I

105TH CONGRESS

1ST SESSION H. R. 83

To enhance and protect retirement savings.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 7, 1997

Mr. SCHUMER introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Education and the Workforce, for a period to be subsequently determined by

the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

A BILL

To enhance and protect retirement savings.

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 ‘‘Comprehensive Pension and Retirement Security Act of

6 1997’’.

7 (b) TABLE OF CONTENTS.—

Sec. 1. Short title.

TITLE I—RESTRICTIONS ON LOANS FROM QUALIFIED

RETIREMENT PLANS

Sec. 101. Qualified employer plans prohibited from making loans through credit

cards and other intermediaries.
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Sec. 102. Loans from qualified employer plans treated as distributions unless

used to purchase a first home, to pay higher education or financially devastating medical expenses, or during periods of

unemployment.

TITLE II—PROMOTION OF AVAILABILITY OF PRIVATE PENSIONS

UPON RETIREMENT

Sec. 201. Availability of defined contribution plan option for participants in defined benefit plans.

Sec. 202. Timely investment of plan contributions.

Sec. 203. Increase in penalty for early distributions from pension plans.

TITLE III—HEALTH COVERAGE FOR RETIRED WORKERS

Sec. 301. Advance notice of material reductions in covered services under group

health plans.

Sec. 302. Continuation of coverage for persons 55 and older until eligible for

Medicare.

Sec. 303. Protections under the Medicare program for retired workers who lose

retiree health benefits.

TITLE IV—APPLICATION OF CERTAIN PROHIBITED

TRANSACTIONS RULES FOR 401(K) PLANS

Sec. 401. Certain prohibited transactions applied to 401(k) plans.

TITLE V—RETIREMENT SAVINGS AND SECURITY

Sec. 500. Amendment of ERISA.

Subtitle A—Expanded Pension Coverage and Simplification

Sec. 501. Elimination of requirement for plan descriptions and the filing requirement for summary plan descriptions and descriptions of

material modifications to a plan; technical corrections.

Sec. 502. Conforming amendment relating to investments in qualified State

prepaid tuition programs.

Subtitle B—Portability

Sec. 511. Missing participants.

Sec. 512. Elimination of special vesting rule for multiemployer plans.

Sec. 513. Treatment of loans during military service.

Subtitle C—Enhanced Security

CHAPTER 1—GENERAL PROVISIONS

Sec. 521. Multiemployer plan benefits guaranteed.

Sec. 522. Reversion report.

Sec. 523. Full funding limitation for multiemployer plans.

Sec. 524. Prohibited transactions.

Sec. 525. Substantial owner benefits.

CHAPTER 2—ERISA ENFORCEMENT

Sec. 531. Short title.

Sec. 532. Repeal of limited scope audit.
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Sec. 533. Reporting and enforcement requirements for employee benefit plans.

Sec. 534. Additional requirements for qualified public accountants.

Sec. 535. Clarification of fiduciary penalties.

TITLE VI—EXPANDED INDIVIDUAL RETIREMENT ACCOUNTS TO

INCREASE COVERAGE AND PORTABILITY

Subtitle A—Retirement Savings Incentives

Sec. 601. Increase in income limitations.

Sec. 602. Inflation adjustment for deductible amount and income limitations.

Sec. 603. Coordination of IRA deduction limit with elective deferral limit.

Sec. 604. Establishment of nondeductible tax-free individual retirement accounts.

Subtitle B—Distributions and Investments

Sec. 611. Distributions from IRAs may be used without additional tax to purchase first homes, to pay higher education or financially devastating medical expenses, or by the unemployed.

Sec. 612. Contributions must be held at least 5 years in certain cases.

Sec. 613. Investments in qualified State prepaid tuition programs.

1 TITLE I—RESTRICTIONS ON

2 LOANS FROM QUALIFIED RE3 TIREMENT PLANS

4 SEC. 101. QUALIFIED EMPLOYER PLANS PROHIBITED FROM

5 MAKING LOANS THROUGH CREDIT CARDS

6 AND OTHER INTERMEDIARIES.

7 (a) IN GENERAL.—Subsection (a) of section 401 of

8 the Internal Revenue Code of 1986 is amended by adding

9 at the end the following new paragraph:

10 ‘‘(35) PROHIBITION OF LOANS THROUGH CRED11 IT CARDS AND OTHER INTERMEDIARIES.—A trust

12 shall not constitute a qualified trust under this sec13 tion if the plan makes any loan to any beneficiary

14 under the plan through the use of any credit card

15 or any other intermediary.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall apply to plan years beginning after

3 the date of the enactment of this Act.

4 SEC. 102. LOANS FROM QUALIFIED EMPLOYER PLANS

5 TREATED AS DISTRIBUTIONS UNLESS USED

6 TO PURCHASE A FIRST HOME, TO PAY HIGH7 ER EDUCATION OR FINANCIALLY DEVASTAT8 ING MEDICAL EXPENSES, OR DURING PERI9 ODS OF UNEMPLOYMENT.

10 (a) IN GENERAL.—Subsection (p) of section 72 of the

11 Internal Revenue Code of 1986 (relating to loans treated

12 as distributions) is amended by redesignating paragraphs

13 (3), (4), and (5) as paragraphs (4), (5), and (6), respec14 tively, and by inserting after paragraph (2) the following

15 new paragraph:

16 ‘‘(3) EXCEPTION ONLY TO APPLY TO CERTAIN

17 LOANS.—Paragraph (2) shall apply to any loan only

18 if such loan is—

19 ‘‘(A) a qualified first-time homebuyer loan

20 (as defined in paragraph (7)),

21 ‘‘(B) a qualified higher education loan (as

22 defined in paragraph (8)),

23 ‘‘(C) a qualified medical expense loan (as

24 defined in paragraph (9)), or
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1 ‘‘(D) a qualified unemployment loan (as

2 defined in paragraph (10)).’’.

3 (b) DEFINITIONS.—Subsection (p) of section 72 of

4 such Code is amended by adding at the end the following

5 new paragraphs:

6 ‘‘(7) QUALIFIED FIRST-TIME HOMEBUYER

7 LOAN.—

8 ‘‘(A) IN GENERAL.—For purposes of para9 graph (3), the term ‘qualified first-time home10 buyer loan’ means any loan received by an indi11 vidual to the extent the amount of the loan is

12 used within a reasonable period to pay qualified

13 acquisition costs with respect to a principal res14 idence of a first-time homebuyer who is such in15 dividual, the spouse of such individual, or any

16 child, grandchild, or ancestor of such individual

17 or the individual’s spouse.

18 ‘‘(B) QUALIFIED ACQUISITION COSTS.—

19 For purposes of this paragraph, the term

20 ‘qualified acquisition costs’ means the costs of

21 acquiring, constructing, or reconstructing a res22 idence. Such term includes any usual or reason23 able settlement, financing, or other closing

24 costs.
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1 ‘‘(C) FIRST-TIME HOMEBUYER; OTHER

2 DEFINITIONS.—For purposes of this para3 graph—

4 ‘‘(i) FIRST-TIME HOMEBUYER.—The

5 term ‘first-time homebuyer’ means any in6 dividual if—

7 ‘‘(I) such individual (and if mar8 ried, such individual’s spouse) had no

9 present ownership interest in a prin10 cipal residence during the 2-year pe11 riod ending on the date of acquisition

12 of the principal residence to which

13 this paragraph applies, and

14 ‘‘(II) subsection (h) or (k) of sec15 tion 1034 did not suspend the run16 ning of any period of time specified in

17 section 1034 with respect to such in18 dividual on the day before the date

19 the loan is received.

20 ‘‘(ii) PRINCIPAL RESIDENCE.—The

21 term ‘principal residence’ has the same

22 meaning as when used in section 1034.

23 ‘‘(iii) DATE OF ACQUISITION.—The

24 term ‘date of acquisition’ means the date—
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1 ‘‘(I) on which a binding contract

2 to acquire the principal residence to

3 which subparagraph (A) applies is en4 tered into, or

5 ‘‘(II) on which construction or re6 construction of such a principal resi7 dence is commenced.

8 ‘‘(8) QUALIFIED HIGHER EDUCATION LOAN.—

9 For purposes of paragraph (3)—

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

11 higher education loan’ means any loan received

12 by an individual to the extent the amount of the

13 loan is used within a reasonable period to pay

14 expenses for tuition, fees, books, supplies, and

15 equipment required for the enrollment or at16 tendance of—

17 ‘‘(i) the individual,

18 ‘‘(ii) the individual’s spouse, or

19 ‘‘(iii) any child (as defined in section

20 151(c)(3)), grandchild, or ancestor of the

21 individual or the individual’s spouse,

22 at an eligible educational institution (as defined

23 in section 135(c)(3)).

24 ‘‘(B) COORDINATION WITH SAVINGS BOND

25 PROVISIONS.—The amount of qualified higher
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1 education expenses for any taxable year shall be

2 reduced by any amount excludable from gross

3 income under section 135.

4 ‘‘(9) QUALIFIED MEDICAL EXPENSE LOAN.—

5 The term ‘qualified medical expense loan’ means any

6 loan received by an individual to the extent the

7 amount of the loan does not exceed the amount al8 lowable as a deduction under section 213 to the indi9 vidual for amounts paid during the taxable year for

10 medical care (determined without regard to whether

11 the taxpayer itemizes deductions for such taxable

12 year).

13 ‘‘(10) QUALIFIED UNEMPLOYMENT LOAN.—The

14 term ‘qualified unemployment loan’ means any loan

15 to an individual after separation from employment,

16 if—

17 ‘‘(A) such individual has received unem18 ployment compensation for 12 consecutive

19 weeks under any Federal or State unemploy20 ment compensation law by reason of such sepa21 ration, and

22 ‘‘(B) such loan is received during any tax23 able year during which such unemployment

24 compensation is paid or the succeeding taxable

25 year.
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1 To the extent provided in regulations, a self-em2 ployed individual shall be treated as meeting the re3 quirements of subparagraph (A) if, under Federal or

4 State law, the individual would have received unem5 ployment compensation but for the fact the individ6 ual was self-employed.’’.

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

8 this section shall apply to loans made after the date of

9 the enactment of this Act.

10 TITLE II—PROMOTION OF AVAIL11 ABILITY OF PRIVATE PEN12 SIONS UPON RETIREMENT

13 SEC. 201. AVAILABILITY OF DEFINED CONTRIBUTION PLAN

14 OPTION FOR PARTICIPANTS IN DEFINED

15 BENEFIT PLANS.

16 (a) AMENDMENT TO THE EMPLOYEE RETIREMENT

17 INCOME SECURITY ACT OF 1974.—Section 206 of the

18 Employee Retirement Income Security Act of 1974 (29

19 U.S.C. 1056) is amended by adding at the end the follow20 ing new subsection:

21 ‘‘(g) AVAILABILITY OF DEFINED CONTRIBUTION

22 PLAN OPTION FOR PARTICIPANTS IN DEFINED BENEFIT

23 PLANS.—
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1 ‘‘(1) IN GENERAL.—Each defined benefit plan

2 to which an employer makes contributions shall pro3 vide (in such form and manner as may be provided

4 in regulations prescribed jointly by the Secretary

5 and the Secretary of the Treasury) for an oppor6 tunity for each participant employed by such em7 ployer to elect, in lieu of coverage under the defined

8 benefit plan and before any election made by the em9 ployer under such plan pursuant to subsection (c),

10 coverage under a defined contribution plan main11 tained in whole or in part by the participant’s em12 ployer. An employer making contributions to a de13 fined benefit plan shall maintain for his employees

14 a defined contribution plan to the extent necessary

15 to provide for coverage under such defined contribu16 tion plan pursuant to elections under this sub17 section.

18 ‘‘(2) REQUIRED LEVEL OF CONTRIBUTIONS.—

19 The requirements of paragraph (1) shall not be

20 treated as met unless the defined contribution plan

21 with respect to which an election is made under

22 paragraph (1) provides for contributions (other than

23 employee contributions (if any)) at least equivalent
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1 to the contributions (other than employee contribu2 tions (if any)) provided for under the terms of the

3 defined benefit plan.

4 ‘‘(3) REQUIRED ELECTION PERIOD.—The re5 quirements of paragraph (1) shall not be treated as

6 met unless the defined benefit plan provides that an

7 election under paragraph (1) may be made at any

8 time during the 90-day period beginning with the

9 later of—

10 ‘‘(A) the commencement of the first plan

11 year to which this subsection applies, or

12 ‘‘(B) the commencement of the employee’s

13 service under the plan.’’.

14 (b) AMENDMENTS TO THE INTERNAL REVENUE

15 CODE OF 1986.—Subsection (a) of section 401 of the In16 ternal Revenue Code of 1986 (relating to requirements for

17 qualification) is amended by inserting after paragraph

18 (34) the following new paragraph:

19 ‘‘(35) AVAILABILITY OF DEFINED CONTRIBU20 TION PLAN OPTION FOR PARTICIPANTS IN DEFINED

21 BENEFIT PLANS.—

22 ‘‘(A) IN GENERAL.—A trust forming a

23 part of a defined benefit plan to which an em24 ployer makes contributions shall not constitute

25 a qualified trust under this section unless—
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1 ‘‘(i) the plan provides (in such form

2 and manner as may be provided in regula3 tions prescribed jointly by the Secretary

4 and the Secretary of Labor) for an oppor5 tunity for each participant employed by

6 such employer to elect, in lieu of coverage

7 under the defined benefit plan and before

8 any election made by the employer under

9 such plan pursuant to section 417, cov10 erage under a defined contribution plan

11 maintained in whole or in part by the par12 ticipant’s employer, and

13 ‘‘(ii) the defined benefit plan provides

14 that each employer making contributions

15 to the plan maintains for his employees a

16 defined contribution plan to the extent nec17 essary to provide for coverage under such

18 defined contribution plan pursuant to elec19 tions under this paragraph.

20 ‘‘(B) REQUIRED LEVEL OF CONTRIBU21 TIONS.—The requirements of subparagraph (A)

22 shall not be treated as met unless the defined

23 contribution plan with respect to which an elec24 tion is made under subparagraph (A) provides
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1 for contributions (other than employee contribu2 tions (if any)) at least equivalent to the con3 tributions (other than employee contributions

4 (if any)) provided for under the terms of the

5 defined benefit plan.

6 ‘‘(C) REQUIRED ELECTION PERIOD.—The

7 requirements of subparagraph (A) shall not be

8 treated as met unless the defined benefit plan

9 provides that an election under subparagraph

10 (A) may be made at any time during the 90-

11 day period beginning with the later of—

12 ‘‘(i) the commencement of the first

13 plan year to which this paragraph applies,

14 or

15 ‘‘(ii) the commencement of the em16 ployee’s service under the plan.’’.

17 (c) EFFECTIVE DATES.—

18 (1) GENERAL RULE.—The amendments made

19 by this section shall apply to plan years beginning

20 after December 31, 1997.

21 (2) SPECIAL RULE FOR COLLECTIVE BARGAIN22 ING AGREEMENTS.—In the case of a defined benefit

23 plan maintained pursuant to one or more collective

24 bargaining agreements between employee organiza25 tions and one or more employers ratified before the
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1 date of the enactment of this Act, the amendments

2 made by this section shall not apply to plan years

3 beginning before the later of—

4 (A) the date on which the last of the col5 lective bargaining agreements relating to the

6 plan terminates (determined without regard to

7 any extension thereof agreed to after the date

8 of the enactment of this Act), or

9 (B) January 1, 1999.

10 For purposes of subparagraph (A), any plan amend11 ment made pursuant to a collective bargaining

12 agreement relating to the plan which amends the

13 plan solely to conform to any requirement added by

14 this section shall not be treated as a termination of

15 such collective bargaining agreement.

16 SEC. 202. TIMELY INVESTMENT OF PLAN CONTRIBUTIONS.

17 (a) IN GENERAL.—Section 404 of the Employee Re18 tirement Income Security Act of 1974 (29 U.S.C. 1104)

19 is amended by adding at the end the following new sub20 section:

21 ‘‘(e) Any failure, by a person who is a fiduciary with

22 respect to a pension plan and who has discretionary au23 thority respecting investment of amounts contributed to

24 the plan, to ensure that amounts contributed to the plan

25 are invested, in accordance with the terms of the plan and
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1 this title, before 15 days after the calendar month in which

2 such amounts are received by the plan, shall be treated

3 as a breach of fiduciary duties under the plan.’’.

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

5 subsection (a) shall apply with respect to plan years begin6 ning on December 31, 1997.

7 SEC. 203. INCREASE IN PENALTY FOR EARLY DISTRIBU8 TIONS FROM PENSION PLANS.

9 (a) IN GENERAL.—Paragraph (1) of section 72(t) of

10 the Internal Revenue Code of 1986 (relating to imposition

11 of additional tax) is amended by striking ‘‘10 percent’’ and

12 all that follows and inserting ‘‘100 percent of the portion

13 of such distribution which would (but for the following

14 sentence) be includible in gross income. A distribution on

15 which tax is imposed by the preceding sentence shall not

16 be includible in gross income.’’

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

18 subsection (a) shall apply to distributions after December

19 31, 1997.

20 TITLE III—HEALTH COVERAGE

21 FOR RETIRED WORKERS

22 SEC. 301. ADVANCE NOTICE OF MATERIAL REDUCTIONS IN

23 COVERED SERVICES UNDER GROUP HEALTH

24 PLANS.

25 (a) ADVANCE NOTICE.—
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1 (1) IN GENERAL.—Section 104(b)(1) of the

2 Employee Retirement Income Security Act of 1974

3 (as amended by section 101(c)(1)(B) of the Health

4 Insurance Portability and Accountability Act of

5 1996 (Public Law 104–191)) is amended—

6 (A) by redesignating subparagraphs (A)

7 and (B) as clauses (i) and (ii), respectively;

8 (B) by striking ‘‘(1) The administrator’’

9 and inserting ‘‘(1)(A) The administrator’’;

10 (C) by striking ‘‘The administrator’’ the

11 second place it appears and inserting the follow12 ing:

13 ‘‘(B) The administrator’’;

14 (D) by striking ‘‘If there is a modification’’

15 and inserting the following:

16 ‘‘(C) If there is a modification’’; and

17 (E) by adding at the end the following new

18 subparagraph:

19 ‘‘(D) Notwithstanding subparagraph (C), a modifica20 tion or change described in section 102(a)(1) in covered

21 services or benefits provided in the case of a group health

22 plan (as defined in section 706(a)(1)) relating to retiree

23 health benefits, a summary description of such modifica24 tion or change shall be furnished to participants and bene25 ficiaries not later than 180 days before the effective date
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1 of the modification or change. In any case in which an

2 individual first becomes a participant under a group

3 health plan during any such 180-day period with respect

4 to such a modification or change or (in the case of any

5 other beneficiary under the plan) first receives benefits

6 under the plan during such 180-day period, the require7 ments of the preceding sentence may be met by providing

8 the summary description of such modification or change

9 not later than the date on which such individual first be10 comes a participant or such other beneficiary first receives

11 benefits under the plan.’’.

12 (2) DETERMINATION BY SECRETARY.—Section

13 104 of the Employee Retirement Income Security

14 Act of 1974 (29 U.S.C. 1024) is further amended by

15 redesignating subsection (d) as subsection (e) and by

16 inserting after subsection (c) the following new sub17 section:

18 ‘‘(d) A change or modification in covered services or

19 benefits provided in the case of a group health plan relat20 ing to retiree health benefits that is subject to the require21 ments of subsection (b)(1)(D) may not take effect until

22 after the Secretary determines that such change or modi23 fication does not violate the plan, including collective bar24 gaining agreements.’’.
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1 (3) ADVANCE NOTICE TO SECRETARY.—Section

2 104(a)(1)(D) of the Employee Retirement Income

3 Security Act of 1974 (29 U.S.C. 1024(a)(1)(D)) is

4 amended by inserting before the period the follow5 ing: ‘‘, or in the case of any such modifications and

6 changes in covered services or benefits provided in

7 the case of a group health plan relating to retiree

8 health benefits, not later than 180 days before the

9 effective date of such modification or change.’’.

10 (4) CIVIL PENALTY.—Section 502(c)(1) of such

11 Act (29 U.S.C. 1132(c)(1)) is amended by striking

12 ‘‘or section 101(e)(1)’’ and inserting ‘‘, section

13 101(e)(1), or section 104(b)(1)(D)’’.

14 (b) ENFORCEMENT.—

15 (1) REQUIREMENTS.—Section 4980B of the In16 ternal Revenue Code of 1986 is amended by redesig17 nating subsection (g) as subsection (h) and by in18 serting after subsection (f) the following new sub19 section:

20 ‘‘(g) NOTICE OF CHANGE OR MODIFICATION IN

21 HEALTH BENEFITS.—

22 ‘‘(1) IN GENERAL.—A group health plan meets

23 the requirements of this subsection if—

24 ‘‘(A) the plan sponsor complies with sec25 tion 104(b)(1)(D) of the Employee Retirement
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1 Income Security Act of 1974 (relating to pro2 viding advance notice of modification or change

3 in retiree health benefits provided under a

4 group health plan); and

5 ‘‘(B) such modification or change in retiree

6 health benefits in a group health plan takes ef7 fect after the Secretary of Labor makes the de8 termination required by section 104(d) of such

9 Act that such change or modification does not

10 violate the plan, including collective bargaining

11 agreements.

12 ‘‘(2) NONCOMPLIANCE PERIOD.—For the pur13 poses of subsection (b), the noncompliance period

14 with respect to this subsection shall be determined

15 without regard to paragraph (2)(B)(ii) of subsection

16 (b).’’.

17 (2) CONFORMING AMENDMENTS.—

18 (A) Subsection (a) of section 4980B of

19 such Code is amended by striking ‘‘subsection

20 (f)’’ and inserting ‘‘subsections (f) and (g)’’.

21 (B) Clause (iv)(II) of section

22 4980B(f)(2)(B) of such Code is amended by

23 striking ‘‘subsection (g)(1)(D)’’ and inserting

24 ‘‘subsection (h)(1)(D)’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply with respect to plan years ending

3 after January 1, 1997.

4 SEC. 302. CONTINUATION OF COVERAGE FOR PERSONS 55

5 AND OLDER UNTIL ELIGIBLE FOR MEDICARE.

6 (a) IN GENERAL.—Section 4980B(f)(2) of the Inter7 nal Revenue Code of 1986 is amended by adding at the

8 end the following:

9 ‘‘(F) COVERAGE FOR PERSONS 55 AND

10 OLDER UNTIL ELIGIBLE FOR MEDICARE.—In

11 the case of a covered employee who has attained

12 the age of 55 before a qualifying event de13 scribed in paragraph (3)(B)—

14 ‘‘(i) in no event shall the period of

15 continued coverage under subparagraph

16 (B)(i) with respect to such event end be17 fore the applicable date under subpara18 graph (B)(iv), and

19 ‘‘(ii) the premium requirements for

20 any period of continuation of coverage sole21 ly by reason of clause (i) shall be deter22 mined by substituting ‘110 percent’ for

23 ‘102 percent’ in subparagraph (C)(i), un24 less the last sentence of subparagraph (C)

25 otherwise applies.’’.
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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall apply with respect to plan years ending

3 after January 1, 1997.

4 SEC. 303. PROTECTIONS UNDER THE MEDICARE PROGRAM

5 FOR RETIRED WORKERS WHO LOSE RETIREE

6 HEALTH BENEFITS.

7 (a) NO PREMIUM PENALTY FOR LATE ENROLL8 MENT.—The second sentence of section 1839(b) of the So9 cial Security Act (42 U.S.C. 1395r(b)) is amended by in10 serting ‘‘and not pursuant to a special enrollment period

11 under section 1837(i)(4)’’ after ‘‘section 1837)’’.

12 (b) SPECIAL MEDICARE ENROLLMENT PERIOD.—

13 (1) IN GENERAL.—Section 1837(i) of such Act

14 (42 U.S.C. 1395p(i)) is amended by adding at the

15 end the following new paragraph:

16 ‘‘(4)(A) In the case of an individual who—

17 ‘‘(i) at the time the individual first satisfies

18 paragraph (1) or (2) of section 1836—

19 ‘‘(I) is enrolled in a group health plan de20 scribed in section 1862(b)(1)(A)(v) by reason of

21 the individual’s (or the individual’s spouse’s)

22 current employment or otherwise, and

23 ‘‘(II) has elected not to enroll (or to be

24 deemed enrolled) under this section during the

25 individual’s initial enrollment period; and
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1 ‘‘(ii) whose continuous enrollment under such

2 group health plan is involuntarily terminated at a

3 time when the enrollment under the plan is not by

4 reason of the individual’s (or the individual’s

5 spouse’s) current employment,

6 there shall be a special enrollment period described in sub7 paragraph (B).

8 ‘‘(B) The special enrollment period referred to in sub9 paragraph (A) is the 6-month period beginning on the date

10 of the enrollment termination described in subparagraph

11 (A)(ii).’’.

12 (2) COVERAGE PERIOD.—Section 1838(e) of

13 such Act (42 U.S.C. 1395q(e)) is amended—

14 (A) by inserting ‘‘or 1837(i)(4)(B)’’ after

15 ‘‘1837(i)(3)’’ the first place it appears, and

16 (B) by inserting ‘‘or specified in section

17 1837(i)(4)(A)(i)’’ after ‘‘1837(i)(3)’’ the second

18 place it appears’’.

19 (c) PROVIDING FOR MEDIGAP OPEN ENROLLMENT

20 PERIOD.—Section 1882(s)(2)(A) of such Act (42 U.S.C.

21 1395ss(s)(2)(A)) is amended—

22 (1) by inserting ‘‘(i)’’ after ‘‘during’’, and

23 (2) by inserting before the period at the end the

24 following: ‘‘or (ii) in the case of an individual who

25 enrolls in part B pursuant to a special enrollment
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1 period provided under section 1837(i)(4), the 6-

2 month period beginning with the first month as of

3 the first day of which the individual is enrolled

4 under part B pursuant to such enrollment’’.

5 (d) EFFECTIVE DATE.—

6 (1) IN GENERAL.—Subject to paragraph (2),

7 the amendments made by this section shall take ef8 fect on the date of the enactment of this Act and

9 apply to involuntary terminations of coverage under

10 a group health plan occurring on or after January

11 1, 1997.

12 (2) TRANSITION.—In the case of an involuntary

13 termination of coverage under a group health plan

14 that occurred during the period beginning on Janu15 ary 1, 1997, and ending on the date of the enact16 ment of this Act, the special enrollment period under

17 section 1837(i)(4)(B) of the Social Security Act (as

18 amended by subsection (b)) is deemed to begin as of

19 the date of the enactment of this Act.
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1 TITLE IV—APPLICATION OF CER2 TAIN PROHIBITED TRANS3 ACTIONS RULES FOR 401(k)

4 PLANS

5 SEC. 401. CERTAIN PROHIBITED TRANSACTIONS APPLIED

6 TO 401(k) PLANS.

7 (a) IN GENERAL.—Paragraph (3) of section 407(d)

8 of the Employee Retirement Income Security Act of 1974

9 (29 U.S.C. 1107(d)) is amended by adding at the end the

10 following new sentence: ‘‘Such term also excludes an indi11 vidual account plan that includes a qualified cash or de12 ferred arrangement described in section 401(k) of the In13 ternal Revenue Code of 1986, if such plan, together with

14 all other individual account plans maintained by the em15 ployer, owns more than 10 percent of the assets owned

16 by all pension plans maintained by the employer. For pur17 poses of the preceding sentence, the assets of such plan

18 subject to participant control (within the meaning of sec19 tion 404(c)) shall not be taken into account.’’.

20 (b) EFFECTIVE DATE; TRANSITION RULE.—

21 (1) EFFECTIVE DATE.—Except as provided in

22 paragraph (2), the amendment made by this section

23 shall apply to plans on and after the date of the en24 actment of this Act.
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1 (2) TRANSITION RULE FOR PLANS HOLDING

2 EXCESS SECURITIES OR PROPERTY.—In the case of

3 a plan which on the date of the enactment of this

4 Act has holdings of employer securities and employer

5 real property (as defined in section 407(d) of the

6 Employee Retirement Income Security Act of 1974

7 (29 U.S.C. 1107(d)) in excess of the amount speci8 fied in such section 407, the amendment made by

9 this section shall apply to any acquisition of such se10 curities and property on or after such date of enact11 ment, but shall not apply to the specific holdings

12 which constitute such excess during the period of

13 such excess.

14 TITLE V—RETIREMENT SAVINGS

15 AND SECURITY

16 SEC. 500. AMENDMENT OF ERISA.

17 Except as otherwise expressly provided, whenever in

18 this title an amendment or repeal is expressed in terms

19 of an amendment to, or repeal of, a section or other provi20 sion, the reference shall be considered to be made to a

21 section or other provision of the Employee Retirement In22 come Security Act of 1974.
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1 Subtitle A—Expanded Pension

2 Coverage and Simplification

3 SEC. 501. ELIMINATION OF REQUIREMENT FOR PLAN DE4 SCRIPTIONS AND THE FILING REQUIREMENT

5 FOR SUMMARY PLAN DESCRIPTIONS AND DE6 SCRIPTIONS OF MATERIAL MODIFICATIONS

7 TO A PLAN; TECHNICAL CORRECTIONS.

8 (a) FILING REQUIREMENTS.—Section 101(b) (29

9 U.S.C. 1021(b)) is amended by striking paragraphs (1),

10 (2), and (3) and by redesignating paragraphs (4) and (5)

11 as paragraphs (1) and (2), respectively.

12 (b) PLAN DESCRIPTION.—

13 (1) IN GENERAL.—Section 102(a) (29 U.S.C.

14 1022(a)) is amended—

15 (A) by striking paragraph (2), and

16 (B) by striking ‘‘(a)(1)’’ and inserting

17 ‘‘(a)’’.

18 (2) CONFORMING AMENDMENTS.—

19 (A) Section 102(b) (29 U.S.C. 1022(b)) is

20 amended by striking ‘‘The plan description and

21 summary plan description shall contain’’ and

22 inserting ‘‘The summary plan description shall

23 contain’’.

24 (B) The heading for section 102 is amend25 ed by striking ‘‘PLAN DESCRIPTION AND’’.
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1 (c) FURNISHING OF REPORTS.—

2 (1) IN GENERAL.—Section 104(a)(1) (29

3 U.S.C. 1024(a)(1)) is amended to read as follows:

4 ‘‘SEC. 104. (a)(1) The administrator of any employee

5 benefit plan subject to this part shall file with the Sec6 retary the annual report for a plan year within 210 days

7 after the close of such year (or within such time as may

8 be required by regulations promulgated by the Secretary

9 in order to reduce duplicative filing). The Secretary shall

10 make copies of such annual reports available for inspection

11 in the public document room of the Department of

12 Labor.’’

13 (2) SECRETARY MAY REQUEST DOCUMENTS.—

14 (A) IN GENERAL.—Section 104(a) (29

15 U.S.C. 1024(a)) is amended by adding at the

16 end the following new paragraph:

17 ‘‘(6) The administrator of any employee benefit plan

18 subject to this part shall furnish to the Secretary, upon

19 request, any documents relating to the employee benefit

20 plan, including but not limited to, the latest summary plan

21 description (including any summaries of plan changes not

22 contained in the summary plan description), and the bar23 gaining agreement, trust agreement, contract, or other in24 strument under which the plan is established or oper25 ated.’’.
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1 (B) PENALTY.—Section 502(c) (29 U.S.C.

2 1132(c)) is amended by adding at the end the

3 following new paragraph:

4 ‘‘(5) If, within 30 days of a request by the Secretary

5 to a plan administrator for documents under section

6 104(a)(6), the plan administrator fails to furnish the ma7 terial requested to the Secretary, the Secretary may assess

8 a civil penalty against the plan administrator of up to

9 $100 a day from the date of such failure (but in no event

10 in excess of $1,000 per request). No penalty shall be im11 posed under this paragraph for any failure resulting from

12 matters reasonably beyond the control of the plan admin13 istrator.’’.

14 (d) CONFORMING AMENDMENTS.—

15 (1) Section 104(b)(1) (29 U.S.C. 1024(b)(1)) is

16 amended by striking ‘‘section 102(a)(1)’’ each place

17 it appears and inserting ‘‘section 102(a)’’.

18 (2) Section 104(b)(2) (29 U.S.C. 1024(b)(2)) is

19 amended by striking ‘‘the plan description and’’ and

20 inserting ‘‘the latest updated summary plan descrip21 tion and’’.

22 (3) Section 104(b)(4) (29 U.S.C. 1024(b)(4)) is

23 amended by striking ‘‘plan description’’.

24 (4) Section 106(a) (29 U.S.C. 1026(a)) is

25 amended by striking ‘‘descriptions,’’.
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1 (5) Section 107 (29 U.S.C. 1027) is amended

2 by striking ‘‘description or’’.

3 (6) Paragraph (2)(B) of section 108 (29 U.S.C.

4 1028) is amended to read as follows: ‘‘(B) after pub5 lishing or filing the annual reports,’’.

6 (7) Section 502(a)(6) (29 U.S.C. 1132(a)(6)) is

7 amended by striking ‘‘subsection (c)(2) or (i) or (l)’’

8 and inserting ‘‘paragraph (2), (4), or (5) of sub9 section (c) or subsection (i) or (l)’’.

10 (e) TECHNICAL CORRECTIONS TO ERISA.—

11 (1) Section 502(c)(1) (29 U.S.C. 1132(c)(1)) is

12 amended by adding at the end the following new

13 sentence: ‘‘For purposes of this paragraph, each vio14 lation described in subparagraph (A) with respect to

15 any single participant, and each violation described

16 in subparagraph (B) with respect to any single par17 ticipant or beneficiary, shall be treated as a separate

18 violation.’’

19 (2) Section 502(c) (29 U.S.C. 1132(c)) is

20 amended—

21 (A) by striking the last two sentences of

22 paragraph (4), and

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

24 paragraph:
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1 ‘‘(5) The Secretary and the Secretary of Health and

2 Human Services shall maintain such ongoing consultation

3 as may be necessary and appropriate to coordinate en4 forcement under this subsection with enforcement under

5 section 1144(c)(9) of the Social Security Act.’’.

6 (f) EFFECTIVE DATE.—The provisions of this section

7 shall take effect on the date of the enactment of this Act.

8 SEC. 502. CONFORMING AMENDMENT RELATING TO IN9 VESTMENTS IN QUALIFIED STATE PREPAID

10 TUITION PROGRAMS.

11 (a) IN GENERAL.—Subsection (b) of section 408 is

12 amended by adding at the end the following new para13 graph:

14 ‘‘(14) any purchase of a qualified State prepaid

15 tuition program instrument to which section 408(q)

16 of the Internal Revenue Code of 1986 applies.’’.

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

18 this section shall apply to taxable years beginning after

19 December 31, 1996.

20 Subtitle B—Portability

21 SEC. 511. MISSING PARTICIPANTS.

22 (a) IN GENERAL.—Section 4050 (29 U.S.C. 1350)

23 is amended by redesignating subsection (c) as subsection

24 (e) and by inserting after subsection (b) the following new

25 subsections:
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1 ‘‘(c) MULTIEMPLOYER PLANS.—The corporation

2 shall prescribe rules similar to the rules in subsection (a)

3 for multiemployer plans covered by this title that termi4 nate under section 4041A.

5 ‘‘(d) PLANS NOT OTHERWISE SUBJECT TO TITLE.—

6 ‘‘(1) TRANSFER TO CORPORATION.—The plan

7 administrator of a plan described in paragraph (4)

8 may elect to transfer a missing participant’s benefits

9 to the corporation upon termination of the plan.

10 ‘‘(2) INFORMATION TO THE CORPORATION.—To

11 the extent provided in regulations, the plan adminis12 trator of a plan described in paragraph (4) shall,

13 upon termination of the plan, provide the corpora14 tion information with respect to benefits of a miss15 ing participant if the plan transfers such benefits—

16 ‘‘(A) to the corporation, or

17 ‘‘(B) to an entity other than the corpora18 tion or a plan described in paragraph (4)(B)(ii).

19 ‘‘(3) PAYMENT BY THE CORPORATION.—If ben20 efits of a missing participant were transferred to the

21 corporation under paragraph (1), the corporation

22 shall, upon location of the participant or beneficiary,

23 pay to the participant or beneficiary the amount

24 transferred (or the appropriate survivor benefit) ei25 ther—
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1 ‘‘(A) in a single sum (plus interest), or

2 ‘‘(B) in such other form as is specified in

3 regulations of the corporation.

4 ‘‘(4) PLANS DESCRIBED.—A plan is described

5 in this paragraph if—

6 ‘‘(A) the plan is a pension plan (within the

7 meaning of section 3(2))—

8 ‘‘(i) to which the provisions of this

9 section do not apply (without regard to

10 this subsection), and

11 ‘‘(ii) which is not a plan described in

12 paragraphs (2) through (11) of section

13 4021(b), and

14 ‘‘(B) at the time the assets are to be dis15 tributed upon termination, the plan—

16 ‘‘(i) has missing participants, and

17 ‘‘(ii) has not provided for the transfer

18 of assets to pay the benefits of all missing

19 participants to another pension plan (with20 in the meaning of section 3(2)).

21 ‘‘(5) CERTAIN PROVISIONS NOT TO APPLY.—

22 Subsections (a)(1) and (a)(3) shall not apply to a

23 plan described in paragraph (4).’’.

24 (b) CONFORMING AMENDMENTS.—Section 206(f)

25 (29 U.S.C. 1056(f)) is amended—
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1 (1) by striking ‘‘title IV’’ and inserting ‘‘section

2 4050’’, and

3 (2) by striking ‘‘the plan shall provide that’’.

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

5 this section shall apply to distributions made after final

6 regulations implementing subsections (c) and (d) of sec7 tion 4050 of the Employee Retirement Income Security

8 Act of 1974 (as added by subsection (a)), respectively, are

9 prescribed.

10 SEC. 512. ELIMINATION OF SPECIAL VESTING RULE FOR

11 MULTIEMPLOYER PLANS.

12 (a) IN GENERAL.—Paragraph (2) of section 203(a)

13 (29 U.S.C. 1053(a)) is amended—

14 (1) by striking ‘‘subparagraph (A), (B), or (C)’’

15 and inserting ‘‘subparagraph (A) or (B)’’; and

16 (2) by striking subparagraph (C).

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

18 this section shall apply to plan years beginning on or after

19 the earlier of—

20 (1) the later of—

21 (A) January 1, 1997, or

22 (B) the date on which the last of the col23 lective bargaining agreements pursuant to
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1 which the plan is maintained terminates (deter2 mined without regard to any extension thereof

3 after the date of the enactment of this Act), or

4 (2) January 1, 1999.

5 Such amendments shall not apply to any individual who

6 does not have more than 1 hour of service under the plan

7 on or after the 1st day of the 1st plan year to which such

8 amendments apply.

9 SEC. 513. TREATMENT OF LOANS DURING MILITARY

10 SERVICE.

11 (a) IN GENERAL.—Section 408(b)(1) (29 U.S.C.

12 1148(b)) is amended by adding at the end the following

13 new sentence: ‘‘A loan made by a plan shall not fail to

14 meet the requirements of the preceding sentence by reason

15 of a loan repayment suspension described under section

16 414(u)(4) of the Internal Revenue Code of 1986.’’.

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

18 this section shall be effective as of December 12, 1994.

19 Subtitle C—Enhanced Security

20 CHAPTER 1—GENERAL PROVISIONS

21 SEC. 521. MULTIEMPLOYER PLAN BENEFITS GUARANTEED.

22 (a) IN GENERAL.—Section 4022A(c) (29 U.S.C.

23 1322a(c)) is amended—

24 (1) by striking ‘‘$5’’ each place it appears in

25 paragraph (1) and inserting ‘‘$11’’,
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1 (2) by striking ‘‘$15’’ in paragraph (1) and in2 serting ‘‘$33’’, and

3 (3) by striking paragraphs (2), (5), and (6) and

4 by redesignating paragraphs (3) and (4) as para5 graphs (2) and (3), respectively.

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

7 this section shall apply to any multiemployer plan that has

8 not received financial assistance (within the meaning of

9 section 4261 of the Employee Retirement Income Security

10 Act of 1974) within the 1-year period ending on the date

11 of the enactment of this Act.

12 SEC. 522. REVERSION REPORT.

13 (a) IN GENERAL.—Section 4008 (29 U.S.C. 1308)

14 is amended by adding at the end the following new sub15 section:

16 ‘‘(b) REVERSION REPORT.—As soon as practicable

17 after the close of each fiscal year, the Secretary of Labor

18 (acting in the Secretary’s capacity as chairman of the cor19 poration’s board) shall transmit to the President and the

20 Congress a report providing information on plans from

21 which residual assets were distributed to employers pursu22 ant to section 4044(d).’’

23 (b) CONFORMING AMENDMENT.—Section 4008 (29

24 U.S.C. 1308) is amended by striking ‘‘SEC. 4008.’’ and

25 inserting ‘‘SEC. 4008. (a) ANNUAL REPORT.—’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to fiscal years beginning after Sep3 tember 30, 1997.

4 SEC. 523. FULL FUNDING LIMITATION FOR MULTIEM5 PLOYER PLANS.

6 (a) FULL-FUNDING LIMITATION.—Section

7 302(c)(7)(C) (29 U.S.C. 1082(c)(7)(C)) is amended—

8 (1) by inserting ‘‘or in the case of a multiem9 ployer plan,’’ after ‘‘paragraph (6)(B),’’, and

10 (2) by inserting ‘‘AND MULTIEMPLOYER PLANS’’

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

12 (b) VALUATION.—Section 302(c)(9) (29 U.S.C.

13 1082(c)(9)) is amended—

14 (1) by inserting ‘‘(3 years in the case of a mul15 tiemployer plan)’’ after ‘‘year’’, and

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

17 heading and inserting ‘‘VALUATION’’.

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

19 this section shall apply to plan years beginning after De20 cember 31, 1996.

21 SEC. 524. PROHIBITED TRANSACTIONS.

22 (a) IN GENERAL.—Section 502(i) (29 U.S.C.

23 1132(i)) is amended by striking ‘‘5 percent’’ and inserting

24 ‘‘10 percent’’.
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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to prohibited transactions occur3 ring after the date of enactment of this Act.

4 SEC. 525. SUBSTANTIAL OWNER BENEFITS.

5 (a) MODIFICATION OF PHASE-IN OF GUARANTEE.—

6 Subparagraphs (B) and (C) of section 4022(b)(5) (29

7 U.S.C. 1322(b)(5)) are amended to read as follows:

8 ‘‘(B) For purposes of this title, the term ‘majority

9 owner’ has the same meaning as substantial owner under

10 subparagraph (A), except that subparagraph (A) shall be

11 applied by substituting ‘50 percent or more’ for ‘more

12 than 10 percent’ each place it appears.

13 ‘‘(C) In the case of a participant who is a majority

14 owner, the amount of benefits guaranteed under this sec15 tion shall not exceed the product of—

16 ‘‘(i) a fraction (not to exceed 1) the numerator

17 of which is the number of years from the later of the

18 effective date or the adoption date of the plan to the

19 termination date, and the denominator of which is

20 30, and

21 ‘‘(ii) the amount of the majority owner’s month22 ly benefits guaranteed under subsection (a) (as lim23 ited by paragraph (3) of this subsection).’’.

24 (b) MODIFICATION OF ALLOCATION OF ASSETS.—
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1 (1) Section 4044(a)(4)(B) (29 U.S.C.

2 1344(a)(4)(B)) is amended by striking ‘‘section

3 4022(b)(5)’’ and inserting ‘‘section 4022(b)(5)(C)’’.

4 (2) Section 4044(b) (29 U.S.C. 1344(b)) is

5 amended—

6 (A) by striking ‘‘(5)’’ in paragraph (2) and

7 inserting ‘‘(4), (5),’’, and

8 (B) by redesignating paragraphs (3)

9 through (6) as paragraphs (4) through (7), re10 spectively, and by inserting after paragraph (2)

11 the following new paragraph:

12 ‘‘(3) If assets available for allocation under

13 paragraph (4) of subsection (a) are insufficient to

14 satisfy in full the benefits of all individuals who are

15 described in that paragraph, the assets shall be allo16 cated first to benefits described in subparagraph (A)

17 of that paragraph. Any remaining assets shall then

18 be allocated to subparagraph (B). If assets allocated

19 to subparagraph (B) are insufficient to satisfy in full

20 the benefits in that subparagraph, the assets shall

21 be allocated pro rata among individuals on the basis

22 of the present value (as of the termination date) of

23 their respective benefits described in that subpara24 graph.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to plan terminations—

3 (1) under section 4041(c) of the Employee Re4 tirement Income Security Act of 1974 (29 U.S.C.

5 1341(c)) with respect to which notices of intent to

6 terminate are provided under section 4041(a)(2) of

7 such Act (29 U.S.C. 1341(a)(2)) on or after the

8 date of the enactment of this Act, or

9 (2) under section 4042 of such Act (29 U.S.C.

10 1342) with respect to which proceedings are insti11 tuted by the corporation on or after such date.

12 CHAPTER 2—ERISA ENFORCEMENT

13 SEC. 531. SHORT TITLE.

14 This chapter may be cited as the ‘‘Pension Audit Im15 provement Act of 1997’’.

16 SEC. 532. REPEAL OF LIMITED SCOPE AUDIT.

17 (a) IN GENERAL.—Section 103(a)(3) (29 U.S.C.

18 1023(a)(3)) is amended by striking subparagraph (C) and

19 by redesignating subparagraph (D) as subparagraph (C).

20 (b) CONFORMING AMENDMENTS.—

21 (1) Section 103(a)(3)(A) (29 U.S.C.

22 1023(a)(3)(A)) is amended by striking ‘‘Except as

23 provided in subparagraph (C), the’’ and inserting

24 ‘‘The’’.
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1 (2) Section 104(a)(5)(A) (29 U.S.C.

2 1024(a)(5)(A)) is amended by striking ‘‘section

3 103(a)(3)(D)’’ and inserting ‘‘section 103(a)(3)(C)’’.

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

5 this section shall apply with respect to opinions required

6 under section 103(a)(3)(A) of the Employee Retirement

7 Income Security Act of 1974 for plan years beginning on

8 or after January 1 of the calendar year following the date

9 of the enactment of this Act.

10 SEC. 533. REPORTING AND ENFORCEMENT REQUIREMENTS

11 FOR EMPLOYEE BENEFIT PLANS.

12 (a) IN GENERAL.—Part 1 of subtitle B of title I (29

13 U.S.C. 1021 et seq.) is amended—

14 (1) by redesignating section 111 as section 112,

15 and

16 (2) by inserting after section 110 the following

17 new section:

18 ‘‘DIRECT REPORTING OF CERTAIN EVENTS

19 ‘‘SEC. 111. (a) REQUIRED NOTIFICATIONS.—

20 ‘‘(1) NOTIFICATIONS BY PLAN ADMINIS21 TRATOR.—The administrator of an employee benefit

22 plan shall, within 5 business days after the adminis23 trator determines that there is evidence (or after the

24 administrator is notified under paragraph (2)) that

25 an irregularity may have occurred with respect to

26 the plan—
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1 ‘‘(A) notify the Secretary of the irregular2 ity in writing; and

3 ‘‘(B) furnish a copy of such notification to

4 the accountant who is currently engaged under

5 section 103(a)(3)(A).

6 ‘‘(2) NOTIFICATIONS BY ACCOUNTANT.—

7 ‘‘(A) IN GENERAL.—An accountant en8 gaged by the administrator of an employee ben9 efit plan under section 103(a)(3)(A) shall, with10 in 5 business days after the accountant in con11 nection with such engagement determines that

12 there is evidence that an irregularity may have

13 occurred with respect to the plan—

14 ‘‘(i) notify the plan administrator of

15 the irregularity in writing, or

16 ‘‘(ii) if the accountant determines that

17 there is evidence that the irregularity may

18 have involved an individual who is the plan

19 administrator or who is a senior official of

20 the plan administrator, notify the Sec21 retary of the irregularity in writing.

22 ‘‘(B) NOTIFICATION UPON FAILURE OF

23 PLAN ADMINISTRATOR TO NOTIFY.—If an ac24 countant who has provided notification to the

25 plan administrator pursuant to subparagraph
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1 (A)(i) does not receive a copy of the administra2 tor’s notification to the Secretary required

3 under paragraph (1)(B) within the 5-business

4 day period specified therein, the accountant

5 shall furnish to the Secretary a copy of the ac6 countant’s notification made to the plan admin7 istrator on the next business day following such

8 period.

9 ‘‘(3) IRREGULARITY DEFINED.—

10 ‘‘(A) For purposes of this subsection, the

11 term ‘irregularity’ means—

12 ‘‘(i) a theft, embezzlement, or a viola13 tion of section 664 of title 18, United

14 States Code (relating to theft or embezzle15 ment from an employee benefit plan);

16 ‘‘(ii) an extortion or a violation of sec17 tion 1951 of such title 18 (relating to in18 terference with commerce by threats or vi19 olence);

20 ‘‘(iii) a bribery, a kickback, or a viola21 tion of section 1954 of such title 18 (relat22 ing to offer, acceptance, or solicitation to

23 influence operations of an employee benefit

24 plan);
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1 ‘‘(iv) a violation of section 1027 of

2 such title 18 (relating to false statements

3 and concealment of facts in relation to em4 ployer benefit plan records); or

5 ‘‘(v) a violation of section 411, 501, or

6 511 of this title (relating to criminal viola7 tions).

8 ‘‘(B) The term ‘irregularity’ shall not in9 clude any act or omission described in this

10 paragraph involving less than $1,000 unless

11 there is reason to believe that the act or omis12 sion may bear on the integrity of plan manage13 ment.

14 ‘‘(b) NOTIFICATION UPON TERMINATION OF EN15 GAGEMENT OF ACCOUNTANT.—

16 ‘‘(1) NOTIFICATION BY PLAN ADMINIS17 TRATOR.—Within 5 business days after the termi18 nation of an engagement for auditing services under

19 section 103(a)(3)(A) with respect to an employee

20 benefit plan, the administrator of such plan shall—

21 ‘‘(A) notify the Secretary in writing of

22 such termination, giving the reasons for such

23 termination, and
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1 ‘‘(B) furnish the accountant whose engage2 ment was terminated with a copy of the notifi3 cation sent to the Secretary.

4 ‘‘(2) NOTIFICATION BY ACCOUNTANT.—If the

5 accountant referred to in paragraph (1)(B) has not

6 received a copy of the administrator’s notification to

7 the Secretary as required under paragraph (1)(B),

8 or if the accountant disagrees with the reasons given

9 in the notification of termination of the engagement

10 for auditing services, the accountant shall notify the

11 Secretary in writing of the termination, giving the

12 reasons for the termination, within 10 business days

13 after the termination of the engagement.

14 ‘‘(c) DETERMINATION OF PERIODS REQUIRED FOR

15 NOTIFICATION.—In determining whether a notification re16 quired under this section with respect to any act or omis17 sion has been made within the required number of busi18 ness days—

19 ‘‘(1) the day on which such act or omission be20 gins shall not be included; and

21 ‘‘(2) Saturdays, Sundays, and legal holidays

22 shall not be included.
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1 For purposes of this subsection, the term ‘legal holiday’

2 means any Federal legal holiday and any other day ap3 pointed as a holiday by the State in which the person re4 sponsible for making the notification principally conducts

5 his business.

6 ‘‘(d) IMMUNITY FOR GOOD FAITH NOTIFICATION.—

7 Except as provided in this Act, no accountant or plan ad8 ministrator shall be liable to any person for any finding,

9 conclusion, or statement made in any notification made

10 pursuant to subsection (a)(2) or (b)(2), or pursuant to any

11 regulations issued thereunder, if such finding, conclusion,

12 or statement is made in good faith.’’.

13 (b) CIVIL PENALTY.—

14 (1) IN GENERAL.—Section 502(c) (29 U.S.C.

15 1132(c)), as amended by section 2002, is amended

16 by redesignating paragraph (6) as paragraph (7)

17 and by inserting after paragraph (5) the following

18 new paragraph:

19 ‘‘(6)(A) The Secretary may assess a civil penalty of

20 up to $100,000 against any administrator who fails to

21 provide the Secretary with any notification as required

22 under section 111.

23 ‘‘(B) The Secretary may assess a civil penalty of up

24 to $100,000 against any accountant who knowingly and
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1 willfully fails to provide the Secretary with any notification

2 as required under section 111.’’.

3 (2) CONFORMING AMENDMENT.—Section

4 502(a)(6) (29 U.S.C. 1132(a)(6)), as amended by

5 section 2002, is amended by striking ‘‘or (5)’’ and

6 inserting ‘‘(5), or (6)’’.

7 (c) CLERICAL AMENDMENTS.—

8 (1) Section 514(d) (29 U.S.C. 1144(d)) is

9 amended by striking ‘‘111’’ and inserting ‘‘112’’.

10 (2) The table of contents in section 1 is amend11 ed by striking the item relating to section 111 and

12 inserting the following new items:

‘‘Sec. 111. Direct reporting of certain events.

‘‘Sec. 112. Repeal and effective date.’’.

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

14 this section shall apply with respect to any irregularity or

15 termination of engagement described in such amendments

16 only if the 5-day period described in such amendments in

17 connection with such irregularity or termination com18 mences at least 90 days after the date of the enactment

19 of this Act.

20 SEC. 534. ADDITIONAL REQUIREMENTS FOR QUALIFIED

21 PUBLIC ACCOUNTANTS.

22 (a) IN GENERAL.—Section 103(a)(3)(C) (29 U.S.C.

23 1023(a)(3)(C)), as redesignated by section 2032, is

24 amended—
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1 (1) by inserting ‘‘(i)’’ after ‘‘(C)’’;

2 (2) by inserting ‘‘, with respect to any engage3 ment of an accountant under subparagraph (A)’’

4 after ‘‘means’’;

5 (3) by redesignating clauses (i), (ii), and (iii) as

6 subclauses (I), (II), and (III), respectively;

7 (4) by striking the period at the end of sub8 clause (III) (as so redesignated) and inserting a

9 comma;

10 (5) by adding after subclause (III) (as so redes11 ignated), and flush with clause (i), the following:

12 ‘‘but only if such person meets the requirements of clauses

13 (ii) and (iii) with respect to such engagement.’’; and

14 (6) by adding at the end the following new

15 clauses:

16 ‘‘(ii) A person meets the requirements of this clause

17 with respect to an engagement of such person as an ac18 countant under subparagraph (A) if such person—

19 ‘‘(I) has in operation an appropriate internal

20 quality control system;

21 ‘‘(II) has undergone a qualified external quality

22 control review of the person’s accounting and audit23 ing practices, including such practices relevant to

24 employee benefit plans (if any), during the 3-year

25 period immediately preceding such engagement; and
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1 ‘‘(III) has completed, within the 2-year period

2 immediately preceding such engagement, at least 80

3 hours of continuing education or training which con4 tributes to the accountant’s professional proficiency,

5 at least 20 hours of which have been completed dur6 ing the 1-year period immediately preceding the en7 gagement, and at least 16 hours of which relate to

8 employee benefit plan matters.

9 ‘‘(iii) A person meets the requirements of this clause

10 with respect to an engagement of such person as an ac11 countant under subparagraph (A) if such person meets

12 such additional requirements and qualifications of regula13 tions which the Secretary deems necessary to ensure the

14 quality of plan audits.

15 ‘‘(iv) For purposes of clause (ii)(II), an external qual16 ity control review shall be treated as qualified with respect

17 to a person referred to in clause (ii) if—

18 ‘‘(I) such review is performed in accordance

19 with the requirements of external quality control re20 view programs of recognized auditing standard-set21 ting bodies, as determined under regulations of the

22 Secretary, and

23 ‘‘(II) in the case of any such person who has,

24 during the peer review period, conducted one or

25 more previous audits of employee benefit plans, such
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1 review includes the review of an appropriate number

2 (determined as provided in such regulations, but in

3 no case less than one) of plan audits in relation to

4 the scale of such person’s auditing practice.

5 The Secretary shall issue the regulations under subclause

6 (I) no later than December 31, 1997.’’.

7 (b) EFFECTIVE DATES.—

8 (1) IN GENERAL.—Except as provided in para9 graph (2), the amendments made by this section

10 shall apply with respect to plan years beginning on

11 or after the date which is 3 years after the date of

12 the enactment of this Act.

13 (2) RESTRICTIONS ON CONDUCTING EXAMINA14 TIONS.—Clause (iii) of section 103(a)(3)(C) of the

15 Employee Retirement Income Security Act of 1974

16 (as added by subsection (a)(6)) shall take effect on

17 the date of enactment of this Act.

18 SEC. 535. CLARIFICATION OF FIDUCIARY PENALTIES.

19 (a) MODIFICATION OF PROHIBITION OF ASSIGNMENT

20 OR ALIENATION.—

21 (1) AMENDMENT TO ERISA.—Section 206(d)

22 (29 U.S.C. 1056(d)) is amended by adding at the

23 end the following new paragraphs:

24 ‘‘(4) Paragraph (1) shall not apply to any offset of

25 a participant’s accrued benefit in an employee pension
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1 benefit plan against an amount that the participant is or2 dered or required to pay to the plan if—

3 ‘‘(A) the order or requirement to pay arises—

4 ‘‘(i) under a judgment of conviction for a

5 crime involving such plan,

6 ‘‘(ii) under a civil judgment (including a

7 consent order or decree) entered by a court in

8 an action brought in connection with a violation

9 (or alleged violation) of part 4 of this subtitle,

10 or

11 ‘‘(iii) pursuant to a settlement agreement

12 between the Secretary and the participant, or a

13 settlement agreement between the Pension Ben14 efit Guaranty Corporation and the participant,

15 in connection with a violation (or alleged viola16 tion) of part 4 of this subtitle,

17 ‘‘(B) the judgment, order, decree, or settlement

18 agreement expressly provides for the offset of all or

19 part of the amount ordered or required to be paid

20 to the plan against the participant’s accrued benefit

21 in the plan, and

22 ‘‘(C) if the participant has a spouse at the time

23 at which the offset is to be made—
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1 ‘‘(i) such spouse has consented in writing

2 to such offset and such consent is witnessed by

3 a notary public or representative of the plan,

4 ‘‘(ii) such spouse is ordered or required in

5 such judgment, order, decree, or settlement to

6 pay an amount to the plan in connection with

7 a violation of part 4 of this title, or

8 ‘‘(iii) in such judgment, order, decree, or

9 settlement, such spouse retains the right to re10 ceive the value of the survivor annuity under a

11 qualified joint and survivor annuity provided

12 pursuant to section 205(a)(1) and under a

13 qualified preretirement survivor annuity pro14 vided pursuant to section 205(a)(2), determined

15 in accordance with paragraph (5).

16 ‘‘(5)(A) The value of the survivor annuity described

17 in paragraph (4)(C)(iii) shall be determined as if—

18 ‘‘(i) the participant terminated employment on

19 the date of the offset,

20 ‘‘(ii) there was no offset,

21 ‘‘(iii) the plan permitted retirement only on or

22 after normal retirement age,

23 ‘‘(iv) the plan provided only the minimum-re24 quired qualified joint and survivor annuity, and
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1 ‘‘(v) the amount of the qualified preretirement

2 survivor annuity under the plan is equal to the

3 amount of the survivor annuity payable under the

4 minimum-required qualified joint and survivor annu5 ity.

6 ‘‘(B) For purposes of this paragraph, the term ‘mini7 mum-required qualified joint and survivor annuity’ means

8 the qualified joint and survivor annuity which is the actu9 arial equivalent of a single annuity for the life of the par10 ticipant and under which the survivor annuity is 50 per11 cent of the amount of the annuity which is payable during

12 the joint lives of the participant and the spouse.’’.

13 (2) EFFECTIVE DATE.—The amendment made

14 by this subsection shall apply to judgments, orders,

15 and decrees issued, and settlement agreements en16 tered into, on or after the date of enactment of this

17 Act.

18 (b) CIVIL PENALTIES FOR BREACH OF FIDUCIARY

19 RESPONSIBILITY.—

20 (1) IMPOSITION AND AMOUNT OF PENALTY

21 MADE DISCRETIONARY.—Section 502(l)(1) (29

22 U.S.C. 1132(l)(1)) is amended—

23 (A) by striking ‘‘shall’’ and inserting

24 ‘‘may’’, and
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1 (B) by striking ‘‘equal to’’ and inserting

2 ‘‘not greater than’’.

3 (2) APPLICABLE RECOVERY AMOUNT.—Section

4 502(l)(2) (29 U.S.C. 1132(l)(2)) is amended to read

5 as follows:

6 ‘‘(2) For purposes of paragraph (1), the term ‘appli7 cable recovery amount’ means any amount which is recov8 ered from (or on behalf of) any fiduciary or other person

9 with respect to a breach or violation described in para10 graph (1) on or after the 30th day following receipt by

11 such fiduciary or other person of written notice from the

12 Secretary of the violation, whether paid voluntarily or by

13 order of a court in a judicial proceeding instituted by the

14 Secretary under subsection (a)(2) or (a)(5). The Secretary

15 may, in the Secretary’s sole discretion, extend the 30-day

16 period described in the preceding sentence.’’.

17 (3) OTHER RULES.—Section 502(l) (29 U.S.C.

18 1132(l)) is amended by adding at the end the follow19 ing new paragraphs:

20 ‘‘(5) A person shall be jointly and severally liable for

21 the penalty described in paragraph (1) to the same extent

22 that such person is jointly and severally liable for the ap23 plicable recovery amount on which the penalty is based.
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1 ‘‘(6) No penalty shall be assessed under this sub2 section unless the person against whom the penalty is as3 sessed is given notice and opportunity for a hearing with

4 respect to the violation and applicable recovery amount.’’.

5 (4) EFFECTIVE DATES.—

6 (A) IN GENERAL.—The amendments made

7 by this subsection shall apply to any breach of

8 fiduciary responsibility or other violation of part

9 4 of subtitle B of title I of the Employee Re10 tirement Income Security Act of 1974 occurring

11 on or after the date of enactment of this Act.

12 (B) TRANSITION RULE.—In applying the

13 amendment made by paragraph (2) (relating to

14 applicable recovery amount), a breach or other

15 violation occurring before the date of the enact16 ment of this Act which continues after the

17 180th day after such date (and which may have

18 been discontinued at any time during its exist19 ence) shall be treated as having occurred after

20 such date of enactment.
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1 TITLE VI—EXPANDED INDIVID2 UAL RETIREMENT ACCOUNTS

3 TO INCREASE COVERAGE AND

4 PORTABILITY

5 Subtitle A—Retirement Savings

6 Incentives

7 SEC. 601. INCREASE IN INCOME LIMITATIONS.

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

9 219(g)(3) is amended—

10 (1) by striking ‘‘$40,000’’ in clause (i) and in11 serting ‘‘$80,000 ($70,000 in the case of taxable

12 years beginning in 1997, 1998, or 1999)’’, and

13 (2) by striking ‘‘$25,000’’ in clause (ii) and in14 serting ‘‘$50,000 ($45,000 in the case of taxable

15 years beginning in 1997, 1998, or 1999)’’.

16 (b) PHASEOUT OF LIMITATIONS.—Clause (ii) of sec17 tion 219(g)(2)(A) is amended by striking ‘‘$10,000’’ and

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

19 applicable for the taxable year under subsection

20 (b)(1)(A)’’.

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

22 this section shall apply to taxable years beginning after

23 December 31, 1996.
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1 SEC. 602. INFLATION ADJUSTMENT FOR DEDUCTIBLE

2 AMOUNT AND INCOME LIMITATIONS.

3 (a) IN GENERAL.—Section 219 is amended by redes4 ignating subsection (h) as subsection (i) and by inserting

5 after subsection (g) the following new subsection:

6 ‘‘(h) COST-OF-LIVING ADJUSTMENTS.—

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

8 any taxable year beginning in a calendar year after

9 1997, the $2,000 amounts under subsections

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

11 equal to—

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

13 ‘‘(B) the cost-of-living adjustment deter14 mined under section 1(f)(3) for the calendar

15 year in which the taxable year begins, deter16 mined by substituting ‘calendar year 1996’ for

17 ‘calendar year 1992’ in subparagraph (B)

18 thereof.

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

20 case of any taxable year beginning in a calendar

21 year after 1999, the applicable dollar amounts under

22 subsection (g)(3)(B) shall be increased by an

23 amount equal to—

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

25 ‘‘(B) the cost-of-living adjustment deter26 mined under section 1(f)(3) for the calendar
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1 year in which the taxable year begins, deter2 mined by substituting ‘calendar year 1998’ for

3 ‘calendar year 1992’ in subparagraph (B)

4 thereof.

5 ‘‘(3) ROUNDING RULES.—

6 ‘‘(A) DEDUCTION AMOUNTS.—If any

7 amount after adjustment under paragraph (1)

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

9 rounded to the next lowest multiple of $500.

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

11 any amount after adjustment under paragraph

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

13 shall be rounded to the next lowest multiple of

14 $5,000.’’.

15 (b) CONFORMING AMENDMENTS.—

16 (1) Clause (i) of section 219(c)(2)(A) is amend17 ed to read as follows:

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

19 amount in effect for the taxable year under

20 subsection (b)(1)(A), or’’.

21 (2) Section 408(a)(1) is amended by striking

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

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

24 of the amount in effect for such taxable year under

25 section 219(b)(1)(A)’’.
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1 (3) Section 408(b)(2)(B) is amended by strik2 ing ‘‘$2,000’’ and inserting ‘‘the dollar amount in

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

4 (4) Subparagraph (A) of section 408(d)(5) is

5 amended by striking ‘‘$2,250’’ and inserting ‘‘the

6 dollar amount in effect for the taxable year under

7 section 219(c)(2)(A)(i)’’.

8 (5) Section 408(j) is amended by striking

9 ‘‘$2,000’’.

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

11 this section shall apply to taxable years beginning after

12 December 31, 1996.

13 SEC. 603. COORDINATION OF IRA DEDUCTION LIMIT WITH

14 ELECTIVE DEFERRAL LIMIT.

15 (a) IN GENERAL.—Section 219(b) (relating to maxi16 mum amount of deduction) is amended by adding at the

17 end the following new paragraph:

18 ‘‘(4) COORDINATION WITH ELECTIVE DEFER19 RAL LIMIT.—The amount determined under para20 graph (1) or subsection (c)(2) with respect to any

21 individual for any taxable year shall not exceed the

22 excess (if any) of—

23 ‘‘(A) the limitation applicable for the tax24 able year under section 402(g)(1), over
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1 ‘‘(B) the elective deferrals (as defined in

2 section 402(g)(3)) of such individual for such

3 taxable year.’’.

4 (b) CONFORMING AMENDMENT.—Section 219(c) is

5 amended by adding at the end the following new para6 graph:

7 ‘‘(3) CROSS REFERENCE.—

‘‘For reduction in paragraph (2) amount, see subsection (b)(4).’’.

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

9 this section shall apply to taxable years beginning after

10 December 31, 1996.

11 SEC. 604. ESTABLISHMENT OF NONDEDUCTIBLE TAX-FREE

12 INDIVIDUAL RETIREMENT ACCOUNTS.

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

14 D of chapter 1 (relating to pension, profit-sharing, stock

15 bonus plans, etc.) is amended by inserting after section

16 408 the following new section:

17 ‘‘SEC. 408A. SPECIAL INDIVIDUAL RETIREMENT ACCOUNTS.

18 ‘‘(a) GENERAL RULE.—Except as provided in this

19 chapter, a special individual retirement account shall be

20 treated for purposes of this title in the same manner as

21 an individual retirement plan.

22 ‘‘(b) SPECIAL INDIVIDUAL RETIREMENT AC23 COUNT.—For purposes of this title, the term ‘special indi24 vidual retirement account’ means an individual retirement
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1 plan which is designated at the time of establishment of

2 the plan as a special individual retirement account.

3 ‘‘(c) TREATMENT OF CONTRIBUTIONS.—

4 ‘‘(1) NO DEDUCTION ALLOWED.—No deduction

5 shall be allowed under section 219 for a contribution

6 to a special individual retirement account.

7 ‘‘(2) CONTRIBUTION LIMIT.—The aggregate

8 amount of contributions for any taxable year to all

9 special individual retirement accounts maintained for

10 the benefit of an individual shall not exceed the ex11 cess (if any) of—

12 ‘‘(A) the maximum amount allowable as a

13 deduction under section 219 with respect to

14 such individual for such taxable year, over

15 ‘‘(B) the aggregate amount of contribu16 tions for such taxable year to all individual re17 tirement plans (other than special individual re18 tirement accounts) maintained for the benefit of

19 the individual.

20 ‘‘(3) SPECIAL RULES FOR QUALIFIED TRANS21 FERS.—

22 ‘‘(A) IN GENERAL.—No rollover contribu23 tion may be made to a special individual retire24 ment account unless it is a qualified transfer.
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1 ‘‘(B) LIMIT NOT TO APPLY.—The limita2 tion under paragraph (2) shall not apply to a

3 qualified transfer to a special individual retire4 ment account.

5 ‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—

6 ‘‘(1) IN GENERAL.—Except as provided in this

7 subsection, any amount paid or distributed out of a

8 special individual retirement account shall not be in9 cluded in the gross income of the distributee.

10 ‘‘(2) EXCEPTION FOR EARNINGS ON CONTRIBU11 TIONS HELD LESS THAN 5 YEARS.—

12 ‘‘(A) IN GENERAL.—Any amount distrib13 uted out of a special individual retirement ac14 count which consists of earnings allocable to

15 contributions made to the account during the 5-

16 year period ending on the day before such dis17 tribution shall be included in the gross income

18 of the distributee for the taxable year in which

19 the distribution occurs.

20 ‘‘(B) ORDERING RULE.—

21 ‘‘(i) FIRST-IN, FIRST-OUT RULE.—

22 Distributions from a special individual re23 tirement account shall be treated as having

24 been made—
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1 ‘‘(I) first from the earliest con2 tribution (and earnings allocable

3 thereto) remaining in the account at

4 the time of the distribution, and

5 ‘‘(II) then from other contribu6 tions (and earnings allocable thereto)

7 in the order in which made.

8 ‘‘(ii) ALLOCATIONS BETWEEN CON9 TRIBUTIONS AND EARNINGS.—Any portion

10 of a distribution allocated to a contribution

11 (and earnings allocable thereto) shall be

12 treated as allocated first to the earnings

13 and then to the contribution.

14 ‘‘(iii) ALLOCATION OF EARNINGS.—

15 Earnings shall be allocated to a contribu16 tion in such manner as the Secretary may

17 prescribe.

18 ‘‘(iv) AGGREGATIONS OF CONTRIBU19 TIONS.—Except as provided by the Sec20 retary, for purposes of this subpara21 graph—

22 ‘‘(I) all contributions made dur23 ing the same taxable year may be

24 treated as 1 contribution, and
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1 ‘‘(II) all contributions made be2 fore the first day of the 5-year period

3 ending on the day before any distribu4 tion may be treated as 1 contribution.

5 ‘‘(C) CROSS REFERENCE.—

‘‘For additional tax for early withdrawal, see section 72(t).

6 ‘‘(3) QUALIFIED TRANSFER.—

7 ‘‘(A) IN GENERAL.—Paragraph (2) shall

8 not apply to any distribution which is trans9 ferred in a qualified transfer to another special

10 individual retirement account.

11 ‘‘(B) CONTRIBUTION PERIOD.—For pur12 poses of paragraph (2), the special individual

13 retirement account to which any contributions

14 are transferred shall be treated as having held

15 such contributions during any period such con16 tributions were held (or are treated as held

17 under this subparagraph) by the special individ18 ual retirement account from which transferred.

19 ‘‘(4) SPECIAL RULES RELATING TO CERTAIN

20 TRANSFERS.—

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

22 other provision of law, in the case of a qualified
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1 transfer to a special individual retirement ac2 count from an individual retirement plan which

3 is not a special individual retirement account—

4 ‘‘(i) there shall be included in gross

5 income any amount which, but for the

6 qualified transfer, would be includible in

7 gross income, but

8 ‘‘(ii) section 72(t) shall not apply to

9 such amount.

10 ‘‘(B) TIME FOR INCLUSION.—In the case

11 of any qualified transfer which occurs before

12 January 1, 1998, any amount includible in

13 gross income under subparagraph (A) with re14 spect to such contribution shall be includible

15 ratably over the 4-taxable year period beginning

16 in the taxable year in which the amount was

17 paid or distributed out of the individual retire18 ment plan. The amount of such qualified trans19 fer taken into account for purposes of section

20 4980A(c) shall be taken into account ratably

21 over such period.

22 ‘‘(C) ADDITIONAL REPORTING.—A trustee

23 of an individual retirement plan shall include

24 such additional information in any report re25 quired under section 408(i) as the Secretary
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1 may require to insure that amounts described

2 in subparagraph (B) are included in gross in3 come for the appropriate taxable year.

4 ‘‘(e) QUALIFIED TRANSFER.—For purposes of this

5 section—

6 ‘‘(1) IN GENERAL.—The term ‘qualified trans7 fer’ means a transfer to a special individual retire8 ment account from another such account or from an

9 individual retirement plan but only if such transfer

10 meets the requirements of section 408(d)(3).

11 ‘‘(2) LIMITATION.—

12 ‘‘(A) IN GENERAL.—A transfer otherwise

13 described in paragraph (1) shall not be treated

14 as a qualified transfer if the taxpayer’s adjusted

15 gross income for the taxable year of the trans16 fer exceeds the sum of—

17 ‘‘(i) the applicable dollar amount, plus

18 ‘‘(ii) the dollar amount applicable for

19 the taxable year under section

20 219(g)(2)(A)(ii).

21 This subparagraph shall not apply to a transfer

22 from a special individual retirement account to

23 another special individual retirement account.
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1 ‘‘(B) TRANSITION RULE.—In the case of a

2 transfer before January 1, 1999, the dollar lim3 itation under subparagraph (A) shall be

4 $100,000 in the case of a married individual fil5 ing a joint return, zero in the case of a married

6 individual filing a separate return, and $70,000

7 in any other case.

8 ‘‘(3) DEFINITIONS.—For purposes of this sub9 section, the terms ‘adjusted gross income’ and ‘ap10 plicable dollar amount’ have the meanings given

11 such terms by section 219(g)(3), except that ad12 justed gross income shall be determined by taking

13 into account the deduction under section 219 and

14 not taking into account any transfer to which para15 graph (2) applies.’’.

16 (b) ADDITIONAL TAX ON EARLY DISTRIBUTIONS.—

17 Section 72(t) is amended by adding at the end the follow18 ing new paragraph:

19 ‘‘(6) RULES RELATING TO SPECIAL INDIVIDUAL

20 RETIREMENT ACCOUNTS.—In the case of a special

21 individual retirement account under section 408A—

22 ‘‘(A) this subsection shall only apply to

23 distributions out of such account which consist

24 of earnings allocable to contributions made to
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1 the account during the 5-year period ending on

2 the day before such distribution, and

3 ‘‘(B) paragraph (2)(A)(i) shall not apply to

4 any distribution described in subparagraph

5 (A).’’.

6 (c) EXCESS CONTRIBUTIONS.—Section 4973(b) is

7 amended—

8 (1) by inserting ‘‘, or a qualified transfer de9 scribed in section 408A(e)’’ after ‘‘408(d)(3)’’ in

10 paragraph (1)(A), and

11 (2) by adding at the end the following new sen12 tence: ‘‘For purposes of paragraphs (1)(B) and

13 (2)(C), the amount allowable as a deduction under

14 section 219 shall be computed without regard to sec15 tion 408A.’’

16 (d) REPORTING.—Section 408(i) is amended by strik17 ing ‘‘under regulations’’ and ‘‘in such regulations’’ each

18 place such terms appear.

19 (e) CONFORMING AMENDMENT.—The table of sec20 tions for subpart A of part I of subchapter D of chapter

21 1 is amended by inserting after the item relating to section

22 408 the following new item:

‘‘Sec. 408A. Special individual retirement accounts.’’.

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

24 this section shall apply to taxable years beginning after

25 December 31, 1996.
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1 Subtitle B—Distributions and

2 Investments

3 SEC. 611. DISTRIBUTIONS FROM IRAS MAY BE USED WITH4 OUT ADDITIONAL TAX TO PURCHASE FIRST

5 HOMES, TO PAY HIGHER EDUCATION OR FI6 NANCIALLY DEVASTATING MEDICAL EX7 PENSES, OR BY THE UNEMPLOYED.

8 (a) IN GENERAL.—Paragraph (2) of section 72(t)

9 (relating to exceptions to 10-percent additional tax on

10 early distributions from qualified retirement plans) is

11 amended by adding at the end the following new subpara12 graph:

13 ‘‘(D) DISTRIBUTIONS FROM CERTAIN

14 PLANS FOR FIRST HOME PURCHASES OR EDU15 CATIONAL EXPENSES.—Distributions to an in16 dividual from an individual retirement plan—

17 ‘‘(i) which are qualified first-time

18 homebuyer distributions (as defined in

19 paragraph (7)); or

20 ‘‘(ii) to the extent such distributions

21 do not exceed the qualified higher edu22 cation expenses (as defined in paragraph

23 (8)) of the taxpayer for the taxable year.’’.

24 (b) FINANCIALLY DEVASTATING MEDICAL EX25 PENSES.—
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1 (1) IN GENERAL.—Section 72(t)(3)(A) is

2 amended by striking ‘‘(B),’’.

3 (2) CERTAIN LINEAL DESCENDANTS AND AN4 CESTORS TREATED AS DEPENDENTS AND LONG5 TERM CARE SERVICES TREATED AS MEDICAL

6 CARE.—Subparagraph (B) of section 72(t)(2) is

7 amended by striking ‘‘medical care’’ and all that fol8 lows and inserting ‘‘medical care determined—

9 ‘‘(i) without regard to whether the

10 employee itemizes deductions for such tax11 able year, and

12 ‘‘(ii) in the case of an individual re13 tirement plan—

14 ‘‘(I) by treating such employee’s

15 dependents as including all children,

16 grandchildren, and ancestors of the

17 employee or such employee’s spouse

18 and

19 ‘‘(II) by treating qualified long20 term care services (as defined in para21 graph (9)) as medical care for pur22 poses of this subparagraph.’’.

23 (3) CONFORMING AMENDMENT.—Subparagraph

24 (B) of section 72(t)(2) is amended by striking ‘‘or

25 (C)’’ and inserting ‘‘, (C), or (D)’’.
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1 (c) DEFINITIONS.—Section 72(t), as amended by this

2 Act, is amended by adding at the end the following new

3 paragraphs:

4 ‘‘(7) QUALIFIED FIRST-TIME HOMEBUYER DIS5 TRIBUTIONS.—For purposes of paragraph

6 (2)(D)(i)—

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

8 first-time homebuyer distribution’ means any

9 payment or distribution received by an individ10 ual to the extent such payment or distribution

11 is used by the individual before the close of the

12 60th day after the day on which such payment

13 or distribution is received to pay qualified ac14 quisition costs with respect to a principal resi15 dence of a first-time homebuyer who is such in16 dividual or the spouse, child (as defined in sec17 tion 151(c)(3)), or grandchild of such individ18 ual.

19 ‘‘(B) QUALIFIED ACQUISITION COSTS.—

20 For purposes of this paragraph, the term

21 ‘qualified acquisition costs’ means the costs of

22 acquiring, constructing, or reconstructing a res23 idence. Such term includes any usual or reason24 able settlement, financing, or other closing

25 costs.
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1 ‘‘(C) FIRST-TIME HOMEBUYER; OTHER

2 DEFINITIONS.—For purposes of this para3 graph—

4 ‘‘(i) FIRST-TIME HOMEBUYER.—The

5 term ‘first-time homebuyer’ means any in6 dividual if—

7 ‘‘(I) such individual (and if mar8 ried, such individual’s spouse) had no

9 present ownership interest in a prin10 cipal residence during the 3-year pe11 riod ending on the date of acquisition

12 of the principal residence to which

13 this paragraph applies, and

14 ‘‘(II) subsection (h) or (k) of sec15 tion 1034 did not suspend the run16 ning of any period of time specified in

17 section 1034 with respect to such in18 dividual on the day before the date

19 the distribution is applied pursuant to

20 subparagraph (A).

21 In the case of an individual described in

22 section 143(i)(1)(C) for any year, an own23 ership interest shall not include any inter24 est under a contract of deed described in

25 such section. An individual who loses an
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1 ownership interest in a principal residence

2 incident to a divorce or legal separation is

3 deemed for purposes of this subparagraph

4 to have had no ownership interest in such

5 principal residence within the period re6 ferred to in subclause (II).

7 ‘‘(ii) PRINCIPAL RESIDENCE.—The

8 term ‘principal residence’ has the same

9 meaning as when used in section 1034.

10 ‘‘(iii) DATE OF ACQUISITION.—The

11 term ‘date of acquisition’ means the date—

12 ‘‘(I) on which a binding contract

13 to acquire the principal residence to

14 which subparagraph (A) applies is en15 tered into, or

16 ‘‘(II) on which construction or re17 construction of such a principal resi18 dence is commenced.

19 ‘‘(D) SPECIAL RULE WHERE DELAY IN AC20 QUISITION.—Any portion of any distribution

21 from any individual retirement plan which fails

22 to meet the requirements of subparagraph (A)

23 solely by reason of a delay or cancellation of the

24 purchase or construction of the residence may

25 be contributed to an individual retirement plan
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1 as provided in section 408(d)(3)(A)(i) (deter2 mined by substituting ‘120 days’ for ‘60 days’

3 in such section), except that—

4 ‘‘(i) section 408(d)(3)(B) shall not be

5 applied to such portion, and

6 ‘‘(ii) such portion shall not be taken

7 into account in determining whether sec8 tion 408(d)(3)(B) applies to any other

9 amount.

10 ‘‘(8) QUALIFIED HIGHER EDUCATION EX11 PENSES.—For purposes of paragraph (2)(D)(ii)—

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

13 higher education expenses’ means tuition and

14 fees required for the enrollment or attendance

15 of—

16 ‘‘(i) the taxpayer,

17 ‘‘(ii) the taxpayer’s spouse,

18 ‘‘(iii) a dependent of the taxpayer

19 with respect to whom the taxpayer is al20 lowed a deduction under section 151, or

21 ‘‘(iv) the taxpayer’s child (as defined

22 in section 151(c)(3)) or grandchild,

23 as an eligible student at an institution of higher

24 education.
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1 ‘‘(B) EXCEPTIONS.—The term ‘qualified

2 higher education expenses’ does not include—

3 ‘‘(i) expenses with respect to any

4 course or other education involving sports,

5 games, or hobbies, unless such expenses—

6 ‘‘(I) are part of a degree pro7 gram, or

8 ‘‘(II) are deductible under this

9 chapter without regard to this section;

10 or

11 ‘‘(ii) any student activity fees, athletic

12 fees, insurance expenses, or other expenses

13 unrelated to a student’s academic course of

14 instruction.

15 ‘‘(C) COORDINATION WITH SAVINGS BOND

16 PROVISIONS.—The amount of qualified higher

17 education expenses for any taxable year shall be

18 reduced by any amount excludable from gross

19 income under section 135.

20 ‘‘(D) ELIGIBLE STUDENT.—For purposes

21 of subparagraph (A), the term ‘eligible student’

22 means a student who—

23 ‘‘(i) meets the requirements of section

24 484(a)(1) of the Higher Education Act of

25 1965 (20 U.S.C. 1091(a)(1)), as in effect
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1 on the date of the enactment of this sec2 tion, and

3 ‘‘(ii)(I) is carrying at least one-half

4 the normal full-time work load for the

5 course of study the student is pursuing, as

6 determined by the institution of higher

7 education, or

8 ‘‘(II) is enrolled in a course which en9 ables the student to improve the student’s

10 job skills or to acquire new job skills.

11 ‘‘(E) INSTITUTION OF HIGHER EDU12 CATION.—The term ‘institution of higher edu13 cation’ means an institution which—

14 ‘‘(i) is described in section 481 of the

15 Higher Education Act of 1965 (20 U.S.C.

16 1088), as in effect on the date of the en17 actment of this section, and

18 ‘‘(ii) is eligible to participate in pro19 grams under title IV of such Act.

20 ‘‘(9) QUALIFIED LONG-TERM CARE SERVICES.—

21 For purposes of paragraph (2)(B)—

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

23 long-term care services’ means necessary diag24 nostic, curing, mitigating, treating, preventive,

25 therapeutic, and rehabilitative services, and
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1 maintenance and personal care services (wheth2 er performed in a residential or nonresidential

3 setting) which—

4 ‘‘(i) are required by an individual dur5 ing any period the individual is an inca6 pacitated individual (as defined in subpara7 graph (B)),

8 ‘‘(ii) have as their primary purpose—

9 ‘‘(I) the provision of needed as10 sistance with 1 or more activities of

11 daily living (as defined in subpara12 graph (C)), or

13 ‘‘(II) protection from threats to

14 health and safety due to severe cog15 nitive impairment, and

16 ‘‘(iii) are provided pursuant to a con17 tinuing plan of care prescribed by a li18 censed professional (as defined in subpara19 graph (D)).

20 ‘‘(B) INCAPACITATED INDIVIDUAL.—The

21 term ‘incapacitated individual’ means any indi22 vidual who—

23 ‘‘(i) is unable to perform, without sub24 stantial assistance from another individual

25 (including assistance involving cueing or
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1 substantial supervision), at least 2 activi2 ties of daily living as defined in subpara3 graph (C), or

4 ‘‘(ii) has severe cognitive impairment

5 as defined by the Secretary in consultation

6 with the Secretary of Health and Human

7 Services.

8 Such term shall not include any individual oth9 erwise meeting the requirements of the preced10 ing sentence unless, within the preceding 12-

11 month period, a licensed professional has cer12 tified that such individual meets such require13 ments.

14 ‘‘(C) ACTIVITIES OF DAILY LIVING.—Each

15 of the following is an activity of daily living:

16 ‘‘(i) Eating.

17 ‘‘(ii) Toileting.

18 ‘‘(iii) Transferring.

19 ‘‘(iv) Bathing.

20 ‘‘(v) Dressing.

21 ‘‘(D) LICENSED PROFESSIONAL.—The

22 term ‘licensed professional’ means—

23 ‘‘(i) a physician or registered profes24 sional nurse, or
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1 ‘‘(ii) any other individual who meets

2 such requirements as may be prescribed by

3 the Secretary after consultation with the

4 Secretary of Health and Human Services.

5 ‘‘(E) CERTAIN SERVICES NOT IN6 CLUDED.—The term ‘qualified long-term care

7 services’ shall not include any services provided

8 to an individual—

9 ‘‘(i) by a relative (directly or through

10 a partnership, corporation, or other entity)

11 unless the relative is a licensed professional

12 with respect to such services, or

13 ‘‘(ii) by a corporation or partnership

14 which is related (within the meaning of

15 section 267(b) or 707(b)) to the individual.

16 For purposes of this subparagraph, the term

17 ‘relative’ means an individual bearing a rela18 tionship to the individual which is described in

19 paragraphs (1) through (8) of section 152(a).’’.

20 (d) DISTRIBUTIONS FOR CERTAIN UNEMPLOYED IN21 DIVIDUALS.—Paragraph (2) of section 72(t) is amended

22 by adding at the end the following new subparagraph:

23 ‘‘(E) DISTRIBUTIONS TO UNEMPLOYED IN24 DIVIDUALS.—A distribution from an individual
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1 retirement plan to an individual after separa2 tion from employment, if—

3 ‘‘(i) such individual has received un4 employment compensation for 12 consecu5 tive weeks under any Federal or State un6 employment compensation law by reason of

7 such separation, and

8 ‘‘(ii) such distributions are made dur9 ing any taxable year during which such un10 employment compensation is paid or the

11 succeeding taxable year.’’.

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

13 this section shall apply to payments and distributions after

14 December 31, 1996.

15 SEC. 612. CONTRIBUTIONS MUST BE HELD AT LEAST 5

16 YEARS IN CERTAIN CASES.

17 (a) IN GENERAL.—Section 72(t), as amended by this

18 Act, is amended by adding at the end the following new

19 paragraph:

20 ‘‘(10) CERTAIN CONTRIBUTIONS MUST BE HELD

21 5 YEARS.—

22 ‘‘(A) IN GENERAL.—Paragraph (2)(A)(i)

23 shall not apply to any amount distributed out

24 of an individual retirement plan (other than a

25 special individual retirement account) which is
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1 allocable to contributions made to the plan dur2 ing the 5-year period ending on the date of

3 such distribution (and earnings on such con4 tributions).

5 ‘‘(B) ORDERING RULE.—For purposes of

6 this paragraph—

7 ‘‘(i) FIRST-IN, FIRST-OUT RULE.—

8 Distributions shall be treated as having

9 been made—

10 ‘‘(I) first from the earliest con11 tribution (and earnings allocable

12 thereto) remaining in the account at

13 the time of the distribution, and

14 ‘‘(II) then from other contribu15 tions (and earnings allocable thereto)

16 in the order in which made.

17 ‘‘(ii) ALLOCATION OF EARNINGS.—

18 Earnings shall be allocated to contribu19 tions in such manner as the Secretary may

20 prescribe.

21 ‘‘(iii) AGGREGATIONS OF CONTRIBU22 TIONS.—Except as provided by the Sec23 retary, for purposes of this subpara24 graph—
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1 ‘‘(I) all contributions made dur2 ing the same taxable year may be

3 treated as 1 contribution, and

4 ‘‘(II) all contributions made be5 fore the first day of the 5-year period

6 ending on the day before any distribu7 tion may be treated as 1 contribution.

8 ‘‘(C) SPECIAL RULE FOR ROLLOVERS.—

9 ‘‘(i) PENSION PLANS.—Subparagraph

10 (A) shall not apply to distributions out of

11 an individual retirement plan which are al12 locable to rollover contributions to which

13 section 402(c), 403(a)(4), or 403(b)(8) ap14 plied.

15 ‘‘(ii) CONTRIBUTION PERIOD.—For

16 purposes of subparagraph (A), amounts

17 shall be treated as having been held by a

18 plan during any period such contributions

19 were held (or are treated as held under

20 this clause) by any individual retirement

21 plan from which transferred.

22 ‘‘(D) SPECIAL ACCOUNTS.—For rules ap23 plicable to special individual retirement ac24 counts under section 408A, see paragraph

25 (8).’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to contributions (and earnings allo3 cable thereto) which are made after December 31, 1996.

4 SEC. 613. INVESTMENTS IN QUALIFIED STATE PREPAID

5 TUITION PROGRAMS.

6 (a) IN GENERAL.—Section 408, as amended by sec7 tion 1101, is amended by redesignating subsection (q) as

8 subsection (r) and by inserting after subsection (p) the

9 following new subsection:

10 ‘‘(q) SPECIAL RULES FOR QUALIFIED STATE PRE11 PAID TUITION PROGRAM INSTRUMENTS.—

12 ‘‘(1) IN GENERAL.—In the case of a qualified

13 State prepaid tuition program instrument to which

14 this subsection applies—

15 ‘‘(A) the use of all or part of the assets of

16 an individual retirement plan to purchase such

17 an instrument shall be treated for purposes of

18 this section as for the exclusive benefit of the

19 individual for whom the plan was established or

20 the individual’s beneficiaries, and

21 ‘‘(B) to the extent such instrument is con22 verted into tuition and fees as provided in para23 graph (3)(B)(i), such individual (or such bene24 ficiaries) shall be treated—
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1 ‘‘(i) for purposes of subsection (d) as

2 having received a distribution in an

3 amount equal to such tuition and fees (as

4 of the time of the conversion), and

5 ‘‘(ii) for purposes of section

6 72(t)(2)(D)(ii), as having incurred quali7 fied higher education expenses to the ex8 tent such tuition and fees otherwise con9 stitute such expenses.

10 ‘‘(2) INSTRUMENTS TO WHICH SUBSECTION AP11 PLIES.—To the extent provided by the Secretary,

12 this subsection shall apply to any qualified State

13 prepaid tuition program instrument if—

14 ‘‘(A) the instrument is purchased by the

15 individual retirement plan directly from the

16 State or an instrumentality thereof, and

17 ‘‘(B) the beneficiary designated under the

18 instrument is the taxpayer, the taxpayer’s

19 spouse, a dependent of the taxpayer with re20 spect to whom the taxpayer is allowed a deduc21 tion under section 151, or the taxpayer’s child

22 (as defined in section 151(c)(3)) or grandchild.
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1 ‘‘(3) QUALIFIED STATE PREPAID TUITION PRO2 GRAM INSTRUMENT.—For purposes of this sub3 section, the term ‘qualified State prepaid tuition pro4 gram instrument’ means an instrument which—

5 ‘‘(A) is issued under a program established

6 and maintained by a State, and

7 ‘‘(B) which may only be—

8 ‘‘(i) converted into a percentage (de9 termined as of the time of purchase) of

10 tuition and fees which would constitute

11 qualified higher education expenses (within

12 the meaning of section 72(t)(8)) if the ben13 eficiary designated under the instrument

14 enrolls in or attends an institution of high15 er education specified in the instrument as

16 an eligible student, or

17 ‘‘(ii) redeemed for an amount not less

18 than the purchase price (less any reason19 able administrative fees) if the instrument

20 is not converted as provided in clause (i).

21 ‘‘(4) DEFINITIONS.—For purposes of this sub22 section, the terms ‘institution of higher education’

23 and ‘eligible student’ have the meanings given such

24 terms by section 72(t)(8).’’.
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1 (b) EXEMPTION FROM PROHIBITED TRANS2 ACTIONS.—Section 4975(d) is amended by striking ‘‘or’’

3 at the end of paragraph (14), by striking the period at

4 the end of paragraph (15) and inserting ‘‘; or’’, and by

5 inserting after paragraph (15) the following new para6 graph:

7 ‘‘(16) any purchase of a qualified State prepaid

8 tuition program instrument to which section 408(q)

9 applies.’’.

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

11 this section shall apply to taxable years beginning after

12 December 31, 1996.

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