I
104TH CONGRESS
2D SESSION
H. R. 3520
To provide for retirement savings and security.
IN THE HOUSE OF REPRESENTATIVES
MAY 23, 1996
Mr. GEPHARDT (for himself, Mr. BONIOR, Mr. BENTSEN, Mr. GEJDENSON,
Mr. POMEROY, Mr. SAWYER, Mr. FAZIO of California, Mrs. KENNELLY,
Mr. DINGELL, Mr. GIBBONS, Mr. CLAY, Mr. LAFALCE, Mr. OBERSTAR,
Mr. DURBIN, Mr. JOHNSON of South Dakota, Mr. KENNEDY of Massa-
chusetts, Mr. STARK, Mr. MATSUI, Mr. COYNE, Mr. LEVIN, Mr.
MCDERMOTT, Mr. KLECZKA, Mr. LEWIS of Georgia, Mr. NEAL of Massa-
chusetts, Mr. MILLER of California, Mr. WILLIAMS, Mr. ANDREWS, Mr.
GENE GREEN of Texas, Ms. WOOLSEY, Mr. FATTAH, Ms. DELAURO, Mr.
MURTHA, Mr. OBEY, Mr. FROST, Mr. BROWN of California, Mr. YATES,
Mr. GONZALEZ, Mr. STUDDS, Mr. MARKEY, Mr. RAHALL, Mr. VENTO,
Mr. EVANS, Ms. KAPTUR, Mr. SPRATT, Mr. TORRES, Mr. TOWNS, Mr.
WISE, Mr. KANJORSKI, Mr. THORNTON, Mr. COSTELLO, Ms. SLAUGH-
TER, Mrs. LOWEY, Mr. SERRANO, Mr. OLVER, Mr. FILNER, Mr.
GUTIERREZ, Ms. HARMAN, Mr. HASTINGS of Florida, Mr. HOLDEN, Mrs.
MEEK of Florida, Mr. SCOTT, Mr. STUPAK, Mrs. THURMAN, Ms.
VELA´ZQUEZ, 
Mr. 
WYNN, 
Mr. 
BALDACCI, 
Ms. 
LOFGREN, 
Mr.
FALEOMAVAEGA, and Mr. SANDERS) introduced the following bill; which
was referred to the Committee on Ways and Means, and in addition to
the Committees on Economic and Educational Opportunities, Government
Reform and Oversight, and Transportation and Infrastructure, for a pe-
riod to be subsequently determined by the Speaker, in each case for con-
sideration of such provisions as fall within the jurisdiction of the commit-
tee concerned
A BILL
To provide for retirement savings and security.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Retirement Savings and Security Act’’.
(b) TABLE OF CONTENTS.—
Sec. 1. Short title; table of contents.
TITLE I—REVENUE PROVISIONS
Sec. 1100. Amendment of 1986 Code.
Subtitle A—Expanded Pension Coverage and Simplification
CHAPTER 1—THE NEST AND OTHER COVERAGE EXPANSION
Sec. 1101. Establishment of national employee savings trusts for employees of
small employers.
Sec. 1102. Tax-exempt organizations eligible under section 401(k).
Sec. 1103. Nondiscrimination rules for qualified cash or deferred arrangements
and matching contributions.
Sec. 1104. Repeal of family aggregation.
Sec. 1105. Definition of highly compensated employees.
Sec. 1106. Repeal of limitation in case of defined benefit plan and defined con-
tribution plan for same employee.
Sec. 1107. Contributions on behalf of disabled employees.
Sec. 1108. Plans covering self-employed individuals.
Sec. 1109. Trust requirement for deferred compensation plans of State and
local governments.
Sec. 1110. Treatment of certain disability benefits received by former police of-
ficers or firefighters.
CHAPTER 2—SIMPLIFICATION AND COST SAVINGS
Sec. 1201. Treatment of governmental and multiemployer plans under section
415 and treatment of excess benefit plans.
Sec. 1202. Definition of compensation for section 415 purposes.
Sec. 1203. Assumptions for adjusting certain benefits of defined benefit plans
for early retirees.
Sec. 1204. Treatment of deferred compensation plans of State and local govern-
ments and tax-exempt organizations.
Sec. 1205. No required distributions for active employees.
Sec. 1206. Simplified method for taxing annuity distributions under certain em-
ployer plans.
Sec. 1207. Repeal of 5-year income averaging for lump-sum distributions.
Sec. 1208. Elimination of half-year requirements.
Sec. 1209. Distributions under rural cooperative plans.
Sec. 1210. Modification of additional participation requirements.
Sec. 1211. Uniform retirement age.
Sec. 1212. Treatment of leased employees.
Sec. 1213. Full funding limitation for multiemployer plans.
Sec. 1214. Elimination of partial termination rules for multiemployer plans.
Sec. 1215. Elective deferrals under section 403(b).
Sec. 1216. Uniform penalty provisions to apply to certain pension reporting re-
quirements.
Sec. 1217. Tax on prohibited transactions.
Sec. 1218. Date for adoption of plan amendments.
Subtitle B—Expanded Individual Retirement Accounts to Increase Coverage
and Portability
CHAPTER 1—RETIREMENT SAVINGS INCENTIVES
SUBCHAPTER A—IRA DEDUCTION
Sec. 1301. Increase in income limitations.
Sec. 1302. Inflation adjustment for deductible amount and income limitations.
Sec. 1303. Coordination of IRA deduction limit with elective deferral limit.
SUBCHAPTER B—NONDEDUCTIBLE TAX-FREE IRAS
Sec. 1311. Establishment of nondeductible tax-free individual retirement ac-
counts.
CHAPTER 2—DISTRIBUTIONS AND INVESTMENTS
Sec. 1321. Distributions from IRAs may be used without additional tax to pur-
chase first homes, to pay higher education or financially dev-
astating medical expenses, or by the unemployed.
Sec. 1322. Contributions must be held at least 5 years in certain cases.
Sec. 1323. Investments in qualified State prepaid tuition programs.
CHAPTER 3—TERMINATION OF CERTAIN PROVISIONS
Sec. 1331. Termination of certain provisions
Subtitle C—Other Expansions of Pension Portability
Sec. 1401. Alternative nondiscrimination rules for certain plans that provide for
early participation.
Sec. 1402. Treatment of certain veterans’ reemployment rights.
Sec. 1403. Elimination of special vesting rule for multiemployer plans.
Subtitle D—Conforming Amendments
Sec. 1501. Conforming amendment relating to missing participants.
Sec. 1502. Conforming amendments relating to ERISA enforcement.
TITLE II—ERISA PROVISIONS
Sec. 2000. Amendment of ERISA.
Subtitle A—Expanded Pension Coverage and Simplification
Sec. 2001. Reporting and fiduciary requirements relating to NESTs.
Sec. 2002. 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. 2003. Conforming amendment relating to investment in qualified State
prepaid tuition programs.
Subtitle B—Portability
Sec. 2011. Missing participants.
Sec. 2012. Elimination of special vesting rule for multiemployer plans.
Sec. 2013. Treatment of loans during military service.
Subtitle C—Enhanced Security
CHAPTER 1—GENERAL PROVISIONS
Sec. 2021. Multiemployer plan benefits guaranteed.
Sec. 2022. Reversion report.
Sec. 2023. Full funding limitation for multiemployer plans.
Sec. 2024. Prohibited transactions.
Sec. 2025. Substantial owner benefits.
CHAPTER 2—ERISA ENFORCEMENT
Sec. 2031. Short title.
Sec. 2032. Repeal of limited scope audit.
Sec. 2033. Reporting and enforcement requirements for employee benefit plans.
Sec. 2034. Additional requirements for qualified public accountants.
Sec. 2035. Clarification of fiduciary penalties.
TITLE III—ADDITIONAL RETIREMENT PARTICIPATION AND
PAYMENT OPTIONS FOR FEDERAL EMPLOYEES
Sec. 3001. Immediate participation in the Thrift Savings Plan for Federal em-
ployees.
Sec. 3002. Deferred annuities for surviving spouses of Federal employees.
Sec. 3003. Payment of lump-sum credit for former spouses of Federal employ-
ees.
TITLE IV—CONFORMING RAILROAD RETIREMENT BENEFITS
WITH SOCIAL SECURITY
Sec. 4001. Child’s annuity.
Sec. 4002. Entitlement to spousal annuities.
Sec. 4003. Continued payment to survivors of waived lump sum benefits in
amounts equivalent to social security survivor benefits.
Sec. 4004. Lump sum death benefits equivalent to social security benefits.
Sec. 4005. Payment of benefits equivalent to social security benefits with re-
spect to service for which certain railroad retirement annuities
are not payable.
Sec. 4006. Effective date.
TITLE I—REVENUE PROVISIONS
SEC. 1100. 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—Expanded Pension
Coverage and Simplification
CHAPTER 1—THE NEST AND OTHER
COVERAGE EXPANSION
SEC. 1101. ESTABLISHMENT OF NATIONAL EMPLOYEE SAV-
INGS TRUSTS FOR EMPLOYEES OF SMALL EM-
PLOYERS.
(a) IN GENERAL.—Section 408 (relating to individual
retirement accounts) is amended by redesignating sub-
section (p) as subsection (q) and by inserting after sub-
section (o) the following new subsection:
‘‘(p) NESTS.—
‘‘(1) IN GENERAL.—For purposes of this title,
the term ‘NEST’ means an individual retirement ac-
count or annuity established under a written plan of
an eligible employer—
‘‘(A) which meets the requirements of
paragraphs (4), (5), (6), (7), and (8), and
‘‘(B) under which contributions are made
to NESTs solely in accordance with a qualified
formula.
‘‘(2) QUALIFIED FORMULA.—For purposes of
this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
formula’ means a contribution formula which
meets the requirements for—
‘‘(i) a 3-percent formula under sub-
paragraph (B), or
‘‘(ii) a matching-contribution formula
under subparagraph (C).
‘‘(B) 3-PERCENT FORMULA.—
‘‘(i) 
NONELECTIVE
CONTRIBU-
TIONS.—The requirements of the 3-percent
formula are met if, pursuant to the terms
of the plan, the employer makes nonelec-
tive contributions of 3 percent of com-
pensation for each eligible employee who
has at least $5,000 of compensation from
the employer for the year.
‘‘(ii) ELECTIVE
CONTRIBUTIONS.—A
plan shall not fail to meet the require-
ments of this subparagraph merely be-
cause, pursuant to the terms of the plan,
an eligible employee may elect to have the
employer make payments—
‘‘(I) as elective contributions to
the NEST on behalf of the employee,
or
‘‘(II) to the employee directly in
cash.
‘‘(C) 
MATCHING-CONTRIBUTION
FOR-
MULA.—The requirements of the matching-con-
tribution formula are met if, pursuant to the
terms of the plan—
‘‘(i) the employer makes nonelective
contributions of 1 percent of compensation
for each eligible employee who has at least
$5,000 of compensation from the employer
for the year,
‘‘(ii) an eligible employee may elect to
have the employer make payments—
‘‘(I) as elective contributions to
the NEST on behalf of the employee,
or
‘‘(II) to the employee directly in
cash, and
‘‘(iii) the employer makes matching
contributions on behalf of each eligible em-
ployee in an amount equal to—
‘‘(I) 100 percent of the elective
contributions of the employee to the
extent such elective contributions do
not exceed 3 percent of the employee’s
compensation, and
‘‘(II) 
a 
uniform 
percentage
(which is at least 50 percent but not
more than 100 percent) of the elective
contributions of the employee to the
extent that such elective contributions
exceed 3 percent but do not exceed 5
percent of the employee’s compensa-
tion.
‘‘(D) DISCRETIONARY CONTRIBUTIONS.—A
plan shall not be treated as failing to meet the
requirements of this paragraph merely because,
pursuant to the terms of the plan, an employer
makes nonelective contributions under subpara-
graph (B)(i) or (C)(i) in excess of 3 percent or
1 percent of compensation, respectively, but
only if all such contributions bear a uniform re-
lationship to the compensation of each eligible
employee and do not exceed 5 percent of com-
pensation for any eligible employee.
‘‘(E) LIMITATION ON ELECTIVE CONTRIBU-
TIONS.—Elective contributions to a NEST
under subparagraph (B)(ii) or (C)(ii) shall not
be treated as made pursuant to a qualified for-
mula if such contributions on behalf of any em-
ployee for a year exceed the greater of $5,000
or one-half of the limitation applicable for the
year to elective deferrals under section 402(g).
‘‘(F) COMPENSATION
LIMIT.—Contribu-
tions to a NEST shall not be treated as made
pursuant to a qualified formula if the annual
compensation taken into account for any em-
ployee under the formula exceeds the limitation
imposed by section 401(a)(17).
‘‘(G) LOWER COMPENSATION THRESHOLD
PERMITTED.—A plan shall not be treated as
failing to meet the requirements of this para-
graph merely because, pursuant to the terms of
the plan, an employer makes nonelective con-
tributions under subparagraph (B)(i) or (C)(i)
to each eligible employee who has compensation
from the employer for the year in excess of a
uniform compensation threshold which is less
than $5,000.
‘‘(H) For purposes of this paragraph—
‘‘(i) IN
GENERAL.—The term ‘com-
pensation’ has the meaning given such
term by section 414(q)(3).
‘‘(ii) 
SELF-EMPLOYED
INDIVID-
UALS.—Notwithstanding clause (i), in the
case of an employee within the meaning of
section 401(c)(1), compensation under sec-
tion 414(q)(3) shall be determined without
regard to paragraph (2)(A) (v) and (vi) of
section 401(c).
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) ELIGIBLE EMPLOYER.—
‘‘(i) IN GENERAL.—The term ‘eligible
employer’ means, with respect to any year,
an employer which had no more than 100
employees who received at least $5,000 of
compensation from the employer for the
preceding year.
‘‘(ii) 2-YEAR GRACE PERIOD.—An eli-
gible employer who establishes and main-
tains a plan under this subsection for 1 or
more years and who fails to be an eligible
employer for any subsequent year shall be
treated as an eligible employer for the 2
years following the last year the employer
was an eligible employer. If such failure is
due to any acquisition, disposition, or simi-
lar transaction involving an eligible em-
ployer, the preceding sentence shall apply
only in accordance with rules similar to the
rules of section 410(b)(6)(C)(i).
‘‘(B) EMPLOYEE.—The term ‘employee’ in-
cludes an employee as defined in section
401(c)(1).
‘‘(C) ELIGIBLE EMPLOYEE.—
‘‘(i) IN GENERAL.—The term ‘eligible
employee’ means, with respect to any year,
any employee who, prior to such year—
‘‘(I) completed 2 consecutive
years of service with the employer,
and
‘‘(II) attained 21 years of age.
A plan may provide a uniform shorter pe-
riod of service or lower age to apply in lieu
of those under the preceding sentence.
‘‘(ii) EXCLUDABLE EMPLOYEES.—An
employer may elect not to treat employees
described in section 410(b)(3) as eligible
employees.
‘‘(iii) YEAR
OF
SERVICE.—For pur-
poses of this paragraph, an employee shall
be treated as completing a year of service
for each year for which the employee re-
ceives at least $5,000 of compensation
from the employer.
‘‘(D) COMPENSATION.—For purposes of
this paragraph, the term ‘compensation’ means
wages within the meaning of section 3401(a)
and all other payments of compensation to an
employee by the employer with respect to which
the employer is required to furnish the em-
ployee a written statement under sections
6041(d), 6051(a)(3), and 6052. In the case of
an employee (within the meaning of section
401(c)(1)), such term means earned income
within the meaning of section 401(c)(2).
‘‘(E) YEAR.—The term ‘year’ means the
calendar year.
‘‘(4) VESTING REQUIREMENTS.—A plan meets
the requirements of this paragraph only if the em-
ployee’s rights to the employee’s account balance
under the NEST are nonforfeitable. Except as pro-
vided in paragraph (5), the rules of subsection
(k)(4) shall apply for purposes of this paragraph.
‘‘(5) TWO-YEAR
HOLDING
PERIOD.—A plan
meets the requirements of this paragraph only if the
plan, and each NEST under the plan, prohibits the
withdrawal of contributions made for a year (and
any earnings allocable thereto) during the 2-year pe-
riod beginning on the first day of such year.
‘‘(6) TIME CONTRIBUTIONS REQUIRED TO BE
MADE.—
‘‘(A) ELECTIVE CONTRIBUTIONS.—A plan
meets the requirements of this paragraph only
if, under the terms of the plan, the employer
must make all elective contributions to a NEST
not later than the date on which such contribu-
tions would otherwise be required to be made
under title I of the Employee Retirement In-
come Security Act of 1974 if such contributions
were elective contributions under a qualified
cash or deferred arrangement under section
401(k).
‘‘(B) NONELECTIVE AND MATCHING CON-
TRIBUTIONS.—
‘‘(i) IN GENERAL.—A plan meets the
requirements of this paragraph only if,
under the terms of the plan, the employer
must make all nonelective and matching
contributions not later than the close of
the 45-day period following the last day of
the calendar quarter for which the con-
tributions are to be made.
‘‘(ii) COMPENSATION EXCEPTION.—If
an employer does not make nonelective
contributions to a NEST for employees
whose compensation from the employer for
the year is less than the threshold amount
of $5,000 (or such lower amount permitted
under paragraph (2)(G)), then clause (i)
shall apply with respect to nonelective con-
tributions only for employees who received
at least the threshold amount of compensa-
tion as of the end of the applicable quar-
ter. In the case of an employee who
reaches the threshold amount in a calendar
quarter other than the first calendar quar-
ter, the employer shall make nonelective
contributions for that calendar quarter and
all preceding calendar quarters not later
than the date prescribed for that quarter.
‘‘(C) CONTRIBUTIONS AFTER YEAR-END.—
For purposes of this subsection, a contribution
on account of a year which is made within 45
days (or within a period prescribed by the Sec-
retary) after the close of the year shall be
deemed to have been made on the last day of
such year.
‘‘(7) EMPLOYEE ELECTIONS.—A plan meets the
requirements of this paragraph only if, under the
terms of the plan—
‘‘(A) an employee may elect to terminate
elective contributions (described in subpara-
graphs (B)(ii) and (C)(ii) of paragraph (2)) at
any time during the year, except that, if the
employer so elects, the employee may not
resume participation until the first day of the
next year (or such earlier time as provided by
the plan), and
‘‘(B) each employee eligible to partici-
pate—
‘‘(i) may elect, during the 60-day pe-
riod before the beginning of any year, to
make elective contributions, or to modify
the amount of elective contributions, for
such year, and
‘‘(ii) may elect, within 30 days of be-
coming eligible to participate in the plan,
to make elective contributions for the year.
‘‘(8) OTHER PLANS OF THE EMPLOYER.—
‘‘(A) PROHIBITION ON OTHER PLANS WITH
ELECTIVE
OR
MATCHING
CONTRIBUTIONS.—A
plan shall not meet the requirements of this
paragraph for a year if the employer maintain-
ing the plan maintains—
‘‘(i) a plan providing for elective de-
ferrals described in section 402(g)(3), or
‘‘(ii) any plan described in section
401(a) which provides for matching con-
tributions (within the meaning of section
401(m)(4)(A)).
For purposes of this subparagraph, an employer
shall not be treated as maintaining a plan for
a year if, under the plan, no contributions or
benefit accruals may occur for such year.
‘‘(B) 
COORDINATION
WITH
OTHER
PLANS.—
‘‘(i) OTHER PLANS DISREGARDED.—If
an employer maintaining a plan to which
this subsection applies also maintains 1 or
more plans described in section 401(a),
403(a), or 408(k) (other than a plan de-
scribed in subparagraph (A)), the deter-
mination of whether such plan satisfies the
requirements of this subsection shall be
made without regard to such other plans.
‘‘(ii) NEST DISREGARDED.—Except
as provided in sections 404(m) and
415(a)(2), a plan to which this subsection
applies shall not be taken into account in
applying this title to any other plan de-
scribed in clause (i).
‘‘(9) EMPLOYER OPTIONS.—
‘‘(A) USE OF DESIGNATED FINANCIAL IN-
STITUTION.—A plan shall not be treated as fail-
ing to satisfy the requirements of this sub-
section or any other provision of this title mere-
ly because the employer makes all contributions
to the individual retirement accounts or annu-
ities of a designated trustee or issuer. The pre-
ceding sentence shall not apply unless each
NEST plan participant is notified in writing
(either separately or as part of the notice under
subsection (l)(2)(C)) that the participant’s bal-
ance may be transferred without cost or penalty
to another individual account or annuity in ac-
cordance with section 408(d)(3)(G).
‘‘(B) SUSPENSION
OF
PLAN.—Except as
provided by the Secretary, a plan shall not be
treated as failing to meet the requirements of
this subsection if, under the plan, the employer
may suspend all elective, matching, and non-
elective contributions under the plan after noti-
fying eligible employees of such suspension in
writing at least 30 days in advance. Such sus-
pension shall apply to contributions with re-
spect to compensation earned after the effective
date of the suspension. Only 1 suspension
under this subparagraph may take effect during
any year.
‘‘(10) MODEL FORM TO BE PROVIDED.—The
Secretary shall issue a model form that may be used
by an eligible employer to establish a plan that satis-
fies all requirements of this subsection.’’
(b) TAX TREATMENT OF NESTS.—
(1) DEDUCTIBILITY OF CONTRIBUTIONS.—
(A) Section 219(b) (relating to maximum
amount of deduction) is amended by adding at
the end the following new paragraph:
‘‘(4) SPECIAL RULE FOR NESTS.—This section
shall not apply with respect to any amount contrib-
uted to a NEST established under section 408(p).’’
(B) Section 219(g)(5)(A) (defining active
participant) is amended by striking ‘‘or’’ at the
end of clause (iv) and by adding at the end the
following new clause:
‘‘(vi) any NEST (with the meaning of
section 408(p)), or’’.
(C) Section 404 (relating to deductions for
contributions of an employer) is amended by
adding at the end the following new subsection:
‘‘(m) SPECIAL RULES FOR NESTS.—
‘‘(1) IN GENERAL.—Employer contributions to
a NEST (within the meaning of section 408(p))
shall be treated as if they are made to a plan subject
to the requirements of this section. Employer deduc-
tions for such contributions shall be subject to the
following limitations:
‘‘(A) Contributions made for a calendar
year are deductible for the taxable year of the
employer with or within which the calendar year
ends.
‘‘(B) Contributions shall be treated for
purposes of this subsection as if they were
made for a calendar year if such contributions
are made on account of such calendar year and
are made not later than the time prescribed in
section 408(p)(6).
‘‘(C) The amount deductible in a taxable
year for a NEST shall not exceed the amount
contributed pursuant to a qualified formula
(within the meaning of section 408(p)(2)), and
shall be deductible without regard to the
amount contributed under any other plan sub-
ject to this section.
‘‘(2) EFFECT ON STOCK BONUS AND PROFIT-
SHARING TRUST.—For any taxable year for which
the employer has a deduction under paragraph (1),
the otherwise applicable limitations in subsection
(a)(3)(A) with respect to a stock bonus or profit-
sharing trust maintained by the same employer shall
be reduced by the amount of the allowable deduction
under paragraph (1).
‘‘(3) 
COORDINATION
WITH
SUBSECTION
(a)(7).—For purposes of applying the limitation of
subsection (a)(7) with respect to a plan to which this
section applies (other than a plan to which section
408(p) applies), a plan to which section 408(p) ap-
plies shall be treated as if it were a separate stock
bonus or profit-sharing trust of the employer main-
taining the plan.
‘‘(4) COORDINATION WITH SUBSECTION (h).—
For any taxable year for which the employer has a
deduction under paragraph (1), the otherwise appli-
cable limitations in subsection (h) with respect to a
simplified employee pension maintained by the same
employer shall be reduced by the amount of the de-
duction allowable under paragraph (1).’’
(2) CONTRIBUTIONS AND DISTRIBUTIONS.—
(A) Section 402 (relating to taxability of
beneficiary of employees’ trust) is amended by
adding at the end the following new subsection:
‘‘(k) TREATMENT OF NESTS.—The rules of para-
graphs (1) and (3) of subsection (h) shall apply to con-
tributions and distributions with respect to a NEST under
section 408(p).’’
(B) Section 408(d)(3) is amended by add-
ing at the end the following new subparagraph:
‘‘(G) NESTS.—This paragraph shall apply
to an amount distributed to an individual with
respect to a NEST only to the extent such
amount is paid directly to an individual retire-
ment account or annuity for the benefit of such
individual in a direct transfer and, if applicable,
such amount continues to be subject to the 2-
year holding period described in subsection
(p)(5).’’
(C) Clause (i) of section 457(c)(2)(B) is
amended by striking ‘‘section 402(h)(1)(B)’’
and inserting ‘‘section 402 (h)(1)(B) or (k)’’.
(c) REPORTING REQUIREMENTS.—
(1) IN GENERAL.—
(A) SUMMARY
DESCRIPTIONS
AND
EM-
PLOYEE
NOTIFICATION.—Section 
408(l) 
is
amended by adding at the end the following
new paragraph:
‘‘(2) NESTS.—
‘‘(A) NO EMPLOYER REPORTS.—Except as
provided in this paragraph, no report shall be
required under this section by an employer
maintaining a NEST under subsection (p).
‘‘(B) SUMMARY DESCRIPTION.—The trust-
ee or issuer of any individual retirement ac-
count or annuity under a NEST described in
subsection (p) shall prepare, and provide to the
employer maintaining the arrangement, each
year a description containing the following in-
formation:
‘‘(i) The name and address of the em-
ployer and the trustee or issuer.
‘‘(ii) The requirements for eligibility
for participation.
‘‘(iii) The benefits provided with re-
spect to the NEST.
‘‘(iv) The time and method of making
elections with respect to the NEST.
‘‘(v) The procedures for, and effects
of, distributions (including rollovers) from
the arrangement.
‘‘(C) EMPLOYEE NOTIFICATION.—The em-
ployer shall notify each employee immediately
before the period for which an election de-
scribed in subsection (p)(7)(B) may be made of
the employee’s opportunity to make such elec-
tion. Such notice shall include a copy of the de-
scription described in subparagraph (B) and
shall indicate whether matching contributions
will be made with respect to the employee’s
elective contributions, and the level of employer
matching and nonelective contributions which
will be made, for the year for which the election
may be made.’’
(B) CONFORMING
AMENDMENT.—Section
408(l) is amended by striking ‘‘an employer’’
and inserting—
‘‘(1) IN GENERAL.—An employer’’.
(2) TRUSTEE AND ISSUER REPORTS.—Section
408(i) (relating to reports of trustees or issuers) is
amended by adding at the end thereof the following
new flush sentence:
‘‘In the case of an individual retirement account or annu-
ity maintained in connection with a NEST described in
subsection (p), only 1 report under this subsection shall
be required to be submitted each calendar year to the Sec-
retary (at the time provided under paragraph (2)) but, in
addition to the report under this subsection, there shall
be furnished, within 30 days after each calendar quarter,
to the individual on whose behalf the account is main-
tained a statement with respect to the account balance as
of the close of, and the account activity during, such cal-
endar quarter.’’
(3) PENALTIES
FOR
FAILURE
TO
REPORT.—
Section 6693 is amended by redesignating sub-
section (c) as subsection (d) and by inserting after
subsection (b) the following new subsection:
‘‘(c) PENALTIES RELATING TO NESTS.—
‘‘(1) EMPLOYER PENALTIES.—An employer who
fails to provide 1 or more notices required by section
408(l)(2)(C) shall pay a penalty of $50 for each day
on which such failures continue.
‘‘(2) TRUSTEE
PENALTIES.—A trustee who
fails—
‘‘(A) to provide 1 or more statements re-
quired by the last sentence of section 408(i)
shall pay a penalty of $50 for each day on
which such failures continue, or
‘‘(B) to provide 1 or more summary de-
scriptions required by section 408(l)(2)(B) shall
pay a penalty of $50 for each day on which
such failures continue.
‘‘(3) REASONABLE
CAUSE
EXCEPTION.—No
penalty shall be imposed under this subsection with
respect to any failure which the taxpayer shows was
due to reasonable cause.’’
(d) CONFORMING AMENDMENTS.—
(1) Section 280G(b)(6) is amended by striking
the ‘‘or’’ at the end of subparagraph (B), by striking
the period at the end of subparagraph (C) and in-
serting ‘‘, or’’, and by adding after subparagraph
(C) the following new subparagraph:
‘‘(D) 
a 
NEST 
described 
in 
section
408(p).’’
(2) Section 402(g)(3) is amended by striking
‘‘and’’ at the end of subparagraph (B), by striking
the period at the end of subparagraph (C) and in-
graph (F), by inserting ‘‘or’’ at the end of subpara-
graph (G), and by adding at the end the following
new subparagraph:
‘‘(H) under a plan to which section 408(p)
applies, other than any elective contributions
under subparagraphs (B)(ii) and (C)(ii) of sec-
tion 408(p)(2),’’.
(B) Section 209(a)(4) of the Social Security
Act is amended by inserting ‘‘, or (J) under a plan
to which section 408(p) of such Code applies, other
than any elective contributions under subparagraphs
(B)(ii) and (C)(ii) of section 408(p)(2) of such
Code’’ before the semicolon at the end thereof.
(C) Paragraph (5) of section 3306(b) is amend-
ed by striking ‘‘or’’ at the end of subparagraph (F),
by inserting ‘‘or’’ at the end of subparagraph (G),
and by adding at the end the following new subpara-
graph:
‘‘(H) under a plan to which section 408(p)
applies, other than any elective contributions
under subparagraphs (B)(ii) and (C)(ii) of sec-
tion 408(p)(2),’’.
(D) Paragraph (12) of section 3401(a) is
amended by adding the following new subparagraph:
‘‘(D) under or to a NEST described in sec-
tion 408(p); or’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1996.
SEC. 1102. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER
SECTION 401(k).
(a) IN GENERAL.—Subparagraph (B) of section
401(k)(4) is amended to read as follows:
‘‘(B) ELIGIBILITY OF STATE AND LOCAL
GOVERNMENTS
AND
TAX-EXEMPT
ORGANIZA-
TIONS.—
‘‘(i) TAX-EXEMPTS
ELIGIBLE.—Ex-
cept as provided in clause (ii), any organi-
zation exempt from tax under this subtitle
may include a qualified cash or deferred
arrangement as part of a plan maintained
by it.
‘‘(ii) GOVERNMENTS INELIGIBLE.—A
cash or deferred arrangement shall not be
treated as a qualified cash or deferred ar-
rangement if it is part of a plan main-
tained by a State or local government or
political subdivision thereof, or any agency
or instrumentality thereof. This clause
shall not apply to a rural cooperative plan
or to a plan of an employer described in
clause (iii).
‘‘(iii) TREATMENT OF INDIAN TRIBAL
GOVERNMENTS.—An employer which is an
Indian tribal government (as defined in
section 7701(a)(40)), a subdivision of an
Indian tribal government (determined in
accordance with section 7871(d)), or an
agency or instrumentality of an Indian
tribal government or subdivision thereof
may include a qualified cash or deferred
arrangement as part of a plan maintained
by it.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to plan years beginning after De-
cember 31, 1996, but shall not apply to any cash or de-
ferred arrangement to which clause (i) of section
1116(f)(2)(B) of the Tax Reform Act of 1986 applies.
SEC. 1103. NONDISCRIMINATION RULES FOR QUALIFIED
CASH OR DEFERRED ARRANGEMENTS AND
MATCHING CONTRIBUTIONS.
(a) ALTERNATIVE METHODS OF SATISFYING SEC-
TION
401(k) 
NONDISCRIMINATION
TESTS.—Section
401(k) (relating to cash or deferred arrangements) is
amended by adding at the end the following new para-
graph:
‘‘(11) ALTERNATIVE
METHODS
OF
MEETING
NONDISCRIMINATION REQUIREMENTS.—
‘‘(A) IN GENERAL.—A cash or deferred ar-
rangement shall be treated as meeting the re-
quirements of paragraph (3)(A)(ii) if such ar-
rangement—
‘‘(i) meets the contribution require-
ments of subparagraph (B) or (C), and
‘‘(ii) meets the notice requirements of
subparagraph (D).
‘‘(B) NONELECTIVE AND MATCHING CON-
TRIBUTIONS.—
‘‘(i) IN GENERAL.—The requirements
of this subparagraph are met if the re-
quirements of clauses (ii) and (iii) are met.
‘‘(ii) 
NONELECTIVE
CONTRIBU-
TIONS.—The requirements of this clause
are met if, under the arrangement, the em-
ployer is required, without regard to
whether the employee makes an elective
contribution or employee contribution, to
make a contribution to a defined contribu-
tion plan on behalf of each employee who
is not a highly compensated employee and
who is eligible to participate in the ar-
rangement in an amount equal to at least
1 percent of the employee’s compensation.
‘‘(iii) MATCHING
CONTRIBUTIONS.—
The requirements of this clause are met if,
under the arrangement, the employer
makes matching contributions on behalf of
each employee who is not a highly com-
pensated employee in an amount equal
to—
‘‘(I) 100 percent of the elective
contributions of the employee to the
extent such elective contributions do
not exceed 3 percent of the employee’s
compensation, and
‘‘(II) 50 percent of the elective
contributions of the employee to the
extent that such elective contributions
exceed 3 percent but do not exceed 5
percent of the employee’s compensa-
tion.
‘‘(iv) 
RATE
FOR
HIGHLY
COM-
PENSATED
EMPLOYEES.—The 
require-
ments of clause (iii) are not met if, under
the arrangement, the rate of matching con-
tribution with respect to any rate of elec-
tive contribution of a highly compensated
employee is greater than that with respect
to an employee who is not a highly com-
pensated employee. For purposes of this
clause, to the extent provided in regula-
tions, the last sentences of paragraph
(3)(A) and subsection (m)(2)(B) shall not
apply.
‘‘(v) ALTERNATIVE PLAN DESIGNS.—
If the rate of matching contribution with
respect to any rate of elective contribution
is not equal to the percentage required
under clause (iii), an arrangement shall
not be treated as failing to meet the re-
quirements of clause (iii) if—
‘‘(I) the rate of an employer’s
matching contribution does not in-
crease as an employee’s rate of elec-
tive contribution increase, and
‘‘(II) the aggregate amount of
matching contributions at such rate of
elective contribution is at least equal
to the aggregate amount of matching
contributions which would be made if
matching contributions were made on
the basis of the percentages described
in clause (iii).
‘‘(C) 
NONELECTIVE
CONTRIBUTIONS.—
The requirements of this subparagraph are met
if, under the arrangement, the employer is re-
quired, without regard to whether the employee
makes an elective contribution or employee con-
tribution, to make a contribution to a defined
contribution plan on behalf of each employee
who is not a highly compensated employee and
who is eligible to participate in the arrangement
in an amount equal to at least 3 percent of the
employee’s compensation.
‘‘(D) NOTICE
REQUIREMENT.—An ar-
rangement meets the requirements of this para-
graph if, under the arrangement, each employee
eligible to participate is, within a reasonable pe-
riod before any year, given written notice of the
employee’s rights and obligations under the ar-
rangement which—
‘‘(i) is sufficiently accurate and com-
prehensive to reasonably apprise the em-
ployee of such rights and obligations, and
‘‘(ii) is written in a manner calculated
to be understood by the average employee
eligible to participate.
‘‘(E) OTHER REQUIREMENTS.—
‘‘(i) WITHDRAWAL AND VESTING RE-
STRICTIONS.—An arrangement shall not be
treated as meeting the requirements of
subparagraph (B) or (C) of this paragraph
unless the requirements of subparagraphs
(B) and (C) of paragraph (2) are met with
respect to all employer contributions (in-
cluding matching contributions) taken into
account in determining whether the re-
quirements of subparagraphs (B) and (C)
of this paragraph are met.
‘‘(ii) SOCIAL SECURITY AND SIMILAR
CONTRIBUTIONS
NOT
TAKEN
INTO
AC-
COUNT.—An arrangement shall not be
treated as meeting the requirements of
subparagraph (B) or (C) unless such re-
quirements are met without regard to sub-
section (l), and, for purposes of subsection
(l), employer contributions under subpara-
graph (B) or (C) shall not be taken into
account.
‘‘(F) OTHER
PLANS.—An arrangement
shall be treated as meeting the requirements
under subparagraph (A)(i) if any other plan
maintained by the employer meets such require-
ments with respect to employees eligible under
the arrangement.’’
(b) ALTERNATIVE METHODS OF SATISFYING SEC-
TION
401(m) 
NONDISCRIMINATION
TESTS.—Section
401(m) (relating to nondiscrimination test for matching
contributions and employee contributions) is amended by
redesignating paragraph (10) as paragraph (11) and by
adding after paragraph (9) the following new paragraph:
‘‘(10) ALTERNATIVE METHOD OF SATISFYING
TESTS.—
‘‘(A) IN GENERAL.—A defined contribution
plan shall be treated as meeting the require-
ments of paragraph (2) with respect to match-
ing contributions if the plan—
‘‘(i) meets the contribution require-
ments of subparagraph (B) or (C) of sub-
section (k)(11),
‘‘(ii) meets the notice requirements of
subsection (k)(11)(D), and
‘‘(iii) meets the requirements of sub-
paragraphs (B) and (C).
‘‘(B) LIMITATION
ON
MATCHING
CON-
TRIBUTIONS.—The requirements of this sub-
paragraph are met if—
‘‘(i) matching contributions on behalf
of any employee may not be made with re-
spect to an employee’s contributions or
elective deferrals in excess of 6 percent of
the employee’s compensation,
‘‘(ii) the rate of an employer’s match-
ing contribution does not increase as the
rate of an employee’s contributions or elec-
tive deferrals increase, and
‘‘(iii) the matching contribution with
respect to any highly compensated em-
ployee at any rate of an employee contribu-
tion or rate of elective deferral is not
greater than that with respect to an em-
ployee who is not a highly compensated
employee.
To the extent provided in regulations, the last
sentences of paragraph (2)(B) and subsection
(k)(3)(A) shall not apply for purposes of clause
(iii).
‘‘(C) TEST MUST BE MET SEPARATELY.—
If this paragraph applies to any matching con-
tributions, such contributions shall not be taken
into account in determining whether employee
contributions satisfy the requirements of this
subsection.’’
(c) YEAR
FOR
COMPUTING
NONHIGHLY
COM-
PENSATED EMPLOYEE PERCENTAGE.—
(1) CASH
OR
DEFERRED
ARRANGEMENTS.—
Clause (ii) of section 401(k)(3)(A) is amended—
(A) by striking ‘‘such year’’ and inserting
‘‘the plan year’’,
(B) by striking ‘‘for such plan year’’ and
inserting ‘‘for the preceding plan year’’, and
(C) by adding at the end the following new
sentence: ‘‘An arrangement may apply this
clause by using the plan year rather than the
preceding plan year if the employer so elects,
except that if such an election is made, it may
not be changed except as provided by the Sec-
retary.’’
(2) MATCHING
AND
EMPLOYEE
CONTRIBU-
TIONS.—Section 401(m)(2)(A) is amended—
(A) by inserting ‘‘for such plan year’’ after
‘‘highly compensated employees’’,
(B) by inserting ‘‘for the preceding plan
year’’ after ‘‘eligible employees’’ each place it
appears in clause (i) and clause (ii), and
(C) by adding at the end the following
flush sentence: ‘‘This subparagraph may be ap-
plied by using the plan year rather than the
preceding plan year if the employer so elects,
except that if such an election is made, it may
not be changed except as provided the Sec-
retary.’’
(d) SPECIAL RULE FOR DETERMINING AVERAGE DE-
FERRAL PERCENTAGE FOR FIRST PLAN YEAR, ETC.—
(1) Paragraph (3) of section 401(k) is amended
by adding at the end the following new subpara-
graph:
‘‘(E) For purposes of this paragraph, in
the case of the first plan year of any plan, the
amount taken into account as the actual defer-
ral percentage of nonhighly compensated em-
ployees for the preceding plan year shall be—
‘‘(i) 3 percent, or
‘‘(ii) the actual deferral percentage of
nonhighly compensated employees deter-
mined for such first plan year in the case
of—
‘‘(I) an employer who elects to
have this clause apply, or
‘‘(II) except to the extent pro-
vided by the Secretary, a successor
plan.’’
(2) Paragraph (3) of section 401(m) is amend-
ed by adding at the end the following: ‘‘Rules similar
to the rules of subsection (k)(3)(E) shall apply for
purposes of this subsection.’’
(e) DISTRIBUTION OF EXCESS CONTRIBUTIONS AND
EXCESS AGGREGATE CONTRIBUTIONS.—
(1) Subparagraph (C) of section 401(k)(8) (re-
lating to arrangement not disqualified if excess con-
tributions distributed) is amended by striking ‘‘on
the basis of the respective portions of the excess con-
tributions attributable to each of such employees’’
and inserting ‘‘on the basis of the amount of con-
tributions by, or on behalf of, each of such employ-
ees’’.
(2) Subparagraph (C) of section 401(m)(6) (re-
lating to method of distributing excess aggregate
contributions) is amended by striking ‘‘on the basis
of the respective portions of such amounts attrib-
utable to each of such employees’’ and inserting ‘‘on
the basis of the amount of contributions on behalf
of, or by, each such employee’’.
(f) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to plan years beginning after
December 31, 1998.
(2) SUBSECTIONS
(c), (d), 
AND
(e).—The
amendments made by subsections (c), (d), and (e)
shall apply to plan years beginning after December
31, 1996.
SEC. 1104. REPEAL OF FAMILY AGGREGATION.
(a) REPEAL OF FAMILY AGGREGATION RULES.—
(1) IN
GENERAL.—Paragraph (6) of section
414(q) is hereby repealed.
(2) COMPENSATION LIMIT.—Paragraph (17)(A)
of section 401(a) is amended by striking the last
sentence.
(3) DEDUCTION.—Subsection (l) of section 404
is amended by striking the last sentence.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1996.
SEC. 1105. DEFINITION OF HIGHLY COMPENSATED EM-
PLOYEES.
(a) IN GENERAL.—Paragraph (1) of section 414(q)
(defining highly compensated employee) is amended to
read as follows:
‘‘(1) IN
GENERAL.—The term ‘highly com-
pensated employee’ means any employee who—
‘‘(A) was a 5-percent owner at any time
during the year or the preceding year, or
‘‘(B) for the preceding year had compensa-
tion from the employer in excess of $80,000.
The Secretary shall adjust the $80,000 amount
under subparagraph (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 ending
September 30, 1996.’’
(b) CONFORMING AMENDMENTS.—
(1)(A) Subsection (q) of section 414 is amended
by striking paragraphs (2), (4), (5), (8), (10), and
(12) and by redesignating paragraphs (3), (7), (9),
and (11) as paragraphs (2) through (5), respec-
tively.
(B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii),
408(k)(2)(C), and 416(i)(1)(D) are each amended
by striking ‘‘section 414(q)(7)’’ and inserting ‘‘sec-
tion 414(q)(3)’’.
(C) Section 416(i)(1)(A) is amended by striking
‘‘section 
414(q)(8)’’ 
and 
inserting 
‘‘section
414(r)(9)’’.
(2)(A) Section 414(r) is amended by adding at
the end the following new paragraph:
‘‘(9) EXCLUDED EMPLOYEES.—For purposes of
paragraph (2)(A), the following employees shall be
excluded:
‘‘(A) Employees who have not completed 6
months of service.
‘‘(B) Employees who normally work less
than 171⁄2 hours per week.
‘‘(C) Employees who normally work not
more than 6 months during any year.
‘‘(D) Employees who have not attained the
age of 21.
‘‘(E) Except to the extent provided in reg-
ulations, employees who are included in a unit
of employees covered by an agreement which
the Secretary of Labor finds to be a collective
bargaining agreement between employee rep-
resentatives and the employer.’’
(B) Subparagraph (A) of section 414(r)(2) is
amended by striking ‘‘subsection (q)(8)’’ and insert-
ing ‘‘paragraph (9)’’.
(3) Section 1114(c)(4) of the Tax Reform Act
of 1986 is amended by adding at the end the follow-
ing new sentence: ‘‘Any reference in this paragraph
to section 414(q) shall be treated as a reference to
such section as in effect on the day before the date
of the enactment of the Retirement Savings and Se-
curity Act.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1996, except that in determining whether an employee
is a highly compensated employee for years beginning in
1997, such amendments shall be treated as having been
in effect for years beginning in 1996.
SEC. 1106. REPEAL OF LIMITATION IN CASE OF DEFINED
BENEFIT PLAN AND DEFINED CONTRIBUTION
PLAN FOR SAME EMPLOYEE.
(a) IN GENERAL.—Section 415(e) is repealed.
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 415(a) is amend-
ed—
(A) by adding ‘‘or’’ at the end of subpara-
graph (A),
(B) by striking ‘‘, or’’ at the end of sub-
paragraph (B) and inserting a period, and
(C) by striking subparagraph (C).
(2) Subparagraph (B) of section 415(b)(5) is
amended by striking ‘‘and subsection (e)’’.
(3) Paragraph (1) of section 415(f) is amended
by striking ‘‘subsections (b), (c), and (e)’’ and in-
serting ‘‘subsections (b) and (c)’’.
(4) Subsection (g) of section 415 is amended by
striking ‘‘subsections (e) and (f)’’ in the last sen-
tence and inserting ‘‘subsection (f)’’.
(5) Clause (i) of section 415(k)(2)(A) is amend-
ed to read as follows:
‘‘(i) any contribution made directly by
an employee under such an arrangement
shall not be treated as an annual addition
for purposes of subsection (c), and’’.
(6) Clause (ii) of section 415(k)(2)(A) is
amended by striking ‘‘subsections (c) and (e)’’ and
inserting ‘‘subsection (c)’’.
(7) Section 416 is amended by striking sub-
section (h).
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1998.
SEC. 1107. CONTRIBUTIONS ON BEHALF OF DISABLED EM-
PLOYEES.
(a) ALL DISABLED PARTICIPANTS RECEIVING CON-
TRIBUTIONS.—Section 415(c)(3)(C) is amended by adding
at the end the following: ‘‘If a defined contribution plan
provides for the continuation of contributions on behalf
of all participants described in clause (i) for a fixed or
determinable period, this subparagraph shall be applied
without regard to clauses (ii) and (iii).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December
31, 1996.
SEC. 1108. PLANS COVERING SELF-EMPLOYED INDIVID-
UALS.
(a) AGGREGATION RULES.—Section 401(d) (relating
to additional requirements for qualification of trusts and
plans benefiting owner-employees) is amended to read as
follows:
‘‘(d) CONTRIBUTION LIMIT
ON OWNER-EMPLOY-
EES.—A trust forming part of a pension or profit-sharing
plan which provides contributions or benefits for employ-
ees some or all of whom are owner-employees shall con-
stitute a qualified trust under this section only if, in addi-
tion to meeting the requirements of subsection (a), the
plan provides that contributions on behalf of any owner-
employee may be made only with respect to the earned
income of such owner-employee which is derived from the
trade or business with respect to which such plan is estab-
lished.’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning after De-
cember 31, 1996.
SEC. 1109. TRUST REQUIREMENT FOR DEFERRED COM-
PENSATION PLANS OF STATE AND LOCAL
GOVERNMENTS.
(a) IN GENERAL.—Section 457 is amended by adding
at the end the following new subsection:
‘‘(g) GOVERNMENTAL PLANS MUST MAINTAIN SET-
ASIDES FOR EXCLUSIVE BENEFIT OF PARTICIPANTS.—
‘‘(1) IN GENERAL.—A plan maintained by an
eligible employer described in subsection (e)(1)(A)
shall not be treated as an eligible deferred com-
pensation plan unless all amounts, property and
rights, and income of the plan described in subpara-
graphs (A), (B), and (C) of subsection (b)(6) are
held in trust for the exclusive benefit of participants
and their beneficiaries.
‘‘(2) TAXABILITY
OF
TRUSTS
AND
PARTICI-
PANTS.—For purposes of this title—
‘‘(A) a trust described in paragraph (1)
shall be treated as an organization exempt from
taxation under section 501(a), and
‘‘(B) notwithstanding any other provision
of this title, amounts in the trust shall be in-
cludible in the gross income of participants and
beneficiaries only to the extent, and at the time,
provided in this section.
‘‘(3) CUSTODIAL ACCOUNT AND CONTRACTS.—
For purposes of this subsection, custodial accounts
and contracts described in section 401(f) shall be
treated as trusts under rules similar to the rules
under section 401(f).’’
(b) CONFORMING AMENDMENT.—Paragraph (6) of
section 457(b) is amended by inserting ‘‘except as pro-
vided in subsection (g),’’ before ‘‘which provides that’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to amounts, property and rights, and in-
come described in subparagraphs (A), (B), and (C)
of section 457(b)(6) of the Internal Revenue Code of
1986 held by a plan on and after the date of the en-
actment of this Act.
(2) 
TRANSITION
RULE.—In 
the 
case 
of
amounts, property and rights, and income described
in paragraph (1) under a plan before the last day
of the first calendar quarter beginning after the
close of the first regular session (beginning after the
date of the enactment of this Act) of the State legis-
lature of the State in which the governmental entity
maintaining the plan is located, a trust need not be
established by reason of the amendments made by
this section before such last day. For purposes of
the preceding sentence, in the case of a State that
has a 2-year legislative session, each year of such
session shall be deemed to be a separate regular ses-
sion of the State legislature.
SEC. 1110. TREATMENT OF CERTAIN DISABILITY BENEFITS
RECEIVED BY FORMER POLICE OFFICERS OR
FIREFIGHTERS.
(a) GENERAL RULE.—For purposes of determining
whether any amount to which this section applies is ex-
cludable from gross income under section 104(a)(1) of the
Internal Revenue Code of 1986, the following conditions
shall be treated as personal injuries or sickness in the
course of employment:
(1) Heart disease.
(2) Hypertension.
(b) AMOUNTS TO WHICH SECTION APPLIES.—This
section shall apply to any amount—
(1) which is payable—
(A) to an individual (or to the survivors of
an individual) who was a full-time employee of
any police department or fire department which
is organized and operated by a State, by any
political subdivision thereof, or by any agency
or instrumentality of a State or political sub-
division thereof, and
(B) under a State law (as in existence on
July 1, 1992) which irrebuttably presumed that
heart disease and hypertension are work-related
illnesses but only for employees separating from
service before such date; and
(2) which is received in calendar year 1989,
1990, or 1991.
For purposes of the preceding sentence, the term ‘‘State’’
includes the District of Columbia.
(c) WAIVER OF STATUTE OF LIMITATIONS.—If, on
the date of the enactment of this Act (or at any time with-
in the 1-year period beginning on such date of enactment)
credit or refund of any overpayment of tax resulting from
the provisions of this section is barred by any law or rule
of law, credit or refund of such overpayment shall, never-
theless, be allowed or made if claim therefore is filed be-
fore the date 1 year after such date of enactment.
CHAPTER 2—SIMPLIFICATION AND COST
SAVINGS
SEC. 1201. TREATMENT OF GOVERNMENTAL AND MULTIEM-
PLOYER PLANS UNDER SECTION 415 AND
TREATMENT OF EXCESS BENEFIT PLANS.
(a) COMPENSATION LIMIT.—Subsection (b) of sec-
tion 415 is amended by adding immediately after para-
graph (10) the following new paragraph:
‘‘(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) TREATMENT
OF CERTAIN EXCESS BENEFIT
PLANS.—
(1) IN GENERAL.—Section 415 is amended by
adding at the end the following new subsection:
‘‘(m) TREATMENT OF QUALIFIED GOVERNMENTAL
EXCESS BENEFIT ARRANGEMENTS.—
‘‘(1) GOVERNMENTAL PLAN NOT AFFECTED.—
In determining whether a governmental plan (as de-
fined in section 414(d)) meets the requirements of
this section, benefits provided under a qualified gov-
ernmental excess benefit arrangement shall not be
taken into account. Income accruing to a govern-
mental plan (or to a trust that is maintained solely
for the purpose of providing benefits under a quali-
fied governmental excess benefit arrangement) in re-
spect of a qualified governmental excess benefit ar-
rangement shall constitute income derived from the
exercise of an essential governmental function upon
which such governmental plan (or trust) shall be ex-
empt from tax under section 115.
‘‘(2) TAXATION
OF
PARTICIPANT.—For pur-
poses of this chapter—
‘‘(A) the taxable year or years for which
amounts in respect of a qualified governmental
excess benefit arrangement are includible in
gross income by a participant, and
‘‘(B) the treatment of such amounts when
so includible by the participant,
shall be determined as if such qualified govern-
mental excess benefit arrangement were treated as a
plan for the deferral of compensation which is main-
tained by a corporation not exempt from tax under
this chapter and which does not meet the require-
ments for qualification under section 401.
‘‘(3) QUALIFIED GOVERNMENTAL EXCESS BEN-
EFIT
ARRANGEMENT.—For purposes of this sub-
section, the term ‘qualified governmental excess ben-
efit arrangement’ means a portion of a governmental
plan if—
‘‘(A) such portion is maintained solely for
the purpose of providing to participants in the
plan that part of the participant’s annual bene-
fit otherwise payable under the terms of the
plan that exceeds the limitations on benefits im-
posed by this section,
‘‘(B) under such portion no election is pro-
vided at any time to the participant (directly or
indirectly) to defer compensation, and
‘‘(C) benefits described in subparagraph
(A) are not paid from a trust forming a part
of such governmental plan unless such trust is
maintained solely for the purpose of providing
such benefits.’’
(2) RULES RELATING TO EXCESS BENEFIT AR-
RANGEMENT.—
(A) APPLICATION OF SECTION 457.—Sub-
section (e) of section 457 is amended by adding
at the end the following new paragraph:
‘‘(14) TREATMENT
OF
EXCESS
BENEFIT
AR-
RANGEMENTS.—
‘‘(A) IN
GENERAL.—Subsections (b)(2)
and (c)(1) shall not apply to any excess benefit
arrangement and benefits provided under such
an arrangement shall not be taken into account
in determining whether any other plan is an eli-
gible deferred compensation plan.
‘‘(B) EXCESS BENEFIT ARRANGEMENT DE-
FINED.—For purposes of this section, the term
‘excess benefit arrangement’ means a plan
which is maintained by an eligible employer
solely for purposes of providing benefits for cer-
tain employees in excess of the limits on con-
tributions and benefits imposed by section 415.
Such term includes a qualified governmental ex-
cess benefit arrangement (as defined in section
415(m)(3)).’’
(B) 
CONFORMING
AMENDMENT.—Para-
graph (2) of section 457(f) is amended by strik-
ing ‘‘and’’ at the end of subparagraph (C), by
striking the period at the end of subparagraph
(D) and inserting ‘‘, and’’, and by inserting im-
mediately thereafter the following new subpara-
graph:
‘‘(E) an excess benefit arrangement (as de-
fined in subsection (e)(14)(B)).’’
(c) EXEMPTION
FOR SURVIVOR
AND DISABILITY
BENEFITS.—Paragraph (2) of section 415(b) is amended
by adding at the end the following new subparagraph:
‘‘(I) EXEMPTION FOR SURVIVOR AND DIS-
ABILITY BENEFITS PROVIDED UNDER GOVERN-
MENTAL
AND
MULTIEMPLOYER
PLANS.—Sub-
paragraph (C) of this paragraph and paragraph
(5) shall not apply to—
‘‘(i) income received from a govern-
mental plan (as defined in section 414(d))
or a multiemployer plan (as defined in sec-
tion 414(f)) as a pension, annuity, or simi-
lar allowance as the result of the recipient
becoming disabled by reason of personal
injuries or sickness, or
‘‘(ii) amounts received from a govern-
mental or multiemployer plan by the bene-
ficiaries, survivors, or the estate of an em-
ployee as the result of the death of the em-
ployee.’’
(d) REVOCATION OF GRANDFATHER ELECTION.—
(1) IN GENERAL.—Subparagraph (C) of section
415(b)(10) is amended by adding at the end the fol-
lowing 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) is amended by striking
‘‘This’’ and inserting:
‘‘(i) IN GENERAL.—This’’.
(e) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
subsections (a), (b), and (c) shall apply to years be-
ginning after December 31, 1996.
(2) SPECIAL
RULES
FOR
GOVERNMENTAL
PLANS.—
(A) IN GENERAL.—In the case of a govern-
mental plan, the amendments made by sub-
sections (a), (b), and (c) shall apply to years
beginning after December 31, 1995.
(B) 
REVOCATIONS.—The 
amendments
made by subsection (d) shall apply with respect
to revocations adopted after the date of the en-
actment of this Act.
(C) TREATMENT
FOR
YEARS
BEGINNING
BEFORE
JANUARY
1, 1996.—Nothing in the
amendments made by this section shall be con-
strued to imply that a governmental plan (as
defined in section 414(d) of the Internal Reve-
nue Code of 1986) fails to satisfy the require-
ments of section 415 of such Code for any year
beginning before January 1, 1996.
SEC. 1202. DEFINITION OF COMPENSATION FOR SECTION
415 PURPOSES.
(a) GENERAL RULE.—Section 415(c)(3) (defining
participant’s compensation) is amended by adding at the
end the following new subparagraph:
‘‘(D) CERTAIN
DEFERRALS
INCLUDED.—
The term ‘participant’s compensation’ shall in-
clude—
‘‘(i) any elective deferral (as defined
in section 402(g)(3)),
‘‘(ii) any amount which is contributed
by the employer at the election of the em-
ployee and which is not includible in the
gross income of the employee pursuant to
section 125, and
‘‘(iii) any amount which is deferred at
the election of the employee and which is
not includible in the gross income of the
employee pursuant to section 457.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 414(q)(3), as redesignated by sec-
tion 1105, is amended to read as follows:
‘‘(3) COMPENSATION.—For purposes of this
subsection, the term ‘compensation’ has the meaning
given such term by section 415(c)(3).’’
(2) Section 414(s)(2) is amended by inserting
‘‘not’’ after ‘‘elect’’ in the text and heading thereof.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1996.
SEC. 1203. ASSUMPTIONS FOR ADJUSTING CERTAIN BENE-
FITS 
OF 
DEFINED 
BENEFIT 
PLANS 
FOR
EARLY RETIREES.
(a) IN GENERAL.—Subparagraph (E) of section
415(b)(2) (relating to limitation on certain assumptions)
is amended—
(1) by striking ‘‘Except as provided in clause
(ii), for purposes of adjusting any benefit or limita-
tion under subparagraph (B) or (C),’’ in clause (i)
and inserting ‘‘For purposes of adjusting any limita-
tion under subparagraph (C) and, except as provided
in clause (ii), for purposes of adjusting any benefit
under subparagraph (B),’’, and
(2) by striking ‘‘For purposes of adjusting the
benefit or limitation of any form of benefit subject
to section 417(e)(3),’’ in clause (ii) and inserting
‘‘For purposes of adjusting any benefit under sub-
paragraph (B) for any form of benefit subject to sec-
tion 417(e)(3),’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall take effect as if included in the provisions
of section 767 of the Uruguay Round Agreements Act.
SEC. 1204. 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) (relating to other defini-
tions 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
‘‘(ii) the participant may make only 1
such election.’’
(b) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DE-
FERRAL AMOUNT.—Subsection (e) of section 457, as
amended by section 1201(b)(2) (relating to governmental
plans), is amended by adding at the end the following new
paragraph:
‘‘(15) COST-OF-LIVING ADJUSTMENT OF MAXI-
MUM DEFERRAL AMOUNT.—The Secretary shall ad-
just the $7,500 amount specified in subsections
(b)(2) and (c)(1) at the same time and in the same
manner as under section 415(d), except that the
base period shall be the calendar quarter ending
September 30, 1994, and any increase under this
paragraph which is not a multiple of $500 shall be
rounded to the next lowest multiple of $500.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 1205. NO REQUIRED DISTRIBUTIONS FOR ACTIVE EM-
PLOYEES.
(a) IN GENERAL.—Section 401(a)(9)(C) (defining re-
quired beginning date) is amended to read as follows:
‘‘(C) REQUIRED
BEGINNING
DATE.—For
purposes of this paragraph—
‘‘(i) IN
GENERAL.—The term ‘re-
quired beginning date’ means April 1 of
the calendar year following the later of—
‘‘(I) the calendar year in which
the employee attains age 701⁄2, or
‘‘(II) the calendar year in which
the employee retires.
‘‘(ii) EXCEPTION.—Subclause (II) of
clause (i) shall not apply—
‘‘(I) except as provided in section
409(d), in the case of an employee
who is a 5-percent owner (as defined
in section 416) with respect to the
plan year ending in the calendar year
in which the employee attains age
701⁄2, or
‘‘(II) for purposes of section 408
(a)(6) or (b)(3).
‘‘(iii) ACTUARIAL
ADJUSTMENT.—In
the case of an employee to whom clause
(i)(II) applies who retires in a calendar
year after the calendar year in which the
employee attains age 701⁄2, the employee’s
accrued benefit shall be actuarially in-
creased to take into account the period
after age 701⁄2 in which the employee was
not receiving any benefits under the plan.
‘‘(iv) 
EXCEPTION
FOR
GOVERN-
MENTAL
AND
CHURCH
PLANS.—Clauses
(ii) and (iii) shall not apply in the case of
a governmental plan or church plan. For
purposes of this clause, the term ‘church
plan’ means a plan maintained by a church
for church employees, and the term
‘church’ means any church (as defined in
section 3121(w)(3)(A)) or qualified church-
controlled organization (as defined in sec-
tion 3121(w)(3)(B)).’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to years beginning after Decem-
ber 31, 1996.
SEC. 1206. SIMPLIFIED METHOD FOR TAXING ANNUITY DIS-
TRIBUTIONS 
UNDER 
CERTAIN 
EMPLOYER
PLANS.
(a) GENERAL RULE.—Subsection (d) of section 72
(relating to annuities; certain proceeds of endowment and
life insurance contracts) is amended to read as follows:
‘‘(d) SPECIAL RULES FOR QUALIFIED EMPLOYER
RETIREMENT PLANS.—
‘‘(1) SIMPLIFIED METHOD OF TAXING ANNUITY
PAYMENTS.—
‘‘(A) IN
GENERAL.—In the case of any
amount received as an annuity under a quali-
fied employer retirement plan—
‘‘(i) subsection (b) shall not apply,
and
‘‘(ii) the investment in the contract
shall be recovered as provided in this para-
graph.
‘‘(B) METHOD
OF
RECOVERING
INVEST-
MENT IN CONTRACT.—
‘‘(i) 
IN
GENERAL.—Gross 
income
shall not include so much of any monthly
annuity payment under a qualified em-
ployer retirement plan as does not exceed
the amount obtained by dividing—
‘‘(I) the investment in the con-
tract (as of the annuity starting date),
by
‘‘(II) the number of anticipated
payments determined under the table
contained in clause (iii) (or, in the
case of a contract to which subsection
(c)(3)(B) applies, the number of
monthly annuity payments under such
contract).
‘‘(ii) CERTAIN RULES MADE APPLICA-
BLE.—Rules similar to the rules of para-
graphs (2) and (3) of subsection (b) shall
apply for purposes of this paragraph.
‘‘(iii) NUMBER OF ANTICIPATED PAY-
MENTS.—
‘‘If the age of the
primary annuitant on
The number
the annuity starting
of anticipated
date is:
payments is:
Not more than 55 ................................
360
More than 55 but not more than 60 ...
310
More than 60 but not more than 65 ...
260
More than 65 but not more than 70 ...
210
More than 70 .......................................
160.
‘‘(C) ADJUSTMENT FOR REFUND FEATURE
NOT APPLICABLE.—For purposes of this para-
graph, investment in the contract shall be de-
termined under subsection (c)(1) without re-
gard to subsection (c)(2).
‘‘(D) SPECIAL
RULE
WHERE
LUMP
SUM
PAID
IN
CONNECTION
WITH
COMMENCEMENT
OF ANNUITY PAYMENTS.—If, in connection with
the commencement of annuity payments under
any qualified employer retirement plan, the tax-
payer receives a lump sum payment—
‘‘(i) such payment shall be taxable
under subsection (e) as if received before
the annuity starting date, and
‘‘(ii) the investment in the contract
for purposes of this paragraph shall be de-
termined as if such payment had been so
received.
‘‘(E) EXCEPTION.—This paragraph shall
not apply in any case where the primary annu-
itant has attained age 75 on the annuity start-
ing date unless there are fewer than 5 years of
guaranteed payments under the annuity.
‘‘(F) ADJUSTMENT WHERE ANNUITY PAY-
MENTS NOT ON MONTHLY BASIS.—In any case
where the annuity payments are not made on a
monthly basis, appropriate adjustments in the
application of this paragraph shall be made to
take into account the period on the basis of
which such payments are made.
‘‘(G) QUALIFIED EMPLOYER RETIREMENT
PLAN.—For purposes of this paragraph, the
term ‘qualified employer retirement plan’ means
any plan or contract described in paragraph
(1), (2), or (3) of section 4974(c).
‘‘(2) TREATMENT
OF
EMPLOYEE
CONTRIBU-
TIONS
UNDER
DEFINED
CONTRIBUTION
PLANS.—
For purposes of this section, employee contributions
(and any income allocable thereto) under a defined
contribution plan may be treated as a separate con-
tract.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply in cases where the annuity starting
date is after December 31, 1996.
SEC. 1207. REPEAL OF 5-YEAR INCOME AVERAGING FOR
LUMP-SUM DISTRIBUTIONS.
(a) IN GENERAL.—Subsection (d) of section 402 (re-
lating to taxability of beneficiary of employees’ trust) is
amended to read as follows:
‘‘(d) TAXABILITY
OF BENEFICIARY
OF CERTAIN
FOREIGN SITUS TRUSTS.—For purposes of subsections
(a), (b), and (c), a stock bonus, pension, or profit-sharing
trust which would qualify for exemption from tax under
section 501(a) except for the fact that it is a trust created
or organized outside the United States shall be treated
as if it were a trust exempt from tax under section
501(a).’’
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (D) of section 402(e)(4) (re-
lating to other rules applicable to exempt trusts) is
amended to read as follows:
‘‘(D) LUMP-SUM DISTRIBUTION.—For pur-
poses of this paragraph—
‘‘(i) IN
GENERAL.—The term ‘lump
sum distribution’ means the distribution or
payment within one taxable year of the re-
cipient of the balance to the credit of an
employee which becomes payable to the re-
cipient—
‘‘(I) on account of the employee’s
death,
‘‘(II) after the employee attains
age 591⁄2,
‘‘(III) on account of the employ-
ee’s separation from service, or
‘‘(IV) after the employee has be-
come disabled (within the meaning of
section 72(m)(7)),
from a trust which forms a part of a plan
described in section 401(a) and which is
exempt from tax under section 501 or from
a plan described in section 403(a). Sub-
clause (III) of this clause shall be applied
only with respect to an individual who is
an employee without regard to section
401(c)(1), and subclause (IV) shall be ap-
plied only with respect to an employee
within the meaning of section 401(c)(1).
For purposes of this clause, a distribution
to two or more trusts shall be treated as
a distribution to one recipient. For pur-
poses of this paragraph, the balance to the
credit of the employee does not include the
accumulated deductible employee contribu-
tions under the plan (within the meaning
of section 72(o)(5)).
‘‘(ii) 
AGGREGATION
OF
CERTAIN
TRUSTS AND PLANS.—For purposes of de-
termining the balance to the credit of an
employee under clause (i)—
‘‘(I) all trusts which are part of
a plan shall be treated as a single
trust, all pension plans maintained by
the employer shall be treated as a sin-
gle plan, all profit-sharing plans main-
tained by the employer shall be treat-
ed as a single plan, and all stock
bonus plans maintained by the em-
ployer shall be treated as a single
plan, and
‘‘(II) trusts which are not quali-
fied trusts under section 401(a) and
annuity contracts which do not satisfy
the requirements of section 404(a)(2)
shall not be taken into account.
‘‘(iii) COMMUNITY PROPERTY LAWS.—
The provisions of this paragraph shall be
applied without regard to community prop-
erty laws.
‘‘(iv) AMOUNTS
SUBJECT
TO
PEN-
ALTY.—This paragraph shall not apply to
amounts described in subparagraph (A) of
section 72(m)(5) to the extent that section
72(m)(5) applies to such amounts.
‘‘(v) BALANCE
TO
CREDIT
OF
EM-
PLOYEE NOT TO INCLUDE AMOUNTS PAY-
ABLE UNDER QUALIFIED DOMESTIC RELA-
TIONS ORDER.—For purposes of this para-
graph, the balance to the credit of an em-
ployee shall not include any amount pay-
able to an alternate payee under a quali-
fied domestic relations order (within the
meaning of section 414(p)).
‘‘(vi) TRANSFERS TO COST-OF-LIVING
ARRANGEMENT
NOT
TREATED
AS
DIS-
TRIBUTION.—For purposes of this para-
graph, the balance to the credit of an em-
ployee under a defined contribution plan
shall not include any amount transferred
from such defined contribution plan to a
qualified cost-of-living arrangement (within
the meaning of section 415(k)(2)) under a
defined benefit plan.
‘‘(vii) LUMP-SUM
DISTRIBUTIONS
OF
ALTERNATE PAYEES.—If any distribution
or payment of the balance to the credit of
an employee would be treated as a lump-
sum distribution, then, for purposes of this
paragraph, the payment under a qualified
domestic relations order (within the mean-
ing of section 414(p)) of the balance to the
credit of an alternate payee who is the
spouse or former spouse of the employee
shall be treated as a lump-sum distribu-
tion. For purposes of this clause, the bal-
ance to the credit of the alternate payee
shall not include any amount payable to
the employee.’’
(2) Section 402(c) (relating to rules applicable
to rollovers from exempt trusts) is amended by strik-
ing paragraph (10).
(3) Paragraph (1) of section 55(c) (defining
regular tax) is amended by striking ‘‘shall not in-
clude any tax imposed by section 402(d) and’’.
(4) Paragraph (8) of section 62(a) (relating to
certain portion of lump-sum distributions from pen-
sion plans taxed under section 402(d)) is hereby re-
pealed.
(5) Section 401(a)(28)(B) (relating to coordina-
tion with distribution rules) is amended by striking
clause (v).
(6) Subparagraph (B)(ii) of section 401(k)(10)
(relating to distributions that must be lump-sum dis-
tributions) is amended to read as follows:
‘‘(ii) LUMP-SUM DISTRIBUTION.—For
purposes of this subparagraph, the term
‘lump-sum distribution’ has the meaning
given such term by section 402(e)(4)(D),
without regard to subclauses (I), (II),
(III), and (IV) of clause (i) thereof.’’
(7) Section 406(c) (relating to termination of
status as deemed employee not to be treated as sep-
aration from service for purposes of limitation of
tax) is hereby repealed.
(8) Section 407(c) (relating to termination of
status as deemed employee not to be treated as sep-
aration from service for purposes of limitation of
tax) is hereby repealed.
(9) Section 691(c) (relating to deduction for es-
tate tax) is amended by striking paragraph (5).
(10) Paragraph (1) of section 871(b) (relating
to imposition of tax) is amended by striking ‘‘section
1, 55, or 402(d)(1)’’ and inserting ‘‘section 1 or
55’’.
(11) Subsection (b) of section 877 (relating to
alternative tax) is amended by striking ‘‘section 1,
55, or 402(d)(1)’’ and inserting ‘‘section 1 or 55’’.
(12) Section 4980A(c)(4) is amended—
(A) by striking ‘‘to which an election under
section 402(d)(4)(B) applies’’ and inserting
‘‘(as defined in section 402(e)(4)(D)) with re-
spect to which the individual elects to have this
paragraph apply’’,
(B) by adding at the end the following new
flush sentence:
‘‘An individual may elect to have this paragraph
apply to only one lump-sum distribution.’’, and
(C) by striking the heading and inserting:
‘‘(4) SPECIAL ONE-TIME ELECTION.—’’.
(13) Section 402(e) is amended by striking
paragraph (5).
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after December 31, 1998.
(2) RETENTION
OF
CERTAIN
TRANSITION
RULES.—Notwithstanding any other provision of
this section, the amendments made by this section
shall not apply to any distribution for which the tax-
payer elects the benefits of section 1122 (h)(3) or
(h)(5) of the Tax Reform Act of 1986. For purposes
of the preceding sentence, the rules of sections
402(c)(10) and 402(d) of the Internal Revenue Code
of 1986 (as in effect before the amendments made
by this Act) shall apply.
SEC. 1208. ELIMINATION OF HALF-YEAR REQUIREMENTS.
(a) IN GENERAL.—Each of the following provisions
are amended by striking ‘‘age 591⁄2’’ and inserting ‘‘age
59’’:
(1) Section 72(q)(2)(A).
(2) Section 72(q)(3)(B)(i).
(3) Section 72(q)(3)(B)(ii).
(4) Section 72(t)(2)(A)(i).
(5) Section 72(t)(4)(A)(ii)(I).
(6) Section 72(t)(4)(A)(ii)(II).
(7) Section 72(v)(2)(A).
(8) Section 401(k)(2)(B)(i)(III).
(9) Section 403(b)(7)(A)(ii).
(10) Section 403(b)(11)(A).
(11) The heading for section 403(b)(11).
(12) Section 4978(d)(1)(B).
(b) OTHER PROVISIONS.—Each of the following pro-
visions are amended by striking ‘‘age 701⁄2’’ each place
it appears and inserting ‘‘age 70’’:
(1) Section 219(d)(1).
(2) The heading for section 219(d)(1).
(3) Section 401(a)(9)(B)(iv)(I).
(4) Section 401(a)(9)(C).
(5) Section 408(b).
(6) Section 457(d)(1)(A).
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1996.
SEC. 1209. DISTRIBUTIONS UNDER RURAL COOPERATIVE
PLANS.
(a) DISTRIBUTIONS
FOR HARDSHIP
OR AFTER
A
CERTAIN AGE.—Section 401(k)(7) is amended by adding
at the end the following new subparagraph:
‘‘(C) SPECIAL
RULE
FOR
CERTAIN
DIS-
TRIBUTIONS.—A rural cooperative plan which
includes a qualified cash or deferred arrange-
ment shall not be treated as violating the re-
quirements of section 401(a) or of paragraph
(2) merely because, under the plan, distribu-
tions may be made by reason of hardship or the
attainment of age 591⁄2. For purposes of this
section, the term ‘hardship distribution’ means
a 
distribution 
described 
in 
paragraph
(2)(B)(i)(IV) (without regard to the limitation
of its application to profit-sharing or stock
bonus plans).’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to distributions after the date
of the enactment of this Act.
SEC. 1210. MODIFICATION OF ADDITIONAL PARTICIPATION
REQUIREMENTS.
(a) GENERAL RULE.—Section 401(a)(26)(A) (relat-
ing to additional participation requirements) is amended
to read as follows:
‘‘(A) IN GENERAL.—In the case of a trust
which is a part of a defined benefit plan, such
trust shall not constitute a qualified trust under
this subsection unless, on each day of the plan
year, such plan benefits at least the lesser of—
‘‘(i) 50 employees of the employer, or
‘‘(ii) the greater of—
‘‘(I) 40 percent of all employees
of the employer, or
‘‘(II) 2 employees (or if there is
only 1 employee, such employee).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to plan years beginning after De-
cember 31, 1996.
SEC. 1211. UNIFORM RETIREMENT AGE.
(a) DISCRIMINATION TESTING.—Paragraph (5) of
section 401(a) (relating to special rules relating to non-
discrimination requirements) is amended by adding at the
end the following new subparagraph:
‘‘(F) 
SOCIAL
SECURITY
RETIREMENT
AGE.—For purposes of testing for discrimina-
tion under paragraph (4)—
‘‘(i) the social security retirement age
(as defined in section 415(b)(8)) shall be
treated as a uniform retirement age, and
‘‘(ii) subsidized early retirement bene-
fits and joint and survivor annuities shall
not be treated as being unavailable to em-
ployees on the same terms merely because
such benefits or annuities are based in
whole or in part on an employee’s social
security retirement age (as so defined).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to plan years beginning after De-
cember 31, 1996.
SEC. 1212. TREATMENT OF LEASED EMPLOYEES.
(a) GENERAL RULE.—Subparagraph (C) of section
414(n)(2) (defining leased employee) is amended to read
as follows:
‘‘(C) such services are performed under
significant direction or control by the recipi-
ent.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to years beginning after Decem-
ber 31, 1996, but shall not apply to any relationship deter-
mined under an Internal Revenue Service ruling issued be-
fore the date of the enactment of this Act pursuant to
section 414(n)(2)(C) of the Internal Revenue Code of
1986 (as in effect on the day before such date) not to
involve a leased employee.
SEC. 1213. FULL FUNDING LIMITATION FOR MULTIEM-
PLOYER PLANS.
(a) 
FULL-FUNDING
LIMITATION.—Section
412(c)(7)(C) (relating to full-funding limitation) is
amended—
(1) by inserting ‘‘or in the case of a multiem-
ployer plan,’’ after ‘‘paragraph (6)(B),’’, and
(2) by inserting ‘‘AND MULTIEMPLOYER PLANS’’
after ‘‘PARAGRAPH (6)(B)’’ in the heading thereof.
(b) VALUATION.—Section 412(c)(9) is amended—
(1) by inserting ‘‘(3 years in the case of a mul-
tiemployer plan)’’ after ‘‘year’’, and
(2) by striking ‘‘ANNUAL VALUATION’’ in the
heading and inserting ‘‘VALUATION’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning after De-
cember 31, 1996.
SEC. 1214. ELIMINATION OF PARTIAL TERMINATION RULES
FOR MULTIEMPLOYER PLANS.
(a) PARTIAL TERMINATION RULES FOR MULTIEM-
PLOYER PLANS.—Section 411(d)(3) is amended by adding
at the end the following new sentence: ‘‘This paragraph
shall not apply in the case of a partial termination of a
multiemployer plan.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to partial terminations beginning
after December 31, 1996.
SEC. 1215. ELECTIVE DEFERRALS UNDER SECTION 403(b).
(a) IN GENERAL.—Subparagraph (E) of section
403(b)(1) is amended to read as follows:
‘‘(E) in the case of a contract purchased
under a salary reduction agreement, the con-
tract 
meets 
the 
requirements 
of 
section
401(a)(30),’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December
31, 1996.
SEC. 1216. UNIFORM PENALTY PROVISIONS TO APPLY TO
CERTAIN 
PENSION 
REPORTING 
REQUIRE-
MENTS.
(a) PENALTIES.—
(1) STATEMENTS.—Paragraph (1) of section
6724(d) is amended by striking ‘‘and’’ at the end of
subparagraph (A), by striking the period at the end
of subparagraph (B) and inserting ‘‘, and’’, and by
inserting after subparagraph (B) the following new
subparagraph:
‘‘(C) any statement required to be made to
the Secretary under—
‘‘(i) section 408(i) (relating to reports
with respect to individual retirement ac-
counts or annuities), or
‘‘(ii) section 6047(d) (relating to re-
ports by employers, plan administrators,
etc.).’’
(2) 
REPORTS.—Paragraph 
(2) 
of 
section
6724(d) is amended by striking ‘‘or’’ at the end of
subparagraph (S), by striking the period at the end
of subparagraph (T) and inserting a comma, and by
inserting after subparagraph (T) the following new
subparagraphs:
‘‘(U) section 408(i) (relating to reports
with respect to individual retirement plans) to
any person other than the Secretary, or
‘‘(V) section 6047(d) (relating to reports
by plan administrators) to any person other
than the Secretary.’’
(3) PENALTIES.—
(A) Section 6721(e)(2)(A) is amended by
striking ‘‘or 6050L’’ and inserting ‘‘6050L, or
408(i)’’.
(B) Section 6722(c)(1)(A) is amended by
striking 
‘‘or 
6050L(c)’’ 
and 
inserting
‘‘6050L(c), or 408(i)’’.
(b) MODIFICATION
OF REPORTABLE DESIGNATED
DISTRIBUTIONS.—
(1) SECTION 408.—Subsection (i) of section 408
(relating to individual retirement account reports) is
amended by inserting ‘‘aggregating $10 or more in
any calendar year’’ after ‘‘distributions’’.
(2) SECTION 6047.—Paragraph (1) of section
6047(d) (relating to reports by employers, plan ad-
ministrators, etc.) is amended by adding at the end
the following new sentence: ‘‘No return or report
may be required under the preceding sentence with
respect to distributions to any person during any
year unless such distributions aggregate $10 or
more.’’
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 6047(f) is amend-
ed to read as follows:
‘‘(1) For provisions relating to penalties for fail-
ures to file returns and reports required under this
section, see sections 6652(e), 6721, and 6722.’’
(2) Subsection (e) of section 6652 is amended
by adding at the end the following new sentence:
‘‘This subsection shall not apply to any return or
statement which is an information return described
in section 6724(d)(1)(C)(ii) or a payee statement de-
scribed in section 6724(d)(2)(V).’’
(3) Subsection (a) of section 6693 is amended
by adding at the end the following new sentence:
‘‘This subsection shall not apply to any report which
is an information return described in section
6724(d)(1)(C)(i) or a payee statement described in
section 6724(d)(2)(U).’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to returns, reports, and other
statements the due date for which (determined without re-
gard to extensions) is after December 31, 1996.
SEC. 1217. TAX ON PROHIBITED TRANSACTIONS.
(a) IN GENERAL.—Section 4975(a) is amended by
striking ‘‘5 percent’’ and inserting ‘‘10 percent’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to prohibited transactions occur-
ring after the date of the enactment of this Act.
SEC. 1218. DATE FOR ADOPTION OF PLAN AMENDMENTS.
(a) IN GENERAL.—If any amendment made by this
subtitle requires an amendment to any plan, such plan
amendment shall not be required to be made before the
last day of the first plan year beginning on or after Janu-
ary 1, 1998, if—
(1) during the period after such amendment
takes effect and before the last day of such first
plan year, the plan is operated in accordance with
the requirements of such amendment, and
(2) such plan amendment applies retroactively
to such period.
(b) GOVERNMENTAL PLANS.—In the case of a gov-
ernmental plan (as defined in section 414(d) of the Inter-
nal Revenue Code of 1986), subsection (a) shall be applied
by substituting for ‘‘January 1, 1998’’ the later of—
(1) January 1, 1999, or
(2) the date which is 90 days after the opening
of the first legislative session beginning after Janu-
ary 1, 1999, of the governing body with authority to
amend the plan, but only if such governing body
does not meet continuously.
Subtitle B—Expanded Individual
Retirement 
Accounts 
to 
In-
crease Coverage and Portability
CHAPTER 1—RETIREMENT SAVINGS
INCENTIVES
Subchapter A—IRA Deduction
SEC. 1301. INCREASE IN INCOME LIMITATIONS.
(a) IN GENERAL.—Subparagraph (B) of section
219(g)(3) is amended—
(1) by striking ‘‘$40,000’’ in clause (i) and in-
serting ‘‘$80,000 ($70,000 in the case of taxable
years beginning in 1996, 1997, or 1998)’’, and
(2) by striking ‘‘$25,000’’ in clause (ii) and in-
serting ‘‘$50,000 ($45,000 in the case of taxable
years beginning in 1996, 1997, or 1998)’’.
(b) PHASEOUT OF LIMITATIONS.—Clause (ii) of sec-
tion 219(g)(2)(A) is amended by striking ‘‘$10,000’’ and
inserting ‘‘an amount equal to 10 times the dollar amount
applicable for the taxable year under subsection
(b)(1)(A)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. 1302. INFLATION ADJUSTMENT FOR DEDUCTIBLE
AMOUNT AND INCOME LIMITATIONS.
(a) IN GENERAL.—Section 219 is amended by redes-
ignating 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
1996, the $2,000 amounts under subsections
(b)(1)(A) and (c)(2) 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 1995’ 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 1999, 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 1998’ 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) Clause (i) of section 219(c)(2)(A) is amend-
ed to read as follows:
‘‘(i) the sum of $250 and the dollar
amount in effect for the taxable year under
subsection (b)(1)(A), or’’.
(2) 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)’’.
(3) 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)’’.
(4) Subparagraph (A) of section 408(d)(5) is
amended by striking ‘‘$2,250’’ and inserting ‘‘the
dollar amount in effect for the taxable year under
section 219(c)(2)(A)(i)’’.
(5) 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, 1995.
SEC. 1303. COORDINATION OF IRA DEDUCTION LIMIT WITH
ELECTIVE DEFERRAL LIMIT.
(a) IN GENERAL.—Section 219(b) (relating to maxi-
mum amount of deduction) is amended by adding at the
end the following new paragraph:
‘‘(4) COORDINATION
WITH
ELECTIVE
DEFER-
RAL LIMIT.—The amount determined under para-
graph (1) or subsection (c)(2) with respect to any
individual for any taxable year shall not exceed the
excess (if any) of—
‘‘(A) the limitation applicable for the tax-
able year under section 402(g)(1), over
‘‘(B) the elective deferrals (as defined in
section 402(g)(3)) of such individual for such
taxable year.’’
(b) CONFORMING AMENDMENT.—Section 219(c) is
amended by adding at the end the following new para-
graph:
‘‘(3) CROSS REFERENCE.—
‘‘For reduction in paragraph (2) amount, see sub-
section (b)(4).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
Subchapter B—Nondeductible Tax-Free IRAs
SEC. 1311. ESTABLISHMENT OF NONDEDUCTIBLE TAX-FREE
INDIVIDUAL RETIREMENT ACCOUNTS.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 (relating to pension, profit-sharing, stock
bonus plans, etc.) is amended by inserting after section
408 the following new section:
‘‘SEC. 408A. SPECIAL INDIVIDUAL RETIREMENT ACCOUNTS.
‘‘(a) GENERAL RULE.—Except as provided in this
chapter, a special individual retirement account shall be
treated for purposes of this title in the same manner as
an individual retirement plan.
‘‘(b) 
SPECIAL
INDIVIDUAL
RETIREMENT
AC-
COUNT.—For purposes of this title, the term ‘special indi-
vidual retirement account’ means an individual retirement
plan which is designated at the time of establishment of
the plan as a special individual retirement account.
‘‘(c) TREATMENT OF CONTRIBUTIONS.—
‘‘(1) NO DEDUCTION ALLOWED.—No deduction
shall be allowed under section 219 for a contribution
to a special individual retirement account.
‘‘(2) CONTRIBUTION
LIMIT.—The aggregate
amount of contributions for any taxable year to all
special individual retirement accounts maintained for
the benefit of an individual shall not exceed the ex-
cess (if any) of—
‘‘(A) the maximum amount allowable as a
deduction under section 219 with respect to
such individual for such taxable year, over
‘‘(B) the aggregate amount of contribu-
tions for such taxable year to all individual re-
tirement plans (other than special individual re-
tirement accounts) maintained for the benefit of
the individual.
‘‘(3) SPECIAL RULES FOR QUALIFIED TRANS-
FERS.—
‘‘(A) IN GENERAL.—No rollover contribu-
tion may be made to a special individual retire-
ment account unless it is a qualified transfer.
‘‘(B) LIMIT NOT TO APPLY.—The limita-
tion under paragraph (2) shall not apply to a
qualified transfer to a special individual retire-
ment account.
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Except as provided in this
subsection, any amount paid or distributed out of a
special individual retirement account shall not be in-
cluded in the gross income of the distributee.
‘‘(2) EXCEPTION FOR EARNINGS ON CONTRIBU-
TIONS HELD LESS THAN 5 YEARS.—
‘‘(A) IN GENERAL.—Any amount distrib-
uted out of a special individual retirement ac-
count which consists of earnings allocable to
contributions made to the account during the 5-
year period ending on the day before such dis-
tribution shall be included in the gross income
of the distributee for the taxable year in which
the distribution occurs.
‘‘(B) ORDERING RULE.—
‘‘(i) FIRST-IN, FIRST-OUT
RULE.—
Distributions from a special individual re-
tirement account shall be treated as having
been made—
‘‘(I) first from the earliest con-
tribution 
(and 
earnings 
allocable
thereto) remaining in the account at
the time of the distribution, and
‘‘(II) then from other contribu-
tions (and earnings allocable thereto)
in the order in which made.
‘‘(ii) ALLOCATIONS
BETWEEN
CON-
TRIBUTIONS AND EARNINGS.—Any portion
of a distribution allocated to a contribution
(and earnings allocable thereto) shall be
treated as allocated first to the earnings
and then to the contribution.
‘‘(iii) ALLOCATION
OF
EARNINGS.—
Earnings shall be allocated to a contribu-
tion in such manner as the Secretary may
prescribe.
‘‘(iv) AGGREGATIONS
OF
CONTRIBU-
TIONS.—Except as provided by the Sec-
retary, for purposes of this subpara-
graph—
‘‘(I) all contributions made dur-
ing the same taxable year may be
treated as 1 contribution, and
‘‘(II) all contributions made be-
fore the first day of the 5-year period
ending on the day before any distribu-
tion may be treated as 1 contribution.
‘‘(C) CROSS REFERENCE.—
‘‘For additional tax for early withdrawal, see sec-
tion 72(t).
‘‘(3) QUALIFIED TRANSFER.—
‘‘(A) IN
GENERAL.—Paragraph (2) shall
not apply to any distribution which is trans-
ferred in a qualified transfer to another special
individual retirement account.
‘‘(B) CONTRIBUTION
PERIOD.—For pur-
poses of paragraph (2), the special individual
retirement account to which any contributions
are transferred shall be treated as having held
such contributions during any period such con-
tributions were held (or are treated as held
under this subparagraph) by the special individ-
ual retirement account from which transferred.
‘‘(4) SPECIAL
RULES
RELATING
TO
CERTAIN
TRANSFERS.—
‘‘(A) IN GENERAL.—Notwithstanding any
other provision of law, in the case of a qualified
transfer to a special individual retirement ac-
count from an individual retirement plan which
is not a special individual retirement account—
‘‘(i) there shall be included in gross
income any amount which, but for the
qualified transfer, would be includible in
gross income, but
‘‘(ii) section 72(t) shall not apply to
such amount.
‘‘(B) TIME FOR INCLUSION.—In the case
of any qualified transfer which occurs before
January 1, 1998, any amount includible in
gross income under subparagraph (A) with re-
spect to such contribution shall be includible
ratably over the 4-taxable year period beginning
in the taxable year in which the amount was
paid or distributed out of the individual retire-
ment plan. The amount of such qualified trans-
fer taken into account for purposes of section
4980A(c) shall be taken into account ratably
over such period.
‘‘(C) ADDITIONAL REPORTING.—A trustee
of an individual retirement plan shall include
such additional information in any report re-
quired under section 408(i) as the Secretary
may require to insure that amounts described
in subparagraph (B) are included in gross in-
come for the appropriate taxable year.
‘‘(e) QUALIFIED TRANSFER.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘qualified trans-
fer’ means a transfer to a special individual retire-
ment account from another such account or from an
individual retirement plan but only if such transfer
meets the requirements of section 408(d)(3).
‘‘(2) LIMITATION.—
‘‘(A) IN GENERAL.—A transfer otherwise
described in paragraph (1) shall not be treated
as a qualified transfer if the taxpayer’s adjusted
gross income for the taxable year of the trans-
fer exceeds the sum of—
‘‘(i) the applicable dollar amount, plus
‘‘(ii) the dollar amount applicable for
the 
taxable 
year 
under 
section
219(g)(2)(A)(ii).
This subparagraph shall not apply to a transfer
from a special individual retirement account to
another special individual retirement account.
‘‘(B) TRANSITION RULE.—In the case of a
transfer before January 1, 1999, the dollar lim-
itation under subparagraph (A) shall be
$100,000 in the case of a married individual fil-
ing a joint return, zero in the case of a married
individual filing a separate return, and $70,000
in any other case.
‘‘(3) DEFINITIONS.—For purposes of this sub-
section, the terms ‘adjusted gross income’ and ‘ap-
plicable dollar amount’ have the meanings given
such terms by section 219(g)(3), except that ad-
justed gross income shall be determined by taking
into account the deduction under section 219 and
not taking into account any transfer to which para-
graph (2) applies.’’
(b) ADDITIONAL TAX ON EARLY DISTRIBUTIONS.—
Section 72(t) is amended by adding at the end the follow-
ing new paragraph:
‘‘(6) RULES RELATING TO SPECIAL INDIVIDUAL
RETIREMENT ACCOUNTS.—In the case of a special
individual retirement account under section 408A—
‘‘(A) this subsection shall only apply to
distributions out of such account which consist
of earnings allocable to contributions made to
the account during the 5-year period ending on
the day before such distribution, and
‘‘(B) paragraph (2)(A)(i) shall not apply to
any distribution described in subparagraph
(A).’’
(c) EXCESS CONTRIBUTIONS.—Section 4973(b) is
amended—
(1) by inserting ‘‘, or a qualified transfer de-
scribed in section 408A(e)’’ after ‘‘408(d)(3)’’ in
paragraph (1)(A), and
(2) by adding at the end the following new sen-
tence: ‘‘For purposes of paragraphs (1)(B) and
(2)(C), the amount allowable as a deduction under
section 219 shall be computed without regard to sec-
tion 408A.’’
(d) REPORTING.—Section 408(i) is amended by strik-
ing ‘‘under regulations’’ and ‘‘in such regulations’’ each
place such terms appear.
(e) CONFORMING AMENDMENT.—The table of sec-
tions for subpart A of part I of subchapter D of chapter
1 is amended by inserting after the item relating to section
408 the following new item:
‘‘Sec. 408A. Special individual retirement accounts.’’
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
CHAPTER 2—DISTRIBUTIONS AND
INVESTMENTS
SEC. 1321. DISTRIBUTIONS FROM IRAS MAY BE USED WITH-
OUT ADDITIONAL TAX TO PURCHASE FIRST
HOMES, TO PAY HIGHER EDUCATION OR FI-
NANCIALLY 
DEVASTATING 
MEDICAL 
EX-
PENSES, OR BY THE UNEMPLOYED.
(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:
‘‘(D) 
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) 
IN
GENERAL.—Section 
72(t)(3)(A) 
is
amended by striking ‘‘(B),’’.
(2) CERTAIN LINEAL DESCENDANTS AND AN-
CESTORS
TREATED
AS
DEPENDENTS
AND
LONG-
TERM
CARE
SERVICES
TREATED
AS
MEDICAL
CARE.—Subparagraph (B) of section 72(t)(2) is
amended by striking ‘‘medical care’’ and all that fol-
lows and inserting ‘‘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—
‘‘(I) by treating such employee’s
dependents as including all children,
grandchildren, and ancestors of the
employee or such employee’s spouse
and
‘‘(II) by treating qualified long-
term care services (as defined in para-
graph (9)) as medical care for pur-
poses of this subparagraph.’’
(3) CONFORMING AMENDMENT.—Subparagraph
(B) of section 72(t)(2) is amended by striking ‘‘or
(C)’’ and inserting ‘‘, (C), or (D)’’.
(c) DEFINITIONS.—Section 72(t), as amended by this
Act, is amended by adding at the end the following new
paragraphs:
‘‘(7) QUALIFIED FIRST-TIME HOMEBUYER DIS-
TRIBUTIONS.—For 
purposes 
of 
paragraph
(2)(D)(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.
100
‘‘(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
101
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
102
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)(D)(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.
103
‘‘(B) EXCEPTIONS.—The term ‘qualified
higher education expenses’ does not include—
‘‘(i) expenses with respect to any
course or other education involving sports,
games, or hobbies, unless such expenses—
‘‘(I) are part of a degree pro-
gram, or
‘‘(II) are deductible under this
chapter without regard to this section;
or
‘‘(ii) any student activity fees, athletic
fees, insurance expenses, or other expenses
unrelated to a student’s academic course of
instruction.
‘‘(C) COORDINATION WITH SAVINGS BOND
PROVISIONS.—The amount of qualified higher
education expenses for any taxable year shall be
reduced by any amount excludable from gross
income under section 135.
‘‘(D) ELIGIBLE STUDENT.—For purposes
of subparagraph (A), the term ‘eligible student’
means a student who—
‘‘(i) meets the requirements of section
484(a)(1) of the Higher Education Act of
1965 (20 U.S.C. 1091(a)(1)), as in effect
104
on the date of the enactment of this sec-
tion, and
‘‘(ii)(I) is carrying at least one-half
the normal full-time work load for the
course of study the student is pursuing, as
determined by the institution of higher
education, or
‘‘(II) is enrolled in a course which en-
ables the student to improve the student’s
job skills or to acquire new job skills.
‘‘(E) 
INSTITUTION
OF
HIGHER
EDU-
CATION.—The term ‘institution of higher edu-
cation’ means an institution which—
‘‘(i) is described in section 481 of the
Higher Education Act of 1965 (20 U.S.C.
1088), as in effect on the date of the en-
actment of this section, and
‘‘(ii) is eligible to participate in pro-
grams under title IV of such Act.
‘‘(9) QUALIFIED LONG-TERM CARE SERVICES.—
For purposes of paragraph (2)(B)—
‘‘(A) IN
GENERAL.—The term ‘qualified
long-term care services’ means necessary diag-
nostic, curing, mitigating, treating, preventive,
therapeutic, and rehabilitative services, and
105
maintenance and personal care services (wheth-
er performed in a residential or nonresidential
setting) which—
‘‘(i) are required by an individual dur-
ing any period the individual is an inca-
pacitated individual (as defined in subpara-
graph (B)),
‘‘(ii) have as their primary purpose—
‘‘(I) the provision of needed as-
sistance with 1 or more activities of
daily living (as defined in subpara-
graph (C)), or
‘‘(II) protection from threats to
health and safety due to severe cog-
nitive impairment, and
‘‘(iii) are provided pursuant to a con-
tinuing plan of care prescribed by a li-
censed professional (as defined in subpara-
graph (D)).
‘‘(B) INCAPACITATED
INDIVIDUAL.—The
term ‘incapacitated individual’ means any indi-
vidual who—
‘‘(i) is unable to perform, without sub-
stantial assistance from another individual
(including assistance involving cueing or
106
substantial supervision), at least 2 activi-
ties of daily living as defined in subpara-
graph (C), or
‘‘(ii) has severe cognitive impairment
as defined by the Secretary in consultation
with the Secretary of Health and Human
Services.
Such term shall not include any individual oth-
erwise meeting the requirements of the preced-
ing sentence unless, within the preceding 12-
month period, a licensed professional has cer-
tified that such individual meets such require-
ments.
‘‘(C) ACTIVITIES OF DAILY LIVING.—Each
of the following is an activity of daily living:
‘‘(i) Eating.
‘‘(ii) Toileting.
‘‘(iii) Transferring.
‘‘(iv) Bathing.
‘‘(v) Dressing.
‘‘(D) 
LICENSED
PROFESSIONAL.—The
term ‘licensed professional’ means—
‘‘(i) a physician or registered profes-
sional nurse, or
107
‘‘(ii) any other individual who meets
such requirements as may be prescribed by
the Secretary after consultation with the
Secretary of Health and Human Services.
‘‘(E) 
CERTAIN
SERVICES
NOT
IN-
CLUDED.—The term ‘qualified long-term care
services’ shall not include any services provided
to an individual—
‘‘(i) by a relative (directly or through
a partnership, corporation, or other entity)
unless the relative is a licensed professional
with respect to such services, or
‘‘(ii) by a corporation or partnership
which is related (within the meaning of
section 267(b) or 707(b)) to the individual.
For purposes of this subparagraph, the term
‘relative’ means an individual bearing a rela-
tionship to the individual which is described in
paragraphs (1) through (8) of section 152(a).’’
(d) DISTRIBUTIONS FOR CERTAIN UNEMPLOYED IN-
DIVIDUALS.—Paragraph (2) of section 72(t) is amended
by adding at the end the following new subparagraph:
‘‘(E) DISTRIBUTIONS TO UNEMPLOYED IN-
DIVIDUALS.—A distribution from an individual
108
retirement plan to an individual after separa-
tion from employment, if—
‘‘(i) such individual has received un-
employment compensation for 12 consecu-
tive weeks under any Federal or State un-
employment compensation law by reason of
such separation, and
‘‘(ii) such distributions are made dur-
ing any taxable year during which such un-
employment compensation is paid or the
succeeding taxable year.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to payments and distributions after
December 31, 1995.
SEC. 1322. CONTRIBUTIONS MUST BE HELD AT LEAST 5
YEARS IN CERTAIN CASES.
(a) IN GENERAL.—Section 72(t), as amended by this
Act, is amended by adding at the end the following new
paragraph:
‘‘(10) CERTAIN CONTRIBUTIONS MUST BE HELD
5 YEARS.—
‘‘(A) IN
GENERAL.—Paragraph (2)(A)(i)
shall not apply to any amount distributed out
of an individual retirement plan (other than a
special individual retirement account) which is
109
allocable to contributions made to the plan dur-
ing the 5-year period ending on the date of
such distribution (and earnings on such con-
tributions).
‘‘(B) ORDERING RULE.—For purposes of
this paragraph—
‘‘(i) FIRST-IN, FIRST-OUT
RULE.—
Distributions shall be treated as having
been made—
‘‘(I) first from the earliest con-
tribution 
(and 
earnings 
allocable
thereto) remaining in the account at
the time of the distribution, and
‘‘(II) then from other contribu-
tions (and earnings allocable thereto)
in the order in which made.
‘‘(ii) ALLOCATION
OF
EARNINGS.—
Earnings shall be allocated to contribu-
tions in such manner as the Secretary may
prescribe.
‘‘(iii) AGGREGATIONS
OF
CONTRIBU-
TIONS.—Except as provided by the Sec-
retary, for purposes of this subpara-
graph—
110
‘‘(I) all contributions made dur-
ing the same taxable year may be
treated as 1 contribution, and
‘‘(II) all contributions made be-
fore the first day of the 5-year period
ending on the day before any distribu-
tion may be treated as 1 contribution.
‘‘(C) SPECIAL RULE FOR ROLLOVERS.—
‘‘(i) PENSION PLANS.—Subparagraph
(A) shall not apply to distributions out of
an individual retirement plan which are al-
locable to rollover contributions to which
section 402(c), 403(a)(4), or 403(b)(8) ap-
plied.
‘‘(ii) CONTRIBUTION
PERIOD.—For
purposes of subparagraph (A), amounts
shall be treated as having been held by a
plan during any period such contributions
were held (or are treated as held under
this clause) by any individual retirement
plan from which transferred.
‘‘(D) SPECIAL ACCOUNTS.—For rules ap-
plicable to special individual retirement ac-
counts under section 408A, see paragraph (8).’’
111
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to contributions (and earnings allo-
cable thereto) which are made after December 31, 1995.
SEC. 1323. INVESTMENTS IN QUALIFIED STATE PREPAID
TUITION PROGRAMS.
(a) IN GENERAL.—Section 408, as amended by sec-
tion 1101, is amended by redesignating subsection (q) as
subsection (r) and by inserting after subsection (p) the
following new subsection:
‘‘(q) SPECIAL RULES FOR QUALIFIED STATE PRE-
PAID TUITION PROGRAM INSTRUMENTS.—
‘‘(1) IN GENERAL.—In the case of a qualified
State prepaid tuition program instrument to which
this subsection applies—
‘‘(A) the use of all or part of the assets of
an individual retirement plan to purchase such
an instrument shall be treated for purposes of
this section as for the exclusive benefit of the
individual for whom the plan was established or
the individual’s beneficiaries, and
‘‘(B) to the extent such instrument is con-
verted into tuition and fees as provided in para-
graph (3)(B)(i), such individual (or such bene-
ficiaries) shall be treated—
112
‘‘(i) for purposes of subsection (d) as
having received a distribution in an
amount equal to such tuition and fees (as
of the time of the conversion), and
‘‘(ii) 
for 
purposes 
of 
section
72(t)(2)(D)(ii), as having incurred quali-
fied higher education expenses to the ex-
tent such tuition and fees otherwise con-
stitute such expenses.
‘‘(2) INSTRUMENTS TO WHICH SUBSECTION AP-
PLIES.—To the extent provided by the Secretary,
this subsection shall apply to any qualified State
prepaid tuition program instrument if—
‘‘(A) the instrument is purchased by the
individual retirement plan directly from the
State or an instrumentality thereof, and
‘‘(B) the beneficiary designated under the
instrument is the taxpayer, the taxpayer’s
spouse, a dependent of the taxpayer with re-
spect to whom the taxpayer is allowed a deduc-
tion under section 151, or the taxpayer’s child
(as defined in section 151(c)(3)) or grandchild.
‘‘(3) QUALIFIED STATE PREPAID TUITION PRO-
GRAM
INSTRUMENT.—For purposes of this sub-
113
section, the term ‘qualified State prepaid tuition pro-
gram instrument’ means an instrument which—
‘‘(A) is issued under a program established
and maintained by a State, and
‘‘(B) which may only be—
‘‘(i) converted into a percentage (de-
termined as of the time of purchase) of
tuition and fees which would constitute
qualified higher education expenses (within
the meaning of section 72(t)(8)) if the ben-
eficiary designated under the instrument
enrolls in or attends an institution of high-
er education specified in the instrument as
an eligible student, or
‘‘(ii) redeemed for an amount not less
than the purchase price (less any reason-
able administrative fees) if the instrument
is not converted as provided in clause (i).
‘‘(4) DEFINITIONS.—For purposes of this sub-
section, the terms ‘institution of higher education’
and ‘eligible student’ have the meanings given such
terms by section 72(t)(8).’’
(b) 
EXEMPTION
FROM
PROHIBITED
TRANS-
ACTIONS.—Section 4975(d) is amended by striking ‘‘or’’
at the end of paragraph (14), by striking the period at
114
the end of paragraph (15) and inserting ‘‘; or’’, and by
inserting after paragraph (15) the following new para-
graph:
‘‘(16) any purchase of a qualified State prepaid
tuition program instrument to which section 408(q)
applies.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
CHAPTER 3—TERMINATION OF CERTAIN
PROVISIONS
SEC. 1331. TERMINATION OF CERTAIN PROVISIONS.
(a) TERMINATION OF INFLATION ADJUSTMENT FOR
IRA LIMITATIONS.—The dollar amounts applicable under
section 219 of the Internal Revenue Code of 1986 shall
be determined without regard to subsection (h) of such
section in the case of taxable years beginning after Decem-
ber 31, 2000.
(b) TERMINATION OF CONTRIBUTIONS TO SPECIAL
INDIVIDUAL RETIREMENT ACCOUNTS.—No contribution
may be made after December 31, 2000, to any special in-
dividual retirement account (within the meaning of section
408A of such Code).
(c) TERMINATION OF TRANSFERS TO SPECIAL INDI-
VIDUAL RETIREMENT ACCOUNTS FROM REGULAR INDI-
116
(1) Section 1301 (relating to increase in income
limitations for individual retirement plans).
(2) Section 1303 (relating to coordination of
IRA deduction limit with elective deferral limit).
Subtitle C—Other Expansions of
Pension Portability
SEC. 1401. ALTERNATIVE NONDISCRIMINATION RULES FOR
CERTAIN PLANS THAT PROVIDE FOR EARLY
PARTICIPATION.
(a) CASH OR DEFERRED ARRANGEMENTS.—Para-
graph (3) of section 401(k) (relating to application of par-
ticipation and discrimination standards), as amended by
section 1103(d), is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(F) SPECIAL RULE FOR EARLY PARTICI-
PATION.—If an employer elects to apply section
410(b)(4)(B) in determining whether a cash or
deferred arrangement meets the requirements
of subparagraph (A)(i), the employer may, in
determining whether the arrangement meets the
requirements of subparagraph (A)(ii), exclude
from consideration all eligible employees (other
than highly compensated employees) who have
not met the minimum age and service require-
ments of section 410(a)(1)(A).’’
117
(b) MATCHING CONTRIBUTIONS.—Paragraph (5) of
section 401(m) (relating to employees taken into consider-
ation) is amended by adding at the end the following new
subparagraph:
‘‘(C) SPECIAL RULE FOR EARLY PARTICI-
PATION.—If an employer elects to apply section
410(b)(4)(B) in determining whether a plan
meets the requirements of section 410(b), the
employer may, in determining whether the plan
meets the requirements of paragraph (2), ex-
clude from consideration all eligible employees
(other than highly compensated employees) who
have not met the minimum age and service re-
quirements of section 410(a)(1)(A).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning after De-
cember 31, 1996.
SEC. 1402. TREATMENT OF CERTAIN VETERANS’ REEM-
PLOYMENT RIGHTS.
(a) IN GENERAL.—Section 414 is amended by adding
at the end the following new subsection:
‘‘(u) SPECIAL RULES RELATING TO VETERANS’ RE-
EMPLOYMENT RIGHTS UNDER USSERA.—
‘‘(1) TREATMENT OF CERTAIN CONTRIBUTIONS
MADE
PURSUANT
TO
VETERANS’ REEMPLOYMENT
118
RIGHTS
UNDER
USERRA.—If any contribution is
made by an employer or an employee under an indi-
vidual account plan with respect to an employee, or
by an employee to a defined benefit plan that pro-
vides for employee contributions, and such contribu-
tion is required by reason of such employee’s rights
under chapter 43 of title 38, United States Code, re-
sulting from qualified military service, then—
‘‘(A) such contribution shall not be subject
to any otherwise applicable limitation contained
in section 402(g), 402(h), 403(b), 404(a),
404(h), 408, 415, or 457, and shall not be
taken into account in applying such limitations
to other contributions or benefits under such
plan or any other plan, with respect to the year
in which the contribution is made,
‘‘(B) such contribution shall be subject to
the limitations referred to in subparagraph (A)
with respect to the year to which the contribu-
tion relates (in accordance with rules prescribed
by the Secretary), and
‘‘(C) such plan shall not be treated as fail-
ing to meet the requirements of section
401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11),
401(m), 
403(b)(12), 
408(k)(3), 
408(k)(6),
119
408(p), 410(b), or 416 by reason of the making
of (or the right to make) such contribution.
For purposes of the preceding sentence, any elective
deferral or employee contribution made under para-
graph (2) shall be treated as required by reason of
the employee’s rights under such chapter 43.
‘‘(2) REEMPLOYMENT RIGHTS UNDER USERRA
WITH RESPECT TO ELECTIVE DEFERRALS.—
‘‘(A) IN GENERAL.—For purposes of this
subchapter and section 457, if an employee is
entitled to the benefits of chapter 43 of title 38,
United States Code, with respect to any plan
which provides for elective deferrals, the em-
ployer sponsoring the plan shall be treated as
meeting the requirements of such chapter 43
with respect to such elective deferrals only if
such employer—
‘‘(i) permits such employee to make
additional elective deferrals under such
plan (in the amount determined under sub-
paragraph (B) or such lesser amount as is
elected by the employee) during the period
which begins on the date of the reemploy-
ment of such employee with such employer
and has the same length as the lesser of—
120
‘‘(I) the product of 3 and the pe-
riod of qualified military service which
resulted in such rights, and
‘‘(II) 5 years, and
‘‘(ii) makes a matching contribution
with respect to any additional elective de-
ferral made pursuant to clause (i) which
would have been required had such defer-
ral actually been made during the period of
such qualified military service.
‘‘(B) AMOUNT OF MAKEUP REQUIRED.—
The amount determined under this subpara-
graph with respect to any plan is the maximum
amount of the elective deferrals that the indi-
vidual would have been permitted to make
under the plan in accordance with the limita-
tions referred to in paragraph (1)(A) during the
period of qualified military service if the indi-
vidual had continued to be employed by the em-
ployer during such period and received com-
pensation as determined under paragraph (7).
Proper adjustment shall be made to the amount
determined under the preceding sentence for
any elective deferrals actually made during the
period of such qualified military service.
121
‘‘(C) ELECTIVE DEFERRAL.—For purposes
of this paragraph, the term ‘elective deferral’
has the meaning given such term by section
402(g)(3); except that such term shall include
any deferral of compensation under an eligible
deferred compensation plan (as defined in sec-
tion 457(b)).
‘‘(D) AFTER-TAX
EMPLOYEE
CONTRIBU-
TIONS.—References in subparagraphs (A) and
(B) to elective deferrals shall be treated as in-
cluding references to employee contributions.
‘‘(3) CERTAIN
RETROACTIVE
ADJUSTMENTS
NOT REQUIRED.—For purposes of this subchapter
and subchapter E, no provision of chapter 43 of title
38, United States Code, shall be construed as re-
quiring—
‘‘(A) any crediting of earnings to an em-
ployee with respect to any contribution before
such contribution is actually made, or
‘‘(B) any allocation of any forfeiture with
respect to the period of qualified military serv-
ice.
‘‘(4) LOAN
REPAYMENT
SUSPENSIONS
PER-
MITTED.—If any plan suspends the obligation to
repay any loan made to an employee from such plan
123
as receiving compensation from the employer during
such period of qualified military service equal to—
‘‘(A) the compensation the employee would
have received during such period if the em-
ployee were not in qualified military service, de-
termined based on the rate of pay the employee
would have received from the employer but for
absence during the period of qualified military
service, or
‘‘(B) if the compensation the employee
would have received during such period was not
reasonably certain, the employee’s average com-
pensation from the employer during the 12-
month period immediately preceding the quali-
fied military service (or, if shorter, the period of
employment immediately preceding the qualified
military service).
‘‘(8) USERRA REQUIREMENTS FOR QUALIFIED
RETIREMENT
PLANS.—For purposes of this sub-
chapter and section 457, an employer sponsoring a
retirement plan shall be treated as meeting the re-
quirements of chapter 43 of title 38, United States
Code, only if each of the following requirements is
met:
124
‘‘(A) An individual reemployed under such
chapter is treated with respect to such plan as
not having incurred a break in service with the
employer maintaining the plan by reason of
such individual’s period of qualified military
service.
‘‘(B) Each period of qualified military
service served by an individual is, upon reem-
ployment under such chapter, deemed with re-
spect to such plan to constitute service with the
employer maintaining the plan for the purpose
of determining the nonforfeitability of the indi-
vidual’s accrued benefits under such plan and
for the purpose of determining the accrual of
benefits under such plan.
‘‘(C) An individual reemployed under such
chapter is entitled to accrued benefits that are
contingent on the making of, or derived from,
employee contributions or elective deferrals only
to the extent the individual makes payment to
the plan with respect to such contributions or
deferrals. No such payment may exceed the
amount the individual would have been per-
mitted or required to contribute had the indi-
vidual remained continuously employed by the
125
employer throughout the period of qualified
military service. Any payment to such plan shall
be made during the period beginning with the
date of reemployment and whose duration is 3
times the period of the qualified military service
(but not greater than 5 years).
‘‘(9) PLANS NOT SUBJECT TO TITLE 38.—This
subsection shall not apply to any retirement plan to
which chapter 43 of title 38, United States Code,
does not apply.
‘‘(10) REFERENCES.—For purposes of this sec-
tion, any reference to chapter 43 of title 38, United
States Code, shall be treated as a reference to such
chapter as in effect on December 12, 1994 (without
regard to any subsequent amendment).’’
(b) COORDINATION
WITH
PROHIBITED
TRANS-
ACTION RULES.—Section 4975(d) is amended by adding
at the end the following new sentence: ‘‘A loan made by
a plan shall not fail to meet the requirements of paragraph
(1) by reason of a loan repayment suspension described
under section 414(u)(4).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall be effective as of December 12, 1994.
126
SEC. 1403. ELIMINATION OF SPECIAL VESTING RULE FOR
MULTIEMPLOYER PLANS.
(a) IN GENERAL.—Paragraph (2) of section 411(a)
(relating to minimum vesting standards) is amended—
(1) by striking ‘‘subparagraph (A), (B), or (C)’’
and inserting ‘‘subparagraph (A) or (B)’’; and
(2) by striking subparagraph (C).
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning on or after
the earlier of—
(1) the later of—
(A) January 1, 1997, or
(B) the date on which the last of the col-
lective bargaining agreements pursuant to
which the plan is maintained terminates (deter-
mined without regard to any extension thereof
after the date of the enactment of this Act), or
(2) January 1, 1999.
Such amendments shall not apply to any individual who
does not have more than 1 hour of service under the plan
on or after the 1st day of the 1st plan year to which such
amendments apply.
127
Subtitle D—Conforming
Amendments
SEC. 1501. CONFORMING AMENDMENT RELATING TO MISS-
ING PARTICIPANTS.
Section 401(a)(34) is amended by striking ‘‘title IV’’
and inserting ‘‘section 4050’’.
SEC. 1502. CONFORMING AMENDMENTS RELATING TO
ERISA ENFORCEMENT.
(a) SPECIAL RULE FOR CERTAIN JUDGMENTS AND
SETTLEMENTS.—Section 401(a)(13) is amended by add-
ing at the end the following new subparagraphs:
‘‘(C) SPECIAL RULE FOR CERTAIN JUDG-
MENTS AND SETTLEMENTS.—Subparagraph (A)
shall not apply to any offset of a participant’s
accrued benefit in a plan against an amount
that the participant is ordered or required to
pay to the plan if—
‘‘(i) the order or requirement to pay
arises—
‘‘(I) under a judgment of convic-
tion for a crime involving such plan,
‘‘(II) under a civil judgment (in-
cluding a consent order or decree) en-
tered by a court in an action brought
in connection with a violation (or al-
128
leged violation) of part 4 of subtitle B
of title I of the Employee Retirement
Income Security Act of 1974, or
‘‘(III) pursuant to a settlement
agreement between the Secretary of
Labor and the participant, or a settle-
ment agreement between the Pension
Benefit Guaranty Corporation and the
participant, in connection with a viola-
tion (or alleged violation) of part 4 of
subtitle B of title I of such Act,
‘‘(ii) the judgment, order, decree, or
settlement agreement expressly provides
for the offset of all or part of the amount
ordered or required to be paid to the plan
against the participant’s accrued benefit in
the plan, and
‘‘(iii) if the participant has a spouse
at the time at which the offset is to be
made—
‘‘(I) such spouse has consented
in writing to such offset and such con-
sent is witnessed by a notary public or
representative of the plan,
129
‘‘(II) such spouse is ordered or
required to pay in such judgment,
order, 
decree, 
or 
settlement 
an
amount to the plan in connection with
a violation of part 4 of this title, or
‘‘(III) in such judgment, order,
decree, or settlement, such spouse re-
tains the right to receive the value of
the survivor annuity under a qualified
joint and survivor annuity provided
pursuant to paragraph (11)(A)(i) and
under a qualified preretirement survi-
vor annuity provided pursuant to
paragraph 11(A)(ii), determined in
accordance with subparagraph (D).
‘‘(D) DETERMINATION OF VALUE OF SUR-
VIVOR
ANNUITY
IN
CONNECTION
WITH
OFF-
SET.—The value of the survivor annuity de-
scribed in subparagraph (C)(iii)(III) shall be
determined as if—
‘‘(i) the participant terminated em-
ployment on the date of the offset,
‘‘(ii) there was no offset,
‘‘(iii) the plan permitted retirement
only on or after normal retirement age,
130
‘‘(iv) the plan provided only the mini-
mum-required qualified joint and survivor
annuity, and
‘‘(v) the amount of the qualified pre-
retirement survivor annuity under the plan
is equal to the amount of the survivor an-
nuity payable under the minimum-required
qualified joint and survivor annuity.
For purposes of this subparagraph, the term
‘minimum-required qualified joint and survivor
annuity’ means the qualified joint and survivor
annuity which is the actuarial equivalent of a
single annuity for the life of the participant and
under which the survivor annuity is 50 percent
of the amount of the annuity which is payable
during the joint lives of the participant and the
spouse.
‘‘(E) WAIVER OF CERTAIN DISTRIBUTION
REQUIREMENTS.—With respect to the require-
ments of subsections (a) and (k) of section 401,
section 403(b), and section 409(d), a plan shall
not be treated as failing to meet such require-
ments solely by reason of an offset under sub-
paragraph (C).’’
131
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to judgments, orders, and de-
crees issued, and settlement agreements entered into, on
or after the date of enactment of this Act.
TITLE II—ERISA PROVISIONS
SEC. 2000. AMENDMENT OF ERISA.
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 Employee Retirement In-
come Security Act of 1974.
Subtitle A—Expanded Pension
Coverage and Simplification
SEC. 2001. REPORTING AND FIDUCIARY REQUIREMENTS
RELATING TO NESTS.
(a) REPORTING REQUIREMENTS.—Section 101 (29
U.S.C. 1021) is amended by redesignating subsection (g)
as subsection (h) and by inserting after subsection (f) the
following new subsection:
‘‘(g) NESTS.—
‘‘(1) IN GENERAL.—Except as provided in this
subsection, no reporting or disclosure requirements
under this title shall apply with respect to a pension
132
plan under section 408(p) of the Internal Revenue
Code of 1986.
‘‘(2) SUMMARY DESCRIPTION.—The trustee or
issuer of any NEST established pursuant to a pen-
sion plan under section 408(p) of such Code shall
provide to the employer maintaining the arrange-
ment each year a description containing the follow-
ing information:
‘‘(A) The name and address of the em-
ployer and the trustee.
‘‘(B) The requirements for eligibility for
participation.
‘‘(C) The benefits provided with respect to
the arrangement.
‘‘(D) The time and method of making elec-
tions with respect to the arrangement.
‘‘(E) The procedures for, and effects of,
distributions (including rollovers) from the ar-
rangement.
‘‘(3) EMPLOYEE NOTIFICATION.—The employer
shall notify each employee immediately before the
period for which an election described in section
408(p)(7)(B) of such Code may be made of the em-
ployee’s opportunity to make such election. Such no-
tice shall include a copy of the description described
133
in paragraph (2) and shall indicate whether match-
ing contributions will be made with respect to the
employee’s elective contributions, and the level of
employer matching and nonelective contributions
which will be made, for the year for which the elec-
tion may be made.’’
(b) FIDUCIARY DUTIES.—Section 404 (29 U.S.C.
1104) is amended by redesignating subsection (d) as sub-
section (e) and by adding after subsection (c) the following
new subsection:
‘‘(d)(1) In the case of a NEST established pursuant
to a plan under section 408(p) of the Internal Revenue
Code of 1986, no plan sponsor who is otherwise a fiduciary
shall be liable under this part for any loss, or by reason
of any breach, which results from—
‘‘(A) the designation of the trustee or issuer of
the NEST, or
‘‘(B) the manner in which the assets in the
NEST are invested,
after the earliest of the dates described in paragraph (2).
‘‘(2) The dates described in this paragraph are as fol-
lows:
‘‘(A) The date on which an affirmative election
with respect to the initial investment of any con-
134
tribution is made by the individual for whose benefit
the NEST is established.
‘‘(B) The date on which there is a rollover of
the assets of the NEST to any other NEST or indi-
vidual retirement account or annuity described in
section 408 of the Internal Revenue Code of 1986.
‘‘(C) The date which is 1 year after the NEST
is established.
‘‘(3) This subsection shall not apply to a participant
in a plan unless the participant is notified in writing (ei-
ther separately or as part of the notice under section
101(g)(3)) that the participant’s balance may be trans-
ferred without cost or penalty to another individual ac-
count or annuity in accordance with section 408(d)(3)(G)
of the Internal Revenue Code of 1986.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1996.
SEC. 2002. ELIMINATION OF REQUIREMENT FOR PLAN DE-
SCRIPTIONS AND THE FILING REQUIREMENT
FOR SUMMARY PLAN DESCRIPTIONS AND DE-
SCRIPTIONS OF MATERIAL MODIFICATIONS
TO A PLAN; TECHNICAL CORRECTIONS.
(a) FILING REQUIREMENTS.—Section 101(b) (29
U.S.C. 1021(b)) is amended by striking paragraphs (1),
135
(2), and (3) and by redesignating paragraphs (4) and (5)
as paragraphs (1) and (2), respectively.
(b) PLAN DESCRIPTION.—
(1) IN GENERAL.—Section 102(a) (29 U.S.C.
1022(a)) is amended—
(A) by striking paragraph (2), and
(B) by striking ‘‘(a)(1)’’ and inserting
‘‘(a)’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 102(b) (29 U.S.C. 1022(b)) is
amended by striking ‘‘The plan description and
summary plan description shall contain’’ and
inserting ‘‘The summary plan description shall
contain’’.
(B) The heading for section 102 is amend-
ed by striking ‘‘PLAN DESCRIPTION AND’’.
(c) FURNISHING OF REPORTS.—
(1) 
IN
GENERAL.—Section 
104(a)(1) 
(29
U.S.C. 1024(a)(1)) is amended to read as follows:
‘‘SEC. 104. (a)(1) The administrator of any employee
benefit plan subject to this part shall file with the Sec-
retary the annual report for a plan year within 210 days
after the close of such year (or within such time as may
be required by regulations promulgated by the Secretary
in order to reduce duplicative filing). The Secretary shall
136
make copies of such annual reports available for inspection
in the public document room of the Department of
Labor.’’
(2) SECRETARY MAY REQUEST DOCUMENTS.—
(A) IN
GENERAL.—Section 104(a) (29
U.S.C. 1024(a)) is amended by adding at the
end the following new paragraph:
‘‘(6) The administrator of any employee benefit plan
subject to this part shall furnish to the Secretary, upon
request, any documents relating to the employee benefit
plan, including but not limited to, the latest summary plan
description (including any summaries of plan changes not
contained in the summary plan description), and the bar-
gaining agreement, trust agreement, contract, or other in-
strument under which the plan is established or operated.’’
(B) PENALTY.—Section 502(c) (29 U.S.C.
1132(c)) is amended by adding at the end the
following new paragraph:
‘‘(5) If, within 30 days of a request by the Secretary
to a plan administrator for documents under section
104(a)(6), the plan administrator fails to furnish the ma-
terial requested to the Secretary, the Secretary may assess
a civil penalty against the plan administrator of up to
$100 a day from the date of such failure (but in no event
in excess of $1,000 per request). No penalty shall be im-
137
posed under this paragraph for any failure resulting from
matters reasonably beyond the control of the plan admin-
istrator.’’
(d) CONFORMING AMENDMENTS.—
(1) Section 104(b)(1) (29 U.S.C. 1024(b)(1)) is
amended by striking ‘‘section 102(a)(1)’’ each place
it appears and inserting ‘‘section 102(a)’’.
(2) Section 104(b)(2) (29 U.S.C. 1024(b)(2)) is
amended by striking ‘‘the plan description and’’ and
inserting ‘‘the latest updated summary plan descrip-
tion and’’.
(3) Section 104(b)(4) (29 U.S.C. 1024(b)(4)) is
amended by striking ‘‘plan description’’.
(4) Section 106(a) (29 U.S.C. 1026(a)) is
amended by striking ‘‘descriptions,’’.
(5) Section 107 (29 U.S.C. 1027) is amended
by striking ‘‘description or’’.
(6) Paragraph (2)(B) of section 108 (29 U.S.C.
1028) is amended to read as follows: ‘‘(B) after pub-
lishing or filing the annual reports,’’.
(7) Section 502(a)(6) (29 U.S.C. 1132(a)(6)) is
amended by striking ‘‘subsection (c)(2) or (i) or (l)’’
and inserting ‘‘paragraph (2), (4), or (5) of sub-
section (c) or subsection (i) or (l)’’.
(e) TECHNICAL CORRECTIONS TO ERISA.—
138
(1) Section 502(c)(1) (29 U.S.C. 1132(c)(1)) is
amended by adding at the end the following new
sentence: ‘‘For purposes of this paragraph, each vio-
lation described in subparagraph (A) with respect to
any single participant, and each violation described
in subparagraph (B) with respect to any single par-
ticipant or beneficiary, shall be treated as a separate
violation.’’
(2) Section 502(c) (29 U.S.C. 1132(c)) is
amended—
(A) by striking the last two sentences of
paragraph (4), and
(B) by adding at the end the following new
paragraph:
‘‘(5) The Secretary and the Secretary of Health and
Human Services shall maintain such ongoing consultation
as may be necessary and appropriate to coordinate en-
forcement under this subsection with enforcement under
section 1144(c)(9) of the Social Security Act.’’
(f) EFFECTIVE DATE.—The provisions of this section
shall take effect on the date of the enactment of this Act.
139
SEC. 2003. CONFORMING AMENDMENT RELATING TO IN-
VESTMENTS IN QUALIFIED STATE PREPAID
TUITION PROGRAMS.
(a) IN GENERAL.—Subsection (b) of section 408 is
amended by adding at the end the following new para-
graph:
‘‘(14) any purchase of a qualified State prepaid
tuition program instrument to which section 408(q)
of the Internal Revenue Code of 1986 applies.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1995.
Subtitle B—Portability
SEC. 2011. MISSING PARTICIPANTS.
(a) IN GENERAL.—Section 4050 (29 U.S.C. 1350)
is amended by redesignating subsection (c) as subsection
(e) and by inserting after subsection (b) the following new
subsections:
‘‘(c) MULTIEMPLOYER
PLANS.—The corporation
shall prescribe rules similar to the rules in subsection (a)
for multiemployer plans covered by this title that termi-
nate under section 4041A.
‘‘(d) PLANS NOT OTHERWISE SUBJECT TO TITLE.—
‘‘(1) TRANSFER TO CORPORATION.—The plan
administrator of a plan described in paragraph (4)
140
may elect to transfer a missing participant’s benefits
to the corporation upon termination of the plan.
‘‘(2) INFORMATION TO THE CORPORATION.—To
the extent provided in regulations, the plan adminis-
trator of a plan described in paragraph (4) shall,
upon termination of the plan, provide the corpora-
tion information with respect to benefits of a miss-
ing participant if the plan transfers such benefits—
‘‘(A) to the corporation, or
‘‘(B) to an entity other than the corpora-
tion or a plan described in paragraph (4)(B)(ii).
‘‘(3) PAYMENT BY THE CORPORATION.—If ben-
efits of a missing participant were transferred to the
corporation under paragraph (1), the corporation
shall, upon location of the participant or beneficiary,
pay to the participant or beneficiary the amount
transferred (or the appropriate survivor benefit) ei-
ther—
‘‘(A) in a single sum (plus interest), or
‘‘(B) in such other form as is specified in
regulations of the corporation.
‘‘(4) PLANS DESCRIBED.—A plan is described
in this paragraph if—
‘‘(A) the plan is a pension plan (within the
meaning of section 3(2))—
141
‘‘(i) to which the provisions of this
section do not apply (without regard to
this subsection), and
‘‘(ii) which is not a plan described in
paragraphs (2) through (11) of section
4021(b), and
‘‘(B) at the time the assets are to be dis-
tributed upon termination, the plan—
‘‘(i) has missing participants, and
‘‘(ii) has not provided for the transfer
of assets to pay the benefits of all missing
participants to another pension plan (with-
in the meaning of section 3(2)).
‘‘(5) CERTAIN PROVISIONS NOT TO APPLY.—
Subsections (a)(1) and (a)(3) shall not apply to a
plan described in paragraph (4).’’
(b) CONFORMING
AMENDMENTS.—Section 206(f)
(29 U.S.C. 1056(f)) is amended—
(1) by striking ‘‘title IV’’ and inserting ‘‘section
4050’’, and
(2) by striking ‘‘the plan shall provide that’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions made after final
regulations implementing subsections (c) and (d) of sec-
tion 4050 of the Employee Retirement Income Security
142
Act of 1974 (as added by subsection (a)), respectively, are
prescribed.
SEC. 2012. ELIMINATION OF SPECIAL VESTING RULE FOR
MULTIEMPLOYER PLANS.
(a) IN GENERAL.—Paragraph (2) of section 203(a)
(29 U.S.C. 1053(a)) is amended—
(1) by striking ‘‘subparagraph (A), (B), or (C)’’
and inserting ‘‘subparagraph (A) or (B)’’; and
(2) by striking subparagraph (C).
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning on or after
the earlier of—
(1) the later of—
(A) January 1, 1997, or
(B) the date on which the last of the col-
lective bargaining agreements pursuant to
which the plan is maintained terminates (deter-
mined without regard to any extension thereof
after the date of the enactment of this Act), or
(2) January 1, 1999.
Such amendments shall not apply to any individual who
does not have more than 1 hour of service under the plan
on or after the first day of the first plan year to which
such amendments apply.
143
SEC. 2013. TREATMENT OF LOANS DURING MILITARY SERV-
ICE.
(a) IN GENERAL.—Section 408(b)(1) (29 U.S.C.
1148(b)) is amended by adding at the end the following
new sentence: ‘‘A loan made by a plan shall not fail to
meet the requirements of the preceding sentence by reason
of a loan repayment suspension described under section
414(u)(4) of the Internal Revenue Code of 1986.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall be effective as of December 12, 1994.
Subtitle C—Enhanced Security
CHAPTER 1—GENERAL PROVISIONS
SEC. 2021. MULTIEMPLOYER PLAN BENEFITS GUARAN-
TEED.
(a) IN GENERAL.—Section 4022A(c) (29 U.S.C.
1322a(c)) is amended—
(1) by striking ‘‘$5’’ each place it appears in
paragraph (1) and inserting ‘‘$11’’,
(2) by striking ‘‘$15’’ in paragraph (1) and in-
serting ‘‘$33’’, and
(3) by striking paragraphs (2), (5), and (6) and
by redesignating paragraphs (3) and (4) as para-
graphs (2) and (3), respectively.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to any multiemployer plan that has
not received financial assistance (within the meaning of
144
section 4261 of the Employee Retirement Income Security
Act of 1974) within the 1-year period ending on the date
of the enactment of this Act.
SEC. 2022. REVERSION REPORT.
(a) IN GENERAL.—Section 4008 (29 U.S.C. 1308)
is amended by adding at the end the following new sub-
section:
‘‘(b) REVERSION REPORT.—As soon as practicable
after the close of each fiscal year, the Secretary of Labor
(acting in the Secretary’s capacity as chairman of the cor-
poration’s board) shall transmit to the President and the
Congress a report providing information on plans from
which residual assets were distributed to employers pursu-
ant to section 4044(d).’’
(b) CONFORMING AMENDMENT.—Section 4008 (29
U.S.C. 1308) is amended by striking ‘‘SEC. 4008.’’ and
inserting ‘‘SEC. 4008. (a) ANNUAL REPORT.—’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to fiscal years beginning after Sep-
tember 30, 1996.
SEC. 2023. FULL FUNDING LIMITATION FOR MULTIEM-
PLOYER PLANS.
(a) 
FULL-FUNDING
LIMITATION.—Section
302(c)(7)(C) (29 U.S.C. 1082(c)(7)(C)) is amended—
145
(1) by inserting ‘‘or in the case of a multiem-
ployer plan,’’ after ‘‘paragraph (6)(B),’’, and
(2) by inserting ‘‘AND MULTIEMPLOYER PLANS’’
after ‘‘PARAGRAPH (6)(B)’’ in the heading thereof.
(b) VALUATION.—Section 302(c)(9) (29 U.S.C.
1082(c)(9)) is amended—
(1) by inserting ‘‘(3 years in the case of a mul-
tiemployer plan)’’ after ‘‘year’’, and
(2) by striking ‘‘ANNUAL VALUATION’’ in the
heading and inserting ‘‘VALUATION’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning after De-
cember 31, 1996.
SEC. 2024. PROHIBITED TRANSACTIONS.
(a) IN
GENERAL.—Section 502(i) (29 U.S.C.
1132(i)) is amended by striking ‘‘5 percent’’ and inserting
‘‘10 percent’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to prohibited transactions occur-
ring after the date of enactment of this Act.
SEC. 2025. SUBSTANTIAL OWNER BENEFITS.
(a) MODIFICATION OF PHASE-IN OF GUARANTEE.—
Subparagraphs (B) and (C) of section 4022(b)(5) (29
U.S.C. 1322(b)(5)) are amended to read as follows:
146
‘‘(B) For purposes of this title, the term ‘majority
owner’ has the same meaning as substantial owner under
subparagraph (A), except that subparagraph (A) shall be
applied by substituting ‘50 percent or more’ for ‘more
than 10 percent’ each place it appears.
‘‘(C) In the case of a participant who is a majority
owner, the amount of benefits guaranteed under this sec-
tion shall not exceed the product of—
‘‘(i) a fraction (not to exceed 1) the numerator
of which is the number of years from the later of the
effective date or the adoption date of the plan to the
termination date, and the denominator of which is
30, and
‘‘(ii) the amount of the majority owner’s month-
ly benefits guaranteed under subsection (a) (as lim-
ited by paragraph (3) of this subsection).’’
(b) MODIFICATION OF ALLOCATION OF ASSETS.—
(1) 
Section 
4044(a)(4)(B) 
(29 
U.S.C.
1344(a)(4)(B)) is amended by striking ‘‘section
4022(b)(5)’’ and inserting ‘‘section 4022(b)(5)(C)’’.
(2) Section 4044(b) (29 U.S.C. 1344(b)) is
amended—
(A) by striking ‘‘(5)’’ in paragraph (2) and
inserting ‘‘(4), (5),’’, and
147
(B) 
by 
redesignating 
paragraphs 
(3)
through (6) as paragraphs (4) through (7), re-
spectively, and by inserting after paragraph (2)
the following new paragraph:
‘‘(3) If assets available for allocation under
paragraph (4) of subsection (a) are insufficient to
satisfy in full the benefits of all individuals who are
described in that paragraph, the assets shall be allo-
cated first to benefits described in subparagraph (A)
of that paragraph. Any remaining assets shall then
be allocated to subparagraph (B). If assets allocated
to subparagraph (B) are insufficient to satisfy in full
the benefits in that subparagraph, the assets shall
be allocated pro rata among individuals on the basis
of the present value (as of the termination date) of
their respective benefits described in that subpara-
graph.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan terminations—
(1) under section 4041(c) of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C.
1341(c)) with respect to which notices of intent to
terminate are provided under section 4041(a)(2) of
such Act (29 U.S.C. 1341(a)(2)) on or after the
date of the enactment of this Act, or
148
(2) under section 4042 of such Act (29 U.S.C.
1342) with respect to which proceedings are insti-
tuted by the corporation on or after such date.
CHAPTER 2—ERISA ENFORCEMENT
SEC. 2031. SHORT TITLE.
This part may be cited as the ‘‘Pension Audit Im-
provement Act of 1996’’.
SEC. 2032. REPEAL OF LIMITED SCOPE AUDIT.
(a) IN GENERAL.—Section 103(a)(3) (29 U.S.C.
1023(a)(3)) is amended by striking subparagraph (C) and
by redesignating subparagraph (D) as subparagraph (C).
(b) CONFORMING AMENDMENTS.—
(1) 
Section 
103(a)(3)(A) 
(29 
U.S.C.
1023(a)(3)(A)) is amended by striking ‘‘Except as
provided in subparagraph (C), the’’ and inserting
‘‘The’’.
(2) 
Section 
104(a)(5)(A) 
(29 
U.S.C.
1024(a)(5)(A)) is amended by striking ‘‘section
103(a)(3)(D)’’ and inserting ‘‘section 103(a)(3)(C)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to opinions required
under section 103(a)(3)(A) of the Employee Retirement
Income Security Act of 1974 for plan years beginning on
or after January 1 of the calendar year following the date
of the enactment of this Act.
149
SEC. 2033. REPORTING AND ENFORCEMENT REQUIRE-
MENTS FOR EMPLOYEE BENEFIT PLANS.
(a) IN GENERAL.—Part 1 of subtitle B of title I (29
U.S.C. 1021 et seq.) is amended—
(1) by redesignating section 111 as section 112,
and
(2) by inserting after section 110 the following
new section:
‘‘DIRECT REPORTING OF CERTAIN EVENTS
‘‘SEC. 111. (a) REQUIRED NOTIFICATIONS.—
‘‘(1) 
NOTIFICATIONS
BY
PLAN
ADMINIS-
TRATOR.—The administrator of an employee benefit
plan shall, within 5 business days after the adminis-
trator determines that there is evidence (or after the
administrator is notified under paragraph (2)) that
an irregularity may have occurred with respect to
the plan—
‘‘(A) notify the Secretary of the irregular-
ity in writing; and
‘‘(B) furnish a copy of such notification to
the accountant who is currently engaged under
section 103(a)(3)(A).
‘‘(2) NOTIFICATIONS BY ACCOUNTANT.—
‘‘(A) IN
GENERAL.—An accountant en-
gaged by the administrator of an employee ben-
efit plan under section 103(a)(3)(A) shall, with-
150
in 5 business days after the accountant in con-
nection with such engagement determines that
there is evidence that an irregularity may have
occurred with respect to the plan—
‘‘(i) notify the plan administrator of
the irregularity in writing, or
‘‘(ii) if the accountant determines that
there is evidence that the irregularity may
have involved an individual who is the plan
administrator or who is a senior official of
the plan administrator, notify the Sec-
retary of the irregularity in writing.
‘‘(B) NOTIFICATION
UPON
FAILURE
OF
PLAN ADMINISTRATOR TO NOTIFY.—If an ac-
countant who has provided notification to the
plan administrator pursuant to subparagraph
(A)(i) does not receive a copy of the administra-
tor’s notification to the Secretary required
under paragraph (1)(B) within the 5-business
day period specified therein, the accountant
shall furnish to the Secretary a copy of the ac-
countant’s notification made to the plan admin-
istrator on the next business day following such
period.
‘‘(3) IRREGULARITY DEFINED.—
151
‘‘(A) For purposes of this subsection, the
term ‘irregularity’ means—
‘‘(i) a theft, embezzlement, or a viola-
tion of section 664 of title 18, United
States Code (relating to theft or embezzle-
ment from an employee benefit plan);
‘‘(ii) an extortion or a violation of sec-
tion 1951 of such title 18 (relating to in-
terference with commerce by threats or vi-
olence);
‘‘(iii) a bribery, a kickback, or a viola-
tion of section 1954 of such title 18 (relat-
ing to offer, acceptance, or solicitation to
influence operations of an employee benefit
plan);
‘‘(iv) a violation of section 1027 of
such title 18 (relating to false statements
and concealment of facts in relation to em-
ployer benefit plan records); or
‘‘(v) a violation of section 411, 501, or
511 of this title (relating to criminal viola-
tions).
‘‘(B) The term ‘irregularity’ shall not in-
clude any act or omission described in this
paragraph involving less than $1,000 unless
152
there is reason to believe that the act or omis-
sion may bear on the integrity of plan manage-
ment.
‘‘(b) NOTIFICATION UPON TERMINATION
OF EN-
GAGEMENT OF ACCOUNTANT.—
‘‘(1) 
NOTIFICATION
BY
PLAN
ADMINIS-
TRATOR.—Within 5 business days after the termi-
nation of an engagement for auditing services under
section 103(a)(3)(A) with respect to an employee
benefit plan, the administrator of such plan shall—
‘‘(A) notify the Secretary in writing of
such termination, giving the reasons for such
termination, and
‘‘(B) furnish the accountant whose engage-
ment was terminated with a copy of the notifi-
cation sent to the Secretary.
‘‘(2) NOTIFICATION BY ACCOUNTANT.—If the
accountant referred to in paragraph (1)(B) has not
received a copy of the administrator’s notification to
the Secretary as required under paragraph (1)(B),
or if the accountant disagrees with the reasons given
in the notification of termination of the engagement
for auditing services, the accountant shall notify the
Secretary in writing of the termination, giving the
153
reasons for the termination, within 10 business days
after the termination of the engagement.
‘‘(c) DETERMINATION OF PERIODS REQUIRED FOR
NOTIFICATION.—In determining whether a notification re-
quired under this section with respect to any act or omis-
sion has been made within the required number of busi-
ness days—
‘‘(1) the day on which such act or omission be-
gins shall not be included; and
‘‘(2) Saturdays, Sundays, and legal holidays
shall not be included.
For purposes of this subsection, the term ‘legal holiday’
means any Federal legal holiday and any other day ap-
pointed as a holiday by the State in which the person re-
sponsible for making the notification principally conducts
his business.
‘‘(d) IMMUNITY FOR GOOD FAITH NOTIFICATION.—
Except as provided in this Act, no accountant or plan ad-
ministrator shall be liable to any person for any finding,
conclusion, or statement made in any notification made
pursuant to subsection (a)(2) or (b)(2), or pursuant to any
regulations issued thereunder, if such finding, conclusion,
or statement is made in good faith.’’
(b) CIVIL PENALTY.—
154
(1) IN GENERAL.—Section 502(c) (29 U.S.C.
1132(c)), as amended by section 2002, is amended
by redesignating paragraph (6) as paragraph (7)
and by inserting after paragraph (5) the following
new paragraph:
‘‘(6)(A) The Secretary may assess a civil penalty of
up to $100,000 against any administrator who fails to
provide the Secretary with any notification as required
under section 111.
‘‘(B) The Secretary may assess a civil penalty of up
to $100,000 against any accountant who knowingly and
willfully fails to provide the Secretary with any notification
as required under section 111.’’
(2) 
CONFORMING
AMENDMENT.—Section
502(a)(6) (29 U.S.C. 1132(a)(6)), as amended by
section 2002, is amended by striking ‘‘or (5)’’ and
inserting ‘‘(5), or (6)’’.
(c) CLERICAL AMENDMENTS.—
(1) Section 514(d) (29 U.S.C. 1144(d)) is
amended by striking ‘‘111’’ and inserting ‘‘112’’.
(2) The table of contents in section 1 is amend-
ed by striking the item relating to section 111 and
inserting the following new items:
‘‘Sec. 111. Direct reporting of certain events.
‘‘Sec. 112. Repeal and effective date.’’
155
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to any irregularity or
termination of engagement described in such amendments
only if the 5-day period described in such amendments in
connection with such irregularity or termination com-
mences at least 90 days after the date of the enactment
of this Act.
SEC. 2034. ADDITIONAL REQUIREMENTS FOR QUALIFIED
PUBLIC ACCOUNTANTS.
(a) IN GENERAL.—Section 103(a)(3)(C) (29 U.S.C.
1023(a)(3)(C)), as redesignated by section 2032, is
amended—
(1) by inserting ‘‘(i)’’ after ‘‘(C)’’;
(2) by inserting ‘‘, with respect to any engage-
ment of an accountant under subparagraph (A)’’
after ‘‘means’’;
(3) by redesignating clauses (i), (ii), and (iii) as
subclauses (I), (II), and (III), respectively;
(4) by striking the period at the end of sub-
clause (III) (as so redesignated) and inserting a
comma;
(5) by adding after subclause (III) (as so redes-
ignated), and flush with clause (i), the following:
‘‘but only if such person meets the requirements of clauses
(ii) and (iii) with respect to such engagement.’’; and
157
tions which the Secretary deems necessary to ensure the
quality of plan audits.
‘‘(iv) For purposes of clause (ii)(II), an external qual-
ity control review shall be treated as qualified with respect
to a person referred to in clause (ii) if—
‘‘(I) such review is performed in accordance
with the requirements of external quality control re-
view programs of recognized auditing standard-set-
ting bodies, as determined under regulations of the
Secretary, and
‘‘(II) in the case of any such person who has,
during the peer review period, conducted one or
more previous audits of employee benefit plans, such
review includes the review of an appropriate number
(determined as provided in such regulations, but in
no case less than one) of plan audits in relation to
the scale of such person’s auditing practice.
The Secretary shall issue the regulations under subclause
(I) no later than December 31, 1997.’’
(b) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply with respect to plan years beginning on
or after the date which is 3 years after the date of
the enactment of this Act.
158
(2) RESTRICTIONS ON CONDUCTING EXAMINA-
TIONS.—Clause (iii) of section 103(a)(3)(C) of the
Employee Retirement Income Security Act of 1974
(as added by subsection (a)(6)) shall take effect on
the date of enactment of this Act.
SEC. 2035. CLARIFICATION OF FIDUCIARY PENALTIES.
(a) MODIFICATION OF PROHIBITION OF ASSIGNMENT
OR ALIENATION.—
(1) AMENDMENT
TO
ERISA.—Section 206(d)
(29 U.S.C. 1056(d)) is amended by adding at the
end the following new paragraphs:
‘‘(4) Paragraph (1) shall not apply to any offset of
a participant’s accrued benefit in an employee pension
benefit plan against an amount that the participant is or-
dered or required to pay to the plan if—
‘‘(A) the order or requirement to pay arises—
‘‘(i) under a judgment of conviction for a
crime involving such plan,
‘‘(ii) under a civil judgment (including a
consent order or decree) entered by a court in
an action brought in connection with a violation
(or alleged violation) of part 4 of this subtitle,
or
‘‘(iii) pursuant to a settlement agreement
between the Secretary and the participant, or a
159
settlement agreement between the Pension Ben-
efit Guaranty Corporation and the participant,
in connection with a violation (or alleged viola-
tion) of part 4 of this subtitle,
‘‘(B) the judgment, order, decree, or settlement
agreement expressly provides for the offset of all or
part of the amount ordered or required to be paid
to the plan against the participant’s accrued benefit
in the plan, and
‘‘(C) if the participant has a spouse at the time
at which the offset is to be made—
‘‘(i) such spouse has consented in writing
to such offset and such consent is witnessed by
a notary public or representative of the plan,
‘‘(ii) such spouse is ordered or required in
such judgment, order, decree, or settlement to
pay an amount to the plan in connection with
a violation of part 4 of this title, or
‘‘(iii) in such judgment, order, decree, or
settlement, such spouse retains the right to re-
ceive the value of the survivor annuity under a
qualified joint and survivor annuity provided
pursuant to section 205(a)(1) and under a
qualified preretirement survivor annuity pro-
160
vided pursuant to section 205(a)(2), determined
in accordance with paragraph (5).
‘‘(5)(A) The value of the survivor annuity described
in paragraph (4)(C)(iii) shall be determined as if—
‘‘(i) the participant terminated employment on
the date of the offset,
‘‘(ii) there was no offset,
‘‘(iii) the plan permitted retirement only on or
after normal retirement age,
‘‘(iv) the plan provided only the minimum-re-
quired qualified joint and survivor annuity, and
‘‘(v) the amount of the qualified preretirement
survivor annuity under the plan is equal to the
amount of the survivor annuity payable under the
minimum-required qualified joint and survivor annu-
ity.
‘‘(B) For purposes of this paragraph, the term ‘mini-
mum-required qualified joint and survivor annuity’ means
the qualified joint and survivor annuity which is the actu-
arial equivalent of a single annuity for the life of the par-
ticipant and under which the survivor annuity is 50 per-
cent of the amount of the annuity which is payable during
the joint lives of the participant and the spouse.’’
(2) EFFECTIVE DATE.—The amendment made
by this subsection shall apply to judgments, orders,
161
and decrees issued, and settlement agreements en-
tered into, on or after the date of enactment of this
Act.
(b) CIVIL PENALTIES FOR BREACH OF FIDUCIARY
RESPONSIBILITY.—
(1) IMPOSITION
AND
AMOUNT
OF
PENALTY
MADE
DISCRETIONARY.—Section 
502(l)(1) 
(29
U.S.C. 1132(l)(1)) is amended—
(A) by striking ‘‘shall’’ and inserting
‘‘may’’, and
(B) by striking ‘‘equal to’’ and inserting
‘‘not greater than’’.
(2) APPLICABLE RECOVERY AMOUNT.—Section
502(l)(2) (29 U.S.C. 1132(l)(2)) is amended to read
as follows:
‘‘(2) For purposes of paragraph (1), the term ‘appli-
cable recovery amount’ means any amount which is recov-
ered from (or on behalf of) any fiduciary or other person
with respect to a breach or violation described in para-
graph (1) on or after the 30th day following receipt by
such fiduciary or other person of written notice from the
Secretary of the violation, whether paid voluntarily or by
order of a court in a judicial proceeding instituted by the
Secretary under subsection (a)(2) or (a)(5). The Secretary
162
may, in the Secretary’s sole discretion, extend the 30-day
period described in the preceding sentence.’’
(3) OTHER RULES.—Section 502(l) (29 U.S.C.
1132(l)) is amended by adding at the end the follow-
ing new paragraphs:
‘‘(5) A person shall be jointly and severally liable for
the penalty described in paragraph (1) to the same extent
that such person is jointly and severally liable for the ap-
plicable recovery amount on which the penalty is based.
‘‘(6) No penalty shall be assessed under this sub-
section unless the person against whom the penalty is as-
sessed is given notice and opportunity for a hearing with
respect to the violation and applicable recovery amount.’’
(4) EFFECTIVE DATES.—
(A) IN GENERAL.—The amendments made
by this subsection shall apply to any breach of
fiduciary responsibility or other violation of part
4 of subtitle B of title I of the Employee Re-
tirement Income Security Act of 1974 occurring
on or after the date of enactment of this Act.
(B) TRANSITION RULE.—In applying the
amendment made by paragraph (2) (relating to
applicable recovery amount), a breach or other
violation occurring before the date of the enact-
ment of this Act which continues after the
163
180th day after such date (and which may have
been discontinued at any time during its exist-
ence) shall be treated as having occurred after
such date of enactment.
TITLE III—ADDITIONAL RETIRE-
MENT 
PARTICIPATION 
AND
PAYMENT OPTIONS FOR FED-
ERAL EMPLOYEES
SEC. 3001. IMMEDIATE PARTICIPATION IN THE THRIFT SAV-
INGS PLAN FOR FEDERAL EMPLOYEES.
(a) ELIMINATION OF CERTAIN WAITING PERIODS
FOR PURPOSES OF EMPLOYEE CONTRIBUTIONS.—Para-
graph (4) of section 8432(b) of title 5, United States
Code, is amended to read as follows:
‘‘(4) The Executive Director shall prescribe such reg-
ulations as may be necessary to carry out the following:
‘‘(A) Notwithstanding subparagraph (A) of
paragraph (2), an employee or Member described in
such subparagraph shall be afforded a reasonable
opportunity to first make an election under this sub-
section beginning on the date of commencing service
or, if that is not administratively feasible, beginning
on the earliest date thereafter that such an election
becomes administratively feasible, as determined by
the Executive Director.
164
‘‘(B) An employee or Member described in sub-
paragraph (B) of paragraph (2) shall be afforded a
reasonable opportunity to first make an election
under this subsection (based on the appointment or
election described in such subparagraph) beginning
on the date of commencing service pursuant to such
appointment or election or, if that is not administra-
tively feasible, beginning on the earliest date there-
after that such an election becomes administratively
feasible, as determined by the Executive Director.
‘‘(C) Notwithstanding the preceding provisions
of this paragraph, contributions under paragraphs
(1) and (2) of subsection (c) shall not be payable
with respect to any pay period before the earliest
pay period for which such contributions would other-
wise be allowable under this subsection if this para-
graph had not been enacted.
‘‘(D) 
Sections 
8351(a)(2), 
8440a(a)(2),
8440b(a)(2), 8440c(a)(2), and 8440d(a)(2) shall be
applied in a manner consistent with the purposes of
subparagraphs (A) and (B), to the extent those sub-
paragraphs can be applied with respect thereto.
‘‘(E) Nothing in this paragraph shall affect
paragraph (3).’’.
165
(b) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) Section 8432(a) of title 5, United States Code, is
amended—
(A) in the first sentence by striking ‘‘(b)(1)’’
and inserting ‘‘(b)’’; and
(B) by amending the second sentence to read as
follows: ‘‘Contributions under this subsection pursu-
ant to such an election shall, with respect to each
pay period for which such election remains in effect,
be made in accordance with a program of regular
contributions provided in regulations prescribed by
the Executive Director.’’.
(2) Section 8432(b)(1)(B) of such title is amended
by inserting ‘‘(or any election allowable by virtue of para-
graph (4))’’ after ‘‘subparagraph (A)’’.
(3) Section 8432(b)(3) of such title is amended by
striking ‘‘Notwithstanding paragraph (2)(A), an’’ and in-
serting ‘‘An’’.
(4) Section 8432(i)(1)(B)(ii) of such title is amended
by striking ‘‘either elected to terminate individual con-
tributions to the Thrift Savings Fund within 2 months
before commencing military service or’’.
(5) Section 8439(a)(1) of such title is amended by
inserting ‘‘who makes contributions or’’ after ‘‘for each
166
individual’’ and by striking ‘‘section 8432(c)(1)’’ and in-
serting ‘‘section 8432’’.
(6) Section 8439(c)(2) of such title is amended by
adding at the end the following: ‘‘Nothing in this para-
graph shall be considered to limit the dissemination of in-
formation only to the times required under the preceding
sentence.’’.
(7) Sections 8440a(a)(2) and 8440d(a)(2) of such
title are amended by striking all after ‘‘subject to’’ and
inserting ‘‘subject to this chapter.’’.
(c) EFFECTIVE DATE.—This section shall take effect
6 months after the date of the enactment of this Act or
such earlier date as the Executive Director may by regula-
tion prescribe.
SEC. 3002. DEFERRED ANNUITIES FOR SURVIVING SPOUSES
OF FEDERAL EMPLOYEES.
(a) IN GENERAL.—Section 8341 of title 5, United
States Code, is amended—
(1) in subsection (h)(1) by striking ‘‘section
8338(b) of this title’’ and inserting ‘‘section
8338(b), and a former spouse of a deceased former
employee who separated from the service with title
to a deferred annuity under section 8338 (if they
were married to one another prior to the date of sep-
aration),’’; and
167
(2) by adding at the end the following:
‘‘(j)(1) If a former employee dies after having sepa-
rated from the service with title to a deferred annuity
under section 8338 but before having established a valid
claim for annuity, and is survived by a spouse to whom
married on the date of separation, the surviving spouse
may elect to receive—
‘‘(A) an annuity, commencing on what would
have been the former employee’s 62d birthday, equal
to 55 percent of the former employee’s deferred an-
nuity;
‘‘(B) an annuity, commencing on the day after
the date of death of the former employee, such that,
to the extent practicable, the present value of the fu-
ture payments of the annuity would be actuarially
equivalent to the present value of the future pay-
ments under subparagraph (A) as of the day after
the former employee’s death; or
‘‘(C) the lump-sum credit, if the surviving
spouse is the individual who would be entitled to the
lump-sum credit and if such surviving spouse files
application therefor.
‘‘(2) An annuity under this subsection and the right
thereto terminate on the last day of the month before the
168
surviving spouse remarries before becoming 55 years of
age, or dies.’’.
(b) CORRESPONDING AMENDMENT
FOR FERS.—
Section 8445(a) of title 5, United States Code, is amend-
ed—
(1) by striking ‘‘(or of a former employee or’’
and inserting ‘‘(or of a former’’; and
(2) by striking ‘‘annuity)’’ and inserting ‘‘annu-
ity, or of a former employee who dies after having
separated from the service with title to a deferred
annuity under section 8413 but before having estab-
lished a valid claim for annuity (if such former
spouse was married to such former employee prior
to the date of separation))’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to surviving spouses
and former spouses (whose marriage, in the case of the
amendments made by subsection (a), terminated after
May 6, 1985) of former employees who die after the date
of the enactment of this Act.
SEC. 3003. PAYMENT OF LUMP-SUM CREDIT FOR FORMER
SPOUSES OF FEDERAL EMPLOYEES.
(a) IN GENERAL.—Title 5, United States Code, is
amended—