‘‘(1) IN GENERAL.—If (for any part of any plan
year ending with or within a taxable year) an indi-
vidual is an active participant, each of the dollar
limitations contained in subsections (b)(1)(A) and
(c)(1)(A) for such taxable year shall be reduced (but
not below zero) by the sum of—
‘‘(A) the amount determined under para-
graph (2), and
‘‘(B) the amount contributed for the tax-
able year under a qualified payroll deduction ar-
rangement described in section 408(q)(1) (for
which an election has not been made under sec-
tion 408(q)(2)).’’.
(2) DEDUCTIBILITY OF EMPLOYER CONTRIBU-
TIONS.—Section 404 (relating to deductions for con-
tributions of an employer to pension, etc., plans) is
amended by adding at the end the following new
subsection:
‘‘(n) SPECIAL RULES FOR CONTRIBUTIONS UNDER
A QUALIFIED PAYROLL DEDUCTION ARRANGEMENT.—
Rules similar to the rules of subsection (m) shall apply
to employer contributions made under a qualified payroll
deduction arrangement described in section 408(q)(1) (for
which an election has not been made under section
408(q)(2)).’’.
(3) CONTRIBUTIONS
AND
DISTRIBUTIONS.—
Section 402 (relating to taxability of beneficiary of
employees’ trust) is amended by adding at the end
the following new subsection:
‘‘(l) TREATMENT
OF CONTRIBUTIONS
AND DIS-
TRIBUTIONS UNDER A QUALIFIED PAYROLL DEDUCTION
ARRANGEMENT.—Rules similar to the rules of paragraphs
(1) and (3) of subsection (h) shall apply to contributions
and distributions made with respect to an individual re-
tirement plan under a qualified payroll deduction arrange-
ment described in section 408(q)(1) (for which an election
has not been made under section 408(q)(2)), except that
contributions made by an employer on behalf of an em-
ployee for a taxable year shall be excluded from income
only to the extent such contributions would have been de-
ductible for such taxable year under section 219, if such
section applied, without regard to section 219(g)(1)(B).
Contributions that are not excluded from income under
the preceding sentence shall be treated as designated non-
deductible contributions under section 408(o).’’.
(c) EXEMPTION FROM WITHHOLDING.—Subsection
(a) of section 3401 (defining wages) is amended by strik-
ing ‘‘or’’ at the end of paragraph (20), by striking the
period at the end of paragraph (21) and inserting ‘‘; or’’,
and by inserting after paragraph (21) the following new
paragraph:
‘‘(22) for any payment made for the benefit of
the employee to an individual retirement plan if the
amount of such payment was deducted and withheld
under section 408(q).’’.
(d) EXCLUSION SHOWN ON W–2.—Subsection (a) of
section 6051 (relating to receipts for employees) is amend-
ed by striking ‘‘and’’ at the end of paragraph (10), by
striking the period at the end of paragraph (11) and in-
serting ‘‘, and’’, and by inserting after paragraph (11) the
following new paragraph:
‘‘(12) the total amount deducted and withheld
pursuant to section 408(q).’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to remuneration paid after Decem-
ber 31, 1998.
SEC. 103. NONREFUNDABLE TAX CREDIT FOR CONTRIBU-
TIONS TO INDIVIDUAL RETIREMENT PLANS.
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable personal
credits) is amended by inserting after section 25A the fol-
lowing new section:
‘‘SEC. 25B. RETIREMENT SAVINGS.
‘‘(a) ALLOWANCE OF CREDIT.—There shall be al-
lowed as a credit against the tax imposed by this chapter
so much of the qualified retirement contributions of the
taxpayer for the taxable year as does not exceed the appli-
cable amount of the adjusted gross income of the taxpayer
for such year.
‘‘(b) APPLICABLE AMOUNT.—For purposes of sub-
section (a), the applicable amount is determined in accord-
ance with the following table:
‘‘If adjusted gross income is:
The applicable amount is:
Not over $15,000 ..........................
$450.
Over 
$15,000 
but 
not 
over
$20,000.
$400.
Over 
$20,000 
but 
not 
over
$25,000.
$350.
Over 
$25,000 
but 
not 
over
$30,000.
$300.
Over $30,000 .................................
$0.
‘‘(c) SECTION NOT TO APPLY TO CERTAIN CON-
TRIBUTIONS.—This section shall not apply with respect
to—
‘‘(1) an employer contribution to a simplified
employee pension,
‘‘(2) any amount contributed to a simple retire-
ment account established under section 408(p),
‘‘(3) any amount contributed to a Roth IRA,
and
‘‘(4) any designated nondeductible contribution
(as defined in section 408(o)(2)(C)).
‘‘(d) OTHER LIMITATIONS AND RESTRICTIONS.—
‘‘(1) BENEFICIARY
MUST
BE
UNDER
AGE
701⁄2.—No credit shall be allowed under this section
with respect to any qualified retirement contribution
for the benefit of an individual if such individual has
attained age 701⁄2 before the close of such individ-
ual’s taxable year for which the contribution was
made.
‘‘(2) RECONTRIBUTED
AMOUNTS.—No credit
shall be allowed under this section with respect to a
rollover contribution described in section 402(c),
403(a)(4), 403(b)(8), or 408(d)(3).
‘‘(3) AMOUNTS CONTRIBUTED UNDER ENDOW-
MENT
CONTRACT.—In the case of an endowment
contract described in section 408(b), no credit shall
be allowed under this section for that portion of the
amounts paid under the contract for the taxable
year which is properly allocable, under regulations
prescribed by the Secretary, to the cost of life insur-
ance.
‘‘(4) DENIAL
OF
CREDIT
FOR
AMOUNT
CON-
TRIBUTED
TO
INHERITED
ANNUITIES
OR
AC-
COUNTS.—No credit shall be allowed under this sec-
tion with respect to any amount paid to an inherited
individual retirement account or individual retire-
ment annuity (within the meaning of section
408(d)(3)(C)(ii)).
‘‘(5) NO DOUBLE BENEFIT.—No credit shall be
allowed under this section for any taxable year with
respect to the amount of any qualified retirement
contribution for the benefit of an individual if such
individual takes a deduction with respect to such
amount under section 219 for such taxable year.
‘‘(e) QUALIFIED RETIREMENT CONTRIBUTION.—For
purposes of this section, the term ‘qualified retirement
contribution’ means—
‘‘(1) any amount paid in cash for the taxable
year by or on behalf of an individual to an individual
retirement plan for such individual’s benefit, and
‘‘(2) any amount contributed on behalf of any
individual to a plan described in section 501(c)(18).
‘‘(f) OTHER DEFINITIONS AND SPECIAL RULES.—
‘‘(1) COMPENSATION.—For purposes of this
section, the term ‘compensation’ has the meaning
given in section 219(f)(1).
‘‘(2) MARRIED COUPLES MUST FILE JOINT RE-
TURN.—If the taxpayer is married at the close of
the taxable year, the credit shall be allowed under
subsection (a) only if the taxpayer and the tax-
payer’s spouse file a joint return for the taxable
year.
‘‘(3) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—For purposes of this section, a taxpayer
shall be deemed to have made a contribution to an
individual retirement plan on the last day of the pre-
ceding taxable year if the contribution is made on
account of such taxable year and is made not later
than the time prescribed by law for filing the return
for such taxable year (not including extensions
thereof).
‘‘(4) EMPLOYER PAYMENTS.—For purposes of
this title, any amount paid by an employer to an in-
dividual retirement plan shall be treated as payment
of compensation to the employee (other than a self-
employed individual who is an employee within the
meaning of section 401(c)(1)) includible in his gross
income in the taxable year for which the amount was
contributed, whether or not a credit for such pay-
ment is allowable under this section to the em-
ployee.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 86(f) is amended by redesignating
paragraphs (2), (3), and (4) as paragraphs (3), (4),
and (5), respectively, and by inserting after para-
graph (1) the following new paragraph:
‘‘(2) section 25B(f)(1) (defining compensa-
tion),’’.
(2) Clause (i) of section 501(c)(18)(D) is
amended by inserting ‘‘which may be taken into ac-
count in computing the credit allowable under sec-
tion 25B or’’ before ‘‘with respect’’.
(3) Section 6047(c) is amended by inserting
‘‘section 25B or’’ before ‘‘section 219’’.
(4) Section 6652(g) is amended by inserting
‘‘CREDITABLE’’ before ‘‘DEDUCTIBLE’’ in the head-
ing thereof.
(5) The table of sections for subpart A of part
IV of subchapter A of chapter 1 is amended by in-
serting after the item relating to section 25A the fol-
lowing new item:
‘‘Sec. 25B. Retirement savings.’’
(c) EFFECTIVE DATE.—The amendments made by
this section apply to taxable years beginning after Decem-
ber 31, 1998.
SEC. 104. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE
USED WITHOUT PENALTY DURING PERIODS
OF UNEMPLOYMENT.
(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:
‘‘(G) ADDITIONAL DISTRIBUTIONS TO UN-
EMPLOYED INDIVIDUALS.—
‘‘(i) IN GENERAL.—Distributions from
an individual retirement plan, or from
amounts attributable to employer contribu-
tions made pursuant to elective deferrals
described in subparagraph (A) or (C) of
section 
402(g)(3) 
or 
section
501(c)(18)(D)(iii), to an individual after
separation from employment if—
‘‘(I) such individual has received
unemployment compensation for 12
consecutive weeks under any Federal
or State unemployment compensation
law by reason of such separation, and
‘‘(II) such distributions are made
during the 1-year period beginning on
the date of such separation.
‘‘(ii) DISTRIBUTIONS
AFTER
REEM-
PLOYMENT.—Clause (i) shall not apply to
any distribution made after the individual
has been employed for at least 60 days
after the separation from employment to
which clause (i) applies.
‘‘(iii) COORDINATION WITH SUBPARA-
GRAPH
(D).—Distributions during the 1-
year period described in clause (i)(II) shall
not be taken into account in applying the
limitation 
under 
subparagraph
(D)(i)(III).’’
(b) CONFORMING AMENDMENTS.—
(1) Section 401(k)(2)(B)(i) is amended by
striking ‘‘or’’ at the end of subclause (III), by strik-
ing ‘‘and’’ at the end of subclause (IV) and inserting
‘‘or’’, and by inserting after subclause (IV) the fol-
lowing new subclause:
‘‘(V) the date on which a period
referred to in section 72(t)(2)(G) be-
gins, and’’.
(2) Section 403(b)(11) is amended by striking
‘‘or’’ at the end of subparagraph (A), by striking the
period at the end of subparagraph (B) and inserting
‘‘, or’’, and by inserting after subparagraph (B) the
following new subparagraph:
‘‘(C) for distributions to which section
72(t)(2)(G) applies.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions after the date of
the enactment of this Act.
Subtitle B—Secure Money Annuity
or Retirement (SMART) Trusts
SEC. 111. SECURE MONEY ANNUITY OR RETIREMENT
(SMART) TRUSTS.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 is amended by inserting after section 408A
the following new section:
‘‘SEC. 408B. SMART PLANS.
‘‘(a) EMPLOYER ELIGIBILITY.—
‘‘(1) IN GENERAL.—An employer may establish
and maintain a SMART annuity or a SMART trust
for any year only if—
‘‘(A) the employer is an eligible employer
(as defined in section 408(p)(2)(C)), and
‘‘(B) the employer does not maintain (and
no predecessor of the employer maintains) a
qualified plan (other than a permissible plan)
with respect to which contributions were made,
or benefits were accrued, for service in any year
in the period beginning with the year such an-
nuity or trust became effective and ending with
the year for which the determination is being
made.
The period described in subparagraph (B) shall in-
clude the period of 5 years before the year such
trust or annuity became effective with respect to
qualified plans which are defined benefit plans or
money purchase pension plans.
‘‘(2) DEFINITIONS.—For purposes of paragraph
(1)—
‘‘(A) QUALIFIED PLAN.—The term ‘quali-
fied plan’ has the meaning given such term by
section 408(p)(2)(D)(ii).
‘‘(B) PERMISSIBLE PLAN.—The term ‘per-
missible plan’ means—
‘‘(i) a SIMPLE plan described in sec-
tion 408(p),
‘‘(ii) a SIMPLE 401(k) plan de-
scribed in section 401(k)(11),
‘‘(iii) an eligible deferred compensa-
tion plan described in section 457(b),
‘‘(iv) a collectively bargained plan but
only if the employees eligible to participate
in such plan are not also entitled to a ben-
efit described in subsection (b)(5) or
(c)(5), or
‘‘(v) a plan under which there may be
made only—
‘‘(I) elective deferrals described
in section 402(g)(3), and
‘‘(II) employer matching con-
tributions 
not 
in 
excess 
of 
the
amounts described in subclauses (I)
and (II) of section 401(k)(12)(B)(i).
‘‘(b) SMART ANNUITY.—
‘‘(1) IN GENERAL.—For purposes of this title,
the term ‘SMART annuity’ means an individual re-
tirement annuity (as defined in section 408(b) with-
out regard to paragraph (2) thereof and without re-
gard to the limitation on aggregate annual pre-
miums contained in the flush language of section
408(b)) if—
‘‘(A) such annuity meets the requirements
of paragraphs (2) through (8), and
‘‘(B) the only contributions to such annu-
ity are employer contributions.
Nothing in this section shall be construed as pre-
venting an employer from using a group annuity
contract which is divisible into individual retirement
annuities for purposes of providing SMART annu-
ities.
‘‘(2) PARTICIPATION REQUIREMENTS.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met for any year only if all
employees of the employer who—
‘‘(i) received at least $5,000 in com-
pensation from the employer during any 2
consecutive preceding years, and
‘‘(ii) received at least $5,000 in com-
pensation during the year,
are entitled to the benefit described in para-
graph (5) for such year.
‘‘(B) EXCLUDABLE EMPLOYEES.—An em-
ployer may elect to exclude from the require-
ments under subparagraph (A) employees de-
scribed in subparagraph (A) or (C) of section
410(b)(3).
‘‘(3) VESTING.—The requirements of this para-
graph are met if the employee’s rights to any bene-
fits under the annuity are nonforfeitable.
‘‘(4) BENEFIT
FORM.—The requirements of
this paragraph are met if the only form of benefit
is—
‘‘(A) a benefit payable annually in the
form of a single life annuity with monthly pay-
ments (with no ancillary benefits) beginning at
age 65, or
‘‘(B) any other form of benefit which is the
actuarial equivalent (based on the assumptions
specified in the SMART annuity) of the benefit
described in subparagraph (A).
‘‘(5) AMOUNT
OF
ANNUAL
ACCRUED
BENE-
FIT.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met for any plan year if the
accrued benefit of each participant derived from
employer contributions for such year, when ex-
pressed as a benefit described in paragraph
(4)(A), equals the applicable percentage of the
participant’s compensation for such year.
‘‘(B) 
APPLICABLE
PERCENTAGE.—For
purposes of this paragraph—
‘‘(i) IN GENERAL.—The term ‘applica-
ble percentage’ means 2 percent.
‘‘(ii) ELECTION OF DIFFERENT PER-
CENTAGE.—An employer may elect to
apply an applicable percentage of 1 percent
for any year for all employees eligible to
participate in the plan for such year, if the
employer notifies the employees of such
percentage within a reasonable period be-
fore the beginning of such year. An em-
ployer may also elect to apply an applicable
percentage of 3 percent for any of the first
5 years that the plan is effective for all
employees eligible to participate in the plan
for such year, if the employer so notifies
the employees.
‘‘(C) COMPENSATION LIMIT.—
‘‘(i) IN GENERAL.—The compensation
taken into account under this paragraph
for any year shall not exceed $100,000.
‘‘(ii) COST-OF-LIVING ADJUSTMENT.—
The Secretary shall adjust annually the
$100,000 amount in clause (i) for in-
creases in the cost-of-living at the same
time and in the same manner as adjust-
ments under section 415(d); except that
the base period shall be the calendar quar-
ter beginning October 1, 1998, and any in-
crease which is not a multiple of $5,000
shall be rounded to the next lowest mul-
tiple of $5,000.
‘‘(6) FUNDING.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met only if the employer is
required to contribute to the annuity for each
plan year the amount necessary to purchase a
SMART annuity in the amount of the benefit
accrued for such year for each participant enti-
tled to such benefit. Such contribution must be
made no later than 81⁄2 months after the end
of the plan year.
‘‘(B) PENALTY FOR FAILURE TO MAKE RE-
QUIRED CONTRIBUTION.—The taxes imposed by
section 4971 shall apply to a failure to make
the contribution required by this paragraph in
the same manner as if the amount of the failure
were an accumulated funding deficiency to
which such section applies.
‘‘(7) LIMITATION ON DISTRIBUTIONS.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met only if distributions
may be paid only when the employee attains
age 65, separates from service, dies, or becomes
disabled 
(within 
the 
meaning 
of 
section
72(m)(7)).
‘‘(B) LIMITATION ON DISTRIBUTIONS ON
SEPARATION
FROM
SERVICE
OF
EMPLOYEES
WHO HAVE NOT ATTAINED AGE 65.—Subpara-
graph (A) shall apply to a distribution on sepa-
ration of service of an employee who has not at-
tained age 65 only if—
‘‘(i) the aggregate cash value of an
employee’s SMART annuities does not ex-
ceed the dollar limit in effect under section
411(a)(11)(A), or
‘‘(ii) the distribution is a direct trust-
ee-to-trustee transfer of the entire balance
to the credit of the employee to a SMART
trust 
described 
in 
subsection 
(c), 
a
SMART rollover plan, or a SMART annu-
ity for the benefit of such employee.
‘‘(8) JOINT AND SURVIVOR ANNUITY RULES AP-
PLICABLE.—The requirements of this paragraph are
met only if the annuity satisfies section 401(a)(11).
‘‘(9) DEFINITIONS AND SPECIAL RULE.—
‘‘(A) DEFINITIONS.—The definitions in
section 408(p)(6) shall apply for purposes of
this subsection.
‘‘(B) USE OF DESIGNATED FINANCIAL IN-
STITUTIONS.—A rule similar to the rule of sec-
tion 408(p)(7) (without regard to the last sen-
tence thereof) shall apply for purposes of this
subsection.
‘‘(C) SMART ROLLOVER PLAN.—For pur-
poses of this section, the term ‘SMART rollover
plan’ means an individual retirement plan for
the benefit of the employee to which a rollover
was made from a SMART Annuity, SMART
trust, or another SMART Rollover plan.
‘‘(c) SMART TRUST.—
‘‘(1) IN GENERAL.—For purposes of this title,
the term ‘SMART trust’ means a trust forming part
of a defined benefit plan if—
‘‘(A) such trust meets the requirements of
section 401(a) as modified by subsection (d),
‘‘(B) such plan meets the requirements of
paragraphs (2) through (8), and
‘‘(C) the only contributions to such trust
are employer contributions.
‘‘(2) PARTICIPATION REQUIREMENTS.—A plan
meets the requirements of this paragraph for any
year only if the requirements of subsection (b)(2)
are met for such year.
‘‘(3) VESTING.—A plan meets the requirements
of this paragraph for any year only if the require-
ments of subsection (b)(3) are met for such year.
‘‘(4) BENEFIT FORM.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), a plan meets the require-
ments of this paragraph only if the trustee dis-
tributes a SMART annuity that satisfies sub-
section (b)(4) where the annual benefit de-
scribed in subsection (b)(4)(A) is no less than
the accrued benefit determined under para-
graph (5).
‘‘(B) DIRECT TRANSFERS TO INDIVIDUAL
RETIREMENT
PLAN
OR
SMART
ANNUITY.—A
plan shall not fail to meet the requirements of
this paragraph by reason of permitting, as an
optional form of benefit, the distribution of the
entire balance to the credit of the employee. If
the employee is under age 65, such distribution
must be in the form of a direct trustee-to-trust-
ee transfer to a SMART annuity, another
SMART trust, or a SMART rollover plan (or,
in the case of a distribution that does not ex-
ceed the dollar limit in effect under section
411(a)(11)(A), any other individual retirement
plan).
‘‘(5) AMOUNT
OF
ANNUAL
ACCRUED
BENE-
FIT.—A plan meets the requirements of this para-
graph for any year only if the requirements of sub-
section (b)(5) are met for such year.
‘‘(6) FUNDING.—
‘‘(A) IN GENERAL.—A plan meets the re-
quirements of this paragraph for any year only
if—
‘‘(i) the requirements of subparagraph
(A) of subsection (b)(6) are met for such
year,
‘‘(ii) in the case of a plan which has
an unfunded annuity amount with respect
to the account of any participant, the plan
requires that the employer make an addi-
tional contribution to such plan (at the
time the annuity contract to which such
amount relates is purchased) equal to the
unfunded annuity amount, and
‘‘(iii) in the case of a plan which has
an unfunded prior year liability as of the
close of such plan year, the plan requires
that the employer make an additional con-
tribution to such plan for such year equal
to the amount of such unfunded prior year
liability no later than 81⁄2 months following
the end of the plan year.
‘‘(B) UNFUNDED ANNUITY AMOUNT.—For
purposes of this paragraph, the term ‘unfunded
annuity amount’ means, with respect to the ac-
count of any participant for whom an annuity
is being purchased, the excess (if any) of—
‘‘(i) the amount necessary to purchase
an annuity contract which meets the re-
quirements of subsection (b)(4) in the
amount of the participant’s accrued benefit
determined under paragraph (5), over
‘‘(ii) the balance in such account at
the time such contract is purchased.
‘‘(C) UNFUNDED
PRIOR
YEAR
LIABIL-
ITY.—For purposes of this paragraph, the term
‘unfunded prior year liability’ means, with re-
spect to any plan year, the excess (if any) of—
‘‘(i) the aggregate of the present value
under the plan as of the close of the prior
plan year, over
‘‘(ii) the value of the plan’s assets de-
termined under section 412(c)(2) as of the
close of the plan year (determined without
regard to any contributions for such plan
year).
Such present value shall be determined using
the assumptions specified in subparagraph (D).
‘‘(D) ACTUARIAL ASSUMPTIONS.—In deter-
mining the amount required to be contributed
under subparagraph (A)—
‘‘(i) the assumed interest rate shall be
5 percent per year,
‘‘(ii) the assumed mortality shall be
determined under the applicable mortality
table (as defined in section 417(e)(3), as
modified by the Secretary so that it does
not include any assumption for preretire-
ment mortality), and
‘‘(iii) the assumed retirement age
shall be 65.
‘‘(E) CHANGES IN MORTALITY TABLE.—If
the applicable mortality table under section
417(e)(3) for any plan year is not the same as
such table for the prior plan year, the Secretary
shall prescribe regulations which phase in the
effect of the changes over a reasonable period
of plan years determined by the Secretary.
‘‘(F) PENALTY FOR FAILURE TO MAKE RE-
QUIRED CONTRIBUTION.—The taxes imposed by
section 4971 shall apply to a failure to make
the contribution required by this paragraph in
the same manner as if the amount of the failure
were an accumulated funding deficiency to
which such section applies.
‘‘(7) 
SEPARATE
ACCOUNTS
FOR
PARTICI-
PANTS.—A plan meets the requirements of this
paragraph for any year only if the plan provides—
‘‘(A) for an individual account for each
participant, and
‘‘(B) for benefits based solely on—
‘‘(i) the amount contributed to the
participant’s account,
‘‘(ii) any income, expenses, gains and
losses, and any forfeitures of accounts of
other participants which may be allocated
to such participant’s account, and
‘‘(iii) the amount of any unfunded an-
nuity amount with respect to the partici-
pant.
‘‘(8) TRUST MAY NOT HOLD SECURITIES WHICH
ARE NOT READILY TRADABLE.—A plan meets the
requirements of this paragraph only if the plan pro-
hibits the trust from holding directly or indirectly se-
curities which are not readily tradable on an estab-
lished securities market. Nothing in this paragraph
shall prohibit the trust from holding insurance com-
pany products regulated by State law.
‘‘(9) DEFINITIONS.—The definitions applicable
under subsection (b)(8) shall apply for purposes of
this subsection.
‘‘(d) SPECIAL RULES FOR SMART ANNUITIES AND
TRUSTS.—For purposes of section 401(a), a SMART an-
nuity and a SMART trust shall be treated as meeting the
requirements of the following provisions:
‘‘(1) Section 401(a)(4) (relating to non-
discrimination rules).
‘‘(2) Section 401(a)(26) (relating to minimum
participation).
‘‘(3) Section 410 (relating to minimum partici-
pation and coverage requirements).
‘‘(4) Section 411(b) (relating to accrued benefit
requirements).
‘‘(5) Section 416 (relating to special rules for
top-heavy plans).’’
(b) DEDUCTION RULES.—
(1) IN GENERAL.—Section 404 is amended by
adding at the end the following new subsection:
‘‘(n) SPECIAL RULES FOR SMART ANNUITIES AND
TRUSTS.—
‘‘(1) IN GENERAL.—Employer contributions to
a SMART annuity shall be treated as if they are
made to a plan described in paragraph (1) of sub-
section (a).
‘‘(2) DEDUCTIBLE LIMIT.—For purposes of sec-
tion 404(a)(1)(A)(i), the amount necessary to satisfy
the minimum funding requirement of section
408B(b)(6) or (c)(6) shall be treated as the amount
necessary to satisfy the minimum funding require-
ment of section 412.’’
(2) COORDINATION
WITH
DEDUCTION
UNDER
SECTION 219.—
(A) Section 219(b) is amended by adding
at the end the following new paragraph:
‘‘(5) SPECIAL RULE FOR SMART ANNUITIES.—
This section shall not apply with respect to any
amount contributed to a SMART annuity estab-
lished under section 408B(b).’’
(B) Section 219(g)(5)(A) (defining active
participant) is amended by striking ‘‘or’’ at the
end of clause (v) and by adding at the end the
following new clause:
‘‘(vii) any SMART annuity (within
the meaning of section 408B), or’’.
(c) CONTRIBUTIONS AND DISTRIBUTIONS.—
(1) Section 402 is amended by adding at the
end the following new subsection:
‘‘(l) TREATMENT
OF SMART ANNUITIES.—Rules
similar to the rules of paragraphs (1) and (3) of sub-
section (h) shall apply to contributions and distributions
with respect to SMART annuities under section 408B.’’
(2) Section 408(d)(3) is amended by adding at
the end the following new subparagraph:
‘‘(H) SMART 
ANNUITIES.—This para-
graph shall not apply to any amount paid or
distributed out of a SMART annuity (as de-
fined in section 408B) unless it is paid in a
trustee-to-trustee transfer into a SMART roll-
over plan.’’
(3)(A) Section 412(h) is amended by striking
‘‘or’’ at the end of paragraph (5), by striking the pe-
riod at the end of paragraph (6) and inserting ‘‘,
or’’, and by inserting after paragraph (6) the follow-
ing new paragraph:
‘‘(7) any plan providing for the purchase of any
SMART annuity or any SMART plan.’’
(B) Section 301(a) of Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1081) is
amended by striking ‘‘or’’ at the end of paragraph
(9), by striking the period at the end of paragraph
(10) and inserting ‘‘; or’’, and by adding at the end
the following new paragraph:
‘‘(11) any plan providing for the purchase of
any SMART annuity or any SMART plan (as such
terms are defined in section 408B of such Code).’’
(4) Section 415(b) is amended by adding at the
end the following new paragraph:
‘‘(12) TREATMENT OF SMART ANNUITIES AND
TRUSTS.—A SMART annuity and a SMART trust
shall be treated as meeting the requirements of this
section, but distributions from such an annuity or
trust shall be taken into account in determining
whether any other plan satisfies the requirements of
this section.’’
(d) INCREASED PENALTY
ON EARLY WITHDRAW-
ALS.—Section 72(t) (relating to additional tax on early
distributions) is amended by adding at the end the follow-
ing new paragraph:
‘‘(9) SPECIAL
RULES
FOR
SMART
ANNUITIES
AND TRUSTS.—In the case of any amount received
from a SMART annuity, a SMART trust, or a
SMART rollover plan (within the meaning of section
408B), paragraph (1) shall be applied by substitut-
ing ‘20 percent’ for ‘10 percent’ and paragraph (2)
shall be applied by substituting ‘age 65’ for ‘age
591⁄2’.’’
(e) SIMPLIFIED EMPLOYER REPORTS.—
(1) SMART ANNUITIES.—Section 408(l) (relat-
ing to simplified employer reports) is amended by
adding at the end the following new paragraph:
‘‘(3) SMART ANNUITIES.—
‘‘(A) SIMPLIFIED REPORT.—The employer
maintaining any SMART annuity (within the
meaning of section 408B) shall file a simplified
annual return with the Secretary containing
only the information described in subparagraph
(B).
‘‘(B) CONTENTS.—The return required by
subparagraph (A) shall set forth—
‘‘(i) the name and address of the em-
ployer,
‘‘(ii) the date the plan was adopted,
‘‘(iii) the number of employees of the
employer,
‘‘(iv) the number of such employees
who are eligible to participate in the plan,
‘‘(v) the total amount contributed by
the employer to each such annuity for such
year and the minimum amount required
under section 408B to be so contributed,
‘‘(vi) the percentage elected under sec-
tion 408B(b)(5)(B),
‘‘(vii) the name of the issuer,
‘‘(viii) 
the 
employer 
identification
number,
‘‘(ix) the name of the plan, and
‘‘(x) the date of the contribution.
‘‘(C) REPORTING BY ISSUER OF SMART AN-
NUITY.—
‘‘(i) IN GENERAL.—The issuer of each
SMART annuity shall provide to the owner
of the annuity for each year a statement
setting forth as of the close of such year—
‘‘(I) the benefits guaranteed at
age 65 under the annuity, and
‘‘(II) the cash surrender value of
the annuity.
‘‘(ii) SUMMARY
DESCRIPTION.—The
issuer of any SMART annuity shall pro-
vide to the employer maintaining the annu-
ity for each year a description containing
the following information:
‘‘(I) The name and address of
the employer and the issuer.
‘‘(II) The requirements for eligi-
bility for participation.
‘‘(III) The benefits provided with
respect to the annuity.
‘‘(IV) The procedures for, and ef-
fects of, withdrawals (including roll-
overs) from the annuity.
‘‘(D) TIME
AND
MANNER
OF
REPORT-
ING.—Any return, report, or statement required
under this paragraph shall be made in such
form and at such time as the Secretary shall
prescribe.’’
(2) SMART TRUSTS.—Section 6059 (relating
to actuarial reports) is amended by redesignating
subsections (c) and (d) as subsections (d) and (e),
respectively, and by inserting after subsection (b)
the following new subsection:
‘‘(c) SMART TRUSTS.—In the case of a SMART
trust (within the meaning of section 408B), the Secretary
shall require a simplified actuarial report which con-
tains—
‘‘(1) information similar to the information re-
quired in section 408(l)(3)(B),
‘‘(2) the fair market value of the assets of the
trust,
‘‘(3) the amounts distributed directly to partici-
pants,
‘‘(4) the amounts transferred to SMART roll-
over plans, and
‘‘(5) the present value of the annual accrued
benefits under the plan to which the trust relates.’’
(f) CONFORMING AMENDMENTS.—
(1) Subparagraph (A) of section 219(g)(5) is
amended by striking ‘‘or’’ at the end of clause (v)
and by inserting after clause (vi) the following new
clause:
‘‘(vii) any SMART trust or SMART
annuity (within the meaning of section
408B), or’’.
(2) Section 280G(b)(6) is amended by striking
‘‘or’’ at the end of subparagraph (C), by striking the
period at the end of subparagraph (D) and inserting
‘‘, or’’ and by adding after subparagraph (D) the
following new subparagraph:
‘‘(E) a SMART annuity described in sec-
tion 408B.’’
(3) Subsections (b), (c), (m)(4)(B), and
(n)(3)(B) of section 414 are each amended by in-
serting ‘‘408B,’’ after ‘‘408(p),’’.
(4) Section 4972(d)(1)(A) is amended by strik-
ing ‘‘and’’ at the end of clause (iii), by striking the
period at the end of clause (iv) and inserting ‘‘,
and’’, and by adding after clause (iv) the following
new clause:
‘‘(v) any SMART annuity (within the
meaning of section 408B).’’
(g) REPORTING REQUIREMENTS UNDER ERISA.—
Section 101 of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1021) is amended by redesignat-
ing subsection (h) as subsection (i) and by inserting after
subsection (g) the following new subsection:
‘‘(h) SMART ANNUITIES.—
‘‘(1) NO EMPLOYER REPORTS.—Except as pro-
vided in this subsection, no report shall be required
under this section by an employer maintaining a
SMART annuity under section 408B(b) of the Inter-
nal Revenue Code of 1986.
‘‘(2) SUMMARY
DESCRIPTION.—The issuer of
any SMART annuity shall provide to the employer
maintaining the annuity for each year a description
containing the following information:
‘‘(A) The name and address of the em-
ployer and the issuer.
‘‘(B) The requirements for eligibility for
participation.
‘‘(C) The benefits provided with respect to
the annuity.
‘‘(D) The procedures for, and effects of,
withdrawals (including rollovers) from the an-
nuity.’’
‘‘(3) EMPLOYEE NOTIFICATION.—The employer
shall provide each employee eligible to participate in
the SMART annuity with the description described
in paragraph (2) at the same time as the notifica-
tion required under section 408B(b)(5)(B) of the In-
ternal Revenue Code of 1986.’’
(h) $5 PER PARTICIPANT PBGC PREMIUM.—Sub-
paragraph (A) of section 4006(a)(3) of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C. 1306)
is amended—
(1) by inserting ‘‘not described in clause (iv)’’
after ‘‘in the case of a single-employer plan’’ in
clause (i),
(2) by striking the period at the end of clause
(iii) and inserting ‘‘; and’’, and
(3) by inserting after clause (iii) the following
new clause:
‘‘(iv) in the case of a single-employer plan de-
scribed in section 408B(c) of the Internal Revenue
Code of 1986, an amount equal to $5 for each par-
ticipant.’’.
(i) CLERICAL AMENDMENT.—The table of sections
for subpart A of part I of subchapter D of chapter 1 is
amended by inserting after the item relating to section
408A the following new item:
‘‘Sec. 408B. SMART plans.’’
(j) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1998.
Subtitle C—Improved Fairness in
Retirement Plan Benefits
SEC. 121. AMENDMENTS TO SIMPLE RETIREMENT AC-
COUNTS.
(a) MINIMUM CONTRIBUTION REQUIREMENT.—
(1) IN
GENERAL.—Paragraph (2) of section
408(p) (defining qualified salary reduction arrange-
ment) is amended—
(A) by striking clauses (iii) and (iv) of sub-
paragraph (A) and inserting the following new
clauses:
‘‘(iii) the employer is required to make
a matching contribution to the simple re-
tirement account for any year in an
amount equal to—
‘‘(I) so much of the amount the
employee elects under clause (i)(I) as
does not exceed 3 percent of com-
pensation for the year, and
‘‘(II) 
a 
uniform 
percentage
(which is at least 50 percent but not
more than 100 percent) of the amount
the employee elects under clause (i)(I)
to the extent that such amount ex-
ceeds 3 percent but does not exceed 5
percent of the employee’s compensa-
tion,
‘‘(iv) the employer is required to make
nonelective contributions of 1 percent of
compensation for each employee eligible to
participate in the arrangement who has at
least $5,000 of compensation from the em-
ployer for the year, and
‘‘(v) no contributions may be made
other than contributions described in
clause (i), (iii), or (iv).’’, and
nonelective contributions under subpara-
graph (A)(iv) or clause (i) of this subpara-
graph in excess of 1 percent or 3 percent
of compensation, respectively, but only if
all such contributions bear a uniform rela-
tionship to the compensation of each eligi-
ble employee and do not exceed 5 percent
of compensation for any eligible employee.
‘‘(iii) COMPENSATION
LIMITATION.—
The compensation taken into account
under this paragraph for any year shall
not exceed the limitation in effect for such
year under section 401(a)(17).’’
(2) 
MATCHING
CONTRIBUTIONS.—Subpara-
graph (B) of section 401(k)(11) (relating to adop-
tion of simple plan to meet nondiscrimination tests)
is amended—
(A) by striking subclauses (II) and (III) of
clause (i) and inserting the following new sub-
clauses:
‘‘(II) the employer is required to
make a matching contribution to the
trust for any year in an amount equal
to—
‘‘(aa) 
so 
much 
of 
the
amount 
the 
employee 
elects
under subclause (I) as does not
exceed 3 percent of compensation
for the year, and
‘‘(bb) a uniform percentage
(which is at least 50 percent but
not more than 100 percent) of
the amount the employee elects
under subclause (I) to the extent
that such amount exceeds 3 per-
cent but does not exceed 5 per-
cent of the employee’s compensa-
tion,
‘‘(III) the employer is required to
make nonelective contributions of 1
percent of compensation for each em-
ployee eligible to participate in the ar-
rangement who has at least $5,000 of
compensation from the employer for
the year, and
‘‘(IV) no other contributions may
be made other than contributions de-
scribed in subclause (I), (II), or
(III).’’, and
(B) by striking clause (ii) and inserting the
following new clause:
‘‘(ii) CONTRIBUTION RULES.—
‘‘(I) EMPLOYER
MAY
ELECT
3-
PERCENT
NONELECTIVE
CONTRIBU-
TION.—An employer shall be treated
as meeting the requirements of sub-
clauses (II) and (III) of clause (i) for
any year if, in lieu of the contribu-
tions described in such subclauses, the
employer elects to make nonelective
contributions of 3 percent of com-
pensation for each employee who is el-
igible to participate in the arrange-
ment and who has at least $5,000 of
compensation from the employer for
the year. If an employer makes an
election under this subclause for any
year, the employer shall notify em-
ployees of such election within a rea-
sonable period of time before the 60th
day before the beginning of such year.
‘‘(II) DISCRETIONARY CONTRIBU-
TIONS.—A plan shall not be treated
as failing to meet the requirements of
clause (i)(IV) merely because, pursu-
ant to the terms of the plan, an em-
ployer makes nonelective contributions
under clause (i)(III) or subclause (I)
of this clause in excess of 1 percent or
3 percent of compensation, respec-
tively, but only if all such contribu-
tions bear a uniform relationship to
the compensation of each eligible em-
ployee and do not exceed 5 percent of
compensation for any eligible em-
ployee.’’
(b) OPTION TO SUSPEND CONTRIBUTIONS.—Section
408(p) (relating to simple retirement accounts) is amend-
ed by adding at the end the following new paragraph:
‘‘(10) SUSPENSION OF PLAN.—Except as pro-
vided by the Secretary, a plan shall not be treated
as failing to meet the requirements of this sub-
section if, under the plan, the employer may suspend
all elective, matching, and nonelective contributions
under the plan after notifying employees eligible to
participate in the arrangement of such suspension in
writing at least 30 days in advance. Such suspension
shall apply to contributions with respect to com-
pensation earned after the effective date of the sus-
pension. Only 1 suspension under this paragraph
may take effect during any year.’’
(c) 
CONFORMING
AMENDMENTS.—Section
408(p)(2)(C) is amended—
(1) by striking clause (ii),
(2) by striking ‘‘DEFINITIONS’’ in the heading
and inserting ‘‘ELIGIBLE EMPLOYER’’,
(3) by striking ‘‘(i) ELIGIBLE EMPLOYER.—’’,
and
(4) by redesignating subclauses (I) and (II) as
clauses (i) and (ii), respectively.
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to taxable years beginning after Decem-
ber 31, 1998.
(2) DELAYED EFFECTIVE DATE FOR PLANS ES-
TABLISHED IN 1997 OR 1998.—In the case of plans
established in 1997 or 1998 under section 408(p) of
the Internal Revenue Code of 1986, the amendments
made by this section shall apply to taxable years be-
ginning after December 31, 2002.
SEC. 122. NONDISCRIMINATION RULES FOR QUALIFIED
CASH OR DEFERRED ARRANGEMENTS AND
MATCHING CONTRIBUTIONS.
(a) ALTERNATIVE METHODS OF SATISFYING SEC-
TION
401(k) NONDISCRIMINATION
TESTS.—Subpara-
graph (B) of section 401(k)(12) (relating to alternative
methods of meeting nondiscrimination requirements) is
amended to read as follows:
‘‘(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.