‘‘(5) COST-OF-LIVING
ADJUSTMENT.—In the
case of taxable years beginning after December 31,
2006, the Secretary shall adjust the $15,000
amount under paragraph (1)(B) at the same time
and in the same manner as under section 415(d),
except that the base period shall be the calendar
quarter beginning July 1, 2005, and any increase
under this paragraph which is not a multiple of
$500 shall be rounded to the next lowest multiple of
$500.’’.
(3) CONFORMING AMENDMENTS.—
(A) Section 402(g) (relating to limitation
on exclusion for elective deferrals), as amended
by paragraphs (1) and (2), is further amended
by striking paragraph (4) and redesignating
paragraphs (5), (6), (7), (8), and (9) as para-
graphs (4), (5), (6), (7), and (8), respectively.
(B) Paragraph (2) of section 457(c) is
amended by striking ‘‘402(g)(8)(A)(iii)’’ and in-
serting ‘‘402(g)(7)(A)(iii)’’.
(C) Clause (iii) of section 501(c)(18)(D) is
amended by striking ‘‘(other than paragraph
(4) thereof)’’.
(e) DEFERRED COMPENSATION PLANS
OF STATE
AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANI-
ZATIONS.—
(1) IN GENERAL.—Section 457 (relating to de-
ferred compensation plans of State and local govern-
ments and tax-exempt organizations) is amended—
(A) in subsections (b)(2)(A) and (c)(1) by
striking ‘‘$7,500’’ each place it appears and in-
serting ‘‘the applicable dollar amount’’; and
(B) in subsection (b)(3)(A) by striking
‘‘$15,000’’ and inserting ‘‘twice the dollar
amount in effect under subsection (b)(2)(A)’’.
(2) APPLICABLE
DOLLAR
AMOUNT; COST-OF-
LIVING
ADJUSTMENT.—Paragraph (15) of section
457(e) is amended to read as follows:
‘‘(15) APPLICABLE DOLLAR AMOUNT.—
‘‘(A) IN GENERAL.—The applicable dollar
amount shall be the amount determined in ac-
cordance with the following table:
‘‘For taxable years
The applicable
beginning in
dollar amount:
calendar year:
2002 .............................................................................
$11,000
2003 .............................................................................
$12,000
2004 .............................................................................
$13,000
2005 .............................................................................
$14,000
2006 or thereafter ........................................................
$15,000.
‘‘(B) COST-OF-LIVING ADJUSTMENTS.—In
the case of taxable years beginning after De-
cember 31, 2006, the Secretary shall adjust the
$15,000 amount specified in the table in sub-
paragraph (A) at the same time and in the
same manner as under section 415(d), except
that the base period shall be the calendar quar-
ter beginning July 1, 2005, and any increase
under this paragraph which is not a multiple of
$500 shall be rounded to the next lowest mul-
tiple of $500.’’.
(f) SIMPLE RETIREMENT ACCOUNTS.—
(1) 
LIMITATION.—Clause 
(ii) 
of 
section
408(p)(2)(A) (relating to general rule for qualified
salary reduction arrangement) is amended by strik-
ing ‘‘$6,000’’ and inserting ‘‘the applicable dollar
amount’’.
(2) APPLICABLE DOLLAR AMOUNT.—Subpara-
graph (E) of 408(p)(2) is amended to read as fol-
lows:
‘‘(E) APPLICABLE DOLLAR AMOUNT; COST-
OF-LIVING ADJUSTMENT.—
‘‘(i) IN
GENERAL.—For purposes of
subparagraph (A)(ii), the applicable dollar
amount shall be the amount determined in
accordance with the following table:
‘‘For taxable years
The applicable
beginning in
dollar amount:
calendar year:
2002 ......................................................................
$7,000
2003 ......................................................................
$8,000
2004 ......................................................................
$9,000
2005 or thereafter ................................................
$10,000.
‘‘(ii) COST-OF-LIVING ADJUSTMENT.—
In the case of a year beginning after De-
cember 31, 2005, the Secretary shall ad-
just the $10,000 amount under clause (i)
at the same time and in the same manner
as under section 415(d), except that the
base period taken into account shall be the
calendar quarter beginning July 1, 2004,
and any increase under this subparagraph
which is not a multiple of $500 shall be
rounded to the next lower multiple of
$500.’’.
(3) CONFORMING AMENDMENTS.—
(A) Clause (I) of section 401(k)(11)(B)(i)
is amended by striking ‘‘$6,000’’ and inserting
‘‘the 
amount 
in 
effect 
under 
section
408(p)(2)(A)(ii)’’.
(B) Section 401(k)(11) is amended by
striking subparagraph (E).
(g) ROUNDING RULE RELATING TO DEFINED BEN-
EFIT PLANS
AND DEFINED CONTRIBUTION PLANS.—
Paragraph (4) of section 415(d) is amended to read as
follows:
‘‘(4) ROUNDING.—
‘‘(A) $160,000 AMOUNT.—Any increase
under subparagraph (A) of paragraph (1) which
is not a multiple of $5,000 shall be rounded to
the next lowest multiple of $5,000.
‘‘(B) $40,000 
AMOUNT.—Any increase
under subparagraph (C) of paragraph (1) which
is not a multiple of $1,000 shall be rounded to
the next lowest multiple of $1,000.’’.
(h) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2001.
SEC. 222. PLAN LOANS FOR SUBCHAPTER S OWNERS, PART-
NERS, AND SOLE PROPRIETORS.
(a) IN GENERAL.—Subparagraph (B) of section
4975(f)(6) (relating to exemptions not to apply to certain
transactions) is amended by adding at the end the fol-
lowing new clause:
‘‘(iii) LOAN
EXCEPTION.—For pur-
poses of subparagraph (A)(i), the term
‘owner-employee’ shall only include a per-
son described in subclause (II) or (III) of
clause (i).’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to loans made after December 31,
2001.
SEC. 223. MODIFICATION OF TOP-HEAVY RULES.
(a) SIMPLIFICATION OF DEFINITION OF KEY EM-
PLOYEE.—
(1) IN GENERAL.—Section 416(i)(1)(A) (defin-
ing key employee) is amended—
(A) by striking ‘‘or any of the 4 preceding
plan years’’ in the matter preceding clause (i);
(B) by striking clause (i) and inserting the
following:
‘‘(i) an officer of the employer having
an annual compensation greater than
$150,000,’’;
(C) by striking clause (ii) and redesig-
nating clauses (iii) and (iv) as clauses (ii) and
(iii), respectively; and
(D) by striking the second sentence in the
matter following clause (iii), as redesignated by
subparagraph (C).
(2) 
CONFORMING
AMENDMENT.—Section
416(i)(1)(B)(iii) is amended by striking ‘‘and sub-
paragraph (A)(ii)’’.
(b) MATCHING CONTRIBUTIONS TAKEN INTO AC-
COUNT FOR MINIMUM CONTRIBUTION REQUIREMENTS.—
Section 416(c)(2)(A) (relating to defined contribution
plans) is amended by adding at the end the following:
‘‘Employer matching contributions (as defined in section
401(m)(4)(A)) shall be taken into account for purposes
of this subparagraph.’’.
(c) DISTRIBUTIONS DURING LAST YEAR BEFORE
DETERMINATION DATE TAKEN INTO ACCOUNT.—
(1) IN
GENERAL.—Paragraph (3) of section
416(g) is amended to read as follows:
‘‘(3) DISTRIBUTIONS DURING LAST YEAR BE-
FORE
DETERMINATION
DATE
TAKEN
INTO
AC-
COUNT.—
‘‘(A) IN
GENERAL.—For purposes of
determining—
‘‘(i) the present value of the cumu-
lative accrued benefit for any employee, or
‘‘(ii) the amount of the account of any
employee,
such present value or amount shall be increased
by the aggregate distributions made with re-
spect to such employee under the plan during
the 1-year period ending on the determination
date. The preceding sentence shall also apply to
distributions under a terminated plan which if
it had not been terminated would have been re-
quired to be included in an aggregation group.
‘‘(B) 5-YEAR PERIOD IN CASE OF IN-SERV-
ICE
DISTRIBUTION.—In the case of any dis-
tribution made for a reason other than separa-
tion from service, death, or disability, subpara-
graph (A) shall be applied by substituting ‘5-
year period’ for ‘1-year period’.’’.
(2) BENEFITS NOT TAKEN INTO ACCOUNT.—
Subparagraph 
(E) 
of 
section 
416(g)(4) 
is
amended—
(A) by striking ‘‘LAST 5 YEARS’’ in the
heading and inserting ‘‘LAST YEAR BEFORE DE-
TERMINATION DATE’’; and
(B) by striking ‘‘5-year period’’ and insert-
ing ‘‘1-year period’’.
(d) DEFINITION OF TOP-HEAVY PLANS.—Paragraph
(4) of section 416(g) (relating to other special rules for
top-heavy plans) is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(H) CASH OR DEFERRED ARRANGEMENTS
USING
ALTERNATIVE
METHODS
OF
MEETING
NONDISCRIMINATION
REQUIREMENTS.—The
term ‘top-heavy plan’ shall not include a plan
which consists solely of—
‘‘(i) a cash or deferred arrangement
which meets the requirements of section
401(k)(12), and
‘‘(ii) matching contributions with re-
spect to which the requirements of section
401(m)(11) are met.
If, but for this subparagraph, a plan would be
treated as a top-heavy plan because it is a
member of an aggregation group which is a top-
heavy group, contributions under the plan may
be taken into account in determining whether
any other plan in the group meets the require-
ments of subsection (c)(2).’’.
(e) FROZEN PLAN EXEMPT FROM MINIMUM BEN-
EFIT
REQUIREMENT.—Subparagraph (C) of section
416(c)(1) (relating to defined benefit plans) is amended—
(A) by striking ‘‘clause (ii)’’ in clause (i)
and inserting ‘‘clause (ii) or (iii)’’; and
(B) by adding at the end the following:
‘‘(iii) 
EXCEPTION
FOR
FROZEN
PLAN.—For purposes of determining an
employee’s years of service with the em-
ployer, any service with the employer shall
be disregarded to the extent that such
service occurs during a plan year when the
plan benefits (within the meaning of sec-
tion 410(b)) no employee or former em-
ployee.’’.
(f) ELIMINATION OF FAMILY ATTRIBUTION.—Sec-
tion 416(i)(1)(B) (defining 5-percent owner) is amended
by adding at the end the following new clause:
‘‘(iv) 
FAMILY
ATTRIBUTION
DIS-
REGARDED.—Solely for purposes of apply-
ing this paragraph (and not for purposes
of any provision of this title which incor-
porates by reference the definition of a key
employee or 5-percent owner under this
paragraph), section 318 shall be applied
without regard to subsection (a)(1) thereof
in determining whether any person is a 5-
percent owner.’’.
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2001.
SEC. 224. ELECTIVE DEFERRALS NOT TAKEN INTO AC-
COUNT FOR PURPOSES OF DEDUCTION LIM-
ITS.
(a) IN GENERAL.—Section 404 (relating to deduction
for contributions of an employer to an employees’ trust
or annuity plan and compensation under a deferred pay-
ment plan) is amended by adding at the end the following
new subsection:
‘‘(n) ELECTIVE DEFERRALS NOT TAKEN INTO AC-
COUNT FOR PURPOSES OF DEDUCTION LIMITS.—Elective
deferrals (as defined in section 402(g)(3)) shall not be
subject to any limitation contained in paragraph (3), (7),
or (9) of subsection (a), and such elective deferrals shall
not be taken into account in applying any such limitation
to any other contributions.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December
31, 2001.
SEC. 225. REPEAL OF COORDINATION REQUIREMENTS FOR
DEFERRED COMPENSATION PLANS OF STATE
AND LOCAL GOVERNMENTS AND TAX-EX-
EMPT ORGANIZATIONS.
(a) IN GENERAL.—Subsection (c) of section 457 (re-
lating to deferred compensation plans of State and local
governments and tax-exempt organizations), as amended
by section 201, is amended to read as follows:
‘‘(c) LIMITATION.—The maximum amount of the
compensation of any one individual which may be deferred
under subsection (a) during any taxable year shall not ex-
ceed the amount in effect under subsection (b)(2)(A) (as
modified by any adjustment provided under subsection
(b)(3)).’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to years beginning after Decem-
ber 31, 2001.
SEC. 226. ELIMINATION OF USER FEE FOR REQUESTS TO
IRS REGARDING PENSION PLANS.
(a) ELIMINATION OF CERTAIN USER FEES.—The
Secretary of the Treasury or the Secretary’s delegate shall
not require payment of user fees under the program estab-
lished under section 7527 of the Internal Revenue Code
of 1986 for requests to the Internal Revenue Service for
determination letters with respect to the qualified status
of a pension benefit plan maintained solely by one or more
eligible employers or any trust which is part of the plan.
The preceding sentence shall not apply to any request—
(1) made after the fifth plan year the pension
benefit plan is in existence; or
(2) made by the sponsor of any prototype or
similar plan which the sponsor intends to market to
participating employers.
(b) PENSION BENEFIT PLAN.—For purposes of this
section, the term ‘‘pension benefit plan’’ means a pension,
profit-sharing, stock bonus, annuity, or employee stock
ownership plan.
(c) ELIGIBLE EMPLOYER.—For purposes of this sec-
tion, the term ‘‘eligible employer’’ has the same meaning
given such term in section 408(p)(2)(C)(i)(I) of the Inter-
nal Revenue Code of 1986. The determination of whether
an employer is an eligible employer under this section shall
be made as of the date of the request described in sub-
section (a).
(d) EFFECTIVE DATE.—The provisions of this sec-
tion shall apply with respect to requests made after De-
cember 31, 2001.
SEC. 227. DEDUCTION LIMITS.
(a) IN GENERAL.—
(1) STOCK
BONUS
AND
PROFIT
SHARING
TRUSTS.—Subclause (I) of section 404(a)(3)(A)(i)
(relating to stock bonus and profit sharing trusts) is
amended by striking ‘‘15 percent’’ and inserting ‘‘20
percent’’.
(2) COMPENSATION.—Section 404(a) (relating
to general rule) is amended by adding at the end the
following:
‘‘(12) DEFINITION
OF
COMPENSATION.—For
purposes of paragraphs (3), (7), (8), and (9), the
term ‘compensation otherwise paid or accrued dur-
ing the taxable year’ shall include amounts treated
as ‘participant’s compensation’ under subparagraph
(C) or (D) of section 415(c)(3).’’.
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (B) of section 404(a)(3) is
amended by striking the last sentence thereof.
(2) Subparagraph (C) of section 404(h)(1) is
amended by striking ‘‘15 percent’’ each place it ap-
pears and inserting ‘‘20 percent’’.
(3) Clause (i) of section 4972(c)(6)(B) is
amended by striking ‘‘(within the meaning of section
404(a))’’ and inserting ‘‘(within the meaning of sec-
tion 
404(a) 
and 
as 
adjusted 
under 
section
404(a)(12))’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2001.
SEC. 228. OPTION TO TREAT ELECTIVE DEFERRALS AS
AFTER-TAX CONTRIBUTIONS.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 (relating to deferred compensation, etc.)
is amended by inserting after section 402 the following
new section:
‘‘SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFER-
RALS AS PLUS CONTRIBUTIONS.
‘‘(a) GENERAL RULE.—If an applicable retirement
plan includes a qualified plus contribution program—
‘‘(1) any designated plus contribution made by
an employee pursuant to the program shall be treat-
ed as an elective deferral for purposes of this chap-
ter, except that such contribution shall not be ex-
cludable from gross income, and
‘‘(2) such plan (and any arrangement which is
part of such plan) shall not be treated as failing to
meet any requirement of this chapter solely by rea-
son of including such program.
‘‘(b) QUALIFIED PLUS CONTRIBUTION PROGRAM.—
For purposes of this section—
‘‘(1) IN
GENERAL.—The term ‘qualified plus
contribution program’ means a program under which
an employee may elect to make designated plus con-
tributions in lieu of all or a portion of elective defer-
rals the employee is otherwise eligible to make under
the applicable retirement plan.
‘‘(2) SEPARATE
ACCOUNTING
REQUIRED.—A
program shall not be treated as a qualified plus con-
tribution program unless the applicable retirement
plan—
‘‘(A) establishes separate accounts (‘des-
ignated plus accounts’) for the designated plus
contributions of each employee and any earn-
ings properly allocable to the contributions, and
‘‘(B) maintains separate recordkeeping
with respect to each account.
‘‘(c) DEFINITIONS AND RULES RELATING TO DES-
IGNATED PLUS CONTRIBUTIONS.—For purposes of this
section—
‘‘(1) DESIGNATED PLUS CONTRIBUTION.—The
term ‘designated plus contribution’ means any elec-
tive deferral which—
‘‘(A) is excludable from gross income of an
employee without regard to this section, and
‘‘(B) the employee designates (at such time
and in such manner as the Secretary may pre-
scribe) as not being so excludable.
‘‘(2) DESIGNATION
LIMITS.—The amount of
elective deferrals which an employee may designate
under paragraph (1) shall not exceed the excess (if
any) of—
‘‘(A) the maximum amount of elective de-
ferrals excludable from gross income of the em-
ployee for the taxable year (without regard to
this section), over
‘‘(B) the aggregate amount of elective de-
ferrals of the employee for the taxable year
which the employee does not designate under
paragraph (1).
‘‘(3) ROLLOVER CONTRIBUTIONS.—
‘‘(A) IN
GENERAL.—A rollover contribu-
tion of any payment or distribution from a des-
ignated plus account which is otherwise allow-
able under this chapter may be made only if the
contribution is to—
‘‘(i) another designated plus account
of the individual from whose account the
payment or distribution was made, or
‘‘(ii) a Roth IRA of such individual.
‘‘(B) COORDINATION
WITH
LIMIT.—Any
rollover contribution to a designated plus ac-
count under subparagraph (A) shall not be
taken into account for purposes of paragraph
(1).
‘‘(d) DISTRIBUTION RULES.—For purposes of this
title—
‘‘(1) EXCLUSION.—Any qualified distribution
from a designated plus account shall not be includ-
ible in gross income.
‘‘(2) QUALIFIED DISTRIBUTION.—For purposes
of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
distribution’ has the meaning given such term
by section 408A(d)(2)(A) (without regard to
clause (iv) thereof).
‘‘(B) DISTRIBUTIONS WITHIN NONEXCLU-
SION PERIOD.—A payment or distribution from
a designated plus account shall not be treated
as a qualified distribution if such payment or
distribution is made within the 5-taxable-year
period beginning with the earlier of—
‘‘(i) the first taxable year for which
the individual made a designated plus con-
tribution to any designated plus account
established for such individual under the
same applicable retirement plan, or
‘‘(ii) if a rollover contribution was
made to such designated plus account from
a designated plus account previously estab-
lished for such individual under another
applicable retirement plan, the first taxable
year for which the individual made a des-
ignated plus contribution to such pre-
viously established account.
‘‘(C) DISTRIBUTIONS OF EXCESS DEFER-
RALS AND EARNINGS.—The term ‘qualified dis-
tribution’ shall not include any distribution of
any excess deferral under section 402(g)(2) and
any income on the excess deferral.
‘‘(3) AGGREGATION RULES.—Section 72 shall
be applied separately with respect to distributions
and payments from a designated plus account and
other distributions and payments from the plan.
‘‘(e) OTHER DEFINITIONS.—For purposes of this
section—
‘‘(1) APPLICABLE
RETIREMENT
PLAN.—The
term ‘applicable retirement plan’ means—
‘‘(A) an employees’ trust described in sec-
tion 401(a) which is exempt from tax under
section 501(a), and
‘‘(B) a plan under which amounts are con-
tributed by an individual’s employer for an an-
nuity contract described in section 403(b).
‘‘(2) ELECTIVE DEFERRAL.—The term ‘elective
deferral’ means any elective deferral described in
subparagraph (A) or (C) of section 402(g)(3).’’.
CHAPTER 3—ENHANCING FAIRNESS FOR
WOMEN
SEC. 231. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS
AGE 50 OR OVER.
(a) IN GENERAL.—Section 414 (relating to defini-
tions and special rules) is amended by adding at the end
the following new subsection:
‘‘(v) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS
AGE 50 OR OVER.—
‘‘(1) IN
GENERAL.—An applicable employer
plan shall not be treated as failing to meet any re-
quirement of this title solely because the plan per-
mits an eligible participant to make additional elec-
tive deferrals in any plan year.
‘‘(2) LIMITATION ON AMOUNT OF ADDITIONAL
DEFERRALS.—A plan shall not permit additional
elective deferrals under paragraph (1) for any year
in an amount greater than the lesser of—
‘‘(A) $5,000, or
‘‘(B) the excess (if any) of—
‘‘(i) the participant’s compensation for
the year, over
‘‘(ii) any other elective deferrals of the
participant for such year which are made
without regard to this subsection.
‘‘(3) TREATMENT OF CONTRIBUTIONS.—In the
case of any contribution to a plan under paragraph
(1), such contribution shall not, with respect to the
year in which the contribution is made—
‘‘(A) be subject to any otherwise applicable
limitation 
contained 
in 
section 
402(g),
402(h)(2), 404(a), 404(h), 408(p)(2)(A)(ii),
415, or 457, or
‘‘(B) be taken into account in applying
such limitations to other contributions or bene-
fits under such plan or any other such plan.
‘‘(4) ELIGIBLE PARTICIPANT.—For purposes of
this subsection, the term ‘eligible participant’ means,
with respect to any plan year, a participant in a
plan—
‘‘(A) who has attained the age of 50 before
the close of the plan year, and
‘‘(B) with respect to whom no other elec-
tive deferrals may (without regard to this sub-
section) be made to the plan for the plan year
by reason of the application of any limitation or
other restriction described in paragraph (3) or
comparable limitation contained in the terms of
the plan.
‘‘(5) OTHER
DEFINITIONS
AND
RULES.—For
purposes of this subsection—
‘‘(A) APPLICABLE EMPLOYER PLAN.—The
term ‘applicable employer plan’ means—
‘‘(i) an employees’ trust described in
section 401(a) which is exempt from tax
under section 501(a),
‘‘(ii) a plan under which amounts are
contributed by an individual’s employer for
an annuity contract described in section
403(b),
‘‘(iii) an eligible deferred compensa-
tion plan under section 457 of an eligible
employer 
as 
defined 
in 
section
457(e)(1)(A), and
‘‘(iv) an arrangement meeting the re-
quirements of section 408 (k) or (p).
‘‘(B) ELECTIVE
DEFERRAL.—The term
‘elective deferral’ has the meaning given such
term by subsection (u)(2)(C).
‘‘(C) 
EXCEPTION
FOR
SECTION
457
PLANS.—This subsection shall not apply to an
applicable employer plan described in subpara-
graph (A)(iii) for any year to which section
457(b)(3) applies.
‘‘(D) COST-OF-LIVING ADJUSTMENT.—For
years beginning after December 31, 2005, the
Secretary shall adjust annually the $5,000
amount in subparagraph (A) for increases in
the cost-of-living at the same time and in the
same manner as adjustments under section
415(d); except that the base period shall be the
calendar quarter beginning July 1, 2004, and
any increase which is not a multiple of $500
shall be rounded to the next lowest multiple of
$500.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to contributions in taxable years
beginning after December 31, 2001.
SEC. 232. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF
EMPLOYEES 
TO 
DEFINED 
CONTRIBUTION
PLANS.
(a) EQUITABLE TREATMENT.—
(1) IN GENERAL.—Subparagraph (B) of section
415(c)(1) (relating to limitation for defined con-
tribution plans) is amended by striking ‘‘25 percent’’
and inserting ‘‘100 percent’’.
(2) APPLICATION TO SECTION 403(b).—Section
403(b) is amended—
(A) by striking ‘‘the exclusion allowance
for such taxable year’’ in paragraph (1) and in-
serting ‘‘the applicable limit under section
415’’;
(B) by striking paragraph (2); and
(C) by inserting ‘‘or any amount received
by a former employee after the fifth taxable
year following the taxable year in which such
employee was terminated’’ before the period at
the end of the second sentence of paragraph
(3).
(3) CONFORMING AMENDMENTS.—
(A) Subsection (f) of section 72 is amend-
ed by striking ‘‘section 403(b)(2)(D)(iii))’’ and
inserting ‘‘section 403(b)(2)(D)(iii), as in effect
before the enactment of the Comprehensive Re-
tirement Security and Pension Reform Act of
2000)’’.
(B) Section 404(a)(10)(B) is amended by
striking ‘‘, the exclusion allowance under sec-
tion 403(b)(2),’’.
(C) Section 415(a)(2) is amended by strik-
ing ‘‘, and the amount of the contribution for
such portion shall reduce the exclusion allow-
ance as provided in section 403(b)(2)’’.
(D) Section 415(c)(3) is amended by add-
ing at the end the following new subparagraph:
‘‘(E) ANNUITY CONTRACTS.—In the case
of an annuity contract described in section
403(b), the term ‘participant’s compensation’
means the participant’s includible compensation
determined under section 403(b)(3).’’.
(E) Section 415(c) is amended by striking
paragraph (4).
(F) Section 415(c)(7) is amended to read
as follows:
‘‘(7) CERTAIN
CONTRIBUTIONS
BY
CHURCH
PLANS NOT TREATED AS EXCEEDING LIMIT.—
‘‘(A) IN GENERAL.—Notwithstanding any
other provision of this subsection, at the elec-
tion of a participant who is an employee of a
church or a convention or association of church-
es, including an organization described in sec-
tion 414(e)(3)(B)(ii), contributions and other
additions for an annuity contract or retirement
income account described in section 403(b) with
respect to such participant, when expressed as
an annual addition to such participant’s ac-
count, shall be treated as not exceeding the lim-
itation of paragraph (1) if such annual addition
is not in excess of $10,000.
‘‘(B) $40,000 AGGREGATE LIMITATION.—
The total amount of additions with respect to
any participant which may be taken into ac-
count for purposes of this subparagraph for all
years may not exceed $40,000.
‘‘(C) ANNUAL ADDITION.—For purposes of
this paragraph, the term ‘annual addition’ has
the meaning given such term by paragraph
(2).’’.
(G) Subparagraph (B) of section 402(g)(7)
(as redesignated by section 211) is amended by
inserting before the period at the end the fol-
lowing: ‘‘(as in effect before the enactment of
the Comprehensive Retirement Security and
Pension Reform Act of 2000)’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to years beginning
after December 31, 2001.
(b) SPECIAL RULES
FOR SECTIONS 403(b) AND
408.—
(1) IN
GENERAL.—Subsection (k) of section
415 is amended by adding at the end the following
new paragraph:
‘‘(4) SPECIAL RULES FOR SECTIONS 403(b) AND
408.—For purposes of this section, any annuity con-
tract described in section 403(b) for the benefit of
a participant shall be treated as a defined contribu-
tion plan maintained by each employer with respect
to which the participant has the control required
under subsection (b) or (c) of section 414 (as modi-
fied by subsection (h)). For purposes of this section,
any contribution by an employer to a simplified em-
ployee pension plan for an individual for a taxable
year shall be treated as an employer contribution to
a defined contribution plan for such individual for
such year.’’.
(2) EFFECTIVE DATE.—
(A) IN GENERAL.—The amendment made
by paragraph (1) shall apply to limitation years
beginning after December 31, 2001.
(B) EXCLUSION
ALLOWANCE.—Effective
for limitation years beginning in 2002, in the
case of any annuity contract described in sec-
tion 403(b) of the Internal Revenue Code of
1986, the amount of the contribution disquali-
fied by reason of section 415(g) of such Code
shall reduce the exclusion allowance as provided
in section 403(b)(2) of such Code.
(3) MODIFICATION OF 403(b) EXCLUSION AL-
LOWANCE TO CONFORM TO 415 MODIFICATION.—The
Secretary of the Treasury shall modify the regula-
tions regarding the exclusion allowance under section
403(b)(2) of the Internal Revenue Code of 1986 to
render void the requirement that contributions to a
defined benefit pension plan be treated as previously
excluded amounts for purposes of the exclusion al-
lowance. For taxable years beginning after Decem-
ber 31, 2001, such regulations shall be applied as if
such requirement were void.
(c) DEFERRED COMPENSATION PLANS
OF STATE
AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANI-
ZATIONS.—
(1) IN GENERAL.—Subparagraph (B) of section
457(b)(2) (relating to salary limitation on eligible
deferred compensation plans) is amended by striking
‘‘331⁄3 percent’’ and inserting ‘‘100 percent’’.
(2) EFFECTIVE DATE.—The amendment made
by this subsection shall apply to years beginning
after December 31, 2001.
SEC. 
233. 
FASTER 
VESTING 
OF 
CERTAIN 
EMPLOYER
MATCHING CONTRIBUTIONS.
(a) IN GENERAL.—Section 411(a) (relating to min-
imum vesting standards) is amended—
(1) in paragraph (2), by striking ‘‘A plan’’ and
inserting ‘‘Except as provided in paragraph (12), a
plan’’; and
(2) by adding at the end the following:
‘‘(12) FASTER VESTING FOR MATCHING CON-
TRIBUTIONS.—In the case of matching contributions
(as defined in section 401(m)(4)(A)), paragraph (2)
shall be applied—
‘‘(A) by substituting ‘3 years’ for ‘5 years’
in subparagraph (A), and
‘‘(B) by substituting the following table for
the table contained in subparagraph (B):
The nonforfeitable
‘‘Years of service:
percentage is:
2 ...................................................................................
3 ...................................................................................
4 ...................................................................................
5 ...................................................................................
6 ...................................................................................
100.’’.
(b) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to contributions for plan years beginning
after December 31, 2001.
(2) COLLECTIVE BARGAINING AGREEMENTS.—
In the case of a plan maintained pursuant to one or
more collective bargaining agreements between em-
ployee representatives and one or more employers
ratified by the date of the enactment of this Act, the
amendments made by this section shall not apply to
contributions on behalf of employees covered by any
such agreement for plan years beginning before the
earlier of—
(A) the later of—
(i) the date on which the last of such
collective bargaining agreements termi-
nates (determined without regard to any
extension thereof on or after such date of
the enactment); or
(ii) January 1, 2001; or
(B) January 1, 2005.
(3) SERVICE REQUIRED.—With respect to any
plan, the amendments made by this section shall not
apply to any employee before the date that such em-
ployee has 1 hour of service under such plan in any
plan year to which the amendments made by this
section apply.
SEC. 234. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBU-
TION RULES.
(a) SIMPLIFICATION
AND FINALIZATION
OF MIN-
IMUM DISTRIBUTION REQUIREMENTS.—
(1) IN GENERAL.—The Secretary of the Treas-
ury shall—
(A) simplify and finalize the regulations re-
lating to minimum distribution requirements
under sections 401(a)(9), 408 (a)(6) and
(b)(3), 403(b)(10), and 457(d)(2) of the Inter-
nal Revenue Code of 1986; and
(B) modify such regulations to—
(i) reflect current life expectancy; and
(ii) revise the required distribution
methods so that, under reasonable assump-
tions, the amount of the required minimum
distribution does not decrease over a par-
ticipant’s life expectancy.
(2) FRESH START.—Notwithstanding subpara-
graph (D) of section 401(a)(9) of such Code, during
the first year that regulations are in effect under
this subsection, required distributions for future
years may be redetermined to reflect changes under
such regulations. Such redetermination shall include
the opportunity to choose a new designated bene-
ficiary and to elect a new method of calculating life
expectancy.
(3) EFFECTIVE
DATE
FOR
REGULATIONS.—
Regulations referred to in paragraph (1) shall be ef-
fective for years beginning after December 31, 2001,
and shall apply in such years without regard to
whether an individual had previously begun receiving
minimum distributions.
(b) REPEAL OF RULE WHERE DISTRIBUTIONS HAD
BEGUN BEFORE DEATH OCCURS.—
(1) IN GENERAL.—Subparagraph (B) of section
401(a)(9) is amended by striking clause (i) and re-
designating clauses (ii), (iii), and (iv) as clauses (i),
(ii), and (iii), respectively.
(2) CONFORMING CHANGES.—
(A) Clause (i) of section 401(a)(9)(B) (as
so redesignated) is amended—
(i) by striking ‘‘FOR OTHER CASES’’ in
the heading; and
(ii) by striking ‘‘the distribution of the
employee’s interest has begun in accord-
ance with subparagraph (A)(ii)’’ and in-
serting ‘‘his entire interest has been dis-
tributed to him’’.
(B) Clause (ii) of section 401(a)(9)(B) (as
so redesignated) is amended by striking ‘‘clause
(ii)’’ and inserting ‘‘clause (i)’’.
(C) Clause (iii) of section 401(a)(9)(B) (as
so redesignated) is amended—
(i) by striking ‘‘clause (iii)(I)’’ and in-
serting ‘‘clause (ii)(I)’’;
(ii) by striking ‘‘clause (iii)(III)’’ in
subclause 
(I) 
and 
inserting 
‘‘clause
(ii)(III)’’;
(iii) by striking ‘‘the date on which
the employee would have attained age
701⁄2,’’ in subclause (I) and inserting
‘‘April 1 of the calendar year following the
calendar year in which the spouse attains
701⁄2,’’; and
(iv) by striking ‘‘the distributions to
such spouse begin,’’ in subclause (II) and
inserting ‘‘his entire interest has been dis-
tributed to him,’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to years beginning
after December 31, 2001.
(c) REDUCTION IN EXCISE TAX.—
(1) IN
GENERAL.—Subsection (a) of section
4974 is amended by striking ‘‘50 percent’’ and in-
serting ‘‘10 percent’’.
(2) EFFECTIVE DATE.—The amendment made
by this subsection shall apply to years beginning
after December 31, 2001.
SEC. 235. CLARIFICATION OF TAX TREATMENT OF DIVISION
OF SECTION 457 PLAN BENEFITS UPON DI-
VORCE.
(a) IN GENERAL.—Section 414(p)(11) (relating to
application of rules to governmental and church plans) is
amended—
(1) by inserting ‘‘or an eligible deferred com-
pensation plan (within the meaning of section
457(b))’’ after ‘‘subsection (e))’’; and
(2) in the heading, by striking ‘‘GOVERN-
MENTAL AND CHURCH PLANS’’ and inserting ‘‘CER-
TAIN OTHER PLANS’’.
(b) WAIVER OF CERTAIN DISTRIBUTION REQUIRE-
MENTS.—Paragraph (10) of section 414(p) is amended by
striking ‘‘and section 409(d)’’ and inserting ‘‘section
409(d), and section 457(d)’’.
(c) TAX TREATMENT OF PAYMENTS FROM A SEC-
TION 457 PLAN.—Subsection (p) of section 414 is amend-
ed by redesignating paragraph (12) as paragraph (13) and
inserting after paragraph (11) the following new para-
graph:
‘‘(12) TAX TREATMENT OF PAYMENTS FROM A
SECTION 457 PLAN.—If a distribution or payment
from an eligible deferred compensation plan de-
scribed in section 457(b) is made pursuant to a
qualified domestic relations order, rules similar to
the rules of section 402(e)(1)(A) shall apply to such
distribution or payment.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to transfers, distributions, and
payments made after December 31, 2001.
SEC. 236. MODIFICATION OF SAFE HARBOR RELIEF FOR
HARDSHIP WITHDRAWALS FROM CASH OR
DEFERRED ARRANGEMENTS.
(a) IN GENERAL.—The Secretary of the Treasury
shall revise the regulations relating to hardship distribu-
tions under section 401(k)(2)(B)(i)(IV) of the Internal
Revenue Code of 1986 to provide that the period an em-
ployee is prohibited from making elective and employee
contributions in order for a distribution to be deemed nec-
essary to satisfy financial need shall be equal to 6 months.
(b) EFFECTIVE
DATE.—The revised regulations
under subsection (a) shall apply to years beginning after
December 31, 2001.
CHAPTER 4—INCREASING PORTABILITY
FOR PARTICIPANTS
SEC. 241. ROLLOVERS ALLOWED AMONG VARIOUS TYPES
OF PLANS.
(a) ROLLOVERS
FROM
AND
TO
SECTION
457
PLANS.—
(1) ROLLOVERS FROM SECTION 457 PLANS.—
(A) IN GENERAL.—Section 457(e) (relat-
ing to other definitions 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 established
and maintained by an employer described in
subsection (e)(1)(A), if—
‘‘(i) any portion of the balance to the
credit of an employee in such plan is paid
to such employee in an eligible rollover dis-
tribution (within the meaning of section
402(c)(4) without regard to subparagraph
(C) thereof),
‘‘(ii) the employee transfers any por-
tion of the property such employee receives
in such distribution to an eligible retire-
ment 
plan 
described 
in 
section
402(c)(8)(B), 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.—The rules of paragraphs (2) through (7)
(other than paragraph (4)(C)) and (9) of sec-
tion 402(c) and section 402(f) shall apply for
purposes of subparagraph (A).
‘‘(C) REPORTING.—Rollovers under this
paragraph shall be reported to the Secretary in
the same manner as rollovers from qualified re-
tirement 
plans 
(as 
defined 
in 
section
4974(c)).’’.
(B) DEFERRAL LIMIT DETERMINED WITH-
OUT REGARD TO ROLLOVER AMOUNTS.—Section
457(b)(2) (defining eligible deferred compensa-
tion plan) is amended by inserting ‘‘(other than
rollover amounts)’’ after ‘‘taxable year’’.
(C) DIRECT ROLLOVER.—Paragraph (1) of
section 457(d) is amended by striking ‘‘and’’ at
the end of subparagraph (A), by striking the
period at the end of subparagraph (B) and in-
serting ‘‘, and’’, and by inserting after subpara-
graph (B) the following:
‘‘(C) in the case of a plan maintained by
an employer described in subsection (e)(1)(A),
the plan meets requirements similar to the re-
quirements of section 401(a)(31).
Any amount transferred in a direct trustee-to-trust-
ee transfer in accordance with section 401(a)(31)
shall not be includible in gross income for the tax-
able year of transfer.’’.
(D) WITHHOLDING.—
(i) Paragraph (12) of section 3401(a)
is amended by adding at the end the fol-
lowing:
‘‘(E) under or to an eligible deferred com-
pensation plan which, at the time of such pay-
ment, is a plan described in section 457(b)
maintained by an employer described in section
457(e)(1)(A); or’’.
(ii) Paragraph (3) of section 3405(c)
is amended to read as follows:
‘‘(3) ELIGIBLE ROLLOVER DISTRIBUTION.—For
purposes of this subsection, the term ‘eligible roll-
over distribution’ has the meaning given such term
by section 402(f)(2)(A).’’.
(iii) LIABILITY FOR WITHHOLDING.—
Subparagraph (B) of section 3405(d)(2) is
amended by striking ‘‘or’’ at the end of
clause (ii), by striking the period at the
end of clause (iii) and inserting ‘‘, or’’, and
by adding at the end the following:
‘‘(iv) section 457(b).’’.
(2) ROLLOVERS TO SECTION 457 PLANS.—
(A) IN
GENERAL.—Section 402(c)(8)(B)
(defining eligible retirement plan) is amended
by striking ‘‘and’’ at the end of clause (iii), by
striking the period at the end of clause (iv) and
inserting ‘‘, and’’, and by inserting after clause
(iv) the following new clause:
‘‘(v) an eligible deferred compensation
plan described in section 457(b) of an em-
ployer described in section 457(e)(1)(A).’’.
(B) 
SEPARATE
ACCOUNTING.—Section
402(c) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(11) SEPARATE ACCOUNTING.—Unless a plan
described in clause (v) of paragraph (8)(B) agrees to
separately account for amounts rolled into such plan
from eligible retirement plans not described in such
clause, the plan described in such clause may not ac-
cept transfers or rollovers from such retirement
plans.’’.
(C) 10 PERCENT ADDITIONAL TAX.—Sub-
section (t) of section 72 (relating to 10-percent
additional tax on early distributions from quali-
fied retirement plans) is amended by adding at
the end the following new paragraph:
‘‘(9) SPECIAL RULE FOR ROLLOVERS TO SEC-
TION 457 PLANS.—For purposes of this subsection,
a distribution from an eligible deferred compensation
plan (as defined in section 457(b)) of an employer
described in section 457(e)(1)(A) shall be treated as
a distribution from a qualified retirement plan de-
scribed in 4974(c)(1) to the extent that such dis-
tribution is attributable to an amount transferred to
an eligible deferred compensation plan from a quali-
fied 
retirement 
plan 
(as 
defined 
in 
section
4974(c)).’’.
(b) ALLOWANCE
OF ROLLOVERS FROM
AND
TO
403(b) PLANS.—
(1) 
ROLLOVERS
FROM
SECTION
403(b)
PLANS.—Section 403(b)(8)(A)(ii) (relating to roll-
over amounts) is amended by striking ‘‘such dis-
tribution’’ and all that follows and inserting ‘‘such
distribution to an eligible retirement plan described
in section 402(c)(8)(B), and’’.
(2) ROLLOVERS TO SECTION 403(b) PLANS.—
Section 402(c)(8)(B) (defining eligible retirement
plan), as amended by subsection (a), is amended by
striking ‘‘and’’ at the end of clause (iv), by striking
the period at the end of clause (v) and inserting ‘‘,
and’’, and by inserting after clause (v) the following
new clause:
‘‘(vi) an annuity contract described in
section 403(b).’’.
(c) EXPANDED EXPLANATION TO RECIPIENTS OF
ROLLOVER DISTRIBUTIONS.—Paragraph (1) of section
402(f) (relating to written explanation to recipients of dis-
tributions eligible for rollover treatment) is amended by
striking ‘‘and’’ at the end of subparagraph (C), by striking
the period at the end of subparagraph (D) and inserting
‘‘, and’’, and by adding at the end the following new sub-
paragraph:
‘‘(E) of the provisions under which dis-
tributions from the eligible retirement plan re-
ceiving the distribution may be subject to re-
strictions and tax consequences which are dif-
ferent from those applicable to distributions
from the plan making such distribution.’’.
(d) SPOUSAL ROLLOVERS.—Section 402(c)(9) (relat-
ing to rollover where spouse receives distribution after
death of employee) is amended by striking ‘‘; except that’’
and all that follows up to the end period.
(e) CONFORMING AMENDMENTS.—
(1) Section 72(o)(4) is amended by striking
‘‘and 
408(d)(3)’’ 
and 
inserting 
‘‘403(b)(8),
408(d)(3), and 457(e)(16)’’.
(2) Section 219(d)(2) is amended by striking
‘‘or 
408(d)(3)’’ 
and 
inserting 
‘‘408(d)(3), 
or
457(e)(16)’’.
(3) Section 401(a)(31)(B) is amended by strik-
ing ‘‘and 403(a)(4)’’ and inserting ‘‘, 403(a)(4),
403(b)(8), and 457(e)(16)’’.
(4) Subparagraph (A) of section 402(f)(2) is
amended by striking ‘‘or paragraph (4) of section
403(a)’’ and inserting ‘‘, paragraph (4) of section
403(a), subparagraph (A) of section 403(b)(8), or
subparagraph (A) of section 457(e)(16)’’.
(5) Paragraph (1) of section 402(f) is amended
by striking ‘‘from an eligible retirement plan’’.
(6) Subparagraphs (A) and (B) of section
402(f)(1) are amended by striking ‘‘another eligible
retirement plan’’ and inserting ‘‘an eligible retire-
ment plan’’.
(7) Subparagraph (B) of section 403(b)(8) is
amended to read as follows:
‘‘(B) CERTAIN
RULES
MADE
APPLICA-
BLE.—The rules of paragraphs (2) through (7)
and (9) of section 402(c) and section 402(f)
shall apply for purposes of subparagraph (A),
except that section 402(f) shall be applied to
the payor in lieu of the plan administrator.’’.
(8) Section 408(a)(1) is amended by striking
‘‘or 403(b)(8),’’ and inserting ‘‘403(b)(8), or
457(e)(16)’’.
(9) Subparagraphs (A) and (B) of section
415(b)(2) are each amended by striking ‘‘and
408(d)(3)’’ and inserting ‘‘403(b)(8), 408(d)(3), and
457(e)(16)’’.
(10) Section 415(c)(2) is amended by striking
‘‘and 408(d)(3)’’ and inserting ‘‘408(d)(3), and
457(e)(16)’’.
(11) Section 4973(b)(1)(A) is amended by
striking ‘‘or 408(d)(3)’’ and inserting ‘‘408(d)(3), or
457(e)(16)’’.
(f) EFFECTIVE DATE; SPECIAL RULE.—
(1) EFFECTIVE DATE.—The amendments made
by this section shall apply to distributions after De-
cember 31, 2001.
(2) SPECIAL RULE.—Notwithstanding any other
provision of law, subsections (h)(3) and (h)(5) of
section 1122 of the Tax Reform Act of 1986 shall
not apply to any distribution from an eligible retire-
ment plan (as defined in clause (iii) or (iv) of section
402(c)(8)(B) of the Internal Revenue Code of 1986)
on behalf of an individual if there was a rollover to
such plan on behalf of such individual which is per-
mitted solely by reason of any amendment made by
this section.
SEC. 242. ROLLOVERS OF IRAS INTO WORKPLACE RETIRE-
MENT PLANS.
(a) IN GENERAL.—Subparagraph (A) of section
408(d)(3) (relating to rollover amounts) is amended by
adding ‘‘or’’ at the end of clause (i), by striking clauses
(ii) and (iii), and by adding at the end the following:
‘‘(ii) the entire amount received (in-
cluding money and any other property) is
paid into an eligible retirement plan for
the benefit of such individual not later
than the 60th day after the date on which
the payment or distribution is received, ex-
cept that the maximum amount which may
be paid into such plan may not exceed the
portion of the amount received which is in-
cludible in gross income (determined with-
out regard to this paragraph).
For purposes of clause (ii), the term ‘eligible re-
tirement plan’ means an eligible retirement plan
described in clause (iii), (iv), (v), or (vi) of sec-
tion 402(c)(8)(B).’’.
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 403(b) is amended
by striking ‘‘section 408(d)(3)(A)(iii)’’ and inserting
‘‘section 408(d)(3)(A)(ii)’’.
(2) Clause (i) of section 408(d)(3)(D) is amend-
ed by striking ‘‘(i), (ii), or (iii)’’ and inserting ‘‘(i)
or (ii)’’.
(3) Subparagraph (G) of section 408(d)(3) is
amended to read as follows:
‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—In
the case of any payment or distribution out of
a simple retirement account (as defined in sub-
section (p)) to which section 72(t)(6) applies,
this paragraph shall not apply unless such pay-
ment or distribution is paid into another simple
retirement account.’’.
(c) EFFECTIVE DATE; SPECIAL RULE.—
(1) EFFECTIVE DATE.—The amendments made
by this section shall apply to distributions after De-
cember 31, 2001.
(2) SPECIAL RULE.—Notwithstanding any other
provision of law, subsections (h)(3) and (h)(5) of
section 1122 of the Tax Reform Act of 1986 shall
not apply to any distribution from an eligible retire-
ment plan (as defined in clause (iii) or (iv) of section
402(c)(8)(B) of the Internal Revenue Code of 1986)
on behalf of an individual if there was a rollover to
such plan on behalf of such individual which is per-
mitted solely by reason of the amendments made by
this section.
SEC. 243. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.
(a) ROLLOVERS FROM EXEMPT TRUSTS.—Para-
graph (2) of section 402(c) (relating to maximum amount
which may be rolled over) is amended by adding at the
end the following: ‘‘The preceding sentence shall not apply
to such distribution to the extent—
‘‘(A) such portion is transferred in a direct
trustee-to-trustee transfer to a qualified trust
which is part of a plan which is a defined con-
tribution plan and which agrees to separately
account for amounts so transferred, including
separately accounting for the portion of such
distribution which is includible in gross income
and the portion of such distribution which is
not so includible, or
‘‘(B) such portion is transferred to an eli-
gible retirement plan described in clause (i) or
(ii) of paragraph (8)(B).’’.
(b) OPTIONAL DIRECT TRANSFER
OF ELIGIBLE
ROLLOVER DISTRIBUTIONS.—Subparagraph (B) of sec-
tion 401(a)(31) (relating to limitation) is amended by add-
ing at the end the following: ‘‘The preceding sentence shall
not apply to such distribution if the plan to which such
distribution is transferred—
‘‘(i) agrees to separately account for
amounts so transferred, including sepa-
rately accounting for the portion of such
distribution which is includible in gross in-
come and the portion of such distribution
which is not so includible, or
‘‘(ii) is an eligible retirement plan de-
scribed in clause (i) or (ii) of section
402(c)(8)(B).’’.
(c) RULES FOR APPLYING SECTION 72 TO IRAS.—
Paragraph (3) of section 408(d) (relating to special rules
for applying section 72) is amended by inserting at the
end the following:
‘‘(H) APPLICATION OF SECTION 72.—
‘‘(i) IN GENERAL.—If—
‘‘(I) a distribution is made from
an individual retirement plan, and
‘‘(II) a rollover contribution is
made to an eligible retirement plan
described in section 402(c)(8)(B)(iii),
(iv), (v), or (vi) with respect to all or
part of such distribution,
then, notwithstanding paragraph (2), the
rules of clause (ii) shall apply for purposes
of applying section 72.
‘‘(ii) APPLICABLE
RULES.—In the
case of a distribution described in clause
(i)—
‘‘(I) section 72 shall be applied
separately to such distribution,
‘‘(II) notwithstanding the pro
rata allocation of income on, and in-
vestment in, the contract to distribu-
tions under section 72, the portion of
such distribution rolled over to an eli-
gible retirement plan described in
clause (i) shall be treated as from in-
come on the contract (to the extent of
the aggregate income on the contract
from all individual retirement plans of
the distributee), and
‘‘(III) appropriate adjustments
shall be made in applying section 72
to other distributions in such taxable
year and subsequent taxable years.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions made after Decem-
ber 31, 2001.
SEC. 244. HARDSHIP EXCEPTION TO 60-DAY RULE.
(a) EXEMPT TRUSTS.—Paragraph (3) of section
402(c) (relating to transfer must be made within 60 days
of receipt) is amended to read as follows:
‘‘(3) TRANSFER
MUST
BE
MADE
WITHIN
DAYS OF RECEIPT.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), paragraph (1) shall not
apply to any transfer of a distribution made
after the 60th day following the day on which
the distributee received the property distrib-
uted.
‘‘(B) HARDSHIP
EXCEPTION.—The Sec-
retary may waive the 60-day requirement under
subparagraph (A) where the failure to waive
such requirement would be against equity or
good conscience, including casualty, disaster, or
other events beyond the reasonable control of
the individual subject to such requirement.’’.
(b) IRAS.—Paragraph (3) of section 408(d) (relating
to rollover contributions), as amended by section 403, is
amended by adding after subparagraph (H) the following
new subparagraph:
‘‘(I) WAIVER OF 60-DAY REQUIREMENT.—
The Secretary may waive the 60-day require-
ment under subparagraphs (A) and (D) where
the failure to waive such requirement would be
against equity or good conscience, including
casualty, disaster, or other events beyond the
reasonable control of the individual subject to
such requirement.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions after December 31,
2001.
SEC. 245. TREATMENT OF FORMS OF DISTRIBUTION.
(a) PLAN TRANSFERS.—
(1) IN
GENERAL.—Paragraph (6) of section
411(d) (relating to accrued benefit not to be de-
creased by amendment) is amended by adding at the
end the following:
‘‘(D) PLAN TRANSFERS.—
‘‘(i) IN
GENERAL.—A defined con-
tribution plan (in this subparagraph re-
ferred to as the ‘transferee plan’) shall not
be treated as failing to meet the require-
ments of this subsection merely because
the transferee plan does not provide some
or all of the forms of distribution pre-
viously available under another defined
contribution plan (in this subparagraph re-
ferred to as the ‘transferor plan’) to the
extent that—
‘‘(I) the forms of distribution
previously available under the trans-
feror plan applied to the account of a
participant or beneficiary under the
transferor plan that was transferred
from the transferor plan to the trans-
feree plan pursuant to a direct trans-
fer rather than pursuant to a distribu-
tion from the transferor plan,
‘‘(II) the terms of both the trans-
feror plan and the transferee plan au-
thorize the transfer described in sub-
clause (I),
‘‘(III) the transfer described in
subclause (I) was made pursuant to a
voluntary election by the participant
or beneficiary whose account was
transferred to the transferee plan,
‘‘(IV) the election described in
subclause (III) was made after the
participant or beneficiary received a
notice describing the consequences of
making the election,
‘‘(V) if the transferor plan pro-
vides for an annuity as the normal
form of distribution under the plan in
accordance with section 417, the
transfer is made with the consent of
the participant’s spouse (if any), and
such consent meets requirements simi-
lar to the requirements imposed by
section 417(a)(2), and
‘‘(VI) the transferee plan allows
the participant or beneficiary de-
scribed in subclause (III) to receive
any distribution to which the partici-
pant or beneficiary is entitled under
the transferee plan in the form of a
single sum distribution.
‘‘(ii) EXCEPTION.—Clause (i) shall
apply to plan mergers and other trans-
actions having the effect of a direct trans-
fer, including consolidations of benefits at-
tributable to different employers within a
multiple employer plan.
‘‘(E) ELIMINATION OF FORM OF DISTRIBU-
TION.—Except to the extent provided in regula-
tions, a defined contribution plan shall not be
treated as failing to meet the requirements of
this section merely because of the elimination of
a form of distribution previously available there-
under. This subparagraph shall not apply to the
elimination of a form of distribution with re-
spect to any participant unless—
‘‘(i) a single sum payment is available
to such participant at the same time or
times as the form of distribution being
eliminated, and
‘‘(ii) such single sum payment is
based on the same or greater portion of
the participant’s account as the form of
distribution being eliminated.’’.
(2) EFFECTIVE DATE.—The amendment made
by this subsection shall apply to years beginning
after December 31, 2001.
(b) REGULATIONS.—
(1) IN GENERAL.—The last sentence of para-
graph (6)(B) of section 411(d) (relating to accrued
benefit not to be decreased by amendment) is
amended to read as follows: ‘‘The Secretary shall by
regulations provide that this subparagraph shall not
apply to any plan amendment that does not ad-
versely affect the rights of participants in a material
manner.’’.
(2) SECRETARY
DIRECTED.—Not later than
December 31, 2002, the Secretary of the Treasury
is directed to issue final regulations under section
411(d)(6) of the Internal Revenue Code of 1986, in-
cluding the regulations required by the amendments
made by this subsection. Such regulations shall
apply to plan years beginning after December 31,
2002, or such earlier date as is specified by the Sec-
retary of the Treasury.
SEC. 246. RATIONALIZATION OF RESTRICTIONS ON DIS-
TRIBUTIONS.
(a) MODIFICATION OF SAME DESK EXCEPTION.—
(1) SECTION 401(k).—
(A) Section 401(k)(2)(B)(i)(I) (relating to
qualified cash or deferred arrangements) is
amended by striking ‘‘separation from service’’
and inserting ‘‘severance from employment’’.
(B) 
Subparagraph 
(A) 
of 
section
401(k)(10) (relating to distributions upon ter-
mination of plan or disposition of assets or sub-
sidiary) is amended to read as follows:
‘‘(A) IN GENERAL.—An event described in
this subparagraph is the termination of the
plan without establishment or maintenance of
another defined contribution plan (other than
an employee stock ownership plan as defined in
section 4975(e)(7)).’’.
(C) Section 401(k)(10) is amended—
(i) in subparagraph (B)—
(I) by striking ‘‘An event’’ in
clause (i) and inserting ‘‘A termi-
nation’’; and
(II) by striking ‘‘the event’’ in
clause (i) and inserting ‘‘the termi-
nation’’;
(ii) by striking subparagraph (C); and
(iii) by striking ‘‘OR DISPOSITION OF
ASSETS OR SUBSIDIARY’’ in the heading.
(2) SECTION 403(b).—
(A) Paragraphs (7)(A)(ii) and (11)(A) of
section 403(b) are each amended by striking
‘‘separates from service’’ and inserting ‘‘has a
severance from employment’’.
(B) The heading for paragraph (11) of
section 403(b) is amended by striking ‘‘SEPARA-
TION
FROM
SERVICE’’ and inserting ‘‘SEVER-
ANCE FROM EMPLOYMENT’’.
(3) SECTION
457.—Clause (ii) of section
457(d)(1)(A) is amended by striking ‘‘is separated
from service’’ and inserting ‘‘has a severance from
employment’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions after December 31,
2001.
SEC. 247. PURCHASE OF SERVICE CREDIT IN GOVERN-
MENTAL DEFINED BENEFIT PLANS.
(a) 403(b) PLANS.—Subsection (b) of section 403 is
amended by adding at the end the following new para-
graph:
‘‘(13) TRUSTEE-TO-TRUSTEE
TRANSFERS
TO
PURCHASE
PERMISSIVE
SERVICE
CREDIT.—No
amount shall be includible in gross income by reason
of a direct trustee-to-trustee transfer to a defined
benefit governmental plan (as defined in section
414(d)) if such transfer is—
‘‘(A) for the purchase of permissive service
credit (as defined in section 415(n)(3)(A))
under such plan, or
‘‘(B) a repayment to which section 415
does not apply by reason of subsection (k)(3)
thereof.’’.
(b) 457 PLANS.—Subsection (e) of section 457 is
amended by adding after paragraph (16) the following
new paragraph:
‘‘(17) TRUSTEE-TO-TRUSTEE
TRANSFERS
TO
PURCHASE
PERMISSIVE
SERVICE
CREDIT.—No
amount shall be includible in gross income by reason
of a direct trustee-to-trustee transfer to a defined
benefit governmental plan (as defined in section
414(d)) if such transfer is—
‘‘(A) for the purchase of permissive service
credit (as defined in section 415(n)(3)(A))
under such plan, or
‘‘(B) a repayment to which section 415
does not apply by reason of subsection (k)(3)
thereof.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to trustee-to-trustee transfers after
December 31, 2001.
SEC. 248. EMPLOYERS MAY DISREGARD ROLLOVERS FOR
PURPOSES OF CASH-OUT AMOUNTS.
(a) QUALIFIED PLANS.—Section 411(a)(11) (relating
to restrictions on certain mandatory distributions) is
amended by adding at the end the following:
‘‘(D) SPECIAL RULE FOR ROLLOVER CON-
TRIBUTIONS.—A plan shall not fail to meet the
requirements of this paragraph if, under the
terms of the plan, the present value of the non-
forfeitable accrued benefit is determined with-
out regard to that portion of such benefit which
is attributable to rollover contributions (and
earnings allocable thereto). For purposes of this
subparagraph, the term ‘rollover contributions’
means any rollover contribution under sections
402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii),
and 457(e)(16).’’.
(b) ELIGIBLE DEFERRED COMPENSATION PLANS.—
Clause (i) of section 457(e)(9)(A) is amended by striking
‘‘such amount’’ and inserting ‘‘the portion of such amount
which is not attributable to rollover contributions (as de-
fined in section 411(a)(11)(D))’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions after December 31,
2001.
SEC. 249. MINIMUM DISTRIBUTION AND INCLUSION RE-
QUIREMENTS FOR SECTION 457 PLANS.
(a) MINIMUM
DISTRIBUTION
REQUIREMENTS.—
Paragraph (2) of section 457(d) (relating to distribution
requirements) is amended to read as follows:
‘‘(2) 
MINIMUM
DISTRIBUTION
REQUIRE-
MENTS.—A plan meets the minimum distribution re-
quirements of this paragraph if such plan meets the
requirements of section 401(a)(9).’’.
(b) INCLUSION IN GROSS INCOME.—
(1) YEAR
OF
INCLUSION.—Subsection (a) of
section 457 (relating to year of inclusion in gross in-
come) is amended to read as follows:
‘‘(a) YEAR OF INCLUSION IN GROSS INCOME.—
‘‘(1) IN GENERAL.—Any amount of compensa-
tion deferred under an eligible deferred compensa-
tion plan, and any income attributable to the
amounts so deferred, shall be includible in gross in-
come only for the taxable year in which such com-
pensation or other income—
‘‘(A) is paid to the participant or other
beneficiary, in the case of a plan of an eligible
employer described in subsection (e)(1)(A), and
‘‘(B) is paid or otherwise made available to
the participant or other beneficiary, in the case
of a plan of an eligible employer described in
subsection (e)(1)(B).
‘‘(2) 
SPECIAL
RULE
FOR
ROLLOVER
AMOUNTS.—To the extent provided in section
72(t)(9), section 72(t) shall apply to any amount in-
cludible in gross income under this subsection.’’.
(2) CONFORMING AMENDMENTS.—
(A) So much of paragraph (9) of section
457(e) as precedes subparagraph (A) is amend-
ed to read as follows:
‘‘(9) BENEFITS OF TAX EXEMPT ORGANIZATION
PLANS NOT TREATED AS MADE AVAILABLE BY REA-
SON OF CERTAIN ELECTIONS, ETC.—In the case of
an eligible deferred compensation plan of an em-
ployer described in subsection (e)(1)(B)—’’.
(B) Section 457(d) is amended by adding
at the end the following new paragraph:
‘‘(3) SPECIAL RULE FOR GOVERNMENT PLAN.—
An eligible deferred compensation plan of an em-
ployer described in subsection (e)(1)(A) shall not be
treated as failing to meet the requirements of this
subsection solely by reason of making a distribution
described in subsection (e)(9)(A).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions after December 31,
2001.
CHAPTER 5—STRENGTHENING PENSION
SECURITY AND ENFORCEMENT
SEC. 251. REPEAL OF 150 PERCENT OF CURRENT LIABILITY
FUNDING LIMIT.
(a) IN GENERAL.—Section 412(c)(7) (relating to
full-funding limitation) is amended—
(1) by striking ‘‘the applicable percentage’’ in
subparagraph (A)(i)(I) and inserting ‘‘in the case of
plan years beginning before January 1, 2005, the
applicable percentage’’; and
(2) by amending subparagraph (F) to read as
follows:
‘‘(F) 
APPLICABLE
PERCENTAGE.—For
purposes of subparagraph (A)(i)(I), the applica-
ble percentage shall be determined in accord-
ance with the following table:
‘‘In the case of any plan year
The applicable
beginning in—
percentage is—
2002 .............................................................................
160
2003 .............................................................................
165
2004 .............................................................................
170.’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning after De-
cember 31, 2001.
SEC. 252. MAXIMUM CONTRIBUTION DEDUCTION RULES
MODIFIED AND APPLIED TO ALL DEFINED
BENEFIT PLANS.
(a) IN GENERAL.—Subparagraph (D) of section
404(a)(1) (relating to special rule in case of certain plans)
is amended to read as follows:
‘‘(D) SPECIAL RULE IN CASE OF CERTAIN
PLANS.—
‘‘(i) IN GENERAL.—In the case of any
defined benefit plan, except as provided in
regulations, the maximum amount deduct-
ible under the limitations of this paragraph
shall not be less than the unfunded termi-
nation liability (determined as if the pro-
posed termination date referred to in sec-
tion 4041(b)(2)(A)(i)(II) of the Employee
Retirement Income Security Act of 1974
were the last day of the plan year).
‘‘(ii) PLANS
WITH
LESS
THAN
100
PARTICIPANTS.—For purposes of this sub-
paragraph, in the case of a plan which has
less than 100 participants for the plan
year, termination liability shall not include
the liability attributable to benefit in-
creases for highly compensated employees
(as defined in section 414(q)) resulting
from a plan amendment which is made or
becomes effective, whichever is later, within
the last 2 years before the termination
date.
‘‘(iii) RULE FOR DETERMINING NUM-
BER OF PARTICIPANTS.—For purposes of
determining whether a plan has more than
100 participants, all defined benefit plans
maintained by the same employer (or any
member of such employer’s controlled
group (within the meaning of section
412(l)(8)(C))) shall be treated as one plan,
but only employees of such member or em-
ployer shall be taken into account.
‘‘(iv) PLANS ESTABLISHED AND MAIN-
TAINED
BY
PROFESSIONAL
SERVICE
EM-
PLOYERS.—Clause (i) shall not apply to a
plan described in section 4021(b)(13) of
the Employee Retirement Income Security
Act of 1974.’’.
(b) CONFORMING AMENDMENT.—Paragraph (6) of
section 4972(c) is amended to read as follows:
‘‘(6) EXCEPTIONS.—In determining the amount
of nondeductible contributions for any taxable year,
there shall not be taken into account so much of the
contributions to one or more defined contribution
plans which are not deductible when contributed
solely because of section 404(a)(7) as does not ex-
ceed the greater of—
‘‘(A) the amount of contributions not in
excess of 6 percent of compensation (within the
meaning of section 404(a)) paid or accrued
(during the taxable year for which the contribu-
tions were made) to beneficiaries under the
plans, or
‘‘(B) the sum of—
‘‘(i) the amount of contributions de-
scribed in section 401(m)(4)(A), plus
‘‘(ii) the amount of contributions de-
scribed in section 402(g)(3)(A).
For purposes of this paragraph, the deductible limits
under section 404(a)(7) shall first be applied to
amounts contributed to a defined benefit plan and
then to amounts described in subparagraph (B).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning after De-
cember 31, 2001.
SEC. 253. EXCISE TAX RELIEF FOR SOUND PENSION FUND-
ING.
(a) IN GENERAL.—Subsection (c) of section 4972
(relating to nondeductible contributions) is amended by
adding at the end the following new paragraph:
‘‘(7) DEFINED BENEFIT PLAN EXCEPTION.—In
determining the amount of nondeductible contribu-
tions for any taxable year, an employer may elect for
such year not to take into account any contributions
to a defined benefit plan except to the extent that
such contributions exceed the full-funding limitation
(as defined in section 412(c)(7), determined without
regard to subparagraph (A)(i)(I) thereof). For pur-
poses of this paragraph, the deductible limits under
section 404(a)(7) shall first be applied to amounts
contributed to defined contribution plans and then
to amounts described in this paragraph. If an em-
ployer makes an election under this paragraph for a
taxable year, paragraph (6) shall not apply to such
employer for such taxable year.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December
31, 2001.
SEC. 254. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY
DEFINED BENEFIT PLANS SIGNIFICANTLY
REDUCING FUTURE BENEFIT ACCRUALS.
(a) IN GENERAL.—Chapter 43 (relating to qualified
pension, etc., plans) is amended by adding at the end the
following new section:
‘‘SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING
BENEFIT ACCRUALS TO SATISFY NOTICE RE-
QUIREMENTS.
‘‘(a) IMPOSITION OF TAX.—There is hereby imposed
a tax on the failure of any applicable pension plan to meet
the requirements of subsection (e) with respect to any ap-
plicable individual.
‘‘(b) AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—The amount of the tax im-
posed by subsection (a) on any failure with respect
to any applicable individual shall be $100 for each
day in the noncompliance period with respect to such
failure.
‘‘(2) NONCOMPLIANCE PERIOD.—For purposes
of this section, the term ‘noncompliance period’
means, with respect to any failure, the period begin-
ning on the date the failure first occurs and ending
on the date the failure is corrected.
‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—
‘‘(1) OVERALL
LIMITATION
FOR
UNINTEN-
TIONAL FAILURES.—In the case of failures that are
due to reasonable cause and not to willful neglect,
the tax imposed by subsection (a) for failures during
the taxable year of the employer (or, in the case of
a multiemployer plan, the taxable year of the trust
forming part of the plan) shall not exceed $500,000.
For purposes of the preceding sentence, all multiem-
ployer plans of which the same trust forms a part
shall be treated as one plan. For purposes of this
paragraph, if not all persons who are treated as a
single employer for purposes of this section have the
same taxable year, the taxable years taken into ac-
count shall be determined under principles similar to
the principles of section 1561.
‘‘(2) WAIVER BY SECRETARY.—In the case of a
failure which is due to reasonable cause and not to
willful neglect, the Secretary may waive part or all
of the tax imposed by subsection (a) to the extent
that the payment of such tax would be excessive rel-
ative to the failure involved.
‘‘(d) LIABILITY FOR TAX.—The following shall be lia-
ble for the tax imposed by subsection (a):
‘‘(1) In the case of a plan other than a multi-
employer plan, the employer.
‘‘(2) In the case of a multiemployer plan, the
plan.
‘‘(e) NOTICE REQUIREMENTS FOR PLANS SIGNIFI-
CANTLY REDUCING BENEFIT ACCRUALS.—
‘‘(1) IN
GENERAL.—If an applicable pension
plan is amended to provide for a significant reduc-
tion in the rate of future benefit accrual, the plan
administrator shall provide written notice to each
applicable individual (and to each employee organi-
zation representing applicable individuals).
‘‘(2) NOTICE.—The notice required by para-
graph (1) shall be written in a manner calculated to
be understood by the average plan participant and
shall provide sufficient information (as determined
in accordance with regulations prescribed by the
Secretary) to allow applicable individuals to under-
stand the effect of the plan amendment.
‘‘(3) TIMING OF NOTICE.—Except as provided
in regulations, the notice required by paragraph (1)
shall be provided within a reasonable time before the
effective date of the plan amendment.
‘‘(4) DESIGNEES.—Any notice under paragraph
(1) may be provided to a person designated, in writ-
ing, by the person to which it would otherwise be
provided.
‘‘(5) NOTICE
BEFORE
ADOPTION
OF
AMEND-
MENT.—A plan shall not be treated as failing to
meet the requirements of paragraph (1) merely be-
cause notice is provided before the adoption of the
plan amendment if no material modification of the
amendment occurs before the amendment is adopt-
ed.
‘‘(f) APPLICABLE INDIVIDUAL; APPLICABLE PEN-
SION PLAN.—For purposes of this section—
‘‘(1) APPLICABLE INDIVIDUAL.—The term ‘ap-
plicable individual’ means, with respect to any plan
amendment—
‘‘(A) any participant in the plan, and
‘‘(B) any beneficiary who is an alternate
payee (within the meaning of section 414(p)(8))
under an applicable qualified domestic relations
order 
(within 
the 
meaning 
of 
section
414(p)(1)(A)),
who may reasonably be expected to be affected by
such plan amendment.
‘‘(2) APPLICABLE
PENSION
PLAN.—The term
‘applicable pension plan’ means—
‘‘(A) any defined benefit plan, or
‘‘(B) an individual account plan which is
subject to the funding standards of section 412,
which had 100 or more participants who had ac-
crued a benefit, or with respect to whom contribu-
tions were made, under the plan (whether or not
vested) as of the last day of the plan year preceding
the plan year in which the plan amendment becomes
effective. Such term shall not include a governmental
plan (within the meaning of section 414(d)) or a
church plan (within the meaning of section 414(e))
with respect to which the election provided by sec-
tion 410(d) has not been made.’’.
(b) CLERICAL AMENDMENT.—The table of sections
for chapter 43 is amended by adding at the end the fol-
lowing new item:
‘‘Sec. 4980F. Failure of applicable plans reducing benefit accruals
to satisfy notice requirements.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to plan amendments taking
effect on or after the date of the enactment of this
Act.
(2) TRANSITION.—Until such time as the Sec-
retary of the Treasury issues regulations under sec-
tions 4980F(e)(2) and (3) of the Internal Revenue
Code of 1986 (as added by the amendments made
by this section), a plan shall be treated as meeting
the requirements of such sections if it makes a good
faith effort to comply with such requirements.
(3) SPECIAL RULE.—The period for providing
any notice required by the amendments made by this
section shall not end before the date which is 3
months after the date of the enactment of this Act.
(d) STUDY.—The Secretary of the Treasury shall
prepare a report on the effects of conversions of tradi-
tional defined benefit plans to cash balance or hybrid for-
mula plans. Such study shall examine the effect of such
conversions on longer service participants, including the
incidence and effects of ‘‘wear away’’ provisions under
which participants earn no additional benefits for a period
of time after the conversion. As soon as practicable, but
not later than 60 days after the date of the enactment
of this Act, the Secretary shall submit such report, to-
gether with recommendations thereon, to the Committee
on Ways and Means of the House of Representatives and
the Committee on Finance of the Senate.
SEC. 255. TREATMENT OF MULTIEMPLOYER PLANS UNDER
SECTION 415.
(a) COMPENSATION LIMIT.—Paragraph (11) of sec-
tion 415(b) (relating to limitation for defined benefit
plans) is amended to read as follows:
‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN-
MENTAL AND MULTIEMPLOYER PLANS.—In the case
of a governmental plan (as defined in section
414(d)) or a multiemployer plan (as defined in sec-
tion 414(f)), subparagraph (B) of paragraph (1)
shall not apply.’’.
(b) COMBINING AND AGGREGATION OF PLANS.—
(1) COMBINING OF PLANS.—Subsection (f) of
section 415 (relating to combining of plans) is
amended by adding at the end the following:
‘‘(3) 
EXCEPTION
FOR
MULTIEMPLOYER
PLANS.—Notwithstanding paragraph (1) and sub-
section (g), a multiemployer plan (as defined in sec-
tion 414(f)) shall not be combined or aggregated
with any other plan maintained by an employer for
purposes of applying the limitations established in
this section, except that such plan shall be combined
or aggregated with another plan which is not such
a multiemployer plan solely for purposes of deter-
mining whether such other plan meets the require-
ments of subsections (b)(1)(A) and (c).’’.
(2) CONFORMING AMENDMENT FOR AGGREGA-
TION OF PLANS.—Subsection (g) of section 415 (re-
lating to aggregation of plans) is amended by strik-
ing ‘‘The Secretary’’ and inserting ‘‘Except as pro-
vided in subsection (f)(3), the Secretary’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2001.
SEC. 256. PROHIBITED ALLOCATIONS OF STOCK IN S COR-
PORATION ESOP.
(a) IN GENERAL.—Section 409 (relating to qualifica-
tions for tax credit employee stock ownership plans) is
amended by redesignating subsection (p) as subsection (q)
and by inserting after subsection (o) the following new
subsection:
‘‘(p) PROHIBITED ALLOCATIONS OF SECURITIES IN
AN S CORPORATION.—
‘‘(1) IN GENERAL.—An employee stock owner-
ship plan holding employer securities consisting of
stock in an S corporation shall provide that no por-
tion of the assets of the plan attributable to (or allo-
cable in lieu of) such employer securities may, dur-
ing a nonallocation year, accrue (or be allocated di-
rectly or indirectly under any plan of the employer
100
meeting the requirements of section 401(a)) for the
benefit of any disqualified person.
‘‘(2) FAILURE TO MEET REQUIREMENTS.—
‘‘(A) IN GENERAL.—If a plan fails to meet
the requirements of paragraph (1), the plan
shall be treated as having distributed to any
disqualified person the amount allocated to the
account of such person in violation of para-
graph (1) at the time of such allocation.
‘‘(B) CROSS REFERENCE.—
‘‘For excise tax relating to violations of paragraph
(1) and ownership of synthetic equity, see section
4979A.
‘‘(3) NONALLOCATION YEAR.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—The term ‘nonalloca-
tion year’ means any plan year of an employee
stock ownership plan if, at any time during
such plan year—
‘‘(i) such plan holds employer securi-
ties consisting of stock in an S corpora-
tion, and
‘‘(ii) disqualified persons own at least
50 percent of the number of shares of
stock in the S corporation.
‘‘(B) ATTRIBUTION RULES.—For purposes
of subparagraph (A)—
101
‘‘(i) IN GENERAL.—The rules of sec-
tion 318(a) shall apply for purposes of de-
termining ownership, except that—
‘‘(I) in applying paragraph (1)
thereof, the members of an individ-
ual’s family shall include members of
the family described in paragraph
(4)(D), and
‘‘(II) paragraph (4) thereof shall
not apply.
‘‘(ii) DEEMED-OWNED SHARES.—Not-
withstanding the employee trust exception
in section 318(a)(2)(B)(i), individual shall
be treated as owning deemed-owned shares
of the individual.
Solely for purposes of applying paragraph (5),
this subparagraph shall be applied after the at-
tribution rules of paragraph (5) have been ap-
plied.
‘‘(4) DISQUALIFIED PERSON.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—The term ‘disqualified
person’ means any person if—
‘‘(i) the aggregate number of deemed-
owned shares of such person and the mem-
102
bers of such person’s family is at least 20
percent of the number of deemed-owned
shares of stock in the S corporation, or
‘‘(ii) in the case of a person not de-
scribed in clause (i), the number of
deemed-owned shares of such person is at
least 10 percent of the number of deemed-
owned shares of stock in such corporation.
‘‘(B) TREATMENT OF FAMILY MEMBERS.—
In the case of a disqualified person described in
subparagraph (A)(i), any member of such per-
son’s family with deemed-owned shares shall be
treated as a disqualified person if not otherwise
treated as a disqualified person under subpara-
graph (A).
‘‘(C) DEEMED-OWNED SHARES.—
‘‘(i) 
IN
GENERAL.—The 
term
‘deemed-owned shares’ means, with respect
to any person—
‘‘(I) the stock in the S corpora-
tion constituting employer securities
of an employee stock ownership plan
which is allocated to such person
under the plan, and
103
‘‘(II) such person’s share of the
stock in such corporation which is
held by such plan but which is not al-
located under the plan to participants.
‘‘(ii) 
PERSON’S
SHARE
OF
UNALLOCATED
STOCK.—For purposes of
clause 
(i)(II), 
a 
person’s 
share 
of
unallocated S corporation stock held by
such plan is the amount of the unallocated
stock which would be allocated to such per-
son if the unallocated stock were allocated
to all participants in the same proportions
as the most recent stock allocation under
the plan.
‘‘(D) MEMBER OF FAMILY.—For purposes
of this paragraph, the term ‘member of the
family’ means, with respect to any individual—
‘‘(i) the spouse of the individual,
‘‘(ii) an ancestor or lineal descendant
of the individual or the individual’s spouse,
‘‘(iii) a brother or sister of the indi-
vidual or the individual’s spouse and any
lineal descendant of the brother or sister,
and
104
‘‘(iv) the spouse of any individual de-
scribed in clause (ii) or (iii).
A spouse of an individual who is legally sepa-
rated from such individual under a decree of di-
vorce or separate maintenance shall not be
treated as such individual’s spouse for purposes
of this subparagraph.
‘‘(5) TREATMENT OF SYNTHETIC EQUITY.—For
purposes of paragraphs (3) and (4), in the case of
a person who owns synthetic equity in the S corpora-
tion, except to the extent provided in regulations, the
shares of stock in such corporation on which such
synthetic equity is based shall be treated as out-
standing stock in such corporation and deemed-
owned shares of such person if such treatment of
synthetic equity of 1 or more such persons results
in—
‘‘(A) the treatment of any person as a dis-
qualified person, or
‘‘(B) the treatment of any year as a non-
allocation year.
For purposes of this paragraph, synthetic equity
shall be treated as owned by a person in the same
manner as stock is treated as owned by a person
under the rules of paragraphs (2) and (3) of section
105
318(a). If, without regard to this paragraph, a per-
son is treated as a disqualified person or a year is
treated as a nonallocation year, this paragraph shall
not be construed to result in the person or year not
being so treated.
‘‘(6) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) 
EMPLOYEE
STOCK
OWNERSHIP
PLAN.—The term ‘employee stock ownership
plan’ has the meaning given such term by sec-
tion 4975(e)(7).
‘‘(B) EMPLOYER SECURITIES.—The term
‘employer security’ has the meaning given such
term by section 409(l).
‘‘(C) SYNTHETIC EQUITY.—The term ‘syn-
thetic equity’ means any stock option, warrant,
restricted stock, deferred issuance stock right,
or similar interest or right that gives the holder
the right to acquire or receive stock of the S
corporation in the future. Except to the extent
provided in regulations, synthetic equity also in-
cludes a stock appreciation right, phantom
stock unit, or similar right to a future cash
payment based on the value of such stock or
appreciation in such value.
106
‘‘(7) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary to carry
out the purposes of this subsection.’’.
(b) COORDINATION WITH SECTION 4975(e)(7).—The
last sentence of section 4975(e)(7) (defining employee
stock ownership plan) is amended by inserting ‘‘, section
409(p),’’ after ‘‘409(n)’’.
(c) EXCISE TAX.—
(1) APPLICATION OF TAX.—Subsection (a) of
section 4979A (relating to tax on certain prohibited
allocations of employer securities) is amended—
(A) by striking ‘‘or’’ at the end of para-
graph (1), and
(B) by striking all that follows paragraph
(2) and inserting the following:
‘‘(3) there is any allocation of employer securi-
ties which violates the provisions of section 409(p),
or a nonallocation year described in subsection
(e)(2)(C) with respect to an employee stock owner-
ship plan, or
‘‘(4) any synthetic equity is owned by a dis-
qualified person in any nonallocation year,
there is hereby imposed a tax on such allocation or owner-
ship equal to 50 percent of the amount involved.’’.
107
(2) LIABILITY.—Section 4979A(c) (defining li-
ability for tax) is amended to read as follows:
‘‘(c) LIABILITY FOR TAX.—The tax imposed by this
section shall be paid—
‘‘(1) in the case of an allocation referred to in
paragraph (1) or (2) of subsection (a), by—
‘‘(A) the employer sponsoring such plan, or
‘‘(B) the eligible worker-owned cooperative,
which made the written statement described in sec-
tion 664(g)(1)(E) or in section 1042(b)(3)(B) (as
the case may be), and
‘‘(2) in the case of an allocation or ownership
referred to in paragraph (3) or (4) of subsection (a),
by the S corporation the stock in which was so allo-
cated or owned.’’.
(3) DEFINITIONS.—Section 4979A(e) (relating
to definitions) is amended to read as follows:
‘‘(e) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) DEFINITIONS.—Except as provided in
paragraph (2), terms used in this section have the
same respective meanings as when used in sections
409 and 4978.
108
‘‘(2) SPECIAL
RULES
RELATING
TO
TAX
IM-
POSED BY REASON OF PARAGRAPH (3) OR (4) OF
SUBSECTION (a).—
‘‘(A) 
PROHIBITED
ALLOCATIONS.—The
amount involved with respect to any tax im-
posed by reason of subsection (a)(3) is the
amount allocated to the account of any person
in violation of section 409(p)(1).
‘‘(B) SYNTHETIC
EQUITY.—The amount
involved with respect to any tax imposed by rea-
son of subsection (a)(4) is the value of the
shares on which the synthetic equity is based.
‘‘(C) SPECIAL RULE DURING FIRST NON-
ALLOCATION YEAR.—For purposes of subpara-
graph (A), the amount involved for the first
nonallocation year of any employee stock owner-
ship plan shall be determined by taking into ac-
count the total value of all the deemed-owned
shares of all disqualified persons with respect to
such plan.
‘‘(D) STATUTE
OF
LIMITATIONS.—The
statutory period for the assessment of any tax
imposed by this section by reason of paragraph
(3) or (4) of subsection (a) shall not expire be-
109
fore the date which is 3 years from the later
of—
‘‘(i) the allocation or ownership re-
ferred to in such paragraph giving rise to
such tax, or
‘‘(ii) the date on which the Secretary
is notified of such allocation or owner-
ship.’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to plan years beginning after
December 31, 2001.
(2) EXCEPTION FOR CERTAIN PLANS.—In the
case of any—
(A) employee stock ownership plan estab-
lished after July 11, 2000, or
(B) employee stock ownership plan estab-
lished on or before such date if employer securi-
ties held by the plan consist of stock in a cor-
poration with respect to which an election under
section 1362(a) of the Internal Revenue Code
of 1986 is not in effect on such date,
the amendments made by this section shall apply to
plan years ending after July 11, 2001.
110
CHAPTER 6—REDUCING REGULATORY
BURDENS
SEC. 261. MODIFICATION OF TIMING OF PLAN VALUATIONS.
(a) 
IN
GENERAL.—Paragraph 
(9) 
of 
section
412(c)(9) (relating to annual valuation) is amended to
read as follows:
‘‘(9) ANNUAL VALUATION.—
‘‘(A) IN GENERAL.—For purposes of this
section, a determination of experience gains and
losses and a valuation of the plan’s liability
shall be made not less frequently than once
every year, except that such determination shall
be made more frequently to the extent required
in particular cases under regulations prescribed
by the Secretary.
‘‘(B) VALUATION DATE.—
‘‘(i) CURRENT YEAR.—Except as pro-
vided in clause (ii), the valuation referred
to in subparagraph (A) shall be made as of
a date within the plan year to which the
valuation refers or within one month prior
to the beginning of such year.
‘‘(ii) ELECTION TO USE PRIOR YEAR
VALUATION.—The valuation referred to in
subparagraph (A) may be made as of a
111
date within the plan year prior to the year
to which the valuation refers if—
‘‘(I) an election is in effect under
this clause with respect to the plan,
and
‘‘(II) as of such date, the value
of the assets of the plan are not less
than 125 percent of the plan’s current
liability (as defined in paragraph
(7)(B)).
‘‘(iii) 
ADJUSTMENTS.—Information
under clause (ii) shall, in accordance with
regulations, be actuarially adjusted to re-
flect significant differences in participants.
‘‘(iv) ELECTION.—An election under
clause (ii), once made, shall be irrevocable
without the consent of the Secretary.’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning after De-
cember 31, 2001.
SEC. 262. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT
LOSS OF DIVIDEND DEDUCTION.
(a) IN GENERAL.—Section 404(k)(2)(A) (defining
applicable dividends) is amended by striking ‘‘or’’ at the
end of clause (ii), by redesignating clause (iii) as clause
112
(iv), and by inserting after clause (ii) the following new
clause:
‘‘(iii) is, at the election of such par-
ticipants or their beneficiaries—
‘‘(I) payable as provided in clause
(i) or (ii), or
‘‘(II) paid to the plan and rein-
vested in qualifying employer securi-
ties, or’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 263. REPEAL OF TRANSITION RULE RELATING TO CER-
TAIN HIGHLY COMPENSATED EMPLOYEES.
(a) IN GENERAL.—Paragraph (4) of section 1114(c)
of the Tax Reform Act of 1986 is hereby repealed.
(b) EFFECTIVE DATE.—The repeal made by sub-
section (a) shall apply to plan years beginning after De-
cember 31, 2001.
SEC. 264. EMPLOYEES OF TAX-EXEMPT ENTITIES.
(a) IN GENERAL.—The Secretary of the Treasury
shall modify Treasury Regulations section 1.410(b)–6(g)
to provide that employees of an organization described in
section 403(b)(1)(A)(i) of the Internal Revenue Code of
1986 who are eligible to make contributions under section
113
403(b) of such Code pursuant to a salary reduction agree-
ment may be treated as excludable with respect to a plan
under section 401(k) or (m) of such Code that is provided
under the same general arrangement as a plan under such
section 401(k), if—
(1) no employee of an organization described in
section 403(b)(1)(A)(i) of such Code is eligible to
participate in such section 401(k) plan or section
401(m) plan; and
(2) 95 percent of the employees who are not
employees of an organization described in section
403(b)(1)(A)(i) of such Code are eligible to partici-
pate in such plan under such section 401(k) or (m).
(b) EFFECTIVE DATE.—The modification required by
subsection (a) shall apply as of the same date set forth
in section 1426(b) of the Small Business Job Protection
Act of 1996.
SEC. 265. CLARIFICATION OF TREATMENT OF EMPLOYER-
PROVIDED RETIREMENT ADVICE.
(a) IN GENERAL.—Subsection (a) of section 132 (re-
lating to exclusion from gross income) is amended by
striking ‘‘or’’ at the end of paragraph (5), by striking the
period at the end of paragraph (6) and inserting ‘‘, or’’,
and by adding at the end the following new paragraph:
‘‘(7) qualified retirement planning services.’’.
114
(b) QUALIFIED RETIREMENT PLANNING SERVICES
DEFINED.—Section 132 is amended by redesignating sub-
section (m) as subsection (n) and by inserting after sub-
section (l) the following:
‘‘(m) QUALIFIED RETIREMENT PLANNING SERV-
ICES.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘qualified retirement planning serv-
ices’ means any retirement planning service provided
to an employee and his spouse by an employer main-
taining a qualified employer plan.
‘‘(2) NONDISCRIMINATION
RULE.—Subsection
(a)(7) shall apply in the case of highly compensated
employees only if such services are available on sub-
stantially the same terms to each member of the
group of employees normally provided education and
information regarding the employer’s qualified em-
ployer plan.
‘‘(3) QUALIFIED EMPLOYER PLAN.—For pur-
poses of this subsection, the term ‘qualified employer
plan’ means a plan, contract, pension, or account de-
scribed in section 219(g)(5).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2001.
115
SEC. 266. REPORTING SIMPLIFICATION.
(a) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR
OWNERS AND THEIR SPOUSES.—
(1) IN GENERAL.—The Secretary of the Treas-
ury shall modify the requirements for filing annual
returns with respect to one-participant retirement
plans to ensure that such plans with assets of
$250,000 or less as of the close of the plan year
need not file a return for that year.
(2) ONE-PARTICIPANT RETIREMENT PLAN DE-
FINED.—For purposes of this subsection, the term
‘‘one-participant retirement plan’’ means a retire-
ment plan that—
(A) on the first day of the plan year—
(i) covered only the employer (and the
employer’s spouse) and the employer
owned the entire business (whether or not
incorporated); or
(ii) covered only one or more partners
(and their spouses) in a business partner-
ship (including partners in an S or C cor-
poration);
(B) meets the minimum coverage require-
ments of section 410(b) of the Internal Revenue
Code of 1986 without being combined with any
116
other plan of the business that covers the em-
ployees of the business;
(C) does not provide benefits to anyone ex-
cept the employer (and the employer’s spouse)
or the partners (and their spouses);
(D) does not cover a business that is a
member of an affiliated service group, a con-
trolled group of corporations, or a group of
businesses under common control; and
(E) does not cover a business that leases
employees.
(3) OTHER DEFINITIONS.—Terms used in para-
graph (2) which are also used in section 414 of the
Internal Revenue Code of 1986 shall have the re-
spective meanings given such terms by such section.
(b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR
PLANS WITH FEWER THAN 25 EMPLOYEES.—In the case
of a retirement plan which covers less than 25 employees
on the first day of the plan year and meets the require-
ments described in subparagraphs (B), (D), and (E) of
subsection (a)(2), the Secretary of the Treasury shall pro-
vide for the filing of a simplified annual return that is
substantially similar to the annual return required to be
filed by a one-participant retirement plan.
117
(c) EFFECTIVE DATE.—The provisions of this section
shall take effect on January 1, 2001.
SEC. 267. IMPROVEMENT OF EMPLOYEE PLANS COMPLI-
ANCE RESOLUTION SYSTEM.
The Secretary of the Treasury shall continue to up-
date and improve the Employee Plans Compliance Resolu-
tion System (or any successor program) giving special at-
tention to—
(1) increasing the awareness and knowledge of
small employers concerning the availability and use
of the program;
(2) taking into account special concerns and
circumstances that small employers face with respect
to compliance and correction of compliance failures;
(3) extending the duration of the self-correction
period under the Administrative Policy Regarding
Self-Correction for significant compliance failures;
(4) expanding the availability to correct insig-
nificant compliance failures under the Administra-
tive Policy Regarding Self-Correction during audit;
and
(5) assuring that any tax, penalty, or sanction
that is imposed by reason of a compliance failure is
not excessive and bears a reasonable relationship to
the nature, extent, and severity of the failure.
118
SEC. 268. REPEAL OF THE MULTIPLE USE TEST.
(a) IN GENERAL.—Paragraph (9) of section 401(m)
is amended to read as follows:
‘‘(9) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary to carry
out the purposes of this subsection and subsection
(k), including regulations permitting appropriate ag-
gregation of plans and contributions.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December
31, 2001.
SEC. 269. FLEXIBILITY IN NONDISCRIMINATION, COV-
ERAGE, AND LINE OF BUSINESS RULES.
(a) NONDISCRIMINATION.—
(1) IN GENERAL.—The Secretary of the Treas-
ury shall, by regulation, provide that a plan shall be
deemed to satisfy the requirements of section
401(a)(4) of the Internal Revenue Code of 1986 if
such plan satisfies the facts and circumstances test
under section 401(a)(4) of such Code, as in effect
before January 1, 1994, but only if—
(A) the plan satisfies conditions prescribed
by the Secretary to appropriately limit the
availability of such test; and
119
(B) the plan is submitted to the Secretary
for a determination of whether it satisfies such
test.
Subparagraph (B) shall only apply to the extent pro-
vided by the Secretary.
(2) EFFECTIVE DATES.—
(A) REGULATIONS.—The regulation re-
quired by paragraph (1) shall apply to years be-
ginning after December 31, 2001.
(B) CONDITIONS OF AVAILABILITY.—Any
condition of availability prescribed by the Sec-
retary under paragraph (1)(A) shall not apply
before the first year beginning not less than
120 days after the date on which such condition
is prescribed.
(b) COVERAGE TEST.—
(1) IN GENERAL.—Section 410(b)(1) (relating
to minimum coverage requirements) is amended by
adding at the end the following:
‘‘(D) In the case that the plan fails to
meet the requirements of subparagraphs (A),
(B) and (C), the plan—
‘‘(i) satisfies subparagraph (B), as in
effect immediately before the enactment of
the Tax Reform Act of 1986,
120
‘‘(ii) is submitted to the Secretary for
a determination of whether it satisfies the
requirement described in clause (i), and
‘‘(iii) satisfies conditions prescribed by
the Secretary by regulation that appro-
priately limit the availability of this sub-
paragraph.
Clause (ii) shall apply only to the extent pro-
vided by the Secretary.’’.
(2) EFFECTIVE DATES.—
(A) IN GENERAL.—The amendment made
by paragraph (1) shall apply to years beginning
after December 31, 2001.
(B) CONDITIONS OF AVAILABILITY.—Any
condition of availability prescribed by the Sec-
retary under regulations prescribed by the Sec-
retary under section 410(b)(1)(D) of the Inter-
nal Revenue Code of 1986 shall not apply be-
fore the first year beginning not less than 120
days after the date on which such condition is
prescribed.
(c) LINE OF BUSINESS RULES.—The Secretary of
the Treasury shall, on or before December 31, 2001, mod-
ify the existing regulations issued under section 414(r) of
the Internal Revenue Code of 1986 in order to expand
121
(to the extent that the Secretary determines appropriate)
the ability of a pension plan to demonstrate compliance
with the line of business requirements based upon the
facts and circumstances surrounding the design and oper-
ation of the plan, even though the plan is unable to satisfy
the mechanical tests currently used to determine compli-
ance.
SEC. 270. EXTENSION TO ALL GOVERNMENTAL PLANS OF
MORATORIUM ON APPLICATION OF CERTAIN
NONDISCRIMINATION RULES APPLICABLE TO
STATE AND LOCAL PLANS.
(a) IN GENERAL.—
(1) Subparagraph (G) of section 401(a)(5) and
subparagraph (H) of section 401(a)(26) are each
amended by striking ‘‘section 414(d))’’ and all that
follows and inserting ‘‘section 414(d)).’’.
(2) Subparagraph (G) of section 401(k)(3) and
paragraph (2) of section 1505(d) of the Taxpayer
Relief Act of 1997 are each amended by striking
‘‘maintained by a State or local government or polit-
ical subdivision thereof (or agency or instrumentality
thereof)’’.
(b) CONFORMING AMENDMENTS.—
122
(1) The heading for subparagraph (G) of sec-
tion 401(a)(5) is amended to read as follows: ‘‘GOV-
ERNMENTAL PLANS’’.
(2) The heading for subparagraph (H) of sec-
tion 401(a)(26) is amended to read as follows: ‘‘EX-
CEPTION FOR GOVERNMENTAL PLANS’’.
(3) Subparagraph (G) of section 401(k)(3) is
amended by inserting ‘‘GOVERNMENTAL PLANS.—’’
after ‘‘(G)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2001.
SEC. 271. NOTICE AND CONSENT PERIOD REGARDING DIS-
TRIBUTIONS.
(a) EXPANSION OF PERIOD.—
(1) IN GENERAL.—Subparagraph (A) of section
417(a)(6) is amended by striking ‘‘90-day’’ and in-
serting ‘‘180-day’’.
(2) MODIFICATION
OF
REGULATIONS.—The
Secretary of the Treasury shall modify the regula-
tions under sections 402(f), 411(a)(11), and 417 of
the Internal Revenue Code of 1986 to substitute
‘‘180 days’’ for ‘‘90 days’’ each place it appears in
Treasury Regulations sections 1.402(f)–1, 1.411(a)–
11(c), and 1.417(e)–1(b).
123
(3) EFFECTIVE DATE.—The amendment made
by paragraph (1) and the modifications required by
paragraph (2) shall apply to years beginning after
December 31, 2001.
(b) CONSENT REGULATION INAPPLICABLE TO CER-
TAIN DISTRIBUTIONS.—
(1) IN GENERAL.—The Secretary of the Treas-
ury shall modify the regulations under section
411(a)(11) of the Internal Revenue Code of 1986 to
provide that the description of a participant’s right,
if any, to defer receipt of a distribution shall also de-
scribe the consequences of failing to defer such re-
ceipt.
(2) EFFECTIVE DATE.—The modifications re-
quired by paragraph (1) shall apply to years begin-
ning after December 31, 2001.
CHAPTER 7—PLAN AMENDMENTS
SEC. 281. PROVISIONS RELATING TO PLAN AMENDMENTS.
(a) IN GENERAL.—If this section applies to any plan
or contract amendment—
(1) such plan or contract shall be treated as
being operated in accordance with the terms of the
plan during the period described in subsection
(b)(2)(A); and
124
(2) such plan shall not fail to meet the require-
ments of section 411(d)(6) of the Internal Revenue
Code of 1986 by reason of such amendment.
(b) AMENDMENTS TO WHICH SECTION APPLIES.—
(1) IN GENERAL.—This section shall apply to
any amendment to any plan or annuity contract
which is made—
(A) pursuant to any amendment made by
this title, or pursuant to any regulation issued
under this title, and
(B) on or before the last day of the first
plan year beginning on or after January 1,
2003.
In the case of a governmental plan (as defined in
section 414(d) of the Internal Revenue Code of
1986), this paragraph shall be applied by sub-
stituting ‘‘2005’’ for ‘‘2003’’.
(2) CONDITIONS.—This section shall not apply
to any amendment unless—
(A) during the period—
(i) beginning on the date the legisla-
tive or regulatory amendment described in
paragraph (1)(A) takes effect (or in the
case of a plan or contract amendment not
required by such legislative or regulatory
125
amendment, the effective date specified by
the plan); and
(ii) ending on the date described in
paragraph (1)(B) (or, if earlier, the date
the plan or contract amendment is adopt-
ed),
the plan or contract is operated as if such plan
or contract amendment were in effect; and
(B) such plan or contract amendment ap-
plies retroactively for such period.
TITLE III—FAMILY TAX RELIEF
SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STAND-
ARD DEDUCTION.
(a) IN GENERAL.—Paragraph (2) of section 63(c)
(relating to standard deduction) is amended—
(1) by striking ‘‘$5,000’’ in subparagraph (A)
and inserting ‘‘200 percent of the dollar amount in
effect under subparagraph (C) for the taxable year’’,
(2) by adding ‘‘or’’ at the end of subparagraph
(B),
(3) by striking ‘‘in the case of’’ and all that fol-
lows in subparagraph (C) and inserting ‘‘in any
other case.’’, and
(4) by striking subparagraph (D).
126
(b) PHASE-IN.—Subsection (c) of section 63 is
amended by adding at the end the following new para-
graph:
‘‘(7) PHASE-IN OF INCREASE IN BASIC STAND-
ARD DEDUCTION.—In the case of taxable years be-
ginning before January 1, 2009—
‘‘(A) paragraph (2)(A) shall be applied by
substituting for ‘200 percent’—
‘‘(i) ‘175 percent’ in the case of tax-
able years beginning after 2000 and before
2007, and
‘‘(ii) ‘190 percent’ in the case of tax-
able years beginning after 2006 and before
2009, and
‘‘(B) the basic standard deduction for a
married individual filing a separate return shall
be one-half of the amount applicable under
paragraph (2)(A).
If any amount determined under subparagraph (A)
is not a multiple of $50, such amount shall be
rounded to the next lowest multiple of $50.’’.
(c) TECHNICAL AMENDMENTS.—
(1) Subparagraph (B) of section 1(f )(6) is
amended by striking ‘‘(other than with’’ and all that
follows through ‘‘shall be applied’’ and inserting
127
‘‘(other than with respect to sections 63(c)(4) and
151(d)(4)(A)) shall be applied’’.
(2) Paragraph (4) of section 63(c) is amended
by adding at the end the following flush sentence:
‘‘The preceding sentence shall not apply to the
amount referred to in paragraph (2)(A).’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 302. PHASEOUT OF MARRIAGE PENALTY IN INCOME
TAX RATE BRACKETS.
(a) IN GENERAL.—Subsection (f) of section 1 (relat-
ing to adjustments in tax tables so that inflation will not
result in tax increases) is amended by adding at the end
the following new paragraph:
‘‘(8) 
PHASEOUT
OF
MARRIAGE
PENALTY
BRACKETS.—
‘‘(A) IN GENERAL.—With respect to tax-
able years beginning after December 31, 2000,
in prescribing the tables under paragraph (1)—
‘‘(i) the minimum and maximum tax-
able income amounts in each rate bracket
in the table contained in subsection (a)
shall be the applicable percentage of the
comparable taxable income amounts in the
128
table contained in subsection (c) (after any
other adjustment under this subsection),
and
‘‘(ii) the comparable taxable income
amounts in the table contained in sub-
section (d) shall be 1⁄2 of the amounts de-
termined under clause (i).
‘‘(B) 
APPLICABLE
PERCENTAGE.—For
purposes of subparagraph (A), the applicable
percentage shall be determined in accordance
with the following table:
‘‘For taxable years beginning
The applicable
in calendar year—
percentage is—
2001, 2002, 2003, 2004, 2005, and 2006 ...................
175
2007 and 2008 .............................................................
190
2009 and thereafter .....................................................
200.
‘‘(C) ROUNDING.—If any amount deter-
mined under subparagraph (A)(i) is not a mul-
tiple of $50, such amount shall be rounded to
the next lowest multiple of $50.’’.
(b) TECHNICAL AMENDMENTS.—
(1) Subparagraph (A) of section 1(f)(2) is
amended by inserting ‘‘except as provided in para-
graph (8),’’ before ‘‘by increasing’’.
(2) The heading for subsection (f) of section 1
is amended by inserting ‘‘PHASEOUT OF MARRIAGE
PENALTY IN RATE BRACKETS;’’ before ‘‘ADJUST-
MENTS’’.
129
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 303. MODIFICATIONS OF CHILD TAX CREDIT.
(a) IN GENERAL.—Subsection (a) of section 24 (re-
lating to child tax credit) is amended to read as follows:
‘‘(a) ALLOWANCE OF CREDIT.—
‘‘(1) IN GENERAL.—There shall be allowed as a
credit against the tax imposed by this chapter for
the taxable year with respect to each qualifying child
of the taxpayer an amount equal to the applicable
dollar amount for the calendar year in which such
taxable year begins.
‘‘(2) APPLICABLE DOLLAR AMOUNT.—For pur-
poses of paragraph (1), the applicable dollar amount
for any calendar year shall be determined under the
following table:
Applicable
‘‘Calendar year:
Dollar Amount:
2002 .........................................................................................
$600
2003 .........................................................................................
$700
2004 .........................................................................................
$800
2005 .........................................................................................
$900
2006 and thereafter .................................................................
$1,000.’’.
(b) INCREASE IN PHASE-OUT THRESHOLD.—
(1) 
BEFORE
2006.—Section 
24(b)(2) 
is
amended—
(A) by inserting ‘‘, increased by $18,000
with respect to each taxable year beginning
130
after December 31, 2001’’ after ‘‘return’’ in
subparagraph (A),
(B) by inserting ‘‘, increased by $25,000
with respect to each taxable year beginning
after December 31, 2001’’ after ‘‘married’’ in
subparagraph (B), and
(C) by inserting ‘‘, increased by $9,000
with respect to each taxable year beginning
after December 31, 2001’’ after ‘‘return’’ in
subparagraph (C).
(2) AFTER
2005.—Paragraph (2) of section
24(b) is amended to read as follows:
‘‘(2) THRESHOLD AMOUNT.—For purposes of
paragraph (1), the term ‘threshold amount’ means
$200,000 ($100,000 in the case of a married indi-
vidual (as determined under section 7703) filing a
separate return).’’.
(c) REDUCTION
IN
PHASE-OUT
RATE.—Section
24(b)(1) is amended by striking ‘‘$50’’ and inserting
‘‘$20’’.
(d) REPEAL OF REDUCTION OF CREDIT FOR TAX-
PAYERS SUBJECT
TO ALTERNATIVE MINIMUM TAX.—
Subsection (d) of section 24 is amended by striking para-
graph (2) and by redesignating paragraph (3) as para-
graph (2).
131
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
subsections (a), (b)(1), and (d) shall apply to taxable
years beginning after December 31, 2001.
(2) 2006 PHASE-OUT RATE AND AMOUNT.—The
amendments made by subsections (b)(2) and (c)
shall apply to taxable years beginning after Decem-
ber 31, 2005.
SEC. 304. EXPANSION OF EDUCATION IRAS.
(a) TAX-FREE EXPENDITURES
FOR ELEMENTARY
AND SECONDARY SCHOOL EXPENSES.—
(1) IN GENERAL.—Section 530(b)(2) (defining
qualified higher education expenses) is amended to
read as follows:
‘‘(2) QUALIFIED EDUCATION EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
education expenses’ means—
‘‘(i) qualified higher education ex-
penses (as defined in section 529(e)(3));
and
‘‘(ii) qualified elementary and sec-
ondary education expenses (as defined in
paragraph (4)).
Such expenses shall be reduced as provided in
section 25A(g)(2).
132
‘‘(B) QUALIFIED
STATE
TUITION
PRO-
GRAMS.—Such term shall include amounts paid
or incurred to purchase tuition credits or cer-
tificates, or to make contributions to an ac-
count, under a qualified State tuition program
(as defined in section 529(b)) for the benefit of
the beneficiary of the account.’’.
(2) QUALIFIED ELEMENTARY AND SECONDARY
EDUCATION EXPENSES.—Section 530(b) (relating to
definitions and special rules) is amended by adding
at the end the following new paragraph:
‘‘(4) QUALIFIED ELEMENTARY AND SECONDARY
EDUCATION EXPENSES.—
‘‘(A) IN GENERAL.—The term ‘qualified el-
ementary and secondary education expenses’
means—
‘‘(i) expenses for tuition, fees, aca-
demic tutoring, special needs services,
books, supplies, computer equipment (in-
cluding related software and services), and
other equipment which are incurred in con-
nection with the enrollment or attendance
of the designated beneficiary of the trust
as an elementary or secondary school stu-
133
dent at a public, private, or religious
school, or
‘‘(ii) expenses for room and board,
uniforms, 
transportation, 
and 
supple-
mentary items and services (including ex-
tended day programs) which are required
or provided by a public, private, or reli-
gious school in connection with such enroll-
ment or attendance.
‘‘(B) 
SPECIAL
RULE
FOR
HOMESCHOOLING.—Such term shall include ex-
penses described in subparagraph (A)(i) in con-
nection 
with 
education 
provided 
by
homeschooling if the requirements of any appli-
cable State or local law are met with respect to
such education.
‘‘(C) SCHOOL.—The term ‘school’ means
any school which provides elementary education
or secondary education (kindergarten through
grade 12), as determined under State law.’’.
(3) CONFORMING
AMENDMENTS.—Subsections
(b)(1) and (d)(2) of section 530 are each amended
by striking ‘‘higher’’ each place it appears in the
text and heading thereof.
(b) MAXIMUM ANNUAL CONTRIBUTIONS.—
134
(1) IN
GENERAL.—Section 530(b)(1)(A)(iii)
(defining education individual retirement account) is
amended by striking ‘‘$500’’ and inserting ‘‘the ap-
plicable dollar amount for the calendar year in which
such taxable year begins’’.
(2) APPLICABLE
DOLLAR
AMOUNT.—Section
530(b) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(4) APPLICABLE DOLLAR AMOUNT.—For pur-
poses of paragraph (1)(A)(iii), the applicable dollar
amount for any calendar year shall be determined
under the following table:
Applicable
‘‘Calendar year:
Dollar Amount:
2002 .........................................................................................
$1,000
2003 .........................................................................................
$2,000
2004 .........................................................................................
$3,000
2005 .........................................................................................
$4,000
2006 and thereafter .................................................................
$5,000.’’.
(3) 
CONFORMING
AMENDMENT.—Section
4973(e)(1)(A) is amended by striking ‘‘$500’’ and
inserting ‘‘the applicable dollar amount for the cal-
endar year in which such taxable year begins’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
135
SEC. 305. ELIGIBLE EDUCATIONAL INSTITUTIONS PER-
MITTED TO MAINTAIN QUALIFIED TUITION
PROGRAMS.
(a) IN GENERAL.—Section 529(b)(1) (defining quali-
fied State tuition program) is amended by inserting ‘‘or
by 1 or more eligible educational institutions or a consor-
tium that consists solely of eligible educational institu-
tions’’ after ‘‘maintained by a State or agency or instru-
mentality thereof’’.
(b) PRIVATE QUALIFIED TUITION PROGRAMS LIM-
ITED
TO
BENEFIT
PLANS.—Clause (ii) of section
529(b)(1)(A) is amended by inserting ‘‘in the case of a
program established and maintained by a State or agency
or instrumentality thereof’’ before ‘‘may make’’.
(c) CONFORMING AMENDMENTS.—
(1) The text and headings of each of the sec-
tions 72(e)(9), 135(c)(2(C), 135(d)(1)(D), 529,
530(b)(2)(B), 4973(e), and 6693(a)(2)(C) is amend-
ed by striking ‘‘qualified State tuition’’ each place it
appears and inserting ‘‘qualified tuition’’.
(2)(A) The section heading of section 529 is
amended to read as follows:
‘‘SEC. 529. QUALIFIED TUITION PROGRAMS.’’.
(B) The item relating to section 529 in the
table of sections for part VIII of subchapter F of
chapter 1 is amended by striking ‘‘State’’.
136
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 306. EXCLUSION FROM GROSS INCOME OF EDUCATION
DISTRIBUTIONS FROM QUALIFIED TUITION
PROGRAMS.
(a) IN GENERAL.—Section 529(c)(3)(B) (relating to
distributions) is amended to read as follows:
‘‘(B) 
DISTRIBUTIONS
FOR
QUALIFIED
HIGHER EDUCATION EXPENSES.—
‘‘(i) IN
GENERAL.—If a distributee
elects the application of this clause for any
taxable year—
‘‘(I) no amount shall be includ-
ible in gross income under subpara-
graph (A) by reason of a distribution
which consists of providing a benefit
to the distributee which, if paid for by
the distributee, would constitute pay-
ment of a qualified higher education
expense, and
‘‘(II) the amount which (but for
the election) would be includible in
gross income under subparagraph (A)
by reason of any other distribution
137
shall not be so includible in an
amount which bears the same ratio to
the amount which would be so includ-
ible as such expenses bear to such ag-
gregate distributions.
‘‘(ii) IN-KIND
DISTRIBUTIONS.—Any
benefit furnished to a designated bene-
ficiary under a qualified State tuition pro-
gram shall be treated as a distribution to
the beneficiary for purposes of this para-
graph.
‘‘(iii) DISALLOWANCE OF EXCLUDED
AMOUNTS AS CREDIT OR DEDUCTION.—No
deduction or credit shall be allowed to the
taxpayer under any other section of this
chapter for any qualified higher education
expenses to the extent taken into account
in determining the amount of the exclusion
under this subparagraph.’’.
(b) BENEFICIARY MAY CHANGE PROGRAM.—Section
529(c)(3)(C) (relating to change in beneficiaries) is
amended—
(1) in clause (i), by inserting ‘‘to another quali-
fied tuition program for the benefit of the des-
ignated beneficiary or’’ after ‘‘transferred’’, and
138
(2) in the heading, by inserting ‘‘OR
PRO-
GRAMS’’ after ‘‘BENEFICIARIES’’.
(c) ADDITIONAL TAX ON AMOUNTS NOT USED FOR
HIGHER EDUCATION EXPENSES.—Section 529(c)(3) (re-
lating to distributions) is amended by adding at the end
the following:
‘‘(E) ADDITIONAL TAX ON AMOUNTS NOT
USED
FOR
HIGHER
EDUCATION
EXPENSES.—
The tax imposed by section 530(d)(4) shall
apply to payments and distributions from quali-
fied tuition programs in the same manner as
such tax applies to education individual retire-
ment accounts.’’.
(d) COORDINATION WITH EDUCATION CREDITS.—
Section 25A(e)(2) (relating to coordination with exclu-
sions) is amended—
(1) by inserting ‘‘a qualified tuition program
or’’ before ‘‘an education individual retirement ac-
count’’, and
(2) by striking ‘‘section 530(d)(2)’’ and insert-
ing ‘‘section 529(c)(3)(B) or 530(d)(2)’’.
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to distributions made after December 31,
139
2001, for education furnished in academic periods
beginning after such date.
(2) PRIVATE
PROGRAMS.—In the case of a
qualified tuition program established and maintained
by an entity other than a State or agency or instru-
mentality thereof, the amendments made by sub-
sections (a), (c), and (d) shall apply to distributions
made after December 31, 2005, for education fur-
nished in academic periods beginning after such
date.
SEC. 307. QUALIFIED TUITION PROGRAMS INCLUDED IN SE-
CURITIES EXEMPTION.
(a) EXEMPTED SECURITIES.—Section 3(a)(4) of the
Securities Act of 1933 (15 U.S.C. 77c(a)(4)) is amended
by striking ‘‘individual;’’ and inserting ‘‘individual or any
security issued by a prepaid tuition program described in
section 529 of the Internal Revenue Code of 1986;’’.
(b) QUALIFIED TUITION PROGRAMS NOT INVEST-
MENT COMPANIES.—Section 3(c) of the Investment Com-
pany Act of 1940 (15 U.S.C. 80a–3(c)) is amended by
adding at the end the following:
‘‘(15) Any prepaid tuition program described in
section 529 of the Internal Revenue Code of 1986.’’.
140
SEC. 308. EXPANSION OF CREDIT FOR ADOPTION EX-
PENSES.
(a) INCREASE IN EXPENSES ALLOWABLE FOR ADOP-
TION.—Paragraph (1) of section 23(b) (relating to dollar
limitation) is amended to read as follows:
‘‘(1) DOLLAR LIMITATION.—
‘‘(A) 
IN
GENERAL.—The 
aggregate
amount of qualified adoption expenses which
may be taken into account under subsection (a)
for all taxable years with respect to the adop-
tion of a child by the taxpayer shall not exceed
the applicable amount.
‘‘(B) APPLICABLE AMOUNT.—For purposes
of subparagraph (A)—
‘‘(i) CHILD WITH SPECIAL NEEDS.—
In the case of a child with special needs,
the applicable amount for a taxable year
shall be the amount determined in accord-
ance with the following table:
‘‘For taxable years
The applicable
beginning in:
amount is:
2002 .............................................................................
$8,000
2003 .............................................................................
$10,000
2004 and thereafter .....................................................
$12,000.
‘‘(ii) OTHER CHILDREN.—In the case
of a child who is not a child with special
needs, the applicable amount for a taxable
141
year shall be the amount determined in ac-
cordance with the following table:
‘‘For taxable years
The applicable
beginning in:
amount is:
2002 .............................................................................
$6,000
2003 .............................................................................
$7,000
2004 .............................................................................
$8,000
2005 .............................................................................
$9,000
2006 and thereafter ..................................................... $10,000.’’.
(b) INCREASE IN INCOME LIMITATION.—Clause (i) of
section 23(b)(2)(A) (relating to income limitation) is
amended 
by 
striking 
‘‘$75,000’’ 
and 
inserting
‘‘$150,000’’.
(c) EXTENSION OF SUNSET.—Subparagraph (B) of
section 23(d)(2) (relating to eligible child) is amended by
striking ‘‘2001’’ and inserting ‘‘2005’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
TITLE IV—CHARITABLE GIVING
TAX RELIEF
SEC. 401. DEDUCTION FOR PORTION OF CHARITABLE CON-
TRIBUTIONS TO BE ALLOWED TO INDIVID-
UALS WHO DO NOT ITEMIZE DEDUCTIONS.
(a) IN GENERAL.—Subsection (b) of section 63 is
amended by striking ‘‘and’’ at the end of paragraph (1),
by striking the period at the end of paragraph (2) and
inserting ‘‘, and’’, and by adding at the end the following:
142
‘‘(3) the applicable percentage of the deduction
provided by section 170 (relating to charitable, etc.,
contributions and gifts), in an amount not to exceed
the standard deduction.
For purposes of paragraph (3), the applicable percentage
shall be determined under the following table:
‘‘For taxable years beginning in
calendar year:
The applicable percentage
is:
2002 .........................................................................................
2003 .........................................................................................
2004 .........................................................................................
2005 .........................................................................................
2006 and thereafter .................................................................
100.’’.
(b) CONFORMING AMENDMENT.—Subsection (d) of
section 63 is amended by striking ‘‘and’’ at the end of
paragraph (1), by striking the period at the end of para-
graph (2) and inserting ‘‘, and’’, and by adding at the
end thereof the following new paragraph:
‘‘(3) the deduction provided by section 170 as
determined under subsection (b)(3).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 402. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RE-
TIREMENT 
ACCOUNTS 
FOR 
CHARITABLE
PURPOSES.
(a) IN GENERAL.—Subsection (d) of section 408 (re-
lating to individual retirement accounts) is amended by
adding at the end the following new paragraph:
143
‘‘(8) DISTRIBUTIONS
FOR
CHARITABLE
PUR-
POSES.—
‘‘(A) IN GENERAL.—No amount shall be
includible in gross income by reason of a quali-
fied charitable distribution from an individual
retirement account to an organization described
in section 170(c).
‘‘(B) QUALIFIED
CHARITABLE
DISTRIBU-
TION.—For purposes of this paragraph, the
term ‘qualified charitable distribution’ means
any distribution from an individual retirement
account—
‘‘(i) which is made on or after the
date that the individual for whose benefit
the account is maintained has attained age
591⁄2, and
‘‘(ii) which is made directly from the
account to an organization described in
section 170(c).
‘‘(C) 
DENIAL
OF
DEDUCTION.—The
amount allowable as a deduction under section
170 to the taxpayer for the taxable year shall
be reduced (but not below zero) by the sum of
the amounts of the qualified charitable distribu-
tions during such year which would be includ-
144
ible in the gross income of the taxpayer for
such year but for this paragraph.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 403. HIGHER LIMITATION ON CORPORATE CHARI-
TABLE CONTRIBUTIONS.
(a) IN GENERAL.—Paragraph (2) of section 170(b)
(relating to percentage limitations) is amended by striking
‘‘10 percent’’ and inserting ‘‘15 percent’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2001.
TITLE V—MISCELLANEOUS TAX
RELIEF
SEC. 501. REPEAL OF 1993 INCOME TAX INCREASE ON SO-
CIAL SECURITY BENEFITS.
(a) REDUCTION OF INCREASE.—Clause (i) of section
86(a)(2)(A) is amended by striking ‘‘85 percent’’ and in-
serting ‘‘85 percent (75 percent in the case of taxable
years beginning after 2001 and before 2009 and 50 per-
cent in the case of taxable years beginning before 2010)’’.
(b) RESTORATION
OF PRIOR LAW FORMULA
IN
2010.—Subsection (a) of section 86 is amended to read
as follows:
145
‘‘(a) IN GENERAL.—Gross income for the taxable
year of any taxpayer described in subsection (b) (notwith-
standing section 207 of the Social Security Act) includes
Social Security benefits in an amount equal to the lesser
of—
‘‘(1) one-half of the Social Security benefits re-
ceived during the taxable year, or
‘‘(2) one-half of the excess described in sub-
section (b)(1).’’
(c) REPEAL OF ADJUSTED BASE AMOUNT.—Sub-
section (c) of section 86 is amended to read as follows:
‘‘(c) BASE AMOUNT.—For purposes of this section,
the term ‘base amount’ means—
‘‘(1) except as otherwise provided in this sub-
section, $25,000,
‘‘(2) $32,000 in the case of a joint return, and
‘‘(3) zero in the case of a taxpayer who—
‘‘(A) is married as of the close of the tax-
able year (within the meaning of section 7703)
but does not file a joint return for such year,
and
‘‘(B) does not live apart from his spouse at
all times during the taxable year.’’
(d) CONFORMING AMENDMENTS.—
146
(1) Subparagraph (A) of section 871(a)(3) is
amended by striking ‘‘85 percent’’ and inserting ‘‘50
percent’’.
(2)(A) Subparagraph (A) of section 121(e)(1)
of the Social Security Amendments of 1983 (Public
Law 98–21) is amended—
(i) by striking ‘‘(A) There’’ and inserting
‘‘There’’;
(ii) by striking ‘‘(i)’’ immediately following
‘‘amounts equivalent to’’; and
(iii) by striking ‘‘, less (ii)’’ and all that
follows and inserting a period.
(B) Paragraph (1) of section 121(e) of such Act
is amended by striking subparagraph (B).
(C) Paragraph (3) of section 121(e) of such Act
is amended by striking subparagraph (B) and by re-
designating subparagraph (C) as subparagraph (B).
(D) Paragraph (2) of section 121(e) of such
Act is amended in the first sentence by striking
‘‘paragraph (1)(A)’’ and inserting ‘‘paragraph (1)’’.
(e) EFFECTIVE DATE.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by
this section shall apply to taxable years beginning
after December 31, 2009.
147
(2) SUBSECTION (a).—The amendment made
by subsection (a) shall apply to taxable years begin-
ning after December 31, 2001.
(3) SUBSECTION (c)(1).—The amendment made
by subsection (c)(1) shall apply to benefits paid after
December 31, 2009.
(4) 
SUBSECTION
(c)(2).—The 
amendments
made by subsection (c)(2) shall apply to tax liabil-
ities for taxable years beginning after December 31,
2000.
(e) MAINTENANCE OF TRANSFERS TO HOSPITAL IN-
SURANCE TRUST FUND.—
(1) IN
GENERAL.—There are hereby appro-
priated to the Hospital Insurance Trust Fund estab-
lished under section 1817 of the Social Security Act
amounts equal to the reduction in revenues to the
Treasury by reason of the enactment of this section.
Amounts appropriated by the preceding sentence
shall be transferred from the general fund at such
times and in such manner as to replicate to the ex-
tent possible the transfers which would have oc-
curred to such Trust Fund had this Act not been
enacted.
(2) REPORTS.—The Secretary of the Treasury
or the Secretary’s delegate shall annually report to
148
the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of
the Senate the amounts and timing of the transfers
under this section.
SEC. 502. REPEAL OF FEDERAL COMMUNICATIONS EXCISE
TAX.
(a) IN GENERAL.—Chapter 33 (relating to facilities
and services) is amended by striking subchapter B.
(b) CONFORMING AMENDMENTS.—
(1) Section 4293 is amended by striking ‘‘chap-
ter 32 (other than the taxes imposed by sections
4064 and 4121) and subchapter B of chapter 33,’’
and inserting ‘‘and chapter 32 (other than the taxes
imposed by sections 4064 and 4121),’’.
(2)(A) Paragraph (1) of section 6302(e) is
amended by striking ‘‘section 4251 or’’.
(B) Paragraph (2) of section 6302(e) is amend-
ed by striking ‘‘imposed by—’’ and all that follows
through ‘‘with respect to’’ and inserting ‘‘imposed by
section 4261 or 4271 with respect to’’.
(C) The subsection heading for section 6302(e)
is amended by striking ‘‘COMMUNICATIONS SERV-
ICES AND’’.
149
(3) Section 6415 is amended by striking ‘‘4251,
4261, or 4271’’ each place it appears and inserting
‘‘4261 or 4271’’.
(4) Paragraph (2) of section 7871(a) is amend-
ed by inserting ‘‘or’’ at the end of subparagraph
(B), by striking subparagraph (C), and by redesig-
nating subparagraph (D) as subparagraph (C).
(5) The table of subchapters for chapter 33 is
amended by striking the item relating to subchapter
B.
(d) EFFECTIVE DATES.—The amendments made by
this section shall apply to amounts paid pursuant to bills
first rendered after September 30, 2001.
SEC. 503. DEDUCTION FOR 100 PERCENT OF HEALTH IN-
SURANCE COSTS OF SELF-EMPLOYED INDI-
VIDUALS.
(a) IN GENERAL.—Paragraph (1) of section 162(l)
is amended to read as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—In the case
of an individual who is an employee within the
meaning of section 401(c)(1), there shall be allowed
as a deduction under this section an amount equal
to 100 percent of the amount paid during the tax-
able year for insurance which constitutes medical
150
care for the taxpayer and the taxpayer’s spouse and
dependents.’’.
(b) CLARIFICATION OF LIMITATIONS ON OTHER COV-
ERAGE.—The first sentence of section 162(l)(2)(B) is
amended to read as follows: ‘‘Paragraph (1) shall not
apply to any taxpayer for any calendar month for which
the taxpayer participates in any subsidized health plan
maintained by any employer (other than an employer de-
scribed in section 401(c)(4)) of the taxpayer or the spouse
of the taxpayer.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 504. INCREASED DEDUCTION FOR MEAL EXPENSES.
(a) IN GENERAL.—Paragraph (1) of section 274(n)
(relating to only 50 percent of meal and entertainment
expenses allowed as deduction) is amended by striking ‘‘50
percent’’ in the text and inserting ‘‘the allowable percent-
age’’.
(b) ALLOWABLE PERCENTAGES.—Subsection (n) of
section 274 is amended by redesignating paragraphs (2)
and (3) as paragraphs (3) and (4), respectively, and by
inserting after paragraph (1) the following new paragraph:
‘‘(2) ALLOWABLE PERCENTAGE.—For purposes
of paragraph (1), the allowable percentage is—
151
‘‘(A) in the case of amounts for items de-
scribed in paragraph (1)(B), 50 percent, and
‘‘(B) in the case of expenses for food or
beverages, 80 percent (60 percent for taxable
years beginning after 2001 and before 2010).’’
(c) CONFORMING AMENDMENT.—The heading for
subsection (n) of section 274 is amended by striking ‘‘50
PERCENT’’ and inserting ‘‘LIMITED PERCENTAGES’’.
(d) EFFECTIVE DATE.—
(1) The amendments made by this section shall
apply to taxable years beginning after December 31,
2002.
(2) Section 274(n)(2)(B) of the Internal Rev-
enue Code of 1986 (as added by subsection (b))
shall apply to expenses incurred after the date of the
enactment of this Act.
SEC. 505. INCREASE IN EXPENSE TREATMENT FOR SMALL
BUSINESSES.
(a) IN GENERAL.—Paragraph (1) of section 179(b)
(relating to dollar limitation) is amended to read as fol-
lows:
‘‘(1) DOLLAR LIMITATION.—The aggregate cost
which may be taken into account under subsection
(a) for any taxable year shall not exceed $30,000.’’.
152
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 506. INCOME AVERAGING FOR FARMERS AND FISHER-
MEN NOT TO INCREASE ALTERNATIVE MIN-
IMUM TAX LIABILITY.
(a) IN GENERAL.—Section 55(c) (defining regular
tax) is amended by redesignating paragraph (2) as para-
graph (3) and by inserting after paragraph (1) the fol-
lowing:
‘‘(2) COORDINATION WITH INCOME AVERAGING
FOR
FARMERS
AND
FISHERMEN.—Solely for pur-
poses of this section, section 1301 (relating to aver-
aging of farm and fishing income) shall not apply in
computing the regular tax.’’.
(b) ALLOWING INCOME AVERAGING
FOR FISHER-
MEN.—
(1) IN GENERAL.—Section 1301(a) is amended
by striking ‘‘farming business’’ and inserting ‘‘farm-
ing business or fishing business,’’.
(2) DEFINITION OF ELECTED FARM INCOME.—
(A) IN
GENERAL.—Clause (i) of section
1301(b)(1)(A) is amended by inserting ‘‘or fish-
ing business’’ before the semicolon.
153
(B) CONFORMING AMENDMENT.—Subpara-
graph (B) of section 1301(b)(1) is amended by
inserting ‘‘or fishing business’’ after ‘‘farming
business’’ both places it occurs.
(3) DEFINITION OF FISHING BUSINESS.—Sec-
tion 1301(b) is amended by adding at the end the
following new paragraph:
‘‘(4) FISHING
BUSINESS.—The term ‘fishing
business’ means the conduct of commercial fishing
as defined in section 3 of the Magnuson-Stevens
Fishery Conservation and Management Act (16
U.S.C. 1802).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 507. REPEAL OF OCCUPATIONAL TAXES RELATING TO
DISTILLED SPIRITS, WINE, AND BEER.
(a) REPEAL OF OCCUPATIONAL TAXES.—
(1) IN GENERAL.—The following provisions of
part II of subchapter A of chapter 51 of the Internal
Revenue Code of 1986 (relating to occupational
taxes) are hereby repealed:
(A) Subpart A (relating to proprietors of
distilled spirits plants, bonded wine cellars,
etc.).
154
(B) Subpart B (relating to brewer).
(C) Subpart D (relating to wholesale deal-
ers) (other than sections 5114 and 5116).
(D) Subpart E (relating to retail dealers)
(other than section 5124).
(E) Subpart G (relating to general provi-
sions) (other than sections 5142, 5143, 5145,
and 5146).
(2) NONBEVERAGE
DOMESTIC
DRAWBACK.—
Section 5131 is amended by striking ‘‘, on payment
of a special tax per annum,’’.
(3) INDUSTRIAL USE OF DISTILLED SPIRITS.—
Section 5276 is hereby repealed.
(b) CONFORMING AMENDMENTS.—
(1)(A) The heading for part II of subchapter A
of chapter 51 and the table of subparts for such
part are amended to read as follows:
‘‘PART II—MISCELLANEOUS PROVISIONS
‘‘Subpart A. Manufacturers of stills.
‘‘Subpart B. Nonbeverage domestic drawback claimants.
‘‘Subpart C. Recordkeeping by dealers.
‘‘Subpart D. Other provisions.’’
(B) The table of parts for such subchapter A
is amended by striking the item relating to part II
and inserting the following new item:
‘‘Part II. Miscellaneous provisions.’’
155
(2) Subpart C of part II of such subchapter
(relating to manufacturers of stills) is redesignated
as subpart A.
(3)(A) Subpart F of such part II (relating to
nonbeverage domestic drawback claimants) is redes-
ignated as subpart B and sections 5131 through
5134 are redesignated as sections 5111 through
5114, respectively.
(B) The table of sections for such subpart B,
as so redesignated, is amended—
(i) by redesignating the items relating to
sections 5131 through 5134 as relating to sec-
tions 5111 through 5114, respectively, and
(ii) by striking ‘‘and rate of tax’’ in the
item relating to section 5111, as so redesig-
nated.
(C) Section 5111, as redesignated by subpara-
graph (A), is amended—
(i) by striking ‘‘AND RATE OF TAX’’ in
the section heading,
(ii) by striking ‘‘(a) ELIGIBILITY
FOR
DRAWBACK.—’’, and
(iii) by striking subsection (b).
156
(4) Part II of subchapter A of chapter 51 is
amended by adding after subpart B, as redesignated
by paragraph (3), the following new subpart:
‘‘Subpart C—Recordkeeping by Dealers
‘‘Sec. 5121. Recordkeeping by wholesale dealers.
‘‘Sec. 5122. Recordkeeping by retail dealers.
‘‘Sec. 5123. Preservation and inspection of records, and entry of
premises for inspection.’’
(5)(A) Section 5114 (relating to records) is
moved to subpart C of such part II and inserted
after the table of sections for such subpart.
(B) Section 5114 is amended—
(i) by striking the section heading and in-
serting the following new heading:
‘‘SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.’’,
and
(ii) by redesignating subsection (c) as sub-
section (d) and by inserting after subsection (b)
the following new subsection:
‘‘(c) WHOLESALE DEALERS.—For purposes of this
part—
‘‘(1) WHOLESALE DEALER IN LIQUORS.—The
term ‘wholesale dealer in liquors’ means any dealer
(other than a wholesale dealer in beer) who sells, or
offers for sale, distilled spirits, wines, or beer, to an-
other dealer.
157
‘‘(2) WHOLESALE DEALER IN BEER.—The term
‘wholesale dealer in beer’ means any dealer who
sells, or offers for sale, beer, but not distilled spirits
or wines, to another dealer.
‘‘(3) DEALER.—The term ‘dealer’ means any
person who sells, or offers for sale, any distilled spir-
its, wines, or beer.
‘‘(4) PRESUMPTION IN CASE OF SALE OF 20
WINE GALLONS OR MORE.—The sale, or offer for
sale, of distilled spirits, wines, or beer, in quantities
of 20 wine gallons or more to the same person at
the same time, shall be presumptive evidence that
the person making such sale, or offer for sale, is en-
gaged in or carrying on the business of a wholesale
dealer in liquors or a wholesale dealer in beer, as the
case may be. Such presumption may be overcome by
evidence satisfactorily showing that such sale, or
offer for sale, was made to a person other than a
dealer.’’
(C) Paragraph (3) of section 5121(d), as so re-
designated, is amended by striking ‘‘section 5146’’
and inserting ‘‘section 5123’’.
(6)(A) Section 5124 (relating to records) is
moved to subpart C of part II of subchapter A of
chapter 51 and inserted after section 5121.
158
(B) Section 5124 is amended—
(i) by striking the section heading and in-
serting the following new heading:
‘‘SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.’’,
(ii) by striking ‘‘section 5146’’ in sub-
section (c) and inserting ‘‘section 5123’’, and
(iii) by redesignating subsection (c) as sub-
section (d) and inserting after subsection (b)
the following new subsection:
‘‘(c) RETAIL
DEALERS.—For purposes of this
section—
‘‘(1) RETAIL DEALER IN LIQUORS.—The term
‘retail dealer in liquors’ means any dealer (other
than a retail dealer in beer) who sells, or offers for
sale, distilled spirits, wines, or beer, to any person
other than a dealer.
‘‘(2) RETAIL DEALER IN BEER.—The term ‘re-
tail dealer in beer’ means any dealer who sells, or of-
fers for sale, beer, but not distilled spirits or wines,
to any person other than a dealer.
‘‘(3) DEALER.—The term ‘dealer’ has the
meaning given such term by section 5121(c)(3).’’
(7) Section 5146 is moved to subpart C of part
II of subchapter A of chapter 51, inserted after sec-
tion 5122, and redesignated as section 5123.
159
(8) Part II of subchapter A of chapter 51 is
amended by inserting after subpart C the following
new subpart:
‘‘Subpart D. Other Provisions
‘‘Sec. 5131. Packaging distilled spirits for industrial uses.
‘‘Sec. 5132. Prohibited purchases by dealers.’’
(9) Section 5116 is moved to subpart D of part
II of subchapter A of chapter 51, inserted after the
table of sections, redesignated as section 5131, and
amended by inserting ‘‘(as defined in section
5121(c))’’ after ‘‘dealer’’ in subsection (a).
(10) Subpart D of part II of subchapter A of
chapter 51 is amended by adding at the end thereof
the following new section:
‘‘SEC. 5132. PROHIBITED PURCHASES BY DEALERS.
‘‘(a) IN GENERAL.—Except as provided in regula-
tions prescribed by the Secretary, it shall be unlawful for
a dealer to purchase distilled spirits from any person other
than a wholesale dealer in liquors who is required to keep
the records prescribed by section 5121.
‘‘(b) PENALTY AND FORFEITURE.—
‘‘For penalty and forfeiture provisions applicable
to violations of subsection (a), see sections 5687 and
7302.’’
(11) Subsection (b) of section 5002 is
amended—
160
(A) by striking ‘‘section 5112(a)’’ and in-
serting ‘‘section 5121(c)(3)’’,
(B) by striking ‘‘section 5112’’ and insert-
ing ‘‘section 5121(c)’’, and
(C) by striking ‘‘section 5122’’ and insert-
ing ‘‘section 5122(c)’’.
(12) Subparagraph (A) of section 5010(c)(2) is
amended by striking ‘‘section 5134’’ and inserting
‘‘section 5114’’.
(13) Subsection (d) of section 5052 is amended
to read as follows:
‘‘(d) BREWER.—For purposes of this chapter, the
term ‘brewer’ means any person who brews beer or pro-
duces beer for sale. Such term shall not include any person
who produces only beer exempt from tax under section
5053(e).’’
(14) The text of section 5182 is amended to
read as follows:
‘‘For 
provisions 
requiring 
recordkeeping 
by
wholesale liquor dealers, see section 5112, and by
retail liquor dealers, see section 5122.’’
(15) Subsection (b) of section 5402 is amended
by striking ‘‘section 5092’’ and inserting ‘‘section
5052(d)’’.
(16) Section 5671 is amended by striking ‘‘or
5091’’.
161
(17)(A) Part V of subchapter J of chapter 51
is hereby repealed.
(B) The table of parts for such subchapter J is
amended by striking the item relating to part V.
(18)(A) Sections 5142, 5143, and 5145 are
moved to subchapter D of chapter 52, inserted after
section 5731, redesignated as sections 5732, 5733,
and 5734, respectively, and amended—
(i) by striking ‘‘this part’’ each place it ap-
pears and inserting ‘‘this subchapter’’, and
(ii) by striking ‘‘this subpart’’ in section
5732(c)(2) (as so redesignated) and inserting
‘‘this subchapter’’.
(B) Section 5732, as redesignated by subpara-
graph (A), is amended by striking ‘‘(except the tax
imposed by section 5131)’’ each place it appears.
(C) Subsection (c) of section 5733, as redesig-
nated by subparagraph (A), is amended by striking
paragraph (2) and by redesignating paragraph (3)
as paragraph (2).
(D) The table of sections for subchapter D of
chapter 52 is amended by adding at the end thereof
the following:
‘‘Sec. 5732. Payment of tax.
‘‘Sec. 5733. Provisions relating to liability for occupational taxes.
‘‘Sec. 5734. Application of State laws.’’
162
(E) Section 5731 is amended by striking sub-
section (c) and by redesignating subsection (d) as
subsection (c).
(19) Subsection (c) of section 6071 is amended
by striking ‘‘section 5142’’ and inserting ‘‘section
5732’’.
(20) Paragraph (1) of section 7652(g) is
amended—
(A) by striking ‘‘subpart F’’ and inserting
‘‘subpart B’’, and
(B) by striking ‘‘section 5131(a)’’ and in-
serting ‘‘section 5111(a)’’.
(21) The table of sections for subchapter D of
chapter 51 is amended by striking the item relating
to section 5276.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on July 1, 2002, but shall
not apply to taxes imposed for periods before such date.
SEC. 508. PERMANENT EXTENSION OF RESEARCH CREDIT.
(a) IN GENERAL.—Section 41 (relating to credit for
increasing research activities) is amended by striking sub-
section (h).
(b) CONFORMING AMENDMENT.—Paragraph (1) of
section 45C(b) is amended by striking subparagraph (D).
163
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts paid or incurred after
the date of the enactment of this Act.
SEC. 509. FARM, FISHING, AND RANCH RISK MANAGEMENT
ACCOUNTS.
(a) IN GENERAL.—Subpart C of part II of sub-
chapter E of chapter 1 (relating to taxable year for which
deductions taken) is amended by inserting after section
468B the following new section:
‘‘SEC. 468C. FARM, FISHING, AND RANCH RISK MANAGE-
MENT ACCOUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual engaged in an eligible farming business or commer-
cial fishing, there shall be allowed as a deduction for any
taxable year the amount paid in cash by the taxpayer dur-
ing the taxable year to a Farm, Fishing, and Ranch Risk
Management Account (hereinafter referred to as the
‘FFARRM Account’).
‘‘(b) LIMITATION.—
‘‘(1) CONTRIBUTIONS.—The amount which a
taxpayer may pay into the FFARRM Account for
any taxable year shall not exceed 20 percent of so
much of the taxable income of the taxpayer (deter-
mined without regard to this section) which is at-
tributable (determined in the manner applicable
164
under section 1301) to any eligible farming business
or commercial fishing.
‘‘(2) DISTRIBUTIONS.—Distributions from a
FFARRM Account may not be used to purchase,
lease, or finance any new fishing vessel, add capacity
to any fishery, or otherwise contribute to the over-
capitalization of any fishery. The Secretary of Com-
merce shall implement regulations to enforce this
paragraph.
‘‘(c) ELIGIBLE BUSINESSES.—For purposes of this
section—
‘‘(1) ELIGIBLE FARMING BUSINESS.—The term
‘eligible farming business’ means any farming busi-
ness (as defined in section 263A(e)(4)) which is not
a passive activity (within the meaning of section
469(c)) of the taxpayer.
‘‘(2) COMMERCIAL FISHING.—The term ‘com-
mercial fishing’ has the meaning given such term by
section (3) of the Magnuson-Stevens Fishery Con-
servation and Management Act (16 U.S.C. 1802)
but only if such fishing is not a passive activity
(within the meaning of section 469(c)) of the tax-
payer.
‘‘(d) FFARRM ACCOUNT.—For purposes of this
section—
165
‘‘(1) IN GENERAL.—The term ‘FFARRM Ac-
count’ means a trust created or organized in the
United States for the exclusive benefit of the tax-
payer, but only if the written governing instrument
creating the trust meets the following requirements:
‘‘(A) No contribution will be accepted for
any taxable year in excess of the amount al-
lowed as a deduction under subsection (a) for
such year.
‘‘(B) The trustee is a bank (as defined in
section 408(n)) or another person who dem-
onstrates to the satisfaction of the Secretary
that the manner in which such person will ad-
minister the trust will be consistent with the re-
quirements of this section.
‘‘(C) The assets of the trust consist en-
tirely of cash or of obligations which have ade-
quate stated interest (as defined in section
1274(c)(2)) and which pay such interest not
less often than annually.
‘‘(D) All income of the trust is distributed
currently to the grantor.
‘‘(E) The assets of the trust will not be
commingled with other property except in a
166
common trust fund or common investment
fund.
‘‘(2) ACCOUNT TAXED AS GRANTOR TRUST.—
The grantor of a FFARRM Account shall be treated
for purposes of this title as the owner of such Ac-
count and shall be subject to tax thereon in accord-
ance with subpart E of part I of subchapter J of
this chapter (relating to grantors and others treated
as substantial owners).
‘‘(e) INCLUSION OF AMOUNTS DISTRIBUTED.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), there shall be includible in the gross in-
come of the taxpayer for any taxable year—
‘‘(A) any amount distributed from a
FFARRM Account of the taxpayer during such
taxable year, and
‘‘(B) any deemed distribution under—
‘‘(i) subsection (f )(1) (relating to de-
posits not distributed within 5 years),
‘‘(ii) subsection (f )(2) (relating to ces-
sation in eligible farming business), and
‘‘(iii) subparagraph (B) or (C) of sub-
section (f )(3) (relating to prohibited trans-
actions and pledging account as security).
167
‘‘(2) EXCEPTIONS.—Paragraph (1)(A) shall not
apply to—
‘‘(A) any distribution to the extent attrib-
utable to income of the Account, and
‘‘(B) the distribution of any contribution
paid during a taxable year to a FFARRM Ac-
count to the extent that such contribution ex-
ceeds the limitation applicable under subsection
(b) if requirements similar to the requirements
of section 408(d)(4) are met.
For purposes of subparagraph (A), distributions
shall be treated as first attributable to income and
then to other amounts.
‘‘(f ) SPECIAL RULES.—
‘‘(1) TAX
ON
DEPOSITS
IN
ACCOUNT
WHICH
ARE NOT DISTRIBUTED WITHIN 5 YEARS.—
‘‘(A) IN GENERAL.—If, at the close of any
taxable year, there is a nonqualified balance in
any FFARRM Account—
‘‘(i) there shall be deemed distributed
from such Account during such taxable
year an amount equal to such balance, and
‘‘(ii) the taxpayer’s tax imposed by
this chapter for such taxable year shall be
168
increased by 10 percent of such deemed
distribution.
The preceding sentence shall not apply if an
amount equal to such nonqualified balance is
distributed from such Account to the taxpayer
before the due date (including extensions) for
filing the return of tax imposed by this chapter
for such year (or, if earlier, the date the tax-
payer files such return for such year).
‘‘(B) NONQUALIFIED BALANCE.—For pur-
poses of subparagraph (A), the term ‘non-
qualified balance’ means any balance in the Ac-
count on the last day of the taxable year which
is attributable to amounts deposited in such Ac-
count before the 4th preceding taxable year.
‘‘(C) ORDERING RULE.—For purposes of
this paragraph, distributions from a FFARRM
Account (other than distributions of current in-
come) shall be treated as made from deposits in
the order in which such deposits were made, be-
ginning with the earliest deposits.
‘‘(2) CESSATION
IN
ELIGIBLE
BUSINESS.—At
the close of the first disqualification period after a
period for which the taxpayer was engaged in an eli-
gible farming business or commercial fishing, there
169
shall be deemed distributed from the FFARRM Ac-
count of the taxpayer an amount equal to the bal-
ance in such Account (if any) at the close of such
disqualification period. For purposes of the pre-
ceding sentence, the term ‘disqualification period’
means any period of 2 consecutive taxable years for
which the taxpayer is not engaged in an eligible
farming business or commercial fishing.
‘‘(3) CERTAIN RULES TO APPLY.—Rules similar
to the following rules shall apply for purposes of this
section:
‘‘(A) Section 220(f )(8) (relating to treat-
ment on death).
‘‘(B) Section 408(e)(2) (relating to loss of
exemption of account where individual engages
in prohibited transaction).
‘‘(C) Section 408(e)(4) (relating to effect
of pledging account as security).
‘‘(D) Section 408(g) (relating to commu-
nity property laws).
‘‘(E) Section 408(h) (relating to custodial
accounts).
‘‘(4) TIME WHEN PAYMENTS DEEMED MADE.—
For purposes of this section, a taxpayer shall be
deemed to have made a payment to a FFARRM Ac-
170
count on the last day of a taxable year if such pay-
ment is made on account of such taxable year and
is made on or before the due date (without regard
to extensions) for filing the return of tax for such
taxable year.
‘‘(5) INDIVIDUAL.—For purposes of this sec-
tion, the term ‘individual’ shall not include an estate
or trust.
‘‘(6) DEDUCTION NOT ALLOWED FOR SELF-EM-
PLOYMENT TAX.—The deduction allowable by reason
of subsection (a) shall not be taken into account in
determining an individual’s net earnings from self-
employment (within the meaning of section 1402(a))
for purposes of chapter 2.
‘‘(g) REPORTS.—The trustee of a FFARRM Account
shall make such reports regarding such Account to the
Secretary and to the person for whose benefit the Account
is maintained with respect to contributions, distributions,
and such other matters as the Secretary may require
under regulations. The reports required by this subsection
shall be filed at such time and in such manner and fur-
nished to such persons at such time and in such manner
as may be required by such regulations.’’.
(b) TAX ON EXCESS CONTRIBUTIONS.—
171
(1) Subsection (a) of section 4973 (relating to
tax on excess contributions to certain tax-favored ac-
counts and annuities) is amended by striking ‘‘or’’
at the end of paragraph (3), by redesignating para-
graph (4) as paragraph (5), and by inserting after
paragraph (3) the following new paragraph:
‘‘(4) a FFARRM Account (within the meaning
of section 468C(d)), or’’.
(2) Section 4973 is amended by adding at the
end the following new subsection:
‘‘(g) EXCESS CONTRIBUTIONS
TO FFARRM AC-
COUNTS.—For purposes of this section, in the case of a
FFARRM Account (within the meaning of section
468C(d)), the term ‘excess contributions’ means the
amount by which the amount contributed for the taxable
year to the Account exceeds the amount which may be con-
tributed to the Account under section 468C(b) for such
taxable year. For purposes of this subsection, any con-
tribution which is distributed out of the FFARRM Ac-
count in a distribution to which section 468C(e)(2)(B) ap-
plies shall be treated as an amount not contributed.’’.
(3) The section heading for section 4973 is
amended to read as follows:
172
‘‘SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN AC-
COUNTS, ANNUITIES, ETC.’’.
(4) The table of sections for chapter 43 is
amended by striking the item relating to section
4973 and inserting the following new item:
‘‘Sec. 4973. Excess contributions to certain accounts, annuities,
etc.’’.
(c) TAX ON PROHIBITED TRANSACTIONS.—
(1) Subsection (c) of section 4975 (relating to
tax on prohibited transactions) is amended by add-
ing at the end the following new paragraph:
‘‘(6) SPECIAL RULE FOR FFARRM ACCOUNTS.—
A person for whose benefit a FFARRM Account
(within the meaning of section 468C(d)) is estab-
lished shall be exempt from the tax imposed by this
section with respect to any transaction concerning
such account (which would otherwise be taxable
under this section) if, with respect to such trans-
action, the account ceases to be a FFARRM Ac-
count by reason of the application of section
468C(f )(3)(A) to such account.’’.
(2) Paragraph (1) of section 4975(e) is amend-
ed by redesignating subparagraphs (E) and (F) as
subparagraphs (F) and (G), respectively, and by in-
serting after subparagraph (D) the following new
subparagraph:
173
‘‘(E) a FFARRM Account described in
section 468C(d),’’.
(d) FAILURE TO PROVIDE REPORTS ON FFARRM
ACCOUNTS.—Paragraph (2) of section 6693(a) (relating
to failure to provide reports on certain tax-favored ac-
counts or annuities) is amended by redesignating subpara-
graphs (C) and (D) as subparagraphs (D) and (E), re-
spectively, and by inserting after subparagraph (B) the
following new subparagraph:
‘‘(C) 
section 
468C(g) 
(relating 
to
FFARRM Accounts),’’.
(e) CLERICAL AMENDMENT.—The table of sections
for subpart C of part II of subchapter E of chapter 1 is
amended by inserting after the item relating to section
468B the following new item:
‘‘Sec. 468C. Farm, Fishing and Ranch Risk Management Ac-
counts.’’.
(f ) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
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