I
106TH CONGRESS
1ST SESSION
H. R. 554
To amend the Internal Revenue Code of 1986 to allow rollover contributions
to individual retirement plans from deferred compensation plans main-
tained by States and local governments and to allow State and local
governments to maintain 401(k) plans.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 3, 1999
Mr. MCNULTY introduced the following bill; which was referred to the
Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to allow roll-
over contributions to individual retirement plans from
deferred compensation plans maintained by States and
local governments and to allow State and local govern-
ments to maintain 401(k) plans.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. ROLLOVER CONTRIBUTIONS FROM DEFERRED
COMPENSATION 
PLANS 
OF 
STATE 
AND
LOCAL GOVERNMENTS.
(a) ROLLOVERS FROM SECTION 457 PLANS.—
(1) IN GENERAL.—Section 457(e) of the Inter-
nal Revenue Code of 1986 (relating to other defini-
tions and special rules) is amended by adding at the
end the following:
‘‘(16) ROLLOVER AMOUNTS.—
‘‘(A) GENERAL RULE.—In the case of an
eligible deferred compensation plan of an eligi-
ble employer described in paragraph (1)(A),
if—
‘‘(i) any portion of the balance to the
credit of an employee in such plan is paid
to such employee in a rollover distribution
(other than a distribution described in sub-
section (d)(1)(A)(iii) or in subparagraph
(A) or (B) of section 402(c)(4)),
‘‘(ii) the employee transfers any por-
tion of the property such employee receives
in such distribution to an individual retire-
ment 
plan 
(as 
defined 
in 
section
7701(a)(37)), and
‘‘(iii) in the case of a distribution of
property other than money, the amount so
transferred consists of the property distrib-
uted,
then such distribution (to the extent so trans-
ferred) shall not be includible in gross income
for the taxable year in which paid.
‘‘(B) CERTAIN
RULES
MADE
APPLICA-
BLE.—Rules similar to the rules of section
401(a)(31), paragraphs (2), (3), (5), (6), (7),
and (9) of section 402(c), and section 402(f)
shall apply for purposes of subparagraph (A).’’.
(2) DISTRIBUTION
REQUIREMENTS.—Section
457(d)(1)(A) of such Code (relating to distribution
requirements) is amended by inserting ‘‘except as
provided in subsection (e)(16),’’ after ‘‘(A)’’.
(3) CONFORMING AMENDMENTS.—
(A) Section 72(o)(4) of such Code is
amended—
(i) by striking ‘‘and 408(d)(3)’’ and
inserting ‘‘408(d)(3), and 457(e)(16)’’,
(ii) by inserting ‘‘or excludable’’ after
‘‘deductible’’ each place it appears, and
(iii) in the heading by inserting ‘‘OR
EXCLUDABLE’’ after ‘‘DEDUCTIBLE’’.
(B) Section 219(d)(2) of such Code is
amended by striking ‘‘or 408(d)(3)’’ and insert-
ing ‘‘408(d)(3), or 457(e)(16)’’.
(C) Section 401(a)(31)(B) of such Code is
amended by striking ‘‘and 403(a)(4)’’ and in-
serting ‘‘, 403(a)(4), and 457(e)(16)’’.
(D) Paragraph (4) of section 402(c) of
such Code is amended by inserting ‘‘or in an el-
igible deferred compensation plan (as defined in
section 457(b)) of an eligible employer de-
scribed in section 457(e)(1)(A)’’ after ‘‘qualified
trust’’.
(E) Section 408(a)(1) of such Code is
amended by striking ‘‘or 403(b)(8)’’ and insert-
ing ‘‘, 403(b)(8), or 457(e)(16)’’.
(F) Section 408(d)(3)(A)(ii) of such Code
is amended by striking ‘‘or’’ after ‘‘501(a)’’ and
inserting a comma, and by inserting ‘‘, or from
an eligible deferred compensation plan described
in section 457(b)’’ after ‘‘contribution)’’.
(G) The first sentence of subsection (e) of
section 408A of such Code is amended—
(i) by inserting ‘‘, from an eligible de-
ferred compensation plan (as defined in
section 457(b)),’’ after ‘‘account’’, and
(ii) by inserting before the period the
following: ‘‘or in the case of such eligible
deferred 
compensation 
plan 
section
457(e)(16)’’.
(H) Subparagraphs (A) and (B) of section
415(b)(2) of such Code are each amended by
striking 
‘‘and 
408(d)(3)’’ 
and 
inserting
‘‘408(d)(3), and 457(e)(16)’’.
(I) Section 4973(b)(1)(A) of such Code is
amended by striking ‘‘or 408(d)(3)’’ and insert-
ing ‘‘408(d)(3), or 457(e)(16)’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions after December 31,
1998.
SEC. 2. STATE AND LOCAL GOVERNMENTS ELIGIBLE
UNDER SECTION 401(k).
(a) IN GENERAL.—Subparagraph (B) of section
401(k)(4) of the Internal Revenue Code of 1986 (relating
to eligibility of State and local governments and tax-ex-
empt organizations) is amended by striking clause (ii) and
redesignating clause (iii) as clause (ii).
(b) CONFORMING AMENDMENT.—Clause (i) of sec-
tion 401(k)(4)(B) of such Code is amended by striking
‘‘Except as provided in clause (ii), any’’ and inserting
‘‘Any’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning after De-
cember 31, 1998.
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