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Q: SECTION 1. SHORT TITLE.

This Act may be cited as the ''401(k) Protection Act of 1996''.

SEC. 2. QUALIFIED EMPLOYER PLANS PROHIBITED FROM MAKING LOANS THROUGH
CREDIT CARDS AND OTHER INTERMEDIARIES.

(a) In General.--Subsection (a) of section 401 of the Internal
Revenue Code of 1986 is amended by adding at the end the following new
paragraph:
''(35) Prohibition of loans through credit cards and other
intermediaries.--A trust shall not constitute a qualified trust
under this section if the plan makes any loan to any
beneficiary under the plan through the use of any credit card
or any other intermediary.''
(b) Effective Date.--The amendment made by subsection (a) shall
apply to plan years beginning after the date of the enactment of this
Act.

SEC. 3. LOANS FROM QUALIFIED EMPLOYER PLANS TREATED AS DISTRIBUTIONS
UNLESS USED TO PURCHASE A FIRST HOME, TO PAY HIGHER
EDUCATION OR FINANCIALLY DEVASTATING MEDICAL EXPENSES, OR
DURING PERIODS OF UNEMPLOYMENT.

(a) In General.--Subsection (p) of section 72 of the Internal
Revenue Code of 1986 (relating to loans treated as distributions) is
amended by redesignating paragraphs (3), (4), and (5) as paragraphs
(4), (5), and (6), respectively, and by inserting after paragraph (2)
the following new paragraph:
''(3) Exception only to apply to certain loans.--Paragraph
(2) shall apply to any loan only if such loan is--
''(A) a qualified first-time homebuyer loan (as
defined in paragraph (7)),
''(B) a qualified higher education loan (as defined
in paragraph (8)),
''(C) a qualified medical expense loan (as defined
in paragraph (9)), or
''(D) a qualified unemployment loan (as defined in
paragraph (10)).''
(b) Definitions.--Subsection (p) of section 72 of such Code is
amended by adding at the end the following new paragraphs:
''(7) Qualified first-time homebuyer loan.--
''(A) In general.--For purposes of paragraph (3),
the term 'qualified first-time homebuyer loan' means
any loan received by an individual to the extent the
amount of the loan is used within a reasonable period
to pay qualified acquisition costs with respect to a
principal residence of a first-time homebuyer who is
such individual, the spouse of such individual, or any
child, grandchild, or ancestor of such individual or
the individual's spouse.
''(B) Qualified acquisition costs.--For purposes of
this paragraph, the term 'qualified acquisition costs'
means the costs of acquiring, constructing, or
reconstructing a residence. Such term includes any
usual or reasonable settlement, financing, or other
closing costs.
''(C) First-time homebuyer; other definitions.--For
purposes of this paragraph--
''(i) First-time homebuyer.--The term
'first-time homebuyer' means any individual
if--
''(I) such individual (and if
married, such individual's spouse) had
no present ownership interest in a
principal residence during the 2-year
period ending on the date of
acquisition of the principal residence
to which this paragraph applies, and
''(II) subsection (h) or (k) of
section 1034 did not suspend the
running of any period of time specified
in section 1034 with respect to such
individual on the day before the date
the loan is received.
''(ii) Principal residence.--The term
'principal residence' has the same meaning as
when used in section 1034.
''(iii) Date of acquisition.--The term
'date of acquisition' means the date--
''(I) on which a binding contract
to acquire the principal residence to
which subparagraph (A) applies is
entered into, or
''(II) on which construction or
reconstruction of such a principal
residence is commenced.
''(8) Qualified higher education loan.--For purposes of
paragraph (3)--
''(A) In general.--The term 'qualified higher
education loan' means any loan received by an
individual to the extent the amount of the loan is used
within a reasonable period to pay expenses for tuition,
fees, books, supplies, and equipment required for the
enrollment or attendance of--
''(i) the individual,
''(ii) the individual's spouse, or
''(iii) any child (as defined in section
151(c)(3)), grandchild, or ancestor of the
individual or the individual's spouse,
at an eligible educational institution (as defined in
section 135(c)(3)).
''(B) Coordination with savings bond provisions.--
The amount of qualified higher education expenses for
any taxable year shall be reduced by any amount
excludable from gross income under section 135.
''(9) Qualified medical expense loan.--The term 'qualified
medical expense loan' means any loan received by an individual
to the extent the amount of the loan does not exceed the amount
allowable as a deduction under section 213 to the individual
for amounts paid during the taxable year for medical care
(determined without regard to whether the taxpayer itemizes
deductions for such taxable year).
''(10) Qualified unemployment loan.--The term 'qualified
unemployment loan' means any loan to an individual after
separation from employment, if--
''(A) such individual has received unemployment
compensation for 12 consecutive weeks under any Federal
or State unemployment compensation law by reason of
such separation, and
''(B) such loan is received during any taxable year
during which such unemployment compensation is paid or
the succeeding taxable year.
To the extent provided in regulations, a self-employed
individual shall be treated as meeting the requirements of
subparagraph (A) if, under Federal or State law, the individual
would have received unemployment compensation but for the fact
the individual was self-employed.''
(c) Effective Date.--The amendments made by this section shall
apply to loans made after the date of the enactment of this Act.
A:
401(k) Protection Act of 1996 - Amends the Internal Revenue Code with respect to qualified employer plans to: (1) prohibit loans made through credit cards or other intermediaries; and (2) treat loans as distributions unless used to purchase a first-time home, pay higher education or financially devastating medical costs, or used during periods of unemployment.