are met if, under the arrangement, the em-
ployer is required, without regard to
whether the employee makes an elective
contribution or employee contribution, to
make a contribution to a defined contribu-
tion plan on behalf of each employee who
is not a highly compensated employee and
who is eligible to participate in the ar-
rangement in an amount equal to at least
1 percent of the employee’s compensation.
‘‘(iii) MATCHING
CONTRIBUTIONS.—
The requirements of this clause are met if,
under the arrangement, the employer
makes matching contributions on behalf of
each employee who is not a highly com-
pensated employee in an amount equal
to—
‘‘(I) 100 percent of the elective
contributions of the employee to the
extent such elective contributions do
not exceed 3 percent of the employee’s
compensation, and
‘‘(II) 50 percent of the elective
contributions of the employee to the
extent that such elective contributions
exceed 3 percent but do not exceed 5
percent of the employee’s compensa-
tion.
‘‘(iv) 
RATE
FOR
HIGHLY
COM-
PENSATED
EMPLOYEES.—The 
require-
ments of clause (iii) are not met if, under
the arrangement, the rate of matching con-
tribution with respect to any rate of elec-
tive contribution of a highly compensated
employee is greater than that with respect
to an employee who is not a highly com-
pensated employee.
‘‘(v) ALTERNATIVE PLAN DESIGNS.—
If the rate of matching contribution with
respect to any rate of elective contribution
is not equal to the percentage required
under clause (iii), an arrangement shall
not be treated as failing to meet the re-
quirements of clause (iii) if—
‘‘(I) the rate of an employer’s
matching contribution does not in-
crease as an employee’s rate of elec-
tive contribution increase, and
‘‘(II) the aggregate amount of
matching contributions at such rate of
elective contribution is at least equal
to the aggregate amount of matching
contributions which would be made if
matching contributions were made on
the basis of the percentages described
in clause (iii).’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December
31, 1998.
SEC. 8. DEFINITION OF HIGHLY COMPENSATED EMPLOY-
EES.
(a) IN GENERAL.—Subparagraph (B) of section
414(q)(1) (defining highly compensated employee) is
amended to read as follows:
‘‘(B) for the preceding year had compensa-
tion from the employer in excess of $80,000.’’.
(b) CONFORMING AMENDMENTS.—
(1)(A) Subsection (q) of section 414 is amended
by striking paragraphs (3), (5), and (7) and by re-
designating paragraphs (4), (6), (8), and (9) as
paragraphs (3) through (6), respectively.
(B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii),
408(k)(2)(C), and 416(i)(1)(D) are each amended
by striking ‘‘section 414(q)(4)’’ and inserting ‘‘sec-
tion 414(q)(3)’’.
(C) Section 416(i)(1)(A) is amended by striking
‘‘section 
414(q)(5)’’ 
and 
inserting 
‘‘section
414(r)(9)’’.
(2)(A) Section 414(r) is amended by adding at
the end the following new paragraph:
‘‘(9) EXCLUDED EMPLOYEES.—For purposes of
paragraph (2)(A), the following employees shall be
excluded:
‘‘(A) Employees who have not completed 6
months of service.
‘‘(B) Employees who normally work less
than 171⁄2 hours per week.
‘‘(C) Employees who normally work during
not more than 6 months during any year.
‘‘(D) Employees who have not attained the
age of 21.
‘‘(E) Except to the extent provided in reg-
ulations, employees who are included in a unit
of employees covered by an agreement which
the Secretary of Labor finds to be a collective
bargaining agreement between employee rep-
resentatives and the employer.’’.
(B) Subparagraph (A) of section 414(r)(2) is
amended by striking ‘‘subsection (q)(5)’’ and insert-
ing ‘‘paragraph (9)’’.