inserting ‘‘, and’’, and by adding at the end the fol-
lowing new subparagraph:
‘‘(E) a qualified governmental excess bene-
fit arrangement described in section 415(m).’’
(c) EXEMPTION
FOR SURVIVOR
AND DISABILITY
BENEFITS.—Paragraph (2) of section 415(b) of such
Code is amended by adding at the end the following new
subparagraph:
‘‘(I) EXEMPTION FOR SURVIVOR AND DIS-
ABILITY BENEFITS PROVIDED UNDER GOVERN-
MENTAL PLANS.—Paragraph (5) and subpara-
graph (C) of this paragraph shall not apply
to—
‘‘(i) income received from a govern-
mental plan (as defined in section 414(d))
as a pension, annuity, or similar allowance
as the result of the recipient becoming dis-
abled by reason of personal injuries or
sickness, or
‘‘(ii) amounts received from a govern-
mental plan by the beneficiaries, survivors,
or the estate of an employee as the result
of the death of the employee.’’
(d) REVOCATION OF GRANDFATHER ELECTION.—
(1) IN GENERAL.—Subparagraph (C) of section
415(b)(10) of such Code is amended by adding at
the end the following new clause:
‘‘(ii) REVOCATION OF ELECTION.—An
election under clause (i) may be revoked
not later than the last day of the third
plan year beginning after the date of the
enactment of this clause. The revocation
shall apply to all plan years to which the
election applied and to all subsequent plan
years. Any amount paid by a plan in a tax-
able year ending after the revocation shall
be includible in income in such taxable
year under the rules of this chapter in ef-
fect for such taxable year, except that, for
purposes of applying the limitations im-
posed by this section, any portion of such
amount which is attributable to any tax-
able year during which the election was in
effect shall be treated as received in such
taxable year.’’
(2) CONFORMING AMENDMENT.—Subparagraph
(C) of section 415(b)(10) of such Code is amended
by striking ‘‘This’’ and inserting:
‘‘(i) IN GENERAL.—This’’.
(e) COMPENSATION.—Subsection (k) of section 415
of such Code is amended by adding at the end the follow-
ing new paragraph:
‘‘(3) DEFINITION OF COMPENSATION FOR GOV-
ERNMENT PLANS.—For purposes of this section, in
the case of a governmental plan (as defined in sec-
tion 414(d)), the term ‘compensation’ includes, in
addition to the amounts described in subsection
(c)(3)—
‘‘(A) any elective deferral (as defined in
section 402(g)(3)), and
‘‘(B) any amount which is contributed by
the employer at the election of the employee
and which is not includible in the gross income
of the employee under section 125 or 457.’’
(f) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
subsections (a), (b), (c), and (e) shall apply to years
beginning after the date of the enactment of this
Act. The amendments made by subsection (d) shall
apply with respect to revocations adopted after the
date of the enactment of this Act.
(2) TREATMENT
FOR
YEARS
BEGINNING
BE-
FORE
DATE
OF
ENACTMENT.—Nothing in the
amendments made by this section shall be construed
to infer that a governmental plan (as defined in sec-
tion 414(d) of the Internal Revenue Code of 1986)
fails to satisfy the requirements of section 415 of
such Code for any taxable year beginning before the
date of the enactment of this Act.
SEC. 3. TREATMENT OF DEFERRED COMPENSATION PLANS
OF STATE AND LOCAL GOVERNMENTS AND
TAX-EXEMPT ORGANIZATIONS.
(a) SPECIAL RULES FOR PLAN DISTRIBUTIONS.—
Paragraph (9) of section 457(e) of the Internal Revenue
Code of 1986 (relating to other definitions and special
rules) is amended to read as follows:
‘‘(9) BENEFITS NOT TREATED AS MADE AVAIL-
ABLE BY REASON OF CERTAIN ELECTIONS, ETC.—
‘‘(A) TOTAL AMOUNT PAYABLE IS $3,500
OR LESS.—The total amount payable to a par-
ticipant under the plan shall not be treated as
made available merely because the participant
may elect to receive such amount (or the plan
may distribute such amount without the partici-
pant’s consent) if—
‘‘(i) such amount does not exceed
$3,500, and
‘‘(ii) such amount may be distributed
only if—
‘‘(I) no amount has been deferred
under the plan with respect to such
participant during the 2-year period
ending on the date of the distribution,
and
‘‘(II) there has been no prior dis-
tribution under the plan to such par-
ticipant to which this subparagraph
applied.
A plan shall not be treated as failing to meet
the distribution requirements of subsection (d)
by reason of a distribution to which this sub-
paragraph applies.
‘‘(B) ELECTION
TO
DEFER
COMMENCE-
MENT OF DISTRIBUTIONS.—The total amount
payable to a participant under the plan shall
not be treated as made available merely because
the participant may elect to defer commence-
ment of distributions under the plan if—
‘‘(i) such election is made after
amounts may be available under the plan
in accordance with subsection (d)(1)(A)
and before commencement of such dis-
tributions, and