(b) INFLATION ADJUSTMENTS.—Subsection (f) of
section 219 of such Code is amended by adding at the
end the following new paragraph:
‘‘(8) INFLATION ADJUSTMENTS.—In the case of
a taxable year beginning in a calendar year after
1998, each dollar amount set forth in subsections
(b)(1)(A) and (g)(3)(B) shall be increased by an
amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year by substituting ‘calendar year 1997’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
If any increase determined under the preceding sen-
tence is not a multiple of $100, such increase shall
be rounded to the nearest multiple of $100.’’
(c) CONFORMING AMENDMENTS.—
(1) Subsections (a)(1) and (b)(2)(B) of section
408 of such Code are each amended by striking
‘‘$2,000’’ and inserting ‘‘the dollar limitation in ef-
fect under section 219(b)(1)(A)’’.
(2) Subsection (j) of section 408 of such Code
is amended by striking ‘‘the $2,000 amounts con-
tained’’ and inserting ‘‘the dollar limitations referred
to’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1997.
SEC. 3. ELIMINATION OF PHASE-OUT FOR INDIVIDUALS
NOT ACTIVE PARTICIPANTS IN DEFINED CON-
TRIBUTION PLANS AND INCREASE OF IN-
COME LIMITS FOR OTHERS.
(a) ELIMINATION OF PHASE-OUT FOR INDIVIDUALS
NOT ACTIVE PARTICIPANTS IN DEFINED CONTRIBUTION
PLAN.—Paragraph (5) of section 219(g) of the Internal
Revenue Code of 1986 (relating to active participant) is
amended by striking the period at the end of subpara-
graph (B) and inserting a comma, and by inserting after
subparagraph (B) the following:
‘‘if such plan, contract, pension, or trust is a defined
contribution plan (as defined in section 414(i)).’’
(b) INCREASE IN INCOME PHASEOUT LEVELS.—
(1) IN GENERAL.—Subparagraph (B) of section
219(g)(3) of such Code (relating to applicable dollar
amount) is amended—
(A) by striking ‘‘$40,000’’ and inserting
‘‘$120,000’’, and
(B) by striking ‘‘$25,000’’ and inserting
‘‘$75,000’’.
(2) CROSS REFERENCE TO INFLATION ADJUST-
MENT.—Paragraph (3) of section 219(g) of such
Code is amended by adding at the end the following
new subparagraph:
‘‘(C) CROSS REFERENCE.—
‘‘For inflation adjustment of dollar amounts set
forth in subparagraph (B), see subsection (f)(8).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1997.
SEC. 
4. 
WITHHOLDING, 
CONTRIBUTION 
LIMITS, 
AND
MATCHING CONTRIBUTION NONDISCRIMINA-
TION REQUIREMENTS FOR 401(k) PLANS.
(a) INAPPLICABILITY OF WITHHOLDING REQUIRE-
MENT TO 401(k) DISTRIBUTIONS.—
(1) IN
GENERAL.—Paragraph (3) of section
3405(c) of the Internal Revenue Code of 1986 (re-
lating to eligible rollover distribution) is amended by
striking the period at the end and inserting the fol-
lowing: ‘‘, except that such term shall not include a
distribution from a qualified cash or deferred ar-
rangement (as defined in section 401(k)).’’
(2) EFFECTIVE DATE.—The amendment made
by this subsection shall apply to distributions made
after December 31, 1997.
(b) INCREASE IN CONTRIBUTION LIMITS FOR 401(k)
PLANS.—
(1) IN
GENERAL.—Paragraph (1) of section
402(g) of such Code (relating to limitation on exclu-
sion for elective deferrals) is amended by striking
‘‘$7,000’’ and inserting ‘‘$20,000’’.
(2) CONFORMING AMENDMENT.—Paragraph (5)
of section 402(g) of such Code (relating to cost-of-
living adjustment) is amended by striking ‘‘$7,000’’
and inserting ‘‘$20,000’’ and by inserting before the
period ‘‘and the base period taken into account shall
be the calendar quarter beginning October 1, 1997’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after December 31, 1997.
(c) ALTERNATIVE METHODS FOR MEETING SECTION
401(k) NONDISCRIMINATION TEST AND NONDISCRIMINA-
TION TEST FOR MATCHING CONTRIBUTIONS.—
(1) 
SECTION
401(k) 
NONDISCRIMINATION
TEST.—Subsection (k) of section 401 of such Code
(relating to cash or deferred arrangements) is
amended by adding at the end the following new
paragraph:
‘‘(13) ADDITIONAL ALTERNATIVE METHOD OF
MEETING NONDISCRIMINATION REQUIREMENTS.—
‘‘(A) IN GENERAL.—A cash or deferred ar-
rangement shall be treated as meeting the re-
quirements of paragraph (3)(A)(ii) if—
‘‘(i) under the arrangement, the em-
ployer makes matching contributions on
behalf of each employee in an amount
equal to a percentage of the contributions
and elective deferrals of such employee,
‘‘(ii) the same such percentage applies
to all employees of the employer, and
‘‘(iii) not less than biannually, each
employee eligible to participate under the
arrangement is given written notice of the
employee’s rights and obligations under the
arrangement which meets the requirements
of clauses (i) and (ii) of paragraph
(12)(D).
‘‘(B) SPECIAL
RULES
REGARDING
IN-
CREASE
AND
DECREASE
IN
MATCHING
CON-
TRIBUTIONS.—