SEC. 2. DISTRIBUTIONS FROM GOVERNMENTAL PLANS FOR 
HEALTH AND LONG-TERM CARE INSURANCE 
ALLOWED FOR OTHER PUBLIC EMPLOYEES. 
(a) IN GENERAL.— 
(1) DISTRIBUTIONS ALLOWED FOR OTHER PUB-
LIC EMPLOYEES.—Paragraph (1) of section 402(l) 
of the Internal Revenue Code of 1986 (relating to 
distributions from governmental plans for health and 
long-term care insurance) is amended by striking 
‘‘retired public safety officer who makes the election 
described in paragraph (6)’’ and inserting ‘‘retired 
public employee’’. 
(2) RETIRED PUBLIC EMPLOYEE.— 
(A) Paragraph (4) of section 402(l) of 
such Code is amended— 
(i) by striking ‘‘(B) ELIGIBLE
RE-
TIRED
PUBLIC
SAFETY
OFFICER.—The 
term ‘eligible retired public safety’ officer 
means’’ and all that follows through the 
period at the end and inserting the fol-
lowing: 
‘‘(B) ELIGIBLE
RETIRED
PUBLIC
EM-
PLOYEE.— 
‘‘(i) IN GENERAL.—The term ‘eligible 
retired public employee’ means an indi-
vidual, who by reason of disability or at-
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tainment of the earliest date on which he 
may retire and receive a retirement benefit 
from the governmental plan which is not 
reduced by reason of the individual’s age 
or years of service, separates from service 
as a public safety officer, public school per-
sonnel, or other public employee with the 
employer who maintains the eligible retire-
ment plan from which distributions subject 
to paragraph (1) are made.’’, 
(ii) by redesignating subparagraph 
(C) as clause (ii), by moving such clause 
(as so redesignated) 2 ems to the right, 
and by inserting after such clause (as so 
redesignated) the following new clauses: 
‘‘(iii) PUBLIC SCHOOL PERSONNEL.— 
The term ‘public school personnel’ shall 
have the same meaning given such term by 
section 4151(10) of the elementary and 
secondary education Act of 1965 (20 
U.S.C. 7161(10)) whether employed by an 
institution of higher education (as defined 
in section 101 of the Higher Education 
Act of 1965 (20 U.S.C. 1001) or a local 
educational agency (as defined in section 
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9101 of the Elementary and Secondary 
Education 
Act 
of 
1965 
(20 
U.S.C. 
7801(26)). 
‘‘(iv) PUBLIC EMPLOYEE.—The term 
‘public employee’ means any employee of a 
State, political subdivision of a State, or 
agency or instrumentality of a State or po-
litical subdivision of a State.’’. 
(3) CONFORMING AMENDMENT.— 
(A) Subsection (l) of section 402 of such 
Code (as amended by this section) is amended 
by striking ‘‘retired public safety officer’’ in 
each place it appears and inserting ‘‘retired 
public employee’’. 
(B) Subparagraph (D) of section 402(l)(4) 
of such Code is redesignated as subparagraph 
(C). 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions in taxable years 
beginning after December 31, 2009. 
SEC. 3. DISTRIBUTION ALLOWED AS DEDUCTION RATHER 
THAN EXCLUDED FROM GROSS INCOME. 
(a) IN GENERAL.— 
(1) DEDUCTION ALLOWED.—Paragraph (1) of 
section 402(l) of the Internal Revenue Code of 1986 
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is amended by striking ‘‘gross income of such em-
ployee for such taxable year does not include’’ and 
all that follows through the period at the end and 
inserting the following: ‘‘there shall be allowed as a 
deduction from gross income for the taxable year an 
amount equal to the aggregate amount of distribu-
tions from an eligible retirement plan of the indi-
vidual in the taxable year to the extent that such 
amount does not exceed the amount paid by such 
employee or paid on behalf of such employee by de-
ductions from distributions by the eligible retirement 
plan to the providers of the accident or health plans 
or qualified long-term care contracts for qualified 
health premiums for such taxable year.’’ 
(2) DEDUCTION WITH RESPECT TO SURVIVING 
SPOUSE.—Subsection (l) of section 402 of such Code 
is amended by striking paragraph (6) and inserting 
the following new paragraph: 
‘‘(6) SPECIAL RULE FOR SURVIVING SPOUSE.— 
In the case of a deceased individual with respect to 
whom a deduction was allowed under paragraph (1) 
for the taxable year closed by reason of the individ-
ual’s death, the surviving spouse of such individual 
shall be treated as the employee with respect to the 
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plan for purposes of paragraph (1) for all subse-
quent taxable years.’’. 
(b) DEDUCTION ALLOWED WHETHER OR NOT TAX-
PAYER ITEMIZES.—Subsection (a) of section 62 of such 
Code is amended by inserting after paragraph (21) the 
following new paragraph: 
‘‘(22) DISTRIBUTIONS
FROM
GOVERNMENTAL 
RETIREMENT PLANS FOR HEALTH AND LONG-TERM 
CARE
INSURANCE
FOR
PUBLIC
EMPLOYEES.—The 
deduction allowed by section 402(l).’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Paragraph (1) of section 402(l) of such 
Code is amended by striking ‘‘of the employee, his 
spouse, or dependents (as defined in section 152)’’. 
(2) Paragraph (2) of section 402(l) of such 
Code is amended by striking ‘‘The amount which 
may be excluded from gross income for the taxable 
year by reason of paragraph (1)’’ and inserting 
‘‘The amount allowable as a deduction under para-
graph (1) for the taxable year’’. 
(3) Paragraph (3) of section 402(l) of such 
Code is amended to read as follows: 
‘‘(3) DISTRIBUTIONS
MUST
BE
INCLUDED
IN 
GROSS INCOME.—An amount shall be treated as a 
distribution for purposes of paragraph (1) only to 
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the extent that such amount is included in gross in-
come for the taxable year.’’. 
(4) Paragraph (7) and (8) of section 402(l) of 
such Code are each amended by striking ‘‘The 
amounts excluded from gross income’’ and inserting 
‘‘Any amount allowable as a deduction’’. 
(5) Subsection (a) of section 403 of such Code 
is amended by striking paragraph (2). 
(6) Subsection (a) of section 457 of such Code 
is amended by striking paragraph (3). 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions in taxable years 
beginning after December 31, 2009. 
SEC. 4. FURTHER MODIFICATIONS RELATING TO 402(l). 
(a) IN GENERAL.— 
(1) Subsection (l) of section 402 of the Internal 
Revenue Code of 1986 is amended by adding at the 
end the following new paragraph: 
‘‘(9) COST-OF-LIVING
ADJUSTMENT.—In the 
case of taxable years beginning after December 31, 
2009, the Secretary shall adjust the $3,000 amount 
under paragraph (2) at the same time and in the 
same manner as under section 415(d), except that 
the base period shall be the calendar quarter begin-
ning July 1, 2008, and any increase under this 
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(A) by inserting ‘‘(as defined in section 
152, determined without regard to subsections 
(b)(1), (b)(2), and (d)(1)(B) thereof)’’ after 
‘‘dependents’’, and 
(B) by striking ‘‘insurance’’. 
(4) Paragraph (5) of section 402(l) of such 
Code is amended to read as follows: 
‘‘(5) RELATED PLANS TREATED AS 1 PLAN.— 
For purposes of this subsection, all eligible retire-
ment plans of an employer shall be treated as a sin-
gle plan.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions in taxable years 
beginning after December 31, 2009. 
Æ 
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