‘‘(i) INCREASE IN RATE OF MATCHING
CONTRIBUTIONS.—An arrangement shall
not be treated as meeting the requirement
of subparagraph (A)(ii) if the rate of the
employer’s 
matching 
contributions 
in-
creases as the rate of an employee’s con-
tributions or elective deferrals increases.
‘‘(ii) 
PERMISSIBLE
DECREASE
AS
ELECTIVE
DEFERRALS
AND
CONTRIBU-
TIONS
INCREASE.—An arrangement shall
not fail to be treated as meeting the re-
quirement of subparagraph (A)(ii) by rea-
son of a decrease in the rate of the employ-
er’s matching contributions as the rate of
the employee’s contributions or elective de-
ferrals increases, if the same such rate of
decrease applies to all employees of the
employer.’’
(2) NONDISCRIMINATION TEST FOR MATCHING
CONTRIBUTIONS.—Subsection (m) of section 401 of
such Code is amended by redesignating paragraph
(12) as paragraph (13) and by inserting after para-
graph (11) the following new paragraph:
‘‘(12) ADDITIONAL ALTERNATIVE METHOD FOR
CASH OR DEFERRED ARRANGEMENTS.—A qualified
cash or deferred arrangement (as defined in sub-
section (k)) shall be treated as meeting the require-
ments of paragraph (2) with respect to matching
contributions if the arrangement meets the require-
ments of subsection (k)(13).’’
(3) EFFECTIVE DATE.—The amendments made
by this section shall apply to years beginning after
December 31, 1997.
SEC. 5. INHERITED IRAS AND INHERITED 401(k) AMOUNTS.
(a) EXCLUSION OF INHERITED IRAS AND CERTAIN
INHERITED 401(k) AMOUNTS FROM GROSS ESTATE.—
(1) IN GENERAL.—Section 2039 of the Internal
Revenue Code of 1986 is amended by adding at the
end the following new subsection:
‘‘(c) EXCLUSION OF INDIVIDUAL RETIREMENT AC-
COUNTS AND CERTAIN INHERITED 401(k) AMOUNTS.—
Notwithstanding any other provision of this section or of
any other provision of law, there shall be excluded from
the value of the gross estate any amount receivable by any
beneficiary (other than the executor) under—
‘‘(1) an individual retirement plan of the dece-
dent, or
‘‘(2) a qualified cash or deferred arrangement
(as defined in section 401(k)) of the decedent, if the
requirements of section 408(o)(2)(B)(iii) are met
with respect to such amount.’’
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to estates of decedents
dying after December 31, 1997.
(b) BENEFICIARY PERMITTED TO HOLD IRA RE-
CEIVED FROM DECEDENT.—
(1) IN GENERAL.—Subparagraph (B) of section
401(a)(9) of such Code (relating to required dis-
tributions) is amended by adding at the end the fol-
lowing new clause:
‘‘(v) EXCEPTION
FOR
DESIGNATED
BENEFICIARY OF INDIVIDUAL RETIREMENT
PLAN.—Notwithstanding clauses (iii) and
(iv), if any portion of the interest in an in-
dividual retirement plan is payable to (or
for the benefit of) a designated beneficiary
by reason of the death of another individ-
ual, the date on which distributions from
such plan are required to begin under this
paragraph shall be determined by applying
this paragraph as if such beneficiary were
the employee.’’
(2) CONFORMING AMENDMENT.—Paragraph (3)
of section 408(d) of such Code is amended by strik-
ing subparagraph (C) (relating to denial of rollover
treatment for inherited accounts, etc.).
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to amounts payable
after, and acquisitions after, December 31, 1997.
(c) CONTRIBUTION OF INHERITED 401(k) AMOUNTS
TO IRA; EXCLUSION FROM GROSS INCOME FOR SUCH
AMOUNTS.—
(1) IN GENERAL.—Subparagraph (B) of section
408(o)(2) of such Code (relating to nondeductible
limit) is amended by adding at the end the following
new clause:
‘‘(iii) INHERITED 401(k) AMOUNTS.—
If, by reason of the death of an employee,
an individual receives an amount attrib-
utable to an elective deferral described in
section 402(g)(3)(A) of such employee—
‘‘(I) such individual’s nondeduct-
ible limit for the taxable year in which
such amount is received shall be in-
creased by the portion of such amount
which is paid (not later than the 60th
day after the date of such receipt)
into an individual retirement plan for
the benefit of such individual, and
‘‘(II) such portion shall not be
includible in the gross income of such
individual.’’
(2) CONFORMING AMENDMENT.—Paragraph (1)
of section 4973(b) of such Code (relating to excess
contributions) is amended by striking ‘‘408(d)(3))’’
and inserting ‘‘408(d)(3)) and other than amounts
excluded 
from 
gross 
income 
under 
section
408(o)(2)(B)(iii)’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to amounts received
after December 31, 1997.
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