RESEARCH CREDIT.

20 (a) IN GENERAL.—Section 41 (relating to credit for

21 increasing research activities) is amended by striking sub22 section (h).

23 (b) CONFORMING AMENDMENT.—Paragraph (1) of

24 section 45C(b) is amended by striking subparagraph (D).
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to amounts paid or incurred after

3 the date of the enactment of this Act.

4 SEC. 509. FARM, FISHING, AND RANCH RISK MANAGEMENT

5 ACCOUNTS.

6 (a) IN GENERAL.—Subpart C of part II of sub7 chapter E of chapter 1 (relating to taxable year for which

8 deductions taken) is amended by inserting after section

9 468B the following new section:

10 ‘‘SEC. 468C. FARM, FISHING, AND RANCH RISK MANAGE11 MENT ACCOUNTS.

12 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi13 vidual engaged in an eligible farming business or commer14 cial fishing, there shall be allowed as a deduction for any

15 taxable year the amount paid in cash by the taxpayer dur16 ing the taxable year to a Farm, Fishing, and Ranch Risk

17 Management Account (hereinafter referred to as the

18 ‘FFARRM Account’).

19 ‘‘(b) LIMITATION.—

20 ‘‘(1) CONTRIBUTIONS.—The amount which a

21 taxpayer may pay into the FFARRM Account for

22 any taxable year shall not exceed 20 percent of so

23 much of the taxable income of the taxpayer (deter24 mined without regard to this section) which is at25 tributable (determined in the manner applicable
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1 under section 1301) to any eligible farming business

2 or commercial fishing.

3 ‘‘(2) DISTRIBUTIONS.—Distributions from a

4 FFARRM Account may not be used to purchase,

5 lease, or finance any new fishing vessel, add capacity

6 to any fishery, or otherwise contribute to the over7 capitalization of any fishery. The Secretary of Com8 merce shall implement regulations to enforce this

9 paragraph.

10 ‘‘(c) ELIGIBLE BUSINESSES.—For purposes of this

11 section—

12 ‘‘(1) ELIGIBLE FARMING BUSINESS.—The term

13 ‘eligible farming business’ means any farming busi14 ness (as defined in section 263A(e)(4)) which is not

15 a passive activity (within the meaning of section

16 469(c)) of the taxpayer.

17 ‘‘(2) COMMERCIAL FISHING.—The term ‘com18 mercial fishing’ has the meaning given such term by

19 section (3) of the Magnuson-Stevens Fishery Con20 servation and Management Act (16 U.S.C. 1802)

21 but only if such fishing is not a passive activity

22 (within the meaning of section 469(c)) of the tax23 payer.

24 ‘‘(d) FFARRM ACCOUNT.—For purposes of this

25 section—
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1 ‘‘(1) IN GENERAL.—The term ‘FFARRM Ac2 count’ means a trust created or organized in the

3 United States for the exclusive benefit of the tax4 payer, but only if the written governing instrument

5 creating the trust meets the following requirements:

6 ‘‘(A) No contribution will be accepted for

7 any taxable year in excess of the amount al8 lowed as a deduction under subsection (a) for

9 such year.

10 ‘‘(B) The trustee is a bank (as defined in

11 section 408(n)) or another person who dem12 onstrates to the satisfaction of the Secretary

13 that the manner in which such person will ad14 minister the trust will be consistent with the re15 quirements of this section.

16 ‘‘(C) The assets of the trust consist en17 tirely of cash or of obligations which have ade18 quate stated interest (as defined in section

19 1274(c)(2)) and which pay such interest not

20 less often than annually.

21 ‘‘(D) All income of the trust is distributed

22 currently to the grantor.

23 ‘‘(E) The assets of the trust will not be

24 commingled with other property except in a
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1 common trust fund or common investment

2 fund.

3 ‘‘(2) ACCOUNT TAXED AS GRANTOR TRUST.—

4 The grantor of a FFARRM Account shall be treated

5 for purposes of this title as the owner of such Ac6 count and shall be subject to tax thereon in accord7 ance with subpart E of part I of subchapter J of

8 this chapter (relating to grantors and others treated

9 as substantial owners).

10 ‘‘(e) INCLUSION OF AMOUNTS DISTRIBUTED.—

11 ‘‘(1) IN GENERAL.—Except as provided in para12 graph (2), there shall be includible in the gross in13 come of the taxpayer for any taxable year—

14 ‘‘(A) any amount distributed from a

15 FFARRM Account of the taxpayer during such

16 taxable year, and

17 ‘‘(B) any deemed distribution under—

18 ‘‘(i) subsection (f )(1) (relating to de19 posits not distributed within 5 years),

20 ‘‘(ii) subsection (f )(2) (relating to ces21 sation in eligible farming business), and

22 ‘‘(iii) subparagraph (B) or (C) of sub23 section (f )(3) (relating to prohibited trans24 actions and pledging account as security).
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1 ‘‘(2) EXCEPTIONS.—Paragraph (1)(A) shall not

2 apply to—

3 ‘‘(A) any distribution to the extent attrib4 utable to income of the Account, and

5 ‘‘(B) the distribution of any contribution

6 paid during a taxable year to a FFARRM Ac7 count to the extent that such contribution ex8 ceeds the limitation applicable under subsection

9 (b) if requirements similar to the requirements

10 of section 408(d)(4) are met.

11 For purposes of subparagraph (A), distributions

12 shall be treated as first attributable to income and

13 then to other amounts.

14 ‘‘(f ) SPECIAL RULES.—

15 ‘‘(1) TAX ON DEPOSITS IN ACCOUNT WHICH

16 ARE NOT DISTRIBUTED WITHIN 5 YEARS.—

17 ‘‘(A) IN GENERAL.—If, at the close of any

18 taxable year, there is a nonqualified balance in

19 any FFARRM Account—

20 ‘‘(i) there shall be deemed distributed

21 from such Account during such taxable

22 year an amount equal to such balance, and

23 ‘‘(ii) the taxpayer’s tax imposed by

24 this chapter for such taxable year shall be
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1 increased by 10 percent of such deemed

2 distribution.

3 The preceding sentence shall not apply if an

4 amount equal to such nonqualified balance is

5 distributed from such Account to the taxpayer

6 before the due date (including extensions) for

7 filing the return of tax imposed by this chapter

8 for such year (or, if earlier, the date the tax9 payer files such return for such year).

10 ‘‘(B) NONQUALIFIED BALANCE.—For pur11 poses of subparagraph (A), the term ‘non12 qualified balance’ means any balance in the Ac13 count on the last day of the taxable year which

14 is attributable to amounts deposited in such Ac15 count before the 4th preceding taxable year.

16 ‘‘(C) ORDERING RULE.—For purposes of

17 this paragraph, distributions from a FFARRM

18 Account (other than distributions of current in19 come) shall be treated as made from deposits in

20 the order in which such deposits were made, be21 ginning with the earliest deposits.

22 ‘‘(2) CESSATION IN ELIGIBLE BUSINESS.—At

23 the close of the first disqualification period after a

24 period for which the taxpayer was engaged in an eli25 gible farming business or commercial fishing, there
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1 shall be deemed distributed from the FFARRM Ac2 count of the taxpayer an amount equal to the bal3 ance in such Account (if any) at the close of such

4 disqualification period. For purposes of the pre5 ceding sentence, the term ‘disqualification period’

6 means any period of 2 consecutive taxable years for

7 which the taxpayer is not engaged in an eligible

8 farming business or commercial fishing.

9 ‘‘(3) CERTAIN RULES TO APPLY.—Rules similar

10 to the following rules shall apply for purposes of this

11 section:

12 ‘‘(A) Section 220(f )(8) (relating to treat13 ment on death).

14 ‘‘(B) Section 408(e)(2) (relating to loss of

15 exemption of account where individual engages

16 in prohibited transaction).

17 ‘‘(C) Section 408(e)(4) (relating to effect

18 of pledging account as security).

19 ‘‘(D) Section 408(g) (relating to commu20 nity property laws).

21 ‘‘(E) Section 408(h) (relating to custodial

22 accounts).

23 ‘‘(4) TIME WHEN PAYMENTS DEEMED MADE.—

24 For purposes of this section, a taxpayer shall be

25 deemed to have made a payment to a FFARRM Ac-
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1 count on the last day of a taxable year if such pay2 ment is made on account of such taxable year and

3 is made on or before the due date (without regard

4 to extensions) for filing the return of tax for such

5 taxable year.

6 ‘‘(5) INDIVIDUAL.—For purposes of this sec7 tion, the term ‘individual’ shall not include an estate

8 or trust.

9 ‘‘(6) DEDUCTION NOT ALLOWED FOR SELF-EM10 PLOYMENT TAX.—The deduction allowable by reason

11 of subsection (a) shall not be taken into account in

12 determining an individual’s net earnings from self13 employment (within the meaning of section 1402(a))

14 for purposes of chapter 2.

15 ‘‘(g) REPORTS.—The trustee of a FFARRM Account

16 shall make such reports regarding such Account to the

17 Secretary and to the person for whose benefit the Account

18 is maintained with respect to contributions, distributions,

19 and such other matters as the Secretary may require

20 under regulations. The reports required by this subsection

21 shall be filed at such time and in such manner and fur22 nished to such persons at such time and in such manner

23 as may be required by such regulations.’’.

24 (b) TAX ON EXCESS CONTRIBUTIONS.—
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1 (1) Subsection (a) of section 4973 (relating to

2 tax on excess contributions to certain tax-favored ac3 counts and annuities) is amended by striking ‘‘or’’

4 at the end of paragraph (3), by redesignating para5 graph (4) as paragraph (5), and by inserting after

6 paragraph (3) the following new paragraph:

7 ‘‘(4) a FFARRM Account (within the meaning

8 of section 468C(d)), or’’.

9 (2) Section 4973 is amended by adding at the

10 end the following new subsection:

11 ‘‘(g) EXCESS CONTRIBUTIONS TO FFARRM AC12 COUNTS.—For purposes of this section, in the case of a

13 FFARRM Account (within the meaning of section

14 468C(d)), the term ‘excess contributions’ means the

15 amount by which the amount contributed for the taxable

16 year to the Account exceeds the amount which may be con17 tributed to the Account under section 468C(b) for such

18 taxable year. For purposes of this subsection, any con19 tribution which is distributed out of the FFARRM Ac20 count in a distribution to which section 468C(e)(2)(B) ap21 plies shall be treated as an amount not contributed.’’.

22 (3) The section heading for section 4973 is

23 amended to read as follows:
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1 ‘‘SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN AC2 COUNTS, ANNUITIES, ETC.’’.

3 (4) The table of sections for chapter 43 is

4 amended by striking the item relating to section

5 4973 and inserting the following new item:

‘‘Sec. 4973. Excess contributions to certain accounts, annuities,

etc.’’.

6 (c) TAX ON PROHIBITED TRANSACTIONS.—

7 (1) Subsection (c) of section 4975 (relating to

8 tax on prohibited transactions) is amended by add9 ing at the end the following new paragraph:

10 ‘‘(6) SPECIAL RULE FOR FFARRM ACCOUNTS.—

11 A person for whose benefit a FFARRM Account

12 (within the meaning of section 468C(d)) is estab13 lished shall be exempt from the tax imposed by this

14 section with respect to any transaction concerning

15 such account (which would otherwise be taxable

16 under this section) if, with respect to such trans17 action, the account ceases to be a FFARRM Ac18 count by reason of the application of section

19 468C(f )(3)(A) to such account.’’.

20 (2) Paragraph (1) of section 4975(e) is amend21 ed by redesignating subparagraphs (E) and (F) as

22 subparagraphs (F) and (G), respectively, and by in23 serting after subparagraph (D) the following new

24 subparagraph:
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1 ‘‘(E) a FFARRM Account described in

2 section 468C(d),’’.

3 (d) FAILURE TO PROVIDE REPORTS ON FFARRM

4 ACCOUNTS.—Paragraph (2) of section 6693(a) (relating

5 to failure to provide reports on certain tax-favored ac6 counts or annuities) is amended by redesignating subpara7 graphs (C) and (D) as subparagraphs (D) and (E), re8 spectively, and by inserting after subparagraph (B) the

9 following new subparagraph:

10 ‘‘(C) section 468C(g) (relating to

11 FFARRM Accounts),’’.

12 (e) CLERICAL AMENDMENT.—The table of sections

13 for subpart C of part II of subchapter E of chapter 1 is

14 amended by inserting after the item relating to section

15 468B the following new item:

‘‘Sec. 468C. Farm, Fishing and Ranch Risk Management Accounts.’’.

16 (f ) EFFECTIVE DATE.—The amendments made by

17 this section shall apply to taxable years beginning after

18 December 31, 2001.

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