‘‘(ii) the participant may make only 1
such election.’’.
(b) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DE-
FERRAL AMOUNT.—Subsection (e) of section 457 of such
Code, as amended by section 2(b)(2) (relating to govern-
mental plans), is amended by adding at the end the follow-
ing 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, 1995, 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
the date of the enactment of this Act.
SEC. 4. TRUST REQUIREMENT FOR DEFERRED COMPENSA-
TION PLANS OF STATE AND LOCAL GOVERN-
MENTS.
(a) IN GENERAL.—Section 457 of the Internal Reve-
nue Code of 1986 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 assets and income of the
plan described in 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 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
section 457(b) of such Code is amended by inserting ‘‘ex-
cept 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 such Code 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 before the first day of the first calendar quarter
beginning after the close of the first regular session
of the State legislature of the State in which the
governmental entity maintaining the plan is located
beginning after the date of the enactment of this
Act, a trust need not be established by reason of the
amendments 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 regular session of the State legislature.
Æ