To amend the Internal Revenue Code of 1986 to allow distributions from qualified cash or deferred arrangements in the event that the employer files for chapter 11 bankruptcy and the employee is not regularly scheduled for work or paid.

To amend the Internal Revenue Code of 1986 to allow distributions from qualified cash or deferred arrangements in the event that the employer files for chapter 11 bankruptcy and the employee is not regularly scheduled for work or paid. 1. Distributions from qualified cash or deferred arrangements allowed in chapter 11 bankruptcy if employee not regularly scheduled for work or paid (a) In general Section 401(k)(2)(B)(i) or and , or (VI) in the case of a qualified bankruptcy reorganization delay distribution (as defined in paragraph (15)), the beginning of the period described in paragraph (15)(A)(iii), and . (b) Qualified bankruptcy reorganization delay distribution Section 401(k) of such Code is amended by adding at the end the following new paragraph: (15) Qualified bankruptcy reorganization delay distribution (A) In general For purposes of paragraph (2)(B)(i)(VI), the term qualified bankruptcy reorganization delay distribution (i) the employer has filed a case under chapter 11 (ii) such employee, at any time after the filing of such case, is not scheduled to work for at least the number of hours that such employee is customarily scheduled to work or is not paid on or before the time that such employee is customarily paid, and (iii) such distribution is made during the period beginning with the first time which is described in clause (ii) with respect to such employee and ending on the first date thereafter on which such employee is scheduled to work for at least the number of hours that such employee is customarily scheduled to work and is paid at the time such employee is customarily paid (or, if earlier, ending on the date of severance from employment). (B) Limitation on distributions The aggregate amount of distributions received by any employee which may be treated as qualified bankruptcy reorganization delay distributions with respect to any case described in subparagraph (A)(i) shall not exceed the amount which bears the same proportion to such employee’s annual salary as the period beginning with the beginning of the period described in subparagraph (A)(iii) and ending on the date of the distribution bears to a calendar year. . (c) Effective date (1) In general The amendments made by this section shall apply to distributions made after the date of the enactment of this Act. (2) Transition During the 2-year period beginning with the date of the enactment of this Act, a plan shall not fail to satisfy any provision of the Internal Revenue Code of 1986 merely because the terms of the plan do not provide for making qualified bankruptcy reorganization delay distributions (as defined in section 401(k)(15) of such Code, as added by this section) but such plan nonetheless provides for such distributions.

Summary: This bill amends the Internal Revenue Code to permit penalty-free distributions from a tax-preferred pension plan in chapter 11 bankruptcy proceedings on behalf of employees who, at the time of  filing of the chapter 11 petition, are not regularly scheduled to work for the number of hours they are customarily scheduled to work or are not paid on or before the time they are customarily paid.