I
105TH CONGRESS
1ST SESSION
H. R. 1130
To provide for retirement savings and security, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 19, 1997
Mr. GEJDENSON (for himself, Mr. POMEROY, Mr. BENTSEN, Mrs. KENNELLY
of Connecticut, Mrs. LOWEY, Mr. GEPHARDT, Mr. BOSWELL, Mr.
DELAHUNT, Mr. KUCINICH, Mrs. MALONEY of New York, Ms. MCCAR-
THY of Missouri, Mrs. TAUSCHER, Mr. LEWIS of Georgia, Mr. KILDEE,
Mr. ANDREWS, Mr. GONZALEZ, Mr. BROWN of California, Mr. LAFALCE,
Mr. FROST, Mr. SABO, Mr. BORSKI, Mr. WISE, Mr. ACKERMAN, Mr.
SAWYER, Ms. DELAURO, Mr. OLVER, Mrs. CLAYTON, Mr. FILNER, Mr.
BALDACCI, Mr. STRICKLAND, Mr. BLAGOJEVICH, Ms. KILPATRICK, Mr.
MCGOVERN, Mr. PASCRELL, Mr. SANDLIN, and Mr. UNDERWOOD) intro-
duced the following bill; which was referred to the Committee on Ways
and Means, and in addition to the Committees on Education and the
Workforce, Government Reform and Oversight, Transportation and Infra-
structure, and National Security, for a period to be subsequently deter-
mined by the Speaker, in each case for consideration of such provisions
as fall within the jurisdiction of the committee concerned
A BILL
To provide for retirement savings and security, and for other
purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Retirement Security
Act of 1997’’.
SEC. 2. TABLE OF CONTENTS.
The table of contents for this Act is as follows:
Sec. 1. Short title.
Sec. 2. Table of contents.
TITLE I—PENSION ACCESS AND COVERAGE
Sec. 100. Amendment of 1986 Code.
Subtitle A—Improved Access to Individual Retirement Savings
CHAPTER 1—CONTRIBUTIONS TO INDIVIDUAL RETIREMENT PLANS THROUGH
PAYROLL DEDUCTIONS
Sec. 101. Definitions.
Sec. 102. Establishment of payroll deduction and investment system.
Sec. 103. Contributions to individual retirement plans.
Sec. 104. Investment options.
Sec. 105. Accounting and information.
Sec. 106. Administrative costs.
Sec. 107. Fiduciary responsibilities; liability and penalties; bonding; investiga-
tive authority.
Sec. 108. Selection of contractor.
CHAPTER 2—NONREFUNDABLE TAX CREDIT FOR CONTRIBUTIONS TO
INDIVIDUAL RETIREMENT ACCOUNTS
Sec. 111. Nonrefundable tax credit for contributions to individual retirement
plans.
CHAPTER 3—EXPANDED INDIVIDUAL RETIREMENT ACCOUNTS TO INCREASE
COVERAGE AND PORTABILITY
SUBCHAPTER A—IRA DEDUCTION
Sec. 121. Increase in income limitations.
Sec. 122. Inflation adjustment for deductible amount and income limitations.
SUBCHAPTER B—DISTRIBUTIONS AND INVESTMENTS
Sec. 131. Distributions from IRAs may be used without additional tax to pur-
chase first homes, to pay higher education, or to pay finan-
cially devastating medical expenses.
Sec. 132. Distributions from certain plans may be used without penalty during
periods of unemployment.
Sec. 133. Contributions must be held at least 5 years in certain cases.
CHAPTER 4—PERIODIC PENSION BENEFITS STATEMENTS
Sec. 141. Periodic pension benefits statements.
Subtitle B—Improved Fairness in Retirement Plan Benefits
Sec. 151. Amendments to simple retirement accounts.
Sec. 152. Nondiscrimination rules for qualified cash or deferred arrangements
and matching contributions.
Sec. 153. Definition of highly compensated employees.
Subtitle C—Improving Retirement Plan Coverage
Sec. 161. Credit for pension plan start-up costs of small employers.
Sec. 162. Treatment of multiemployer plans under section 415.
Sec. 163. Exemption of mirror plans from section 457 limits.
Sec. 164. Special rules for self-employed individuals.
Sec. 165. Immediate participation in the thrift savings plan for Federal employ-
ees.
Sec. 166. Modification of 10 percent tax for nondeductible contributions.
Sec. 167. Treatment of certain disability benefits received by former police offi-
cers or firefighters.
Subtitle D—Simplifying Plan Requirements
Sec. 171. Full funding limitation for multiemployer plans.
Sec. 172. Elimination of partial termination rules for multiemployer plans.
Sec. 173. Modifications to nondiscrimination and minimum participation rules
with respect to governmental plans.
Sec. 174. Elimination of requirement for plan descriptions and the filing re-
quirement for summary plan descriptions and descriptions of
material modifications to a plan; technical corrections.
Sec. 175. Repeal of 150 percent of current liability funding limit.
Sec. 176. New technologies in retirement plans.
TITLE II—SECURITY
Sec. 200. Amendment of ERISA.
Subtitle A—General Provisions
Sec. 201. Section 401(k) investment protection.
Sec. 202. Requirement of annual, detailed investment reports applied to certain
401(k) plans.
Sec. 203. Information required to be provided to investment managers of
401(k) plans.
Sec. 204. Study on investments in collectibles.
Sec. 205. Qualified employer plans prohibited from making loans through credit
cards and other intermediaries.
Sec. 206. Multiemployer plan benefits guaranteed.
Sec. 207. Prohibited transactions.
Sec. 208. Substantial owner benefits.
Sec. 209. Reversion report.
Sec. 210. Development of additional remedies.
Subtitle B—ERISA Enforcement
Sec. 211. Repeal of limited scope audit.
Sec. 212. Additional requirements for qualified public accountants.
Sec. 213. Clarification of fiduciary penalties.
Sec. 214. Conforming amendments relating to ERISA enforcement.
TITLE III—PORTABILITY
Sec. 301. Faster vesting of employer matching contributions.
Sec. 302. Rationalize the restrictions on distributions from 401(k) plans.
Sec. 303. Treatment of transfers between defined contribution plans.
Sec. 304. Missing participants.
TITLE IV—COMPREHENSIVE WOMEN’S PENSION PROTECTION
Subtitle A—Pension Reform
Sec. 401. Pension integration rules.
Sec. 402. Application of minimum coverage requirements with respect to sepa-
rate lines of business.
Sec. 403. Division of pension benefits upon divorce.
Sec. 404. Entitlement of divorced spouses to railroad retirement annuities inde-
pendent of actual entitlement of employee.
Sec. 405. Effective dates.
Subtitle B—Protection of Rights of Former Spouses to Pension Benefits
Under Certain Government and Government-Sponsored Retirement Programs
Sec. 411. Extension of tier II railroad retirement benefits to surviving former
spouses pursuant to divorce agreements.
Sec. 412. Survivor annuities for widows, widowers, and former spouses of Fed-
eral employees who die before attaining age for deferred annu-
ity under civil service retirement system.
Sec. 413. Termination of two-tier annuity computation and social security off-
set under military survivor benefit plan.
Sec. 414. Court orders relating to Federal retirement benefits for former
spouses of Federal employees.
Subtitle C—Modifications of Joint and Survivor Annuity Requirements
Sec. 421. Modifications of joint and survivor annuity requirements.
Subtitle D—Spousal Consent Required for Distributions From Section 401(k)
Plans
Sec. 431. Spousal consent required for distributions from section 401(k) plans.
Subtitle E—Women’s Pension Toll-Free Phone Number
Sec. 441. Women’s pension toll-free phone number.
TITLE V—DATE FOR ADOPTION OF PLAN AMENDMENTS
Sec. 501. Date for adoption of plan amendments.
TITLE I—PENSION ACCESS AND
COVERAGE
SEC. 100. AMENDMENT OF 1986 CODE.
Except as otherwise expressly provided, whenever in
this title an amendment or repeal is expressed in terms
of an amendment to, or repeal of, a section or other provi-
sion, the reference shall be considered to be made to a
section or other provision of the Internal Revenue Code
of 1986.
Subtitle A—Improved Access to
Individual Retirement Savings
CHAPTER 1—CONTRIBUTIONS TO INDI-
VIDUAL 
RETIREMENT 
PLANS
THROUGH PAYROLL DEDUCTIONS
SEC. 101. DEFINITIONS.
For purposes of this chapter:
(1) 
CONTRACTOR.—The 
term 
‘‘contractor’’
means the private entity awarded a contract by the
Secretary of Labor under section 108.
(2) CONTRIBUTION
CERTIFICATE.—The term
‘‘contribution certificate’’ means a certificate submit-
ted by an employee to the employee’s employer and
the contractor which—
(A) identifies the employee by name, ad-
dress, and social security number, and
(B) identifies the amount of the contribu-
tion to an individual retirement plan the em-
ployee wishes to make for the taxable year
through a payroll deduction, not to exceed the
amount allowed under section 408 of the Inter-
nal Revenue Code of 1986 to an individual re-
tirement plan for such year.
(3) EMPLOYEE.—The term ‘‘employee’’ does
not include an employee as defined in section
401(c)(1) of such Code.
(4) INDIVIDUAL RETIREMENT PLANS.—
(A) IN GENERAL.—The term ‘‘individual
retirement plan’’ has the meaning given the
term by section 7701(a)(37) of the Internal
Revenue Code of 1986).
(B) APPLICATION OF RULES.—Rules appli-
cable to an individual retirement plan under the
Internal Revenue Code of 1986 are applicable
to an individual retirement plan referred to in
this chapter.
SEC. 102. ESTABLISHMENT OF PAYROLL DEDUCTION AND
INVESTMENT SYSTEM.
The contractor shall establish a system under
which—
(1) employees, through employer payroll deduc-
tions, may make contributions to individual retire-
ment plans, and
(2) amounts in the individual retirement plans
are invested as provided in section 104.
SEC. 103. CONTRIBUTIONS TO INDIVIDUAL RETIREMENT
PLANS.
(a) IN GENERAL.—The system established under sec-
tion 102 shall provide that contributions made to an indi-
vidual retirement plan for any taxable year are—
(1) contributions under an employer payroll de-
duction system, and
(2) additional contributions which, when added
to contributions under paragraph (1), do not exceed
the amount allowed under section 408 of the Inter-
nal Revenue Code of 1986 for the taxable year.
(b) EMPLOYER PAYROLL DEDUCTION SYSTEMS.—
(1) IN
GENERAL.—The system established
under section 102 shall provide to the maximum ex-
tent feasible that contributions under employer pay-
roll deduction systems are made in such a manner
as provides all employers with a simple, cost-effec-
tive way of making such contributions.
(2) SIMPLIFIED EMPLOYEE ENROLLMENT AND
PARTICIPATION.—
(A) ESTABLISHMENT.—An employee may
establish and maintain an individual retirement
plan simply by—
(i) completing a contribution certifi-
cate, and
(ii) submitting such certificate to the
employee’s employer and the contractor in
the manner provided under paragraph (3).
(B) EASE OF ADMINISTRATION.—An em-
ployee establishing and maintaining an individ-
ual retirement plan under subparagraph (A)
may change the amount of an employer payroll
deduction, request employer payroll deductions
by new employers to an existing plan, and make
changes in elections made under section 104(d)
in the same manner as under subparagraph
(A).
(C) SIMPLIFIED FORMS.—
(i) CONTRIBUTION
CERTIFICATE.—
The contractor shall develop a contribution
certificate for purposes of subparagraph
(A)—
(I) which is written in a clear
and easily understandable manner,
and
(II) the completion of which by
an employee will constitute the estab-
lishment of an individual retirement
plan and the request for employer
payroll deductions.
(ii) OTHER
FORMS.—The contractor
shall develop such model forms for pur-
poses of subparagraph (B) as are nec-
essary to enable the contractor and an em-
ployer to easily administer an individual
retirement plan on behalf of an employee.
(iii) AVAILABILITY.—The contractor
shall make available to all employees and
employers the forms developed under this
subparagraph, and shall include with such
forms easy to understand explanatory ma-
terials.
(3) USE
OF
CERTIFICATE.—Each employer
upon receipt of a contribution certificate from an
employee shall deduct the appropriate contribution
as determined by such certificate from the employ-
ee’s wages in equal amounts during the remaining
payroll periods for the taxable year and shall remit
such amounts to the contractor for investment in the
employee’s individual retirement plan.
(4) FAILURE
TO
REMIT
PAYROLL
DEDUC-
TIONS.—For purposes of the Internal Revenue Code
of 1986, any amount which an employer fails to
remit to the contractor on behalf of an employee
pursuant to a contribution certificate of such em-
ployee shall not be allowed as a deduction to the em-
ployer under such Code.
SEC. 104. INVESTMENT OPTIONS.
(a) IN GENERAL.—The contractor shall, pursuant to
the system established under section 102, enter into ar-
rangements, on a competitive basis, with qualified profes-
sional asset managers to provide individuals with the op-
portunity to invest sums in an individual retirement plan
in each of the funds described in subsection (b).
(b) TYPE OF FUNDS.—The funds described in the
subsection are the following:
(1) A government securities investment fund.
(2) A fixed income investment fund.
(3) A common stock index investment fund.
(c) ASSET MANAGERS.—
(1) IN GENERAL.—The contractor may select
more than 1 qualified professional asset manager for
each type of fund described in subsection (b).
(2) ASSET ALLOCATION.—The contractor may
place limits on the amount which may be allocated
by the contractor to any qualified professional asset
manager to the extent the contractor determines
necessary to prevent undue impact on any financial
market or undue risk to participants.
(3) DEFINITION.—For purposes of this section,
the term ‘‘qualified professional asset manager’’ has
the meaning given the term by section 8438(a)(7) of
title 5, United States Code.
(d) PARTICIPANT ELECTIONS.—
(1) IN
GENERAL.—The system established
under section 102 shall provide that an individual on
whose behalf an individual retirement plan is estab-
lished may—
(A) elect the investment funds into which
contributions to the plan are to be invested, and
(B) elect to transfer contributions (and
earnings) from one fund to another.
(2) METHOD.—Any election shall be made in
the manner provided by the system, except that the
contractor shall seek to ensure elections may be
made in a simple, timely manner.
(3) LIMITATION.—Any election under this sub-
section shall be subject to the asset allocation limita-
tion under subsection (c)(2).
(e) INVESTMENT POLICIES.—The system established
under section 102 shall provide that any investment poli-
cies adopted by the contractor shall provide for—
(1) prudent investments suitable for accumulat-
ing funds for payment of retirement income, and
(2) low administrative costs.
SEC. 105. ACCOUNTING AND INFORMATION.
(a) ESTABLISHMENT OF PLANS.—
(1) IN
GENERAL.—The system established
under section 102 shall provide for the establishment
and maintenance of an individual retirement plan
for each individual—
(A) for whom contributions are made to
the contractor under an employer payroll deduc-
tion system pursuant to a contribution certifi-
cate, and
(B) who makes any additional contribu-
tions allowed under section 408 of the Internal
Revenue Code of 1986 for the taxable year.
(2) 
ALLOCATIONS
AND
REDUCTIONS
TO
PLAN.—Such system shall provide for—
(A) the allocation to each plan of an
amount equal to a pro rata share of the net
earnings and net losses from each investment of
sums in such plan, and
(B) a reduction in each such plan for the
plan’s appropriate share of the administrative
expenses to be paid out.
(3) EXAMINATION OF PLANS.—
(A) IN
GENERAL.—The contractor shall
annually engage, on behalf of all individuals for
whom an individual retirement plan is main-
tained, an independent qualified public account-
ant 
(within 
the 
meaning 
of 
section
103(a)(3)(D) of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C.
1023(a)(3)(D)) who shall conduct an examina-
tion of all plans and other books and records
maintained in the administration of this chapter
as the accountant considers necessary to make
the determination under subparagraph (B). The
examination shall be conducted in accordance
with generally accepted auditing standards and
shall involve such tests of the plans, books, and
records as the public accountant considers nec-
essary.
(B) DETERMINATION
OF
COMPLIANCE.—
The public accountant conducting an examina-
tion under subparagraph (A) shall determine
whether the plans, books, and records referred
to in such subparagraph have been maintained
in conformity with generally accepted account-
ing principles. The public accountant shall
transmit to the contractor and the Secretary of
Labor a report on such examination and deter-
mination.
(C) RELIANCE.—In making a determina-
tion under subparagraph (B), a public account-
ant may rely on the correctness of any actuarial
matter certified by an enrolled actuary if the
public accountant states a reliance in the report
to the contractor.
(b) ADDITIONAL INFORMATION.—
(1) IN
GENERAL.—The system established
under section 102 shall provide for the furnishing of
information to employees and employers of the op-
portunity of establishing individual retirement plans
and of transferring amounts to such plans.
(2) PLAN PARTICIPANTS.—
(A) IN GENERAL.—Such system shall pro-
vide that each individual for whom an individ-
ual retirement plan is maintained shall be peri-
odically furnished with—
(i) a statement relating to the individ-
ual’s plan, and
(ii) a summary description of the in-
vestment options under the plan and a his-
tory of the investment performance of such
options during the 5-year period preceding
the evaluation.
(B) PLAN VALUATION.—Such system shall
also provide that each individual for whom an
individual retirement plan is established shall be
entitled, upon request, to a periodic valuation of
amounts in each fund described in section
104(b) in order to enable the individual to
make an election to transfer such amounts be-
tween funds.
(3) INVESTMENT INFORMATION.—The contrac-
tor shall also make available to employees informa-
tion on how to make informed investment decisions
and how to achieve retirement objectives.
(4) INFORMATION NOT INVESTMENT ADVICE.—
Information provided under this subsection shall not
be treated as investment advice for purposes of any
Federal or State law.
SEC. 106. ADMINISTRATIVE COSTS.
(a) IN GENERAL.—Except as provided from amounts
described in section 108(c), any expense incurred by the
contractor in carrying out its functions under this chapter
shall be paid first from the earnings of the funds in indi-
vidual retirement plans and then from balances in such
plans.
(b) ALLOCATION.—Expenses under subsection (a)
shall be allocated to each individual retirement plan in the
manner provided under section 105.
SEC. 107. FIDUCIARY RESPONSIBILITIES; LIABILITY AND
PENALTIES; BONDING; INVESTIGATIVE AU-
THORITY.
Except as modified by the Secretary of Labor in regu-
lations to correspond to the structure and responsibilities
of the contractor, the provisions of sections 8477, 8478,
8478a, and 8479(a) of title 5, United States Code, shall
apply to the contractor in the same manner as such provi-
sions apply to the Thrift Savings Fund.
SEC. 108. SELECTION OF CONTRACTOR.
(a) SELECTION.—
(1) IN GENERAL.—The Secretary of Labor shall
contract out, on a competitive basis, the duties
under this chapter to a private entity.
(2) MEASUREMENT
OF
CONTRACT
PERFORM-
ANCE.—No contract shall be entered into with any
entity under paragraph (1) unless the Secretary of
Labor finds that such entity will perform its obliga-
tions under the contract efficiently and effectively
and will meet such requirements as to financial re-
sponsibility, legal authority, and other matters as
the Secretary finds pertinent. The Secretary of
CHAPTER 
2—NONREFUNDABLE 
TAX
CREDIT FOR CONTRIBUTIONS TO IN-
DIVIDUAL RETIREMENT ACCOUNTS
SEC. 111. NONREFUNDABLE TAX CREDIT FOR CONTRIBU-
TIONS TO INDIVIDUAL RETIREMENT PLANS.
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable personal
credits) is amended by inserting after section 25 the fol-
lowing new section:
‘‘SEC. 25A. RETIREMENT SAVINGS.
‘‘(a) ALLOWANCE OF CREDIT.—There shall be al-
lowed as a credit against the tax imposed by this chapter
so much of the qualified retirement contributions of the
taxpayer for the taxable year as does not exceed the appli-
cable amount of the adjusted gross income of the taxpayer
for such year.
‘‘(b) APPLICABLE AMOUNT.—For purposes of sub-
section (a), the applicable amount is determined in accord-
ance with the following table:
‘‘If adjusted gross income is:
The applicable amount is:
Not over $15,000 ..........................
$450.
Over 
$15,000 
but 
not 
over
$20,000.
$400.
Over 
$20,000 
but 
not 
over
$25,000.
$350.
Over 
$25,000 
but 
not 
over
$30,000.
$300.
Over $30,000 .................................
$0.
‘‘(c) SECTION NOT TO APPLY TO CERTAIN CON-
TRIBUTIONS.—This section shall not apply with respect
to—
‘‘(1) an employer contribution to a simplified
employee pension, and
‘‘(2) any amount contributed to a simple retire-
ment account established under section 408(p).
‘‘(d) OTHER LIMITATIONS AND RESTRICTIONS.—
‘‘(1) BENEFICIARY
MUST
BE
UNDER
AGE
701⁄2.—No credit shall be allowed under this section
with respect to any qualified retirement contribution
for the benefit of an individual if such individual has
attained age 701⁄2 before the close of such individ-
ual’s taxable year for which the contribution was
made.
‘‘(2) RECONTRIBUTED
AMOUNTS.—No credit
shall be allowed under this section with respect to a
rollover contribution described in section 402(c),
403(a)(4), 403(b)(8), or 408(d)(3).
‘‘(3) AMOUNTS CONTRIBUTED UNDER ENDOW-
MENT
CONTRACT.—In the case of an endowment
contract described in section 408(b), no credit shall
be allowed under this section for that portion of the
amounts paid under the contract for the taxable
year which is properly allocable, under regulations
prescribed by the Secretary, to the cost of life insur-
ance.
‘‘(4) DENIAL
OF
CREDIT
FOR
AMOUNT
CON-
TRIBUTED
TO
INHERITED
ANNUITIES
OR
AC-
COUNTS.—No credit shall be allowed under this sec-
tion with respect to any amount paid to an inherited
individual retirement account or individual retire-
ment annuity (within the meaning of section
408(d)(3)(C)(ii)).
‘‘(5) NO DOUBLE BENEFIT.—No credit shall be
allowed under this section for any taxable year with
respect to the amount of any qualified retirement
contribution for the benefit of an individual if such
individual takes a deduction with respect to such
amount under section 219 for such taxable year.
‘‘(e) QUALIFIED RETIREMENT CONTRIBUTION.—For
purposes of this section, the term ‘qualified retirement
contribution’ means—
‘‘(1) any amount paid in cash for the taxable
year by or on behalf of an individual to an individual
retirement plan for such individual’s benefit, and
‘‘(2) any amount contributed on behalf of any
individual to a plan described in section 501(c)(18).
‘‘(f) OTHER DEFINITIONS AND SPECIAL RULES.—
‘‘(1) COMPENSATION.—For purposes of this
section, the term ‘compensation’ has the meaning
given in section 219(f)(1).
‘‘(2) MARRIED COUPLES MUST FILE JOINT RE-
TURN.—If the taxpayer is married at the close of
the taxable year, the credit shall be allowed under
subsection (a) only if the taxpayer and the tax-
payer’s spouse file a joint return for the taxable
year.
‘‘(3) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—For purposes of this section, a taxpayer
shall be deemed to have made a contribution to an
individual retirement plan on the last day of the pre-
ceding taxable year if the contribution is made on
account of such taxable year and is made not later
than the time prescribed by law for filing the return
for such taxable year (not including extensions
thereof).
‘‘(4) EMPLOYER PAYMENTS.—For purposes of
this title, any amount paid by an employer to an in-
dividual retirement plan shall be treated as payment
of compensation to the employee (other than a self-
employed individual who is an employee within the
meaning of section 401(c)(1)) includible in his gross
income in the taxable year for which the amount was
contributed, whether or not a credit for such pay-
ment is allowable under this section to the em-
ployee.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 86(f) is amended by redesignating
paragraphs (2), (3), and (4) as paragraphs (3), (4),
and (5), respectively, and by inserting after para-
graph (1) the following new paragraph:
‘‘(2) section 25A(f)(1) (defining compensa-
tion),’’.
(2) Clause (i) of section 501(c)(18)(D) is
amended by inserting ‘‘which may be taken into ac-
count in computing the credit allowable under sec-
tion 25A or’’ before ‘‘with respect’’.
(3) Section 6047(c) is amended by inserting
‘‘section 25A or’’ before ‘‘section 219’’.
(4) Section 6652(g) is amended by inserting
‘‘CREDITABLE’’ before ‘‘DEDUCTIBLE’’ in the head-
ing thereof.
(5) The table of sections for subpart A of part
IV of subchapter A of chapter 1 is amended by in-
serting after the item relating to section 25 the fol-
lowing new item:
‘‘Sec. 25A. Retirement savings.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section apply to taxable years beginning after Decem-
ber 31, 1997.
CHAPTER 3—EXPANDED INDIVIDUAL RE-
TIREMENT ACCOUNTS TO INCREASE
COVERAGE AND PORTABILITY
Subchapter A—IRA Deduction
SEC. 121. INCREASE IN INCOME LIMITATIONS.
(a) IN GENERAL.—Subparagraph (B) of section
219(g)(3) (defining applicable dollar amount) is amend-
ed—
(1) by striking ‘‘$40,000’’ in clause (i) and in-
serting ‘‘$80,000 ($70,000 in the case of taxable
years beginning in 1997, 1998, or 1999)’’, and
(2) by striking ‘‘$25,000’’ in clause (ii) and in-
serting ‘‘$50,000 ($45,000 in the case of taxable
years beginning in 1997, 1998, or 1999)’’.
(b) PHASEOUT OF LIMITATIONS.—Clause (ii) of sec-
tion 219(g)(2)(A) (relating to amount of reduction) is
amended by striking ‘‘$10,000’’ and inserting ‘‘an amount
equal to 10 times the dollar amount applicable for the tax-
able year under subsection (b)(1)(A)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 122. INFLATION ADJUSTMENT FOR DEDUCTIBLE
AMOUNT AND INCOME LIMITATIONS.
(a) IN GENERAL.—Section 219 (relating to retire-
ment savings) is amended by redesignating subsection (h)
as subsection (i) and by inserting after subsection (g) the
following new subsection:
‘‘(h) COST-OF-LIVING ADJUSTMENTS.—
‘‘(1) DEDUCTIBLE AMOUNTS.—In the case of
any taxable year beginning in a calendar year after
1997, the $2,000 amount under subsection (b)(1)(A)
shall be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
year in which the taxable year begins, deter-
mined by substituting ‘calendar year 1996’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
‘‘(2) APPLICABLE
DOLLAR
AMOUNT.—In the
case of any taxable year beginning in a calendar
year after 2000, the applicable dollar amounts under
subsection (g)(3)(B) shall be increased by an
amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
year in which the taxable year begins, deter-
mined by substituting ‘calendar year 1999’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
‘‘(3) ROUNDING RULES.—
‘‘(A) 
DEDUCTION
AMOUNTS.—If 
any
amount after adjustment under paragraph (1)
is not a multiple of $500, such amount shall be
rounded to the next lowest multiple of $500.
‘‘(B) APPLICABLE DOLLAR AMOUNTS.—If
any amount after adjustment under paragraph
(2) is not a multiple of $5,000, such amount
shall be rounded to the next lowest multiple of
$5,000.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 408(a)(1) is amended by striking
‘‘in excess of $2,000 on behalf of any individual’’
and inserting ‘‘on behalf of any individual in excess
of the amount in effect for such taxable year under
section 219(b)(1)(A)’’.
(2) Section 408(b)(2)(B) is amended by strik-
ing ‘‘$2,000’’ and inserting ‘‘the dollar amount in
effect under section 219(b)(1)(A)’’.
(3) Section 408(j) is amended by striking
‘‘$2,000’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
Subchapter B—Distributions and
Investments
SEC. 131. DISTRIBUTIONS FROM IRAS MAY BE USED WITH-
OUT ADDITIONAL TAX TO PURCHASE FIRST
HOMES, TO PAY HIGHER EDUCATION, OR TO
PAY FINANCIALLY DEVASTATING MEDICAL
EXPENSES.
(a) IN GENERAL.—Paragraph (2) of section 72(t)
(relating to exceptions to 10-percent additional tax on
early distributions from qualified retirement plans) is
amended by adding at the end the following new subpara-
graph:
‘‘(E) 
DISTRIBUTIONS
FROM
CERTAIN
PLANS FOR FIRST HOME PURCHASES OR EDU-
CATIONAL EXPENSES.—Distributions to an in-
dividual from an individual retirement plan—
‘‘(i) which are qualified first-time
homebuyer distributions (as defined in
paragraph (7)); or
‘‘(ii) to the extent such distributions
do not exceed the qualified higher edu-
cation expenses (as defined in paragraph
(8)) of the taxpayer for the taxable year.’’.
(b) FINANCIALLY
DEVASTATING
MEDICAL
EX-
PENSES.—
(1) CERTAIN LINEAL DESCENDANTS AND AN-
CESTORS
TREATED
AS
DEPENDENTS.—Subpara-
graph (B) of section 72(t)(2) (relating to subsection
not to apply to certain distributions) is amended by
striking ‘‘medical care’’ and all that follows and in-
serting ‘‘medical care determined—
‘‘(i) without regard to whether the
employee itemizes deductions for such tax-
able year, and
‘‘(ii) in the case of an individual re-
tirement plan, by treating such employee’s
dependents 
as 
including 
all 
children,
grandchildren, and ancestors of the em-
ployee or such employee’s spouse.’’.
(2) CONFORMING AMENDMENT.—Subparagraph
(B) of section 72(t)(2) is amended by striking ‘‘or
(D)’’ and inserting ‘‘, (D), or (E)’’.
(c) DEFINITIONS.—Section 72(t) is amended by add-
ing at the end the following new paragraphs:
‘‘(7) QUALIFIED FIRST-TIME HOMEBUYER DIS-
TRIBUTIONS.—For 
purposes 
of 
paragraph
(2)(E)(i)—
‘‘(A) IN
GENERAL.—The term ‘qualified
first-time homebuyer distribution’ means any
payment or distribution received by an individ-
ual to the extent such payment or distribution
is used by the individual before the close of the
60th day after the day on which such payment
or distribution is received to pay qualified ac-
quisition costs with respect to a principal resi-
dence of a first-time homebuyer who is such in-
dividual or the spouse, child (as defined in sec-
tion 151(c)(3)), or grandchild of such individ-
ual.
‘‘(B) QUALIFIED
ACQUISITION
COSTS.—
For purposes of this paragraph, the term
‘qualified acquisition costs’ means the costs of
acquiring, constructing, or reconstructing a res-
idence. Such term includes any usual or reason-
able settlement, financing, or other closing
costs.
‘‘(C) FIRST-TIME
HOMEBUYER; 
OTHER
DEFINITIONS.—For purposes of this para-
graph—
‘‘(i) FIRST-TIME
HOMEBUYER.—The
term ‘first-time homebuyer’ means any in-
dividual if—
‘‘(I) such individual (and if mar-
ried, such individual’s spouse) had no
present ownership interest in a prin-
cipal residence during the 3-year pe-
riod ending on the date of acquisition
of the principal residence to which
this paragraph applies, and
‘‘(II) subsection (h) or (k) of sec-
tion 1034 did not suspend the run-
ning of any period of time specified in
section 1034 with respect to such in-
dividual on the day before the date
the distribution is applied pursuant to
subparagraph (A).
In the case of an individual described in
section 143(i)(1)(C) for any year, an own-
ership interest shall not include any inter-
est under a contract of deed described in
such section. An individual who loses an
ownership interest in a principal residence
incident to a divorce or legal separation is
deemed for purposes of this subparagraph
to have had no ownership interest in such
principal residence within the period re-
ferred to in subclause (II).
‘‘(ii) 
PRINCIPAL
RESIDENCE.—The
term ‘principal residence’ has the same
meaning as when used in section 1034.
‘‘(iii) DATE
OF
ACQUISITION.—The
term ‘date of acquisition’ means the date—
‘‘(I) on which a binding contract
to acquire the principal residence to
which subparagraph (A) applies is en-
tered into, or
‘‘(II) on which construction or re-
construction of such a principal resi-
dence is commenced.
‘‘(D) SPECIAL RULE WHERE DELAY IN AC-
QUISITION.—Any portion of any distribution
from any individual retirement plan which fails
to meet the requirements of subparagraph (A)
solely by reason of a delay or cancellation of the
purchase or construction of the residence may
be contributed to an individual retirement plan
as provided in section 408(d)(3)(A)(i) (deter-
mined by substituting ‘120 days’ for ‘60 days’
in such section), except that—
‘‘(i) section 408(d)(3)(B) shall not be
applied to such portion, and
‘‘(ii) such portion shall not be taken
into account in determining whether sec-
tion 408(d)(3)(B) applies to any other
amount.
‘‘(8) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—For purposes of paragraph (2)(E)(ii)—
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ means tuition and
fees required for the enrollment or attendance
of—
‘‘(i) the taxpayer,
‘‘(ii) the taxpayer’s spouse,
‘‘(iii) a dependent of the taxpayer
with respect to whom the taxpayer is al-
lowed a deduction under section 151, or
‘‘(iv) the taxpayer’s child (as defined
in section 151(c)(3)) or grandchild,
as an eligible student at an institution of higher
education.
‘‘(B) EXCEPTIONS.—The term ‘qualified
higher education expenses’ does not include—