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(1) Section 1034(d) (relating to limitation on
rollover of gain on sale of principal residence), as
amended by sections 11321 and 11322, is amended by
striking paragraphs (1) and (2) and by redesignating
paragraphs (3) and (4) as paragraphs (1) and (2),
respectively.
(2) Paragraph (4) of section 1034(c) is amended
to read as follows:
‘‘(4) If the taxpayer, during the period described
in subsection (a), purchases more than 1 residence
which is used by him as his principal residence at
some time within 2 years after the date of the sale of
the old residence, only the first of such residences so
used by him after the date of such sale shall constitute
the new residence.’’
(3) Subsections (h)(1) and (k) of section 1034
are each amended by striking ‘‘(other than the 2 years
referred to in subsection (c)(4))’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to sales of old residences (within the
meaning of section 1034 of the Internal Revenue Code of
1986) after the date of the enactment of this Act.
SEC. 11402. SPECIAL RULES IN CASE OF DIVORCE.
(a) IN GENERAL.—Subsection (c) of section 1034 is
amended by adding at the end the following new paragraph:
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‘‘(5) If—
‘‘(A) a residence is sold by an individual
pursuant to a divorce or marital separation, and
‘‘(B) the taxpayer used such residence as his
principal residence at any time during the 2-
year period ending on the date of such sale,
for purposes of this section, such residence shall be
treated as the taxpayer’s principal residence at the
time of such sale.’’
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to sales of old residences (within the
meaning of section 1034 of the Internal Revenue Code of
1986) after the date of the enactment of this Act.
SEC. 11403. ONE-TIME EXCLUSION OF GAIN FROM SALE OF
PRINCIPAL 
RESIDENCE 
FOR 
CERTAIN
SPOUSES.
(a) IN GENERAL.—Paragraph (2) of section 121(b)
(relating to one-time exclusion of gain from sale of prin-
cipal residence by individual who has attained age 55) is
amended by adding at the end the following new sentence:
‘‘For purposes of applying the preceding sentence to indi-
viduals who are married to each other, an election by one
individual with respect to a sale or exchange occurring be-
fore the marriage shall be disregarded for purposes of per-
mitting an election with respect to property owned and used
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by the other individual as his principal residence through-
out the 3-year period ending on the date of the marriage.’’
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply for purposes of determining whether
an election may be made under section 121 of the Internal
Revenue Code of 1986 with respect to a sale or exchange
occurring after September 13, 1995.
Subchapter B—Other Provisions
SEC. 11411. TREATMENT OF CERTAIN REIMBURSED EX-
PENSES OF RURAL MAIL CARRIERS.
(a) IN GENERAL.—Section 162 (relating to trade or
business expenses) is amended by redesignating subsection
(o) as subsection (p) and by inserting after subsection (n)
the following new subsection:
‘‘(o) TREATMENT
OF CERTAIN REIMBURSED EX-
PENSES OF RURAL MAIL CARRIERS.—
‘‘(1) GENERAL RULE.—In the case of any em-
ployee of the United States Postal Service who per-
forms services involving the collection and delivery of
mail on a rural route and who receives qualified re-
imbursements for the expenses incurred by such em-
ployee for the use of a vehicle in performing such
services—
‘‘(A) the amount allowable as a deduction
under this chapter for the use of a vehicle in per-
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forming such services shall be equal to the
amount of such qualified reimbursements; and
‘‘(B) such qualified reimbursements shall be
treated as paid under a reimbursement or other
expense allowance arrangement for purposes of
section 62(a)(2)(A) (and section 62(c) shall not
apply to such qualified reimbursements).
‘‘(2) DEFINITION
OF
QUALIFIED
REIMBURSE-
MENTS.—For purposes of this subsection, the term
‘qualified reimbursements’ means the amounts paid
by the United States Postal Service to employees as
an equipment maintenance allowance under the 1991
collective bargaining agreement between the United
States Postal Service and the National Rural Letter
Carriers’ Association. Amounts paid as an equipment
maintenance allowance by such Postal Service under
later collective bargaining agreements that supersede
the 1991 agreement shall be considered qualified reim-
bursements if such amounts do not exceed the
amounts that would have been paid under the 1991
agreement, adjusted for changes in the Consumer
Price Index (as defined in section 1(f)(5)) since
1991.’’
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(b) TECHNICAL AMENDMENT.—Section 6008 of the
Technical and Miscellaneous Revenue Act of 1988 is hereby
repealed.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
SEC. 11412. TREATMENT OF TRAVELING EXPENSES OF CER-
TAIN FEDERAL EMPLOYEES ENGAGED IN
CRIMINAL INVESTIGATIONS.
(a) IN GENERAL.—Subsection (a) of section 162 is
amended by adding at the end the following new sentence:
‘‘The preceding sentence shall not apply to any Federal em-
ployee during any period for which such employee is cer-
tified by the Attorney General (or the designee thereof) as
traveling on behalf of the United States in temporary duty
status to investigate, or provide support services for the in-
vestigation of, a Federal crime.’’
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years ending after the date
of the enactment of this Act.
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CHAPTER 2—PENSION SIMPLIFICATION
Subchapter A—Simplified Distribution Rules
SEC. 11421. REPEAL OF 5-YEAR INCOME AVERAGING FOR
LUMP-SUM DISTRIBUTIONS.
(a) IN GENERAL.—Subsection (d) of section 402 (relat-
ing to taxability of beneficiary of employees’ trust) is
amended to read as follows:
‘‘(d) TAXABILITY OF BENEFICIARY OF CERTAIN FOR-
EIGN 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 orga-
nized 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) (relat-
ing 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 em-
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ployee which becomes payable to the recipi-
ent—
‘‘(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 ex-
empt from tax under section 501 or from a
plan described in section 403(a). Subclause
(III) of this clause shall be applied only
with respect to an individual who is an em-
ployee without regard to section 401(c)(1),
and subclause (IV) shall be applied 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 purposes of this para-
graph, the balance to the credit of the em-
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ployee does not include the accumulated de-
ductible employee contributions under the
plan (within the meaning of section
72(o)(5)).
‘‘(ii) 
AGGREGATION
OF
CERTAIN
TRUSTS AND PLANS.—For purposes of deter-
mining the balance to the credit of an em-
ployee 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 single
plan, all profit-sharing plans main-
tained by the employer shall be treated
as a single plan, and all stock bonus
plans maintained by the employer
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
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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 qualified
domestic relations order (within the mean-
ing of section 414(p)).
‘‘(vi) TRANSFERS
TO
COST-OF-LIVING
ARRANGEMENT NOT TREATED AS DISTRIBU-
TION.—For purposes of this paragraph, the
balance to the credit of an employee under
a defined contribution plan shall not in-
clude any amount transferred from such de-
fined contribution plan to a qualified cost-
of-living arrangement (within the meaning
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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 distribution.
For purposes of this clause, the balance to
the credit of the alternate payee shall not
include any amount payable to the em-
ployee.’’.
(2) Section 402(c) (relating to rules applicable to
rollovers from exempt trusts) is amended by striking
paragraph (10).
(3) Paragraph (1) of section 55(c) (defining reg-
ular tax) is amended by striking ‘‘shall not include
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-
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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 pur-
poses of this subparagraph, the term ‘lump-sum
distribution’ means any distribution of the bal-
ance to the credit of an employee immediately
before the distribution.’’.
(7) Section 406(c) (relating to termination of
status as deemed employee not to be treated as sepa-
ration 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 sepa-
ration 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).
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(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 al-
ternative 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 respect to
which the individual elects to have this para-
graph 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 para-
graph (5).
(c) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after December 31, 1998.
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(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 taxpayer
elects the benefits of section 1122 (h)(3) or (h)(5) of
the Tax Reform Act of 1986. For purposes of the pre-
ceding 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. 11422. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES’
DEATH BENEFITS.
(a) IN GENERAL.—Subsection (b) of section 101 is
hereby repealed.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (c) of section 101 is amended by
striking ‘‘subsection (a) or (b)’’ and inserting ‘‘sub-
section (a)’’.
(2) Sections 406(e) and 407(e) are each amended
by striking paragraph (2) and by redesignating para-
graph (3) as paragraph (2).
(3) Section 7701(a)(20) is amended by striking
‘‘, for the purposes of applying the provisions of sec-
tion 101(b) with respect to employees’ death benefits’’.
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(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
SEC. 11423. SIMPLIFIED METHOD FOR TAXING ANNUITY
DISTRIBUTIONS UNDER CERTAIN EMPLOYER
PLANS.
(a) GENERAL RULE.—Subsection (d) of section 72 (re-
lating to annuities; certain proceeds of endowment and life
insurance contracts) is amended to read as follows:
‘‘(d) SPECIAL RULES FOR QUALIFIED EMPLOYER RE-
TIREMENT PLANS.—
‘‘(1) SIMPLIFIED METHOD OF TAXING ANNUITY
PAYMENTS.—
‘‘(A) IN
GENERAL.—In the case of any
amount received as an annuity under a qualified
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 INVESTMENT
IN CONTRACT.—
‘‘(i) IN GENERAL.—Gross income shall
not include so much of any monthly annu-
ity payment under a qualified employer re-
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tirement 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 deter-
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mined under subsection (c)(1) without regard 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 taxpayer
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 deter-
mined as if such payment had been so re-
ceived.
‘‘(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
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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 CONTRIBUTIONS
UNDER
DEFINED
CONTRIBUTION
PLANS.—For pur-
poses of this section, employee contributions (and any
income allocable thereto) under a defined contribution
plan may be treated as a separate contract.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply in cases where the annuity starting date
is after December 31, 1995.
SEC. 11424. REQUIRED DISTRIBUTIONS.
(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 ‘required
beginning date’ means April 1 of the cal-
endar year following the later of—
‘‘(I) the calendar year in which
the employee attains age 701⁄2, or
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‘‘(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 sec-
tion 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 re-
ceiving any benefits under the plan.
‘‘(iv) EXCEPTION FOR GOVERNMENTAL
AND CHURCH PLANS.—Clauses (ii) and (iii)
shall not apply in the case of a govern-
mental plan or church plan. For purposes
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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-con-
trolled organization (as defined in section
3121(w)(3)(B)).’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to years beginning after December
31, 1995.
Subchapter B—Increased Access to Pension
Plans
SEC. 11431. 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) 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
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or instrumentality thereof. This clause shall
not apply to a rural cooperative plan.
‘‘(ii) TAX-EXEMPTS ELIGIBLE.—
‘‘(I) IN GENERAL.—Any organiza-
tion exempt from tax under this sub-
title may include a qualified cash or
deferred arrangement as part of a plan
maintained by it.
‘‘(II) 
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 govern-
ment (determined in accordance with
section 7871(d)), an agency or instru-
mentality of an Indian tribal govern-
ment or subdivision thereof, or a cor-
poration 
chartered 
under 
Federal,
State, or tribal law which is owned in
whole or in part by any of the fore-
going shall be treated as an organiza-
tion exempt from tax under this sub-
title for purposes of subclause (I).
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to plan years beginning after December
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31, 1996, but shall not apply to any cash or deferred ar-
rangement to which clause (i) of section 1116(f)(2)(B) of
the Tax Reform Act of 1986 applies.
Subchapter C—Nondiscrimination Provisions
SEC. 11441. DEFINITION OF HIGHLY COMPENSATED EM-
PLOYEES; REPEAL OF FAMILY AGGREGATION.
(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 and
was in the top-paid group of the employer.
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) REPEAL OF FAMILY AGGREGATION RULES.—
(1) IN
GENERAL.—Paragraph (6) of section
414(q) is hereby repealed.
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(2) COMPENSATION LIMIT.—Paragraph (17)(A)
of section 401(a) is amended by striking the last sen-
tence.
(3) DEDUCTION.—Subsection (l) of section 404 is
amended by striking the last sentence.
(c) CONFORMING AMENDMENTS.—
(1)(A) Subsection (q) of section 414 is amended
by striking paragraphs (2), (5), (8), and (12) and by
redesignating paragraphs (3), (4), (7), (9), (10), and
(11) as paragraphs (2) through (7), respectively.
(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 ‘‘section
414(q)(4)’’.
(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
this subsection, the following employees shall be ex-
cluded:
‘‘(A) Employees who have not completed 6
months of service.
‘‘(B) Employees who normally work less
than 171⁄2 hours per week.
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‘‘(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 regu-
lations, employees who are included in a unit of
employees covered by an agreement which the
Secretary of Labor finds to be a collective bar-
gaining agreement between employee representa-
tives and the employer.
Except as provided by the Secretary, the employer
may elect to apply subparagraph (A), (B), (C), or (D)
by substituting a shorter period of service, smaller
number of hours or months, or lower age for the pe-
riod of service, number of hours or months, or age (as
the case may be) specified in such subparagraph.’’.
(B) Subparagraph (A) of section 414(r)(2) is
amended by striking ‘‘subsection (q)(8)’’ and inserting
‘‘paragraph (9)’’.
(3) Section 1114(c)(4) of the Tax Reform Act of
1986 is amended by adding at the end the following
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
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enactment of the Revenue Reconciliation Act of
1995.’’.
(d) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to years beginning after De-
cember 31, 1995, except that in determining whether
an employee is a highly compensated employee for
years beginning in 1996, such amendments shall be
treated as having been in effect for years beginning in
1995.
(2) FAMILY
AGGREGATION.—The amendments
made by subsection (b) shall apply to years beginning
after December 31, 1995.
SEC. 11442. MODIFICATION OF ADDITIONAL PARTICIPATION
REQUIREMENTS.
(a) GENERAL RULE.—Section 401(a)(26)(A) (relating
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 trust benefits
at least the lesser of—
‘‘(i) 50 employees of the employer, or
‘‘(ii) the greater of—
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‘‘(I) 40 percent of all employees of the
employer, or
‘‘(II) 2 employees (or if there is only 1
employee, such employee).’’.
(b) SEPARATE LINE
OF BUSINESS TEST.—Section
401(a)(26)(G) (relating to separate line of business) is
amended by striking ‘‘paragraph (7)’’ and inserting ‘‘para-
graph (2)(A) or (7)’’.
(c) EFFECTIVE DATE.—The amendment made by this
section shall apply to years beginning after December 31,
1995.
SEC. 11443. NONDISCRIMINATION RULES FOR QUALIFIED
CASH OR DEFERRED ARRANGEMENTS AND
MATCHING CONTRIBUTIONS.
(a) ALTERNATIVE METHODS OF SATISFYING SECTION
401(k) NONDISCRIMINATION TESTS.—Section 401(k) (relat-
ing to cash or deferred arrangements), as amended by this
Act, is amended by adding at the end the following new
paragraph:
‘‘(12) ALTERNATIVE METHODS OF MEETING NON-
DISCRIMINATION 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—
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‘‘(i) meets the contribution require-
ments of subparagraph (B) or (C), and
‘‘(ii) meets the notice requirements of
subparagraph (D).
‘‘(B) MATCHING CONTRIBUTIONS.—
‘‘(i) IN
GENERAL.—The requirements
of this subparagraph are met if, under the
arrangement, the employer makes matching
contributions on behalf of each employee
who is not a highly compensated employee
in an amount equal to—
‘‘(I) 100 percent of the elective
contributions of the employee to the ex-
tent such elective contributions do not
exceed 3 percent of the employee’s com-
pensation, and
‘‘(II) 50 percent of the elective
contributions of the employee to the ex-
tent that such elective contributions ex-
ceed 3 percent but do not exceed 5 per-
cent of the employee’s compensation.
‘‘(ii) RATE FOR HIGHLY COMPENSATED
EMPLOYEES.—The requirements of this sub-
paragraph are not met if, under the ar-
rangement, the matching contribution with
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respect to any elective contribution of a
highly compensated employee at any level of
compensation is greater than that with re-
spect to an employee who is not a highly
compensated employee.
‘‘(iii) ALTERNATIVE PLAN DESIGNS.—
If the matching contribution with respect to
any elective contribution at any specific
level of compensation is not equal to the
percentage required under clause (i), an ar-
rangement shall not be treated as failing to
meet the requirements of clause (i) if—
‘‘(I) the level of an employer’s
matching contribution does not in-
crease as an employee’s elective con-
tributions increase, and
‘‘(II) the aggregate amount of
matching contributions with respect to
elective contributions not in excess of
such level of compensation is at least
equal to the amount of matching con-
tributions which would be made if
matching contributions were made on
the basis of the percentages described in
clause (i).
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‘‘(C) NONELECTIVE
CONTRIBUTIONS.—The
requirements of this subparagraph are met if,
under the arrangement, the employer is required,
without regard to whether the employee makes an
elective contribution or employee contribution, 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 com-
pensation.
‘‘(D) NOTICE REQUIREMENT.—An arrange-
ment meets the requirements of this paragraph
if, under the arrangement, each employee eligible
to participate is, within a reasonable period be-
fore any year, given written notice of the em-
ployee’s rights and obligations under the ar-
rangement which—
‘‘(i) is sufficiently accurate and com-
prehensive to appraise the employee of such
rights and obligations, and
‘‘(ii) is written in a manner calculated
to be understood by the average employee el-
igible to participate.
‘‘(E) OTHER REQUIREMENTS.—
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‘‘(i) WITHDRAWAL
AND
VESTING
RE-
STRICTIONS.—An arrangement shall not be
treated as meeting the requirements of sub-
paragraph (B) or (C) unless the require-
ments of subparagraphs (B) and (C) of
paragraph (2) are met with respect to all
employer contributions (including matching
contributions).
‘‘(ii) SOCIAL SECURITY AND SIMILAR
CONTRIBUTIONS
NOT
TAKEN
INTO
AC-
COUNT.—An arrangement shall not be treat-
ed as meeting the requirements of subpara-
graph (B) or (C) unless such requirements
are met without regard to subsection (l),
and, for purposes of subsection (l), employer
contributions under subparagraph (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 main-
tained by the employer meets such requirements
with respect to employees eligible under the ar-
rangement.’’.
(b) ALTERNATIVE METHODS OF SATISFYING SECTION
401(m) NONDISCRIMINATION TESTS.—Section 401(m) (re-
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lating to nondiscrimination test for matching contributions
and employee contributions), as amended by this Act, is
amended by redesignating paragraph (10) as paragraph
(11) and by adding after paragraph (9) the following new
paragraph:
‘‘(11) ALTERNATIVE
METHOD
OF
SATISFYING
TESTS.—
‘‘(A) IN GENERAL.—A defined contribution
plan shall be treated as meeting the requirements
of paragraph (2) with respect to matching con-
tributions if the plan—
‘‘(i) meets the contribution require-
ments of subparagraph (B) or (C) of sub-
section (k)(12),
‘‘(ii) meets the notice requirements of
subsection (k)(12)(D), and
‘‘(iii) meets the requirements of sub-
paragraph (B).
‘‘(B) LIMITATION ON MATCHING CONTRIBU-
TIONS.—The requirements of this subparagraph
are met if—
‘‘(i) matching contributions on behalf
of any employee may not be made with re-
spect to an employee’s contributions or elec-
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tive deferrals in excess of 6 percent of the
employee’s compensation,
‘‘(ii) the level of an employer’s match-
ing contribution does not increase as an
employee’s contributions or elective deferrals
increase, and
‘‘(iii) the matching contribution with
respect to any highly compensated employee
at a specific level of compensation is not
greater than that with respect to an em-
ployee who is not a highly compensated em-
ployee.’’.
(c) YEAR FOR COMPUTING NONHIGHLY COMPENSATED
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 ‘‘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, ex-
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cept that if such an election is made, it may not
be changed except as provided by the Secretary.’’.
(2) 
MATCHING
AND
EMPLOYEE
CONTRIBU-
TIONS.—Section 401(m)(2)(A) is amended—
(A) by inserting ‘‘for such plan year’’ after
‘‘highly compensated employee’’,
(B) by inserting ‘‘for the preceding plan
year’’ after ‘‘eligible employees’’ each place it ap-
pears in clause (i) and clause (ii), and
(C) by adding at the end the following flush
sentence: ‘‘This subparagraph may be applied 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 Secretary.’’.
(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 subparagraph:
‘‘(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 deferral
percentage of nonhighly compensated employees
for the preceding plan year shall be—
‘‘(i) 3 percent, or
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‘‘(ii) if the employer makes an election
under this subclause, the actual deferral
percentage of nonhighly compensated em-
ployees determined for such first plan
year.’’.
(2) Paragraph (3) of section 401(m) is amended
by adding at the end the following: ‘‘Rules similar to
the rules of subsection (k)(3)(E) shall apply for pur-
poses of this subsection.’’.
(e) DISTRIBUTION OF EXCESS CONTRIBUTIONS.—
(1) Subparagraph (C) of section 401(k)(8) (relat-
ing to arrangement not disqualified if excess contribu-
tions distributed) is amended by striking ‘‘on the
basis of the respective portions of the excess contribu-
tions attributable to each of such employees’’ and in-
serting ‘‘on the basis of the amount of contributions
by, or on behalf of, each of such employees’’.
(2) Subparagraph (C) of section 401(m)(6) (re-
lating to method of distributing excess aggregate con-
tributions) is amended by striking ‘‘on the basis of the
respective portions of such amounts attributable 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.—
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(1) IN
GENERAL.—The amendments made by
this section shall apply to years beginning after De-
cember 31, 1998.
(2) EXCESS CONTRIBUTIONS.—The amendments
made by subsection (e) shall apply to years beginning
after December 31, 1995.
SEC. 11444. DEFINITION OF COMPENSATION FOR SECTION
415 PURPOSES.
(a) GENERAL RULE.—Section 415(c)(3) (defining par-
ticipant’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)), and
‘‘(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 under section
125 or 457.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 414(q)(4), as redesignated by section
11441, is amended to read as follows:
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‘‘(7) COMPENSATION.—For purposes of this sub-
section, 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,
1997.
Subchapter D—Miscellaneous Provisions
SEC. 11451. 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-EMPLOYEES.—
A trust forming part of a pension or profit-sharing plan
which provides contributions or benefits for employees some
or all of whom are owner-employees shall constitute a quali-
fied trust under this section only if, in addition 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 established.’’.
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(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to years beginning after December 31,
1995.
SEC. 11452. 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, 1996, or
(B) the date on which the last of the collec-
tive bargaining agreements pursuant to which
the plan is maintained terminates (determined
without regard to any extension thereof after the
date of the enactment of this Act), or
(2) January 1, 1998.
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.
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SEC. 11453. DISTRIBUTIONS UNDER RURAL COOPERATIVE
PLANS.
(a) DISTRIBUTIONS FOR HARDSHIP OR AFTER A CER-
TAIN 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 by reason of a hardship distribution or a
distribution to a participant after attainment of
age 591⁄2. For purposes of this section, the term
‘hardship distribution’ means a distribution de-
scribed in paragraph (2)(B)(i)(IV) (without re-
gard to the limitation of its application to prof-
it-sharing or stock bonus plans).’’.
(b) PUBLIC UTILITY DISTRICTS.—Clause (i) of section
401(k)(7)(B) (defining rural cooperative) is amended to
read as follows:
‘‘(i) any organization which—
‘‘(I) is engaged primarily in pro-
viding electric service on a mutual or
cooperative basis, or
‘‘(II) is engaged primarily in pro-
viding electric service to the public in
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its area of service and which is exempt
from tax under this subtitle or which is
a State or local government (or an
agency or instrumentality thereof),
other than a municipality (or an agen-
cy or instrumentality thereof).’’
(c) EFFECTIVE DATES.—
(1) DISTRIBUTIONS.—The amendments made by
subsection (a) shall apply to distributions after the
date of the enactment of this Act.
(2) RURAL
COOPERATIVE.—The amendments
made by subsection (b) shall apply to plan years be-
ginning after December 31, 1994.
SEC. 11454. TREATMENT OF GOVERNMENTAL PLANS UNDER
SECTION 415.
(a) COMPENSATION LIMIT.—Subsection (b) of section
415 is amended by adding immediately after paragraph
(10) the following new paragraph:
‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN-
MENTAL PLANS.—In the case of a governmental plan
(as defined in section 414(d)), subparagraph (B) of
paragraph (1) shall not apply.’’
(b) TREATMENT
OF
CERTAIN
EXCESS
BENEFIT
PLANS.—
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(1) IN GENERAL.—Section 415 is amended by
adding at the end the following new subsection:
‘‘(m) TREATMENT OF QUALIFIED GOVERNMENTAL EX-
CESS BENEFIT ARRANGEMENTS.—
‘‘(1) GOVERNMENTAL PLAN NOT AFFECTED.—In
determining whether a governmental plan (as defined
in section 414(d)) meets the requirements of this sec-
tion, benefits provided under a qualified governmental
excess benefit arrangement shall not be taken into ac-
count. Income accruing to a governmental plan (or to
a trust that is maintained solely for the purpose of
providing benefits under a qualified governmental ex-
cess benefit arrangement) in respect of a qualified
governmental excess benefit arrangement shall con-
stitute income derived from the exercise of an essen-
tial governmental function upon which such govern-
mental plan (or trust) shall be exempt from tax under
section 115.
‘‘(2) TAXATION OF PARTICIPANT.—For purposes
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
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‘‘(B) the treatment of such amounts when so
includible by the participant,
shall be determined as if such qualified governmental
excess benefit arrangement were treated as a plan for
the deferral of compensation which is maintained by
a corporation not exempt from tax under this chapter
and which does not meet the requirements for quali-
fication under section 401.
‘‘(3) QUALIFIED GOVERNMENTAL EXCESS BENE-
FIT ARRANGEMENT.—For purposes of this subsection,
the term ‘qualified governmental excess benefit ar-
rangement’ 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 imposed
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 main-
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tained solely for the purpose of providing such
benefits.’’
(2) COORDINATION
WITH
SECTION
457.—Sub-
section (e) of section 457 is amended by adding at the
end the following new paragraph:
‘‘(15) TREATMENT
OF
QUALIFIED
GOVERN-
MENTAL
EXCESS
BENEFIT
ARRANGEMENTS.—Sub-
sections (b)(2) and (c)(1) shall not apply to any
qualified governmental excess benefit arrangement (as
defined in section 415(m)(3)), and benefits provided
under such an arrangement shall not be taken into
account in determining whether any other plan is an
eligible deferred compensation plan.’’
(3) CONFORMING AMENDMENT.—Paragraph (2)
of section 457(f) is amended by striking ‘‘and’’ at the
end of subparagraph (C), by striking the period at the
end of subparagraph (D) and inserting ‘‘, and’’, and
by inserting immediately thereafter the following new
subparagraph:
‘‘(E) a qualified governmental excess benefit
arrangement described in section 415(m).’’
(c) EXEMPTION FOR SURVIVOR AND DISABILITY BENE-
FITS.—Paragraph (2) of section 415(b) is amended by add-
ing at the end the following new subparagraph:
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‘‘(I) EXEMPTION FOR SURVIVOR AND DIS-
ABILITY
BENEFITS
PROVIDED
UNDER
GOVERN-
MENTAL
PLANS.—Subparagraph (B) of para-
graph (1), subparagraph (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))
as a pension, annuity, or similar allowance
as the result of the recipient becoming dis-
abled by reason of personal injuries or sick-
ness, or
‘‘(ii) amounts received from a govern-
mental plan by the beneficiaries, survivors,
or the estate of an employee as the result of
the death of the employee.’’
(d) REVOCATION OF GRANDFATHER ELECTION.—
(1) IN GENERAL.—Subparagraph (C) of section
415(b)(10) 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 enact-
ment of this clause. The revocation shall
apply to all plan years to which the election
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applied and to all subsequent plan years.
Any amount paid by a plan in a taxable
year ending after the revocation shall be in-
cludible in income in such taxable year
under the rules of this chapter in effect for
such taxable year, except that, for purposes
of applying the limitations imposed by this
section, any portion of such amount which
is attributable to any taxable 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, 1994. The amendments
made by subsection (d) shall apply with respect to
revocations adopted after the date of the enactment of
this Act.
(2) TREATMENT FOR YEARS BEGINNING BEFORE
DATE OF ENACTMENT.—Nothing in the amendments
made by this section shall be construed to infer that
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a governmental plan (as defined in section 414(d) of
the Internal Revenue Code of 1986) fails to satisfy the
requirements of section 415 of such Code for any tax-
able year beginning before the date of the enactment
of this Act.
SEC. 11455. UNIFORM RETIREMENT AGE.
(a) DISCRIMINATION TESTING.—Paragraph (5) of sec-
tion 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 discrimination 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 se-
curity retirement age (as so defined).’’
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(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to years beginning after December 31,
1995.
SEC. 11456. 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 deter-
minable 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,
1995.
SEC. 11457. 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 partici-
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pant 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 participant’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 subpara-
graph applies.
‘‘(B) ELECTION TO DEFER COMMENCEMENT
OF DISTRIBUTIONS.—The total amount payable
to a participant under the plan shall not be
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treated as made available merely because the
participant may elect to defer commencement 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 distributions,
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 amend-
ed by section 11454(b)(2) (relating to governmental plans),
is amended by adding at the end the following new para-
graph:
‘‘(16) COST-OF-LIVING ADJUSTMENT OF MAXIMUM
DEFERRAL AMOUNT.—The Secretary shall adjust 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.’’.
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(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
SEC. 11458. 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 el-
igible employer described in subsection (e)(1)(A) shall
not be treated as an eligible deferred compensation
plan unless all assets and income of the plan de-
scribed in subsection (b)(6) are held in trust for the
exclusive benefit of participants and their bene-
ficiaries.
‘‘(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 includ-
ible in the gross income of participants and
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beneficiaries only to the extent, and at the time,
provided in this section.
‘‘(3) CUSTODIAL ACCOUNTS 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 sec-
tion 457(b) is amended by inserting ‘‘except as provided
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 assets and income described in section
457(b)(6) of the Internal Revenue Code of 1986 held
by a plan on and after the date of the enactment of
this Act.
(2) TRANSITION RULE.—In the case of assets and
income described in paragraph (1) held by a plan be-
fore the first day of the first calendar quarter begin-
ning after the close of the first regular session of the
State legislature of the State in which the govern-
mental entity maintaining the plan is located begin-
ning after the date of the enactment of this Act, a
trust need not be established by reason of the amend-
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ments made by this section before such first 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 regu-
lar session of the State legislature.
SEC. 11459. TRANSITION RULE FOR COMPUTING MAXIMUM
BENEFITS UNDER SECTION 415 LIMITATIONS.
(a) IN
GENERAL.—Subparagraph (A) of section
767(d)(3) of the Uruguay Round Agreements Act is amend-
ed to read as follows:
‘‘(A) EXCEPTION.—A plan that was adopt-
ed and in effect before December 8, 1994, shall
not be required to apply the amendments made
by subsection (b) with respect to benefits accrued
before the earlier of—
‘‘(i) the later of the date a plan amend-
ment applying such amendment is adopted
or made effective, or
‘‘(ii) the first day of the first limita-
tion year beginning after December 31,
1999.
Determinations under section 415(b)(2)(E) of the
Internal Revenue Code of 1986 shall be made
with respect to such benefits on the basis of such
section as in effect on December 7, 1994 (except
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that the modification made by subsection (b)
shall be taken into account), and the provisions
of the plan as in effect on December 7, 1994, but
only if such provisions of the plan meet the re-
quirements of such section (as so in effect).’’
(b) MODIFICATION OF CERTAIN ASSUMPTIONS FOR AD-
JUSTING BENEFITS
OF DEFINED BENEFIT PLANS
FOR
EARLY RETIREES.—Subparagraph (E) of section 415(b)(2)
(relating to limitation on certain assumptions) is amend-
ed—
(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 subparagraph
(B) for any form of benefit subject to section
417(e)(3),’’.
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(c) 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.
(d) TRANSITIONAL RULE.—In the case of a plan that
was adopted and in effect before December 8, 1994, if—
(1) a plan amendment was adopted or made ef-
fective on or before the date of the enactment of this
Act applying the amendments made by section 767(b)
of the Uruguay Round Agreements Act, and
(2) within 1 year after the date of the enactment
of this Act, a plan amendment is adopted which re-
peals the amendment referred to in paragraph (1),
the amendment referred to in paragraph (1) shall not be
taken into account in applying section 767(d)(3)(A) of the
Uruguay Round Agreements Act, as amended by subsection
(a).
SEC. 11460. MODIFICATIONS OF SECTION 403(b).
(a) MULTIPLE
SALARY
REDUCTION
AGREEMENTS
PERMITTED.—
(1) GENERAL
RULE.—For purposes of section
403(b) of the Internal Revenue Code of 1986, the fre-
quency that an employee is permitted to enter into a
salary reduction agreement, the salary to which such
an agreement may apply, and the ability to revoke
such an agreement shall be determined under the rules
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applicable to cash or deferred elections under section
401(k) of such Code.
(2) EFFECTIVE
DATE.—This subsection shall
apply to taxable years beginning after December 31,
1995.
(b) TREATMENT OF INDIAN TRIBAL GOVERNMENTS.—
(1) IN GENERAL.—In the case of any contract
purchased in a plan year beginning before January
1, 1995, section 403(b) of the Internal Revenue Code
of 1986 shall be applied as if any reference to an em-
ployer described in section 501(c)(3) of the Internal
Revenue Code of 1986 which is exempt from tax
under section 501 of such Code included a reference
to an employer which is an Indian tribal government
(as defined by section 7701(a)(40) of such Code), a
subdivision of an Indian tribal government (deter-
mined in accordance with section 7871(d) of such
Code), an agency or instrumentality of an Indian
tribal government or subdivision thereof, or a cor-
poration chartered under Federal, State, or tribal law
which is owned in whole or in part by any of the
foregoing.
(2) ROLLOVERS.—Solely for purposes of apply-
ing section 403(b)(8) of such Code to a contract to
which paragraph (1) applies, a qualified cash or de-
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ferred arrangement under section 401(k) of such Code
shall be treated as if it were a plan or contract de-
scribed in clause (ii) of section 403(b)(8)(A) of such
Code.
(c) ELECTIVE DEFERRALS.—
(1) 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 contract
meets the requirements of section 401(a)(30),’’.
(2) EFFECTIVE DATE.—The amendment made by
this subsection shall apply to years beginning after
December 31, 1995.
SEC. 11461. WAIVER OF MINIMUM PERIOD FOR JOINT AND
SURVIVOR ANNUITY EXPLANATION BEFORE
ANNUITY STARTING DATE.
(a) GENERAL
RULE.—For purposes of section
417(a)(3)(A) of the Internal Revenue Code of 1986 (relating
to plan to provide written explanations), the minimum pe-
riod prescribed by the Secretary of the Treasury between
the date that the explanation referred to in such section is
provided and the annuity starting date shall not apply if
waived by the participant and, if applicable, the partici-
pant’s spouse.
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(b) EFFECTIVE DATE.—Subsection (a) shall apply to
plan years beginning after December 31, 1995.
SEC. 11462. REPEAL OF LIMITATION IN CASE OF DEFINED
BENEFIT PLAN AND DEFINED CONTRIBUTION
PLAN FOR SAME EMPLOYEE; EXCESS DIS-
TRIBUTIONS.
(a) IN GENERAL.—Section 415(e) is repealed.
(b) EXCESS
DISTRIBUTIONS.—Section 4980A is
amended by adding at the end the following new subsection:
‘‘(g) LIMITATION ON APPLICATION.—This section shall
not apply to distributions during years beginning after De-
cember 31, 1995, and before January 1, 1999, and such dis-
tributions shall be treated as made first from amounts not
described in subsection (f).’’
(c) CONFORMING AMENDMENTS.—
(1) Subparagraph (B) of section 415(b)(5) is
amended by striking ‘‘and subsection (e)’’.
(2) Paragraph (1) of section 415(f) is amended
by striking ‘‘subsections (b), (c), and (e)’’ and insert-
ing ‘‘subsections (b) and (c)’’.
(3) Subsection (g) of section 415 is amended by
striking ‘‘subsections (e) and (f)’’ in the last sentence
and inserting ‘‘subsection (f)’’.
(4) Clause (i) of section 415(k)(2)(A) is amended
to read as follows:
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‘‘(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’’.
(5) Clause (ii) of section 415(k)(2)(A) is amend-
ed by striking ‘‘subsections (c) and (e)’’ and inserting
‘‘subsection (c)’’.
(6) Section 416 is amended by striking sub-
section (h).
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to limitation years beginning after December
31, 1998.
(2) EXCESS
DISTRIBUTIONS.—The amendment
made by subsection (b) shall apply to years beginning
after December 31, 1995.
SEC. 11463. 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 occurring
after December 31, 1995.
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SEC. 11464. 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 pri-
mary direction or control by the recipient.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to years beginning after December
31, 1995, 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.
CHAPTER 3—TREATMENT OF LARGE
PARTNERSHIPS
SEC. 11471. SIMPLIFIED FLOW-THROUGH FOR ELECTING
LARGE PARTNERSHIPS.
(a) GENERAL RULE.—Subchapter K (relating to part-
ners and partnerships) is amended by adding at the end
the following new part:
‘‘PART IV—SPECIAL RULES FOR ELECTING LARGE
PARTNERSHIPS
‘‘Sec. 771. Application of subchapter to electing large partnerships.
‘‘Sec. 772. Simplified flow-through.
‘‘Sec. 773. Computations at partnership level.
‘‘Sec. 774. Other modifications.
‘‘Sec. 775. Electing large partnership defined.
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‘‘Sec. 776. Special rules for partnerships holding oil and gas prop-
erties.
‘‘Sec. 777. Regulations.
‘‘SEC. 771. APPLICATION OF SUBCHAPTER TO ELECTING
LARGE PARTNERSHIPS.
‘‘The preceding provisions of this subchapter to the ex-
tent inconsistent with the provisions of this part shall not
apply to an electing large partnership and its partners.
‘‘SEC. 772. SIMPLIFIED FLOW-THROUGH.
‘‘(a) GENERAL RULE.—In determining the income tax
of a partner of an electing large partnership, such partner
shall take into account separately such partner’s distribu-
tive share of the partnership’s—
‘‘(1) taxable income or loss from passive loss lim-
itation activities,
‘‘(2) taxable income or loss from other activities,
‘‘(3) net capital gain (or net capital loss)—
‘‘(A) to the extent allocable to passive loss
limitation activities, and
‘‘(B) to the extent allocable to other activi-
ties,
‘‘(4) tax-exempt interest,
‘‘(5) applicable net AMT adjustment separately
computed for—
‘‘(A) passive loss limitation activities, and
‘‘(B) other activities,
‘‘(6) general credits,
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‘‘(7) low-income housing credit determined under
section 42,
‘‘(8) rehabilitation credit determined under sec-
tion 47,
‘‘(9) foreign income taxes,
‘‘(10) the credit allowable under section 29, and
‘‘(11) other items to the extent that the Secretary
determines that the separate treatment of such items
is appropriate.
‘‘(b) SEPARATE COMPUTATIONS.—In determining the
amounts required under subsection (a) to be separately
taken into account by any partner, this section and section
773 shall be applied separately with respect to such partner
by taking into account such partner’s distributive share of
the items of income, gain, loss, deduction, or credit of the
partnership.
‘‘(c) TREATMENT AT PARTNER LEVEL.—
‘‘(1) IN GENERAL.—Except as provided in this
subsection, rules similar to the rules of section 702(b)
shall apply to any partner’s distributive share of the
amounts referred to in subsection (a).
‘‘(2) INCOME OR LOSS FROM PASSIVE LOSS LIMI-
TATION
ACTIVITIES.—For purposes of this chapter,
any partner’s distributive share of any income or loss
described in subsection (a)(1) shall be treated as an
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item of income or loss (as the case may be) from the
conduct of a trade or business which is a single pas-
sive activity (as defined in section 469). A similar
rule shall apply to a partner’s distributive share of
amounts referred to in paragraphs (3)(A) and (5)(A)
of subsection (a).
‘‘(3) INCOME
OR
LOSS
FROM
OTHER
ACTIVI-
TIES.—
‘‘(A) IN
GENERAL.—For purposes of this
chapter, any partner’s distributive share of any
income or loss described in subsection (a)(2)
shall be treated as an item of income or expense
(as the case may be) with respect to property
held for investment.
‘‘(B) DEDUCTIONS FOR LOSS NOT SUBJECT
TO
SECTION
67.—The deduction under section
212 for any loss described in subparagraph (A)
shall not be treated as a miscellaneous itemized
deduction for purposes of section 67.
‘‘(4) TREATMENT
OF
NET
CAPITAL
GAIN
OR
LOSS.—For purposes of this chapter, any partner’s
distributive share of any gain or loss described in
subsection (a)(3) shall be treated as a long-term cap-
ital gain or loss, as the case may be.
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‘‘(5) MINIMUM TAX TREATMENT.—In determin-
ing the alternative minimum taxable income of any
partner, such partner’s distributive share of any ap-
plicable net AMT adjustment shall be taken into ac-
count in lieu of making the separate adjustments pro-
vided in sections 56, 57, and 58 with respect to the
items of the partnership. Except as provided in regu-
lations, the applicable net AMT adjustment shall be
treated, for purposes of section 53, as an adjustment
or item of tax preference not specified in section
53(d)(1)(B)(ii).
‘‘(6) GENERAL CREDITS.—A partner’s distribu-
tive share of the amount referred to in paragraph (6)
of subsection (a) shall be taken into account as a cur-
rent year business credit.
‘‘(d) OPERATING RULES.—For purposes of this sec-
tion—
‘‘(1) PASSIVE LOSS LIMITATION ACTIVITY.—The
term ‘passive loss limitation activity’ means—
‘‘(A) any activity which involves the con-
duct of a trade or business, and
‘‘(B) any rental activity.
For purposes of the preceding sentence, the term
‘trade or business’ includes any activity treated as a
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trade or business under paragraph (5) or (6) of sec-
tion 469(c).
‘‘(2) TAX-EXEMPT INTEREST.—The term ‘tax-ex-
empt interest’ means interest excludable from gross
income under section 103.
‘‘(3) APPLICABLE NET AMT ADJUSTMENT.—
‘‘(A) IN
GENERAL.—The applicable net
AMT adjustment is—
‘‘(i) with respect to taxpayers other
than corporations, the net adjustment deter-
mined by using the adjustments applicable
to individuals, and
‘‘(ii) with respect to corporations, the
net adjustment determined by using the ad-
justments applicable to corporations.
‘‘(B) NET ADJUSTMENT.—The term ‘net ad-
justment’ means the net adjustment in the items
attributable to passive loss activities or other ac-
tivities (as the case may be) which would result
if such items were determined with the adjust-
ments of sections 56, 57, and 58.
‘‘(4) TREATMENT
OF
CERTAIN
SEPARATELY
STATED ITEMS.—
‘‘(A) 
EXCLUSION
FOR
CERTAIN
PUR-
POSES.—In determining the amounts referred to
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gross income of such United States shareholder (or any
other United States shareholder who acquires from any per-
son any portion of the interest of such United States share-
holder by reason of which such shareholder was treated as
owning such stock, but only to the extent of such portion,
and subject to such proof of identity of such interest as the
Secretary may prescribe by regulations).’’
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply for purposes of determin-
ing inclusions for taxable years of United States
shareholders beginning after December 31, 1995.
(c) DETERMINATION OF PREVIOUSLY TAXED INCOME
IN SECTION 304 DISTRIBUTIONS, ETC.—
(1) IN GENERAL.—Section 959 (relating to exclu-
sion from gross income of previously taxed earnings
and profits) is amended by adding at the end the fol-
lowing new subsection:
‘‘(g) ADJUSTMENTS FOR CERTAIN TRANSACTIONS.—If
by reason of—
‘‘(1) a transaction to which section 304 applies,
‘‘(2) the structure of a United States sharehold-
er’s holdings in controlled foreign corporations, or
‘‘(3) other circumstances,
there would be a multiple inclusion of any item in income
(or an inclusion or exclusion without an appropriate basis