H. Rept. 106-753 - 106th Congress (1999-2000)

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House Report 106-753 - COMPREHENSIVE RETIREMENT SECURITY AND PENSION REFORM ACT OF 2000

[House Report 106-753]
[From the U.S. Government Publishing Office]



106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     106-753

======================================================================



 
    COMPREHENSIVE RETIREMENT SECURITY AND PENSION REFORM ACT OF 2000

                                _______
                                

 July 17, 2000.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

           Mr. Archer, from the Committee on Ways and Means,

                        submitted the following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 4843]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 4843) to amend the Internal Revenue Code of 1986 to 
provide for retirement security and pension reform, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. Summary and Background..........................................30
          A. Purpose and Summary.................................    30
          B. Background and Need for Legislation.................    36
          C. Legislative History.................................    36
 II. Explanation of the Revenue Provisions of the Bill...............37
     Title I. Individual Retirement Arrangements (``IRAs'')..........37
     Title II. Expanding Coverage....................................39
          A. Increase in benefit and contribution limits (sec. 
              201)...............................................    39
          B. Plans loans for Subchapter S shareholders, partners, 
              and sole proprietors (sec. 202)....................    42
          C. Modification of top-heavy rules (sec. 203)..........    43
          D. Elective deferrals not taken into account for 
              purposes of deduction limits (sec. 204)............    47
          E. Repeal of coordination requirements for deferred 
              compensation plans of State and local governments 
              and tax-exempt organizations (sec. 205)............    48
          F. Eliminate IRS user fees for certain requests 
              regarding employer plans (sec. 206)................    49
          G. Deduction limits (sec. 207).........................    50
          H. Option to treat elective deferrals as after-tax 
              contributions (sec. 208)...........................    51
     Title III. Enhancing Fairness for Women.........................53
          A. Additional salary catch-up contributions (sec. 301).    53
          B. Equitable treatment for contributions of employees 
              to defined contribution plans (sec. 302)...........    54
          C. Faster vesting of employer matching contributions 
              (sec. 303).........................................    57
          D. Simplify and update the minimum distribution rules 
              (secs. 304 and 409)................................    58
          E. Clarification of tax treatment of division of 
              section 457 plan benefits upon divorce (sec. 305)..    60
          F. Modification of safe harbor relief for hardship 
              withdrawals from 401(k) plans (sec. 306)...........    61
     Title IV. Increasing Portability for Participants...............62
          A. Rollovers of retirement plan and IRA distributions 
              (secs. 301-403 and 409)............................    62
          B. Waiver of 60-day rule (sec. 404)....................    66
          C. Treatment of forms of distribution (sec. 405).......    67
          D. Rationalization of restrictions on distributions 
              (sec. 406).........................................    69
          E. Purchase of service credit under governmental 
              pension plans (sec. 407)...........................    70
          F. Employers may disregard rollovers for purposes of 
              cash-out rules (sec. 408)..........................    71
     Title V. Strengthening Pension Security and Enforcement.........72
          A. Phase in repeal of 150 percent of current liability 
              funding limit; deduction for contributions to fund 
              termination liability (secs. 501-502)..............    72
          B. Excise tax relief for sound pension funding (sec. 
              503)...............................................    73
          C. Notice of significant reduction in plan benefit 
              accruals (sec. 506)................................    75
          D. Modifications to section 415 limits for 
              multiemployer plans (sec. 507).....................    77
          E. Prohibited allocations of stock in an S corporation 
              ESOP (sec. 508)....................................    78
     Title VI. Reducing Regulatory Burdens...........................82
          A. Modification of timing of plan valuations (sec. 601)    82
          B. ESOP dividends may be reinvested without loss of 
              dividend deduction (sec. 602)......................    82
          C. Repeal transition rule relating to certain highly 
              compensated employees (sec. 603)...................    83
          D. Employees of tax-exempt entities (sec. 604).........    84
          E. Treatment of employer-provided retirement advice 
              (sec. 605).........................................    85
          F. Reporting simplification (sec. 606).................    86
          G. Improvement to Employer Plans Compliance Resolution 
              System (sec. 607)..................................    87
          H. Repeal of the multiple use test (sec. 608)..........    89
          I. Flexibility in nondiscrimination, coverage, and line 
              of business rules (sec. 609).......................    90
          J. Extension to all governmental plans of moratorium on 
              application of certain nondiscrimination rules 
              applicable to State and local government plans 
              (sec. 610).........................................    91
          K. Notice and consent period regarding distributions 
              (sec. 611).........................................    92
     Title VII. Provisions Relating to Plan Amendments...............93
III. Votes of the Committee..........................................94
 IV. Budget Effects of the Bill......................................95
          A. Committee Estimates of Budgetary Effects............    95
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures.......................................   100
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................   100
  V. Other Matters to be Discussed Under Rules of the House.........103
          A. Committee Oversight Findings and Recommendations....   103
          B. Summary of Findings and Recommendations of the 
              Committee on Government Reform and Oversight.......   103
          C. Constitutional Authority Statement..................   103
          D. Information Relating to Unfunded Mandates...........   103
          E. Applicability of House Rule XX15(b).................   104
          F. Tax Complexity Analysis.............................   104
    
 VI. Changes in Existing Law of the Bill as Reported................104
    
VII. Additional Views...............................................163

 The amendment is as follows:
 Strike all after the enacting clause and insert the following:

SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.

 (a) Short Title.--This Act may be cited as the ``Comprehensive 
Retirement Security and Pension Reform Act of 2000''.
 (b) Amendment of 1986 Code.--Except as otherwise expressly provided, 
whenever in this Act an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of the 
Internal Revenue Code of 1986.
 (c) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; references; table of contents.

           TITLE I--INDIVIDUAL RETIREMENT ACCOUNT PROVISIONS

Sec. 101. Modification of IRA contribution limits.

                      TITLE II--EXPANDING COVERAGE

Sec. 201. Increase in benefit and contribution limits.
Sec. 202. Plan loans for subchapter S owners, partners, and sole 
proprietors.
Sec. 203. Modification of top-heavy rules.
Sec. 204. Elective deferrals not taken into account for purposes of 
deduction limits.
Sec. 205. Repeal of coordination requirements for deferred compensation 
plans of State and local governments and tax-exempt organizations.
Sec. 206. Elimination of user fee for requests to IRS regarding pension 
plans.
Sec. 207. Deduction limits.
Sec. 208. Option to treat elective deferrals as after-tax 
contributions.

                TITLE III--ENHANCING FAIRNESS FOR WOMEN

Sec. 301. Catch-up contributions for individuals age 50 or over.
Sec. 302. Equitable treatment for contributions of employees to defined 
contribution plans.
Sec. 303. Faster vesting of certain employer matching contributions.
Sec. 304. Simplify and update the minimum distribution rules.
Sec. 305. Clarification of tax treatment of division of section 457 
plan benefits upon divorce.
Sec. 306. Modification of safe harbor relief for hardship withdrawals 
from cash or deferred arrangements.

           TITLE IV--INCREASING PORTABILITY FOR PARTICIPANTS

Sec. 401. Rollovers allowed among various types of plans.
Sec. 402. Rollovers of IRAs into workplace retirement plans.
Sec. 403. Rollovers of after-tax contributions.
Sec. 404. Hardship exception to 60-day rule.
Sec. 405. Treatment of forms of distribution.
Sec. 406. Rationalization of restrictions on distributions.
Sec. 407. Purchase of service credit in governmental defined benefit 
plans.
Sec. 408. Employers may disregard rollovers for purposes of cash-out 
amounts.
Sec. 409. Minimum distribution and inclusion requirements for section 
457 plans.

        TITLE V--STRENGTHENING PENSION SECURITY AND ENFORCEMENT

Sec. 501. Repeal of 150 percent of current liability funding limit.
Sec. 502. Maximum contribution deduction rules modified and applied to 
all defined benefit plans.
Sec. 503. Excise tax relief for sound pension funding.
Sec. 504. Excise tax on failure to provide notice by defined benefit 
plans significantly reducing future benefit accruals.
Sec. 505. Treatment of multiemployer plans under section 415.
Sec. 506. Prohibited allocations of stock in S corporation ESOP.

                 TITLE VI--REDUCING REGULATORY BURDENS

Sec. 601. Modification of timing of plan valuations.
Sec. 602. ESOP dividends may be reinvested without loss of dividend 
deduction.
Sec. 603. Repeal of transition rule relating to certain highly 
compensated employees.
Sec. 604. Employees of tax-exempt entities.
Sec. 605. Clarification of treatment of employer-provided retirement 
advice.
Sec. 606. Reporting simplification.
Sec. 607. Improvement of employee plans compliance resolution system.
Sec. 608. Repeal of the multiple use test.
Sec. 609. Flexibility in nondiscrimination, coverage, and line of 
business rules.
Sec. 610. Extension to all governmental plans of moratorium on 
application of certain nondiscrimination rules applicable to State and 
local plans.
Sec. 611. Notice and consent period regarding distributions.

                       TITLE VII--PLAN AMENDMENTS

Sec. 701. Provisions relating to plan amendments.

                TITLE I--INDIVIDUAL RETIREMENT ACCOUNTS

SEC. 101. MODIFICATION OF IRA CONTRIBUTION LIMITS.

 (a) Increase in Contribution Limit.--
         (1) In general.--Paragraph (1)(A) of section 219(b) (relating 
        to maximum amount of deduction) is amended by striking 
        ``$2,000'' and inserting ``the deductible amount''.
         (2) Deductible amount.--Section 219(b) is amended by adding at 
        the end the following new paragraph:
         ``(5) Deductible amount.--For purposes of paragraph (1)(A)--
                 ``(A) In general.--The deductible amount shall be 
                determined in accordance with the following table:

                ``For taxable years
                                                         The deductible
                 beginning in:
                                                            amount is: 
                 2001......................................     $3,000 
                 2002......................................     $4,000 
                 2003 and thereafter.......................     $5,000.

                 ``(B) Catch-up contributions for individuals 50 or 
                older.--In the case of an individual who has attained 
                the age of 50 before the close of the taxable year, the 
                deductible amount for taxable years beginning in 2001 
                or 2002 shall be $5,000.
                  ``(C) Cost-of-living adjustment.--
                          ``(i) In general.--In the case of any taxable 
                        year beginning in a calendar year after 2003, 
                        the $5,000 amount under subparagraph (A) shall 
                        be increased by an amount equal to--
                                  ``(I) such dollar amount, multiplied 
                                by
                                  ``(II) the cost-of-living adjustment 
                                determined under section 1(f )(3) for 
                                the calendar year in which the taxable 
                                year begins, determined by substituting 
                                `calendar year 2002' for `calendar year 
                                1992' in subparagraph (B) thereof.
                          ``(ii) Rounding rules.--If any amount after 
                        adjustment under clause (i) is not a multiple 
                        of $500, such amount shall be rounded to the 
                        next lower multiple of $500.''.
  (b) Conforming Amendments.--
          (1) Section 408(a)(1) is amended by striking ``in excess of 
        $2,000 on behalf of any individual'' and inserting ``on behalf 
        of any individual in excess of the amount in effect for such 
        taxable year under section 219(b)(1)(A)''.
          (2) Section 408(b)(2)(B) is amended by striking ``$2,000'' 
        and inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
          (3) Section 408(b) is amended by striking ``$2,000'' in the 
        matter following paragraph (4) and inserting ``the dollar 
        amount in effect under section 219(b)(1)(A)''.
          (4) Section 408( j) is amended by striking ``$2,000''.
          (5) Section 408(p)(8) is amended by striking ``$2,000'' and 
        inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2000.

                      TITLE II--EXPANDING COVERAGE

SEC. 201. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.

  (a) Defined Benefit Plans.--
          (1) Dollar limit.--
                  (A) Subparagraph (A) of section 415(b)(1) (relating 
                to limitation for defined benefit plans) is amended by 
                striking ``$90,000'' and inserting ``$160,000''.
                  (B) Subparagraphs (C) and (D) of section 415(b)(2) 
                are each amended by striking ``$90,000'' each place it 
                appears in the headings and the text and inserting 
                ``$160,000''.
                  (C) Paragraph (7) of section 415(b) (relating to 
                benefits under certain collectively bargained plans) is 
                amended by striking ``the greater of $68,212 or one-
                half the amount otherwise applicable for such year 
                under paragraph (1)(A) for `$90,000' '' and inserting 
                ``one-half the amount otherwise applicable for such 
                year under paragraph (1)(A) for `$160,000' ''.
          (2) Limit reduced when benefit begins before age 62.--
        Subparagraph (C) of section 415(b)(2) is amended by striking 
        ``the social security retirement age'' each place it appears in 
        the heading and text and inserting ``age 62''.
          (3) Limit increased when benefit begins after age 65.--
        Subparagraph (D) of section 415(b)(2) is amended by striking 
        ``the social security retirement age'' each place it appears in 
        the heading and text and inserting ``age 65''.
          (4) Cost-of-living adjustments.--Subsection (d) of section 
        415 (related to cost-of-living adjustments) is amended--
                  (A) by striking ``$90,000'' in paragraph (1)(A) and 
                inserting ``$160,000''; and
                  (B) in paragraph (3)(A)--
                          (i) by striking ``$90,000'' in the heading 
                        and inserting ``$160,000''; and
                          (ii) by striking ``October 1, 1986'' and 
                        inserting ``July 1, 2000''.
          (5) Conforming amendment.--Section 415(b)(2) is amended by 
        striking subparagraph (F).
  (b) Defined Contribution Plans.--
          (1) Dollar limit.--Subparagraph (A) of section 415(c)(1) 
        (relating to limitation for defined contribution plans) is 
        amended by striking ``$30,000'' and inserting ``$40,000''.
          (2) Cost-of-living adjustments.--Subsection (d) of section 
        415 (related to cost-of-living adjustments) is amended--
                  (A) by striking ``$30,000'' in paragraph (1)(C) and 
                inserting ``$40,000''; and
                  (B) in paragraph (3)(D)--
                          (i) by striking ``$30,000'' in the heading 
                        and inserting ``$40,000''; and
                          (ii) by striking ``October 1, 1993'' and 
                        inserting ``July 1, 2000''.
  (c) Qualified Trusts.--
          (1) Compensation limit.--Sections 401(a)(17), 404(l), 408(k), 
        and 505(b)(7) are each amended by striking ``$150,000'' each 
        place it appears and inserting ``$200,000''.
          (2) Base period and rounding of cost-of-living adjustment.--
        Subparagraph (B) of section 401(a)(17) is amended--
                  (A) by striking ``October 1, 1993'' and inserting 
                ``July 1, 2000''; and
                  (B) by striking ``$10,000'' both places it appears 
                and inserting ``$5,000''.
  (d) Elective Deferrals.--
          (1) In general.--Paragraph (1) of section 402(g) (relating to 
        limitation on exclusion for elective deferrals) is amended to 
        read as follows:
          ``(1) In general.--
                  ``(A) Limitation.--Notwithstanding subsections (e)(3) 
                and (h)(1)(B), the elective deferrals of any individual 
                for any taxable year shall be included in such 
                individual's gross income to the extent the amount of 
                such deferrals for the taxable year exceeds the 
                applicable dollar amount.
                  ``(B) Applicable dollar amount.--For purposes of 
                subparagraph (A), the applicable dollar amount shall be 
                the amount determined in accordance with the following 
                table:

                ``For taxable years
                                                         The applicable
                  beginning in
                                                         dollar amount:
                  calendar year:
                  2001.....................................    $11,000 
                  2002.....................................    $12,000 
                  2003.....................................    $13,000 
                  2004.....................................    $14,000 
                  2005 or thereafter....................... $15,000.''.

          (2) Cost-of-living adjustment.--Paragraph (5) of section 
        402(g) is amended to read as follows:
          ``(5) Cost-of-living adjustment.--In the case of taxable 
        years beginning after December 31, 2005, the Secretary shall 
        adjust the $15,000 amount under paragraph (1)(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 beginning 
        July 1, 2004, and any increase under this paragraph which is 
        not a multiple of $500 shall be rounded to the next lowest 
        multiple of $500.''.
          (3) Conforming amendments.--
                  (A) Section 402(g) (relating to limitation on 
                exclusion for elective deferrals), as amended by 
                paragraphs (1) and (2), is further amended by striking 
                paragraph (4) and redesignating paragraphs (5), (6), 
                (7), (8), and (9) as paragraphs (4), (5), (6), (7), and 
                (8), respectively.
                  (B) Paragraph (2) of section 457(c) is amended by 
                striking ``402(g)(8)(A)(iii)'' and inserting 
                ``402(g)(7)(A)(iii)''.
                  (C) Clause (iii) of section 501(c)(18)(D) is amended 
                by striking ``(other than paragraph (4) thereof)''.
  (e) Deferred Compensation Plans of State and Local Governments and 
Tax-Exempt Organizations.--
          (1) In general.--Section 457 (relating to deferred 
        compensation plans of State and local governments and tax-
        exempt organizations) is amended--
                  (A) in subsections (b)(2)(A) and (c)(1) by striking 
                ``$7,500'' each place it appears and inserting ``the 
                applicable dollar amount''; and
                  (B) in subsection (b)(3)(A) by striking ``$15,000'' 
                and inserting ``twice the dollar amount in effect under 
                subsection (b)(2)(A)''.
          (2) Applicable dollar amount; cost-of-living adjustment.--
        Paragraph (15) of section 457(e) is amended to read as follows:
          ``(15) Applicable dollar amount.--
                  ``(A) In general.--The applicable dollar amount shall 
                be the amount determined in accordance with the 
                following table:

                ``For taxable years
                                                         The applicable
                  beginning in
                                                         dollar amount:
                  calendar year:
                  2001.....................................    $11,000 
                  2002.....................................    $12,000 
                  2003.....................................    $13,000 
                  2004.....................................    $14,000 
                  2005 or thereafter.......................    $15,000.

                  ``(B) Cost-of-living adjustments.--In the case of 
                taxable years beginning after December 31, 2005, the 
                Secretary shall adjust the $15,000 amount specified in 
                the table in subparagraph (A) at the same time and in 
                the same manner as under section 415(d), except that 
                the base period shall be the calendar quarter beginning 
                July 1, 2004, and any increase under this paragraph 
                which is not a multiple of $500 shall be rounded to the 
                next lowest multiple of $500.''.
  (f) Simple Retirement Accounts.--
          (1) Limitation.--Clause (ii) of section 408(p)(2)(A) 
        (relating to general rule for qualified salary reduction 
        arrangement) is amended by striking ``$6,000'' and inserting 
        ``the applicable dollar amount''.
          (2) Applicable dollar amount.--Subparagraph (E) of 408(p)(2) 
        is amended to read as follows:
                  ``(E) Applicable dollar amount; cost-of-living 
                adjustment.--
                          ``(i) In general.--For purposes of 
                        subparagraph (A)(ii), the applicable dollar 
                        amount shall be the amount determined in 
                        accordance with the following table:

                ``For taxable years
                                                         The applicable
                  beginning in
                                                         dollar amount:
                  calendar year:
                          2001.............................     $7,000 
                          2002.............................     $8,000 
                          2003.............................     $9,000 
                          2004 or thereafter...............    $10,000.

                          ``(ii) Cost-of-living adjustment.--In the 
                        case of a year beginning after December 31, 
                        2004, the Secretary shall adjust the $10,000 
                        amount under clause (i) at the same time and in 
                        the same manner as under section 415(d), except 
                        that the base period taken into account shall 
                        be the calendar quarter beginning July 1, 2003, 
                        and any increase under this subparagraph which 
                        is not a multiple of $500 shall be rounded to 
                        the next lower multiple of $500.''.
          (3) Conforming amendments.--
                  (A) Clause (I) of section 401(k)(11)(B)(i) is amended 
                by striking ``$6,000'' and inserting ``the amount in 
                effect under section 408(p)(2)(A)(ii)''.
                  (B) Section 401(k)(11) is amended by striking 
                subparagraph (E).
  (g) Rounding Rule Relating to Defined Benefit Plans and Defined 
Contribution Plans.--Paragraph (4) of section 415(d) is amended to read 
as follows:
          ``(4) Rounding.--
                  ``(A) $160,000 amount.--Any increase under 
                subparagraph (A) of paragraph (1) which is not a 
                multiple of $5,000 shall be rounded to the next lowest 
                multiple of $5,000.
                  ``(B) $40,000 amount.--Any increase under 
                subparagraph (C) of paragraph (1) which is not a 
                multiple of $1,000 shall be rounded to the next lowest 
                multiple of $1,000.''.
  (h) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2000.

SEC. 202. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND SOLE 
                    PROPRIETORS.

  (a) In General.--Subparagraph (B) of section 4975(f)(6) (relating to 
exemptions not to apply to certain transactions) is amended by adding 
at the end the following new clause:
                          ``(iii) Loan exception.--For purposes of 
                        subparagraph (A)(i), the term `owner-employee' 
                        shall only include a person described in 
                        subclause (II) or (III) of clause (i).''.
  (b) Effective Date.--The amendment made by this section shall apply 
to loans made after December 31, 2000.

SEC. 203. MODIFICATION OF TOP-HEAVY RULES.

  (a) Simplification of Definition of Key Employee.--
          (1) In general.--Section 416(i)(1)(A) (defining key employee) 
        is amended--
                  (A) by striking ``or any of the 4 preceding plan 
                years'' in the matter preceding clause (i);
                  (B) by striking clause (i) and inserting the 
                following:
                          ``(i) an officer of the employer having an 
                        annual compensation greater than $150,000,'';
                  (C) by striking clause (ii) and redesignating clauses 
                (iii) and (iv) as clauses (ii) and (iii), respectively; 
                and
                  (D) by striking the second sentence in the matter 
                following clause (iii), as redesignated by subparagraph 
                (C).
          (2) Conforming amendment.--Section 416(i)(1)(B)(iii) is 
        amended by striking ``and subparagraph (A)(ii)''.
  (b) Matching Contributions Taken Into Account for Minimum 
Contribution Requirements.--Section 416(c)(2)(A) (relating to defined 
contribution plans) is amended by adding at the end the following: 
``Employer matching contributions (as defined in section 401(m)(4)(A)) 
shall be taken into account for purposes of this subparagraph.''.
  (c) Distributions During Last Year Before Determination Date Taken 
Into Account.--
          (1) In general.--Paragraph (3) of section 416(g) is amended 
        to read as follows:
          ``(3) Distributions during last year before determination 
        date taken into account.--
                  ``(A) In general.--For purposes of determining--
                          ``(i) the present value of the cumulative 
                        accrued benefit for any employee, or
                          ``(ii) the amount of the account of any 
                        employee,
                such present value or amount shall be increased by the 
                aggregate distributions made with respect to such 
                employee under the plan during the 1-year period ending 
                on the determination date. The preceding sentence shall 
                also apply to distributions under a terminated plan 
                which if it had not been terminated would have been 
                required to be included in an aggregation group.
                  ``(B) 5-year period in case of in-service 
                distribution.--In the case of any distribution made for 
                a reason other than separation from service, death, or 
                disability, subparagraph (A) shall be applied by 
                substituting `5-year period' for `1-year period'.''.
          (2) Benefits not taken into account.--Subparagraph (E) of 
        section 416(g)(4) is amended--
                  (A) by striking ``last 5 years'' in the heading and 
                inserting ``last year before determination date''; and
                  (B) by striking ``5-year period'' and inserting ``1-
                year period''.
  (d) Definition of Top-Heavy Plans.--Paragraph (4) of section 416(g) 
(relating to other special rules for top-heavy plans) is amended by 
adding at the end the following new subparagraph:
                  ``(H) Cash or deferred arrangements using alternative 
                methods of meeting nondiscrimination requirements.--The 
                term `top-heavy plan' shall not include a plan which 
                consists solely of--
                          ``(i) a cash or deferred arrangement which 
                        meets the requirements of section 401(k)(12), 
                        and
                          ``(ii) matching contributions with respect to 
                        which the requirements of section 401(m)(11) 
                        are met.
                If, but for this subparagraph, a plan would be treated 
                as a top-heavy plan because it is a member of an 
                aggregation group which is a top-heavy group, 
                contributions under the plan may be taken into account 
                in determining whether any other plan in the group 
                meets the requirements of subsection (c)(2).''.
  (e) Frozen Plan Exempt From Minimum Benefit Requirement.--
Subparagraph (C) of section 416(c)(1) (relating to defined benefit 
plans) is amended--
                  (A) by striking ``clause (ii)'' in clause (i) and 
                inserting ``clause (ii) or (iii)''; and
                  (B) by adding at the end the following:
                          ``(iii) Exception for frozen plan.--For 
                        purposes of determining an employee's years of 
                        service with the employer, any service with the 
                        employer shall be disregarded to the extent 
                        that such service occurs during a plan year 
                        when the plan benefits (within the meaning of 
                        section 410(b)) no employee or former 
                        employee.''.
  (f) Elimination of Family Attribution.--Section 416(i)(1)(B) 
(defining 5-percent owner) is amended by adding at the end the 
following new clause:
                          ``(iv) Family attribution disregarded.--
                        Solely for purposes of applying this paragraph 
                        (and not for purposes of any provision of this 
                        title which incorporates by reference the 
                        definition of a key employee or 5-percent owner 
                        under this paragraph), section 318 shall be 
                        applied without regard to subsection (a)(1) 
                        thereof in determining whether any person is a 
                        5-percent owner.''.
  (g) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2000.

SEC. 204. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF 
                    DEDUCTION LIMITS.

  (a) In General.--Section 404 (relating to deduction for contributions 
of an employer to an employees' trust or annuity plan and compensation 
under a deferred payment plan) is amended by adding at the end the 
following new subsection:
  ``(n) Elective Deferrals Not Taken Into Account for Purposes of 
Deduction Limits.--Elective deferrals (as defined in section 402(g)(3)) 
shall not be subject to any limitation contained in paragraph (3), (7), 
or (9) of subsection (a), and such elective deferrals shall not be 
taken into account in applying any such limitation to any other 
contributions.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2000.

SEC. 205. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED COMPENSATION 
                    PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT 
                    ORGANIZATIONS.

  (a) In General.--Subsection (c) of section 457 (relating to deferred 
compensation plans of State and local governments and tax-exempt 
organizations), as amended by section 201, is amended to read as 
follows:
  ``(c) Limitation.--The maximum amount of the compensation of any one 
individual which may be deferred under subsection (a) during any 
taxable year shall not exceed the amount in effect under subsection 
(b)(2)(A) (as modified by any adjustment provided under subsection 
(b)(3)).''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to years beginning after December 31, 2000.

SEC. 206. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING PENSION 
                    PLANS.

  (a) Elimination of Certain User Fees.--The Secretary of the Treasury 
or the Secretary's delegate shall not require payment of user fees 
under the program established under section 7527 of the Internal 
Revenue Code of 1986 for requests to the Internal Revenue Service for 
determination letters with respect to the qualified status of a pension 
benefit plan maintained solely by one or more eligible employers or any 
trust which is part of the plan. The preceding sentence shall not apply 
to any request--
          (1) made after the fifth plan year the pension benefit plan 
        is in existence; or
          (2) made by the sponsor of any prototype or similar plan 
        which the sponsor intends to market to participating employers.
  (b) Pension Benefit Plan.--For purposes of this section, the term 
``pension benefit plan'' means a pension, profit-sharing, stock bonus, 
annuity, or employee stock ownership plan.
  (c) Eligible Employer.--For purposes of this section, the term 
``eligible employer'' has the same meaning given such term in section 
408(p)(2)(C)(i)(I) of the Internal Revenue Code of 1986. The 
determination of whether an employer is an eligible employer under this 
section shall be made as of the date of the request described in 
subsection (a).
  (d) Effective Date.--The provisions of this section shall apply with 
respect to requests made after December 31, 2000.

SEC. 207. DEDUCTION LIMITS.

  (a) In General.--
          (1) Stock bonus and profit sharing trusts.--Subclause (I) of 
        section 404(a)(3)(A)(i) (relating to stock bonus and profit 
        sharing trusts) is amended by striking ``15 percent'' and 
        inserting ``20 percent''.
          (2) Compensation.--Section 404(a) (relating to general rule) 
        is amended by adding at the end the following:
          ``(12) Definition of compensation.--For purposes of 
        paragraphs (3), (7), (8), and (9), the term `compensation 
        otherwise paid or accrued during the taxable year' shall 
        include amounts treated as `participant's compensation' under 
        subparagraph (C) or (D) of section 415(c)(3).''.
  (b) Conforming Amendments.--
          (1) Subparagraph (B) of section 404(a)(3) is amended by 
        striking the last sentence thereof.
          (2) Subparagraph (C) of section 404(h)(1) is amended by 
        striking ``15 percent'' each place it appears and inserting 
        ``20 percent''.
          (3) Clause (i) of section 4972(c)(6)(B) is amended by 
        striking ``(within the meaning of section 404(a))'' and 
        inserting ``(within the meaning of section 404(a) and as 
        adjusted under section 404(a)(12))''.
  (c) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2000.

SEC. 208. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX 
                    CONTRIBUTIONS.

  (a) In General.--Subpart A of part I of subchapter D of chapter 1 
(relating to deferred compensation, etc.) is amended by inserting after 
section 402 the following new section:

``SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS PLUS 
                    CONTRIBUTIONS.

  ``(a) General Rule.--If an applicable retirement plan includes a 
qualified plus contribution program--
          ``(1) any designated plus contribution made by an employee 
        pursuant to the program shall be treated as an elective 
        deferral for purposes of this chapter, except that such 
        contribution shall not be excludable from gross income, and
          ``(2) such plan (and any arrangement which is part of such 
        plan) shall not be treated as failing to meet any requirement 
        of this chapter solely by reason of including such program.
  ``(b) Qualified Plus Contribution Program.--For purposes of this 
section--
          ``(1) In general.--The term `qualified plus contribution 
        program' means a program under which an employee may elect to 
        make designated plus contributions in lieu of all or a portion 
        of elective deferrals the employee is otherwise eligible to 
        make under the applicable retirement plan.
          ``(2) Separate accounting required.--A program shall not be 
        treated as a qualified plus contribution program unless the 
        applicable retirement plan--
                  ``(A) establishes separate accounts (`designated plus 
                accounts') for the designated plus contributions of 
                each employee and any earnings properly allocable to 
                the contributions, and
                  ``(B) maintains separate recordkeeping with respect 
                to each account.
  ``(c) Definitions and Rules Relating to Designated Plus 
Contributions.--For purposes of this section--
          ``(1) Designated plus contribution.--The term `designated 
        plus contribution' means any elective deferral which--
                  ``(A) is excludable from gross income of an employee 
                without regard to this section, and
                  ``(B) the employee designates (at such time and in 
                such manner as the Secretary may prescribe) as not 
                being so excludable.
          ``(2) Designation limits.--The amount of elective deferrals 
        which an employee may designate under paragraph (1) shall not 
        exceed the excess (if any) of--
                  ``(A) the maximum amount of elective deferrals 
                excludable from gross income of the employee for the 
                taxable year (without regard to this section), over
                  ``(B) the aggregate amount of elective deferrals of 
                the employee for the taxable year which the employee 
                does not designate under paragraph (1).
          ``(3) Rollover contributions.--
                  ``(A) In general.--A rollover contribution of any 
                payment or distribution from a designated plus account 
                which is otherwise allowable under this chapter may be 
                made only if the contribution is to--
                          ``(i) another designated plus account of the 
                        individual from whose account the payment or 
                        distribution was made, or
                          ``(ii) a Roth IRA of such individual.
                  ``(B) Coordination with limit.--Any rollover 
                contribution to a designated plus account under 
                subparagraph (A) shall not be taken into account for 
                purposes of paragraph (1).
  ``(d) Distribution Rules.--For purposes of this title--
          ``(1) Exclusion.--Any qualified distribution from a 
        designated plus account shall not be includible in gross 
        income.
          ``(2) Qualified distribution.--For purposes of this 
        subsection--
                  ``(A) In general.--The term `qualified distribution' 
                has the meaning given such term by section 
                408A(d)(2)(A) (without regard to clause (iv) thereof).
                  ``(B) Distributions within nonexclusion period.--A 
                payment or distribution from a designated plus account 
                shall not be treated as a qualified distribution if 
                such payment or distribution is made within the 5-
                taxable-year period beginning with the earlier of--
                          ``(i) the first taxable year for which the 
                        individual made a designated plus contribution 
                        to any designated plus account established for 
                        such individual under the same applicable 
                        retirement plan, or
                          ``(ii) if a rollover contribution was made to 
                        such designated plus account from a designated 
                        plus account previously established for such 
                        individual under another applicable retirement 
                        plan, the first taxable year for which the 
                        individual made a designated plus contribution 
                        to such previously established account.
                  ``(C) Distributions of excess deferrals and 
                earnings.--The term `qualified distribution' shall not 
                include any distribution of any excess deferral under 
                section 402(g)(2) and any income on the excess 
                deferral.
          ``(3) Aggregation rules.--Section 72 shall be applied 
        separately with respect to distributions and payments from a 
        designated plus account and other distributions and payments 
        from the plan.
  ``(e) Other Definitions.--For purposes of this section--
          ``(1) Applicable retirement plan.--The term `applicable 
        retirement plan' means--
                  ``(A) an employees' trust described in section 401(a) 
                which is exempt from tax under section 501(a), and
                  ``(B) a plan under which amounts are contributed by 
                an individual's employer for an annuity contract 
                described in section 403(b).
          ``(2) Elective deferral.--The term `elective deferral' means 
        any elective deferral described in subparagraph (A) or (C) of 
        section 402(g)(3).''.
  (b) Excess Deferrals.--Section 402(g) (relating to limitation on 
exclusion for elective deferrals) is amended--
          (1) by adding at the end of paragraph (1) the following new 
        sentence: ``The preceding sentence shall not apply to so much 
        of such excess as does not exceed the designated plus 
        contributions of the individual for the taxable year.''; and
          (2) by inserting ``(or would be included but for the last 
        sentence thereof)'' after ``paragraph (1)'' in paragraph 
        (2)(A).
  (c) Rollovers.--Subparagraph (B) of section 402(c)(8) is amended by 
adding at the end the following:
                ``If any portion of an eligible rollover distribution 
                is attributable to payments or distributions from a 
                designated plus account (as defined in section 402A), 
                an eligible retirement plan with respect to such 
                portion shall include only another designated plus 
                account and a Roth IRA.''.
  (d) Reporting Requirements.--
          (1) W-2 information.--Section 6051(a)(8) is amended by 
        inserting ``, including the amount of designated plus 
        contributions (as defined in section 402A)'' before the comma 
        at the end.
          (2) Information.--Section 6047 is amended by redesignating 
        subsection (f) as subsection (g) and by inserting after 
        subsection (e) the following new subsection:
  ``(f) Designated Plus Contributions.--The Secretary shall require the 
plan administrator of each applicable retirement plan (as defined in 
section 402A) to make such returns and reports regarding designated 
plus contributions (as so defined) to the Secretary, participants and 
beneficiaries of the plan, and such other persons as the Secretary may 
prescribe.''.
  (e) Conforming Amendments.--
          (1) Section 408A(e) is amended by adding after the first 
        sentence the following new sentence: ``Such term includes a 
        rollover contribution described in section 402A(c)(3)(A).''.
          (2) 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 402 the following new item:

                              ``Sec. 402A. Optional treatment of 
                                        elective deferrals as plus 
                                        contributions.''.

  (f) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2000.

                TITLE III--ENHANCING FAIRNESS FOR WOMEN

SEC. 301. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER.

  (a) In General.--Section 414 (relating to definitions and special 
rules) is amended by adding at the end the following new subsection:
  ``(v) Catch-up Contributions for Individuals Age 50 or Over.--
          ``(1) In general.--An applicable employer plan shall not be 
        treated as failing to meet any requirement of this title solely 
        because the plan permits an eligible participant to make 
        additional elective deferrals in any plan year.
          ``(2) Limitation on amount of additional deferrals.--A plan 
        shall not permit additional elective deferrals under paragraph 
        (1) for any year in an amount greater than the lesser of--
                  ``(A) $5,000, or
                  ``(B) the excess (if any) of--
                          ``(i) the participant's compensation for the 
                        year, over
                          ``(ii) any other elective deferrals of the 
                        participant for such year which are made 
                        without regard to this subsection.
          ``(3) Treatment of contributions.--In the case of any 
        contribution to a plan under paragraph (1), such contribution 
        shall not, with respect to the year in which the contribution 
        is made--
                  ``(A) be subject to any otherwise applicable 
                limitation contained in section 402(g), 402(h)(2), 
                404(a), 404(h), 408(p)(2)(A)(ii), 415, or 457, or
                  ``(B) be taken into account in applying such 
                limitations to other contributions or benefits under 
                such plan or any other such plan.
          ``(4) Eligible participant.--For purposes of this subsection, 
        the term `eligible participant' means, with respect to any plan 
        year, a participant in a plan--
                  ``(A) who has attained the age of 50 before the close 
                of the plan year, and
                  ``(B) with respect to whom no other elective 
                deferrals may (without regard to this subsection) be 
                made to the plan for the plan year by reason of the 
                application of any limitation or other restriction 
                described in paragraph (3) or comparable limitation 
                contained in the terms of the plan.
          ``(5) Other definitions and rules.--For purposes of this 
        subsection--
                  ``(A) Applicable employer plan.--The term `applicable 
                employer plan' means--
                          ``(i) an employees' trust described in 
                        section 401(a) which is exempt from tax under 
                        section 501(a),
                          ``(ii) a plan under which amounts are 
                        contributed by an individual's employer for an 
                        annuity contract described in section 403(b),
                          ``(iii) an eligible deferred compensation 
                        plan under section 457 of an eligible employer 
                        as defined in section 457(e)(1)(A), and
                          ``(iv) an arrangement meeting the 
                        requirements of section 408 (k) or (p).
                  ``(B) Elective deferral.--The term `elective 
                deferral' has the meaning given such term by subsection 
                (u)(2)(C).
                  ``(C) Exception for section 457 plans.--This 
                subsection shall not apply to an applicable employer 
                plan described in subparagraph (A)(iii) for any year to 
                which section 457(b)(3) applies.
                  ``(D) Cost-of-living adjustment.--For years beginning 
                after December 31, 2005, the Secretary shall adjust 
                annually the $5,000 amount in subparagraph (A) for 
                increases in the cost-of-living at the same time and in 
                the same manner as adjustments under section 415(d); 
                except that the base period shall be the calendar 
                quarter beginning July 1, 2004, and any increase which 
                is not a multiple of $500 shall be rounded to the next 
                lowest multiple of $500.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to contributions in taxable years beginning after December 31, 2000.

SEC. 302. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO DEFINED 
                    CONTRIBUTION PLANS.

  (a) Equitable Treatment.--
          (1) In general.--Subparagraph (B) of section 415(c)(1) 
        (relating to limitation for defined contribution plans) is 
        amended by striking ``25 percent'' and inserting ``100 
        percent''.
          (2) Application to section 403(b).--Section 403(b) is 
        amended--
                  (A) by striking ``the exclusion allowance for such 
                taxable year'' in paragraph (1) and inserting ``the 
                applicable limit under section 415'';
                  (B) by striking paragraph (2); and
                  (C) by inserting ``or any amount received by a former 
                employee after the fifth taxable year following the 
                taxable year in which such employee was terminated'' 
                before the period at the end of the second sentence of 
                paragraph (3).
          (3) Conforming amendments.--
                  (A) Subsection (f) of section 72 is amended by 
                striking ``section 403(b)(2)(D)(iii))'' and inserting 
                ``section 403(b)(2)(D)(iii), as in effect before the 
                enactment of the Comprehensive Retirement Security and 
                Pension Reform Act of 2000)''.
                  (B) Section 404(a)(10)(B) is amended by striking ``, 
                the exclusion allowance under section 403(b)(2),''.
                  (C) Section 415(a)(2) is amended by striking ``, and 
                the amount of the contribution for such portion shall 
                reduce the exclusion allowance as provided in section 
                403(b)(2)''.
                  (D) Section 415(c)(3) is amended by adding at the end 
                the following new subparagraph:
                  ``(E) Annuity contracts.--In the case of an annuity 
                contract described in section 403(b), the term 
                `participant's compensation' means the participant's 
                includible compensation determined under section 
                403(b)(3).''.
                  (E) Section 415(c) is amended by striking paragraph 
                (4).
                  (F) Section 415(c)(7) is amended to read as follows:
          ``(7) Certain contributions by church plans not treated as 
        exceeding limit.--
                  ``(A) In general.--Notwithstanding any other 
                provision of this subsection, at the election of a 
                participant who is an employee of a church or a 
                convention or association of churches, including an 
                organization described in section 414(e)(3)(B)(ii), 
                contributions and other additions for an annuity 
                contract or retirement income account described in 
                section 403(b) with respect to such participant, when 
                expressed as an annual addition to such participant's 
                account, shall be treated as not exceeding the 
                limitation of paragraph (1) if such annual addition is 
                not in excess of $10,000.
                  ``(B) $40,000 aggregate limitation.--The total amount 
                of additions with respect to any participant which may 
                be taken into account for purposes of this subparagraph 
                for all years may not exceed $40,000.
                  ``(C) Annual addition.--For purposes of this 
                paragraph, the term `annual addition' has the meaning 
                given such term by paragraph (2).''.
                  (G) Subparagraph (B) of section 402(g)(7) (as 
                redesignated by section 211) is amended by inserting 
                before the period at the end the following: ``(as in 
                effect before the enactment of the Comprehensive 
                Retirement Security and Pension Reform Act of 2000)''.
          (3) Effective date.--The amendments made by this subsection 
        shall apply to years beginning after December 31, 2000.
  (b) Special Rules for Sections 403(b) and 408.--
          (1) In general.--Subsection (k) of section 415 is amended by 
        adding at the end the following new paragraph:
          ``(4) Special rules for sections 403(b) and 408.--For 
        purposes of this section, any annuity contract described in 
        section 403(b) for the benefit of a participant shall be 
        treated as a defined contribution plan maintained by each 
        employer with respect to which the participant has the control 
        required under subsection (b) or (c) of section 414 (as 
        modified by subsection (h)). For purposes of this section, any 
        contribution by an employer to a simplified employee pension 
        plan for an individual for a taxable year shall be treated as 
        an employer contribution to a defined contribution plan for 
        such individual for such year.''.
          (2) Effective date.--
                  (A) In general.--The amendment made by paragraph (1) 
                shall apply to limitation years beginning after 
                December 31, 1999.
                  (B) Exclusion allowance.--Effective for limitation 
                years beginning in 2000, in the case of any annuity 
                contract described in section 403(b) of the Internal 
                Revenue Code of 1986, the amount of the contribution 
                disqualified by reason of section 415(g) of such Code 
                shall reduce the exclusion allowance as provided in 
                section 403(b)(2) of such Code.
          (3) Modification of 403(b) exclusion allowance to conform to 
        415 modification.--The Secretary of the Treasury shall modify 
        the regulations regarding the exclusion allowance under section 
        403(b)(2) of the Internal Revenue Code of 1986 to render void 
        the requirement that contributions to a defined benefit pension 
        plan be treated as previously excluded amounts for purposes of 
        the exclusion allowance. For taxable years beginning after 
        December 31, 1999, such regulations shall be applied as if such 
        requirement were void.
  (c) Deferred Compensation Plans of State and Local Governments and 
Tax-Exempt Organizations.--
          (1) In general.--Subparagraph (B) of section 457(b)(2) 
        (relating to salary limitation on eligible deferred 
        compensation plans) is amended by striking ``33\1/3\ percent'' 
        and inserting ``100 percent''.
          (2) Effective date.--The amendment made by this subsection 
        shall apply to years beginning after December 31, 2000.

SEC. 303. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.

  (a) In General.--Section 411(a) (relating to minimum vesting 
standards) is amended--
          (1) in paragraph (2), by striking ``A plan'' and inserting 
        ``Except as provided in paragraph (12), a plan''; and
          (2) by adding at the end the following:
          ``(12) Faster vesting for matching contributions.--In the 
        case of matching contributions (as defined in section 
        401(m)(4)(A)), paragraph (2) shall be applied--
                  ``(A) by substituting `3 years' for `5 years' in 
                subparagraph (A), and
                  ``(B) by substituting the following table for the 
                table contained in subparagraph (B):

                  
                                                     The nonforfeitable
                ``Years of service:
                                                       percentage is:  
                  2........................................        20  
                  3........................................        40  
                  4........................................        60  
                  5........................................        80  
                  6........................................   100.''.  

  (b) Effective Dates.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to contributions 
        for plan years beginning after December 31, 2000.
          (2) Collective bargaining agreements.--In the case of a plan 
        maintained pursuant to one or more collective bargaining 
        agreements between employee representatives and one or more 
        employers ratified by the date of the enactment of this Act, 
        the amendments made by this section shall not apply to 
        contributions on behalf of employees covered by any such 
        agreement for plan years beginning before the earlier of--
                  (A) the later of--
                          (i) the date on which the last of such 
                        collective bargaining agreements terminates 
                        (determined without regard to any extension 
                        thereof on or after such date of the 
                        enactment); or
                          (ii) January 1, 2001; or
                  (B) January 1, 2005.
          (3) Service required.--With respect to any plan, the 
        amendments made by this section shall not apply to any employee 
        before the date that such employee has 1 hour of service under 
        such plan in any plan year to which the amendments made by this 
        section apply.

SEC. 304. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBUTION RULES.

  (a) Simplification and Finalization of Minimum Distribution 
Requirements.--
          (1) In general.--The Secretary of the Treasury shall--
                  (A) simplify and finalize the regulations relating to 
                minimum distribution requirements under sections 
                401(a)(9), 408(a)(6) and (b)(3), 403(b)(10), and 
                457(d)(2) of the Internal Revenue Code of 1986; and
                  (B) modify such regulations to--
                          (i) reflect current life expectancy; and
                          (ii) revise the required distribution methods 
                        so that, under reasonable assumptions, the 
                        amount of the required minimum distribution 
                        does not decrease over a participant's life 
                        expectancy.
          (2) Fresh start.--Notwithstanding subparagraph (D) of section 
        401(a)(9) of such Code, during the first year that regulations 
        are in effect under this subsection, required distributions for 
        future years may be redetermined to reflect changes under such 
        regulations. Such redetermination shall include the opportunity 
        to choose a new designated beneficiary and to elect a new 
        method of calculating life expectancy.
          (3) Effective date for regulations.--Regulations referred to 
        in paragraph (1) shall be effective for years beginning after 
        December 31, 2000, and shall apply in such years without regard 
        to whether an individual had previously begun receiving minimum 
        distributions.
  (b) Repeal of Rule Where Distributions Had Begun Before Death 
Occurs.--
          (1) In general.--Subparagraph (B) of section 401(a)(9) is 
        amended by striking clause (i) and redesignating clauses (ii), 
        (iii), and (iv) as clauses (i), (ii), and (iii), respectively.
          (2) Conforming changes.--
                  (A) Clause (i) of section 401(a)(9)(B) (as so 
                redesignated) is amended--
                          (i) by striking ``for other cases'' in the 
                        heading; and
                          (ii) by striking ``the distribution of the 
                        employee's interest has begun in accordance 
                        with subparagraph (A)(ii)'' and inserting ``his 
                        entire interest has been distributed to him''.
                  (B) Clause (ii) of section 401(a)(9)(B) (as so 
                redesignated) is amended by striking ``clause (ii)'' 
                and inserting ``clause (i)''.
                  (C) Clause (iii) of section 401(a)(9)(B) (as so 
                redesignated) is amended--
                          (i) by striking ``clause (iii)(I)'' and 
                        inserting ``clause (ii)(I)'';
                          (ii) by striking ``clause (iii)(III)'' in 
                        subclause (I) and inserting ``clause 
                        (ii)(III)'';
                          (iii) by striking ``the date on which the 
                        employee would have attained age 70\1/2\,'' in 
                        subclause (I) and inserting ``April 1 of the 
                        calendar year following the calendar year in 
                        which the spouse attains 70\1/2\,''; and
                          (iv) by striking ``the distributions to such 
                        spouse begin,'' in subclause (II) and inserting 
                        ``his entire interest has been distributed to 
                        him,''.
          (3) Effective date.--The amendments made by this subsection 
        shall apply to years beginning after December 31, 2000.
  (c) Reduction in Excise Tax.--
          (1) In general.--Subsection (a) of section 4974 is amended by 
        striking ``50 percent'' and inserting ``10 percent''.
          (2) Effective date.--The amendment made by this subsection 
        shall apply to years beginning after December 31, 2000.

SEC. 305. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SECTION 457 
                    PLAN BENEFITS UPON DIVORCE.

  (a) In General.--Section 414(p)(11) (relating to application of rules 
to governmental and church plans) is amended--
          (1) by inserting ``or an eligible deferred compensation plan 
        (within the meaning of section 457(b))'' after ``subsection 
        (e))''; and
          (2) in the heading, by striking ``governmental and church 
        plans'' and inserting ``certain other plans''.
  (b) Waiver of Certain Distribution Requirements.--Paragraph (10) of 
section 414(p) is amended by striking ``and section 409(d)'' and 
inserting ``section 409(d), and section 457(d)''.
  (c) Tax Treatment of Payments From a Section 457 Plan.--Subsection 
(p) of section 414 is amended by redesignating paragraph (12) as 
paragraph (13) and inserting after paragraph (11) the following new 
paragraph:
          ``(12) Tax treatment of payments from a section 457 plan.--If 
        a distribution or payment from an eligible deferred 
        compensation plan described in section 457(b) is made pursuant 
        to a qualified domestic relations order, rules similar to the 
        rules of section 402(e)(1)(A) shall apply to such distribution 
        or payment.''.
  (d) Effective Date.--The amendments made by this section shall apply 
to transfers, distributions, and payments made after December 31, 2000.

SEC. 306. MODIFICATION OF SAFE HARBOR RELIEF FOR HARDSHIP WITHDRAWALS 
                    FROM CASH OR DEFERRED ARRANGEMENTS.

  (a) In General.--The Secretary of the Treasury shall revise the 
regulations relating to hardship distributions under section 
401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986 to provide 
that the period an employee is prohibited from making elective and 
employee contributions in order for a distribution to be deemed 
necessary to satisfy financial need shall be equal to 6 months.
  (b) Effective Date.--The revised regulations under subsection (a) 
shall apply to years beginning after December 31, 2000.

           TITLE IV--INCREASING PORTABILITY FOR PARTICIPANTS

SEC. 401. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.

  (a) Rollovers From and to Section 457 Plans.--
          (1) Rollovers from section 457 plans.--
                  (A) In general.--Section 457(e) (relating to other 
                definitions and special rules) is amended by adding at 
                the end the following:
          ``(16) Rollover amounts.--
                  ``(A) General rule.--In the case of an eligible 
                deferred compensation plan established and maintained 
                by an employer described in subsection (e)(1)(A), if--
                          ``(i) any portion of the balance to the 
                        credit of an employee in such plan is paid to 
                        such employee in an eligible rollover 
                        distribution (within the meaning of section 
                        402(c)(4) without regard to subparagraph (C) 
                        thereof),
                          ``(ii) the employee transfers any portion of 
                        the property such employee receives in such 
                        distribution to an eligible retirement plan 
                        described in section 402(c)(8)(B), and
                          ``(iii) in the case of a distribution of 
                        property other than money, the amount so 
                        transferred consists of the property 
                        distributed,
                then such distribution (to the extent so transferred) 
                shall not be includible in gross income for the taxable 
                year in which paid.
                  ``(B) Certain rules made applicable.--The rules of 
                paragraphs (2) through (7) (other than paragraph 
                (4)(C)) and (9) of section 402(c) and section 402(f) 
                shall apply for purposes of subparagraph (A).
                  ``(C) Reporting.--Rollovers under this paragraph 
                shall be reported to the Secretary in the same manner 
                as rollovers from qualified retirement plans (as 
                defined in section 4974(c)).''.
                  (B) Deferral limit determined without regard to 
                rollover amounts.--Section 457(b)(2) (defining eligible 
                deferred compensation plan) is amended by inserting 
                ``(other than rollover amounts)'' after ``taxable 
                year''.
                  (C) Direct rollover.--Paragraph (1) of section 457(d) 
                is amended by striking ``and'' at the end of 
                subparagraph (A), by striking the period at the end of 
                subparagraph (B) and inserting ``, and'', and by 
                inserting after subparagraph (B) the following:
                  ``(C) in the case of a plan maintained by an employer 
                described in subsection (e)(1)(A), the plan meets 
                requirements similar to the requirements of section 
                401(a)(31).
        Any amount transferred in a direct trustee-to-trustee transfer 
        in accordance with section 401(a)(31) shall not be includible 
        in gross income for the taxable year of transfer.''.
                  (D) Withholding.--
                          (i) Paragraph (12) of section 3401(a) is 
                        amended by adding at the end the following:
                  ``(E) under or to an eligible deferred compensation 
                plan which, at the time of such payment, is a plan 
                described in section 457(b) maintained by an employer 
                described in section 457(e)(1)(A); or''.
                          (ii) Paragraph (3) of section 3405(c) is 
                        amended to read as follows:
          ``(3) Eligible rollover distribution.--For purposes of this 
        subsection, the term `eligible rollover distribution' has the 
        meaning given such term by section 402(f)(2)(A).''.
                          (iii) Liability for withholding.--
                        Subparagraph (B) of section 3405(d)(2) is 
                        amended by striking ``or'' at the end of clause 
                        (ii), by striking the period at the end of 
                        clause (iii) and inserting ``, or'', and by 
                        adding at the end the following:
                          ``(iv) section 457(b).''.
          (2) Rollovers to section 457 plans.--
                  (A) In general.--Section 402(c)(8)(B) (defining 
                eligible retirement plan) is amended by striking 
                ``and'' at the end of clause (iii), by striking the 
                period at the end of clause (iv) and inserting ``, 
                and'', and by inserting after clause (iv) the following 
                new clause:
                          ``(v) an eligible deferred compensation plan 
                        described in section 457(b) of an employer 
                        described in section 457(e)(1)(A).''.
                  (B) Separate accounting.--Section 402(c) is amended 
                by adding at the end the following new paragraph:
          ``(11) Separate accounting.--Unless a plan described in 
        clause (v) of paragraph (8)(B) agrees to separately account for 
        amounts rolled into such plan from eligible retirement plans 
        not described in such clause, the plan described in such clause 
        may not accept transfers or rollovers from such retirement 
        plans.''.
                  (C) 10 percent additional tax.--Subsection (t) of 
                section 72 (relating to 10-percent additional tax on 
                early distributions from qualified retirement plans) is 
                amended by adding at the end the following new 
                paragraph:
          ``(9) Special rule for rollovers to section 457 plans.--For 
        purposes of this subsection, a distribution from an eligible 
        deferred compensation plan (as defined in section 457(b)) of an 
        employer described in section 457(e)(1)(A) shall be treated as 
        a distribution from a qualified retirement plan described in 
        4974(c)(1) to the extent that such distribution is attributable 
        to an amount transferred to an eligible deferred compensation 
        plan from a qualified retirement plan (as defined in section 
        4974(c)).''.
  (b) Allowance of Rollovers From and to 403(b) Plans.--
          (1) Rollovers from section 403(b) plans.--Section 
        403(b)(8)(A)(ii) (relating to rollover amounts) is amended by 
        striking ``such distribution'' and all that follows and 
        inserting ``such distribution to an eligible retirement plan 
        described in section 402(c)(8)(B), and''.
          (2) Rollovers to section 403(b) plans.--Section 402(c)(8)(B) 
        (defining eligible retirement plan), as amended by subsection 
        (a), is amended by striking ``and'' at the end of clause (iv), 
        by striking the period at the end of clause (v) and inserting 
        ``, and'', and by inserting after clause (v) the following new 
        clause:
                          ``(vi) an annuity contract described in 
                        section 403(b).''.
  (c) Expanded Explanation to Recipients of Rollover Distributions.--
Paragraph (1) of section 402(f) (relating to written explanation to 
recipients of distributions eligible for rollover treatment) 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 
adding at the end the following new subparagraph:
                  ``(E) of the provisions under which distributions 
                from the eligible retirement plan receiving the 
                distribution may be subject to restrictions and tax 
                consequences which are different from those applicable 
                to distributions from the plan making such 
                distribution.''.
  (d) Spousal Rollovers.--Section 402(c)(9) (relating to rollover where 
spouse receives distribution after death of employee) is amended by 
striking ``; except that'' and all that follows up to the end period.
  (e) Conforming Amendments.--
          (1) Section 72(o)(4) is amended by striking ``and 408(d)(3)'' 
        and inserting ``403(b)(8), 408(d)(3), and 457(e)(16)''.
          (2) Section 219(d)(2) is amended by striking ``or 408(d)(3)'' 
        and inserting ``408(d)(3), or 457(e)(16)''.
          (3) Section 401(a)(31)(B) is amended by striking ``and 
        403(a)(4)'' and inserting ``, 403(a)(4), 403(b)(8), and 
        457(e)(16)''.
          (4) Subparagraph (A) of section 402(f)(2) is amended by 
        striking ``or paragraph (4) of section 403(a)'' and inserting 
        ``, paragraph (4) of section 403(a), subparagraph (A) of 
        section 403(b)(8), or subparagraph (A) of section 457(e)(16)''.
          (5) Paragraph (1) of section 402(f) is amended by striking 
        ``from an eligible retirement plan''.
          (6) Subparagraphs (A) and (B) of section 402(f)(1) are 
        amended by striking ``another eligible retirement plan'' and 
        inserting ``an eligible retirement plan''.
          (7) Subparagraph (B) of section 403(b)(8) is amended to read 
        as follows:
                  ``(B) Certain rules made applicable.--The rules of 
                paragraphs (2) through (7) and (9) of section 402(c) 
                and section 402(f) shall apply for purposes of 
                subparagraph (A), except that section 402(f) shall be 
                applied to the payor in lieu of the plan 
                administrator.''.
          (8) Section 408(a)(1) is amended by striking ``or 
        403(b)(8),'' and inserting ``403(b)(8), or 457(e)(16)''.
          (9) Subparagraphs (A) and (B) of section 415(b)(2) are each 
        amended by striking ``and 408(d)(3)'' and inserting 
        ``403(b)(8), 408(d)(3), and 457(e)(16)''.
          (10) Section 415(c)(2) is amended by striking ``and 
        408(d)(3)'' and inserting ``408(d)(3), and 457(e)(16)''.
          (11) Section 4973(b)(1)(A) is amended by striking ``or 
        408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
  (f) Effective Date; Special Rule.--
          (1) Effective date.--The amendments made by this section 
        shall apply to distributions after December 31, 2000.
          (2) Special rule.--Notwithstanding any other provision of 
        law, subsections (h)(3) and (h)(5) of section 1122 of the Tax 
        Reform Act of 1986 shall not apply to any distribution from an 
        eligible retirement plan (as defined in clause (iii) or (iv) of 
        section 402(c)(8)(B) of the Internal Revenue Code of 1986) on 
        behalf of an individual if there was a rollover to such plan on 
        behalf of such individual which is permitted solely by reason 
        of any amendment made by this section.

SEC. 402. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.

  (a) In General.--Subparagraph (A) of section 408(d)(3) (relating to 
rollover amounts) is amended by adding ``or'' at the end of clause (i), 
by striking clauses (ii) and (iii), and by adding at the end the 
following:
                          ``(ii) the entire amount received (including 
                        money and any other property) is paid into an 
                        eligible retirement plan for the benefit of 
                        such individual not later than the 60th day 
                        after the date on which the payment or 
                        distribution is received, except that the 
                        maximum amount which may be paid into such plan 
                        may not exceed the portion of the amount 
                        received which is includible in gross income 
                        (determined without regard to this paragraph).
                For purposes of clause (ii), the term `eligible 
                retirement plan' means an eligible retirement plan 
                described in clause (iii), (iv), (v), or (vi) of 
                section 402(c)(8)(B).''.
  (b) Conforming Amendments.--
          (1) Paragraph (1) of section 403(b) is amended by striking 
        ``section 408(d)(3)(A)(iii)'' and inserting ``section 
        408(d)(3)(A)(ii)''.
          (2) Clause (i) of section 408(d)(3)(D) is amended by striking 
        ``(i), (ii), or (iii)'' and inserting ``(i) or (ii)''.
          (3) Subparagraph (G) of section 408(d)(3) is amended to read 
        as follows:
                  ``(G) Simple retirement accounts.--In the case of any 
                payment or distribution out of a simple retirement 
                account (as defined in subsection (p)) to which section 
                72(t)(6) applies, this paragraph shall not apply unless 
                such payment or distribution is paid into another 
                simple retirement account.''.
  (c) Effective Date; Special Rule.--
          (1) Effective date.--The amendments made by this section 
        shall apply to distributions after December 31, 2000.
          (2) Special rule.--Notwithstanding any other provision of 
        law, subsections (h)(3) and (h)(5) of section 1122 of the Tax 
        Reform Act of 1986 shall not apply to any distribution from an 
        eligible retirement plan (as defined in clause (iii) or (iv) of 
        section 402(c)(8)(B) of the Internal Revenue Code of 1986) on 
        behalf of an individual if there was a rollover to such plan on 
        behalf of such individual which is permitted solely by reason 
        of the amendments made by this section.

SEC. 403. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

  (a) Rollovers From Exempt Trusts.--Paragraph (2) of section 402(c) 
(relating to maximum amount which may be rolled over) is amended by 
adding at the end the following: ``The preceding sentence shall not 
apply to such distribution to the extent--
                  ``(A) such portion is transferred in a direct 
                trustee-to-trustee transfer to a qualified trust which 
                is part of a plan which is a defined contribution plan 
                and which agrees to separately account for amounts so 
                transferred, including separately accounting for the 
                portion of such distribution which is includible in 
                gross income and the portion of such distribution which 
                is not so includible, or
                  ``(B) such portion is transferred to an eligible 
                retirement plan described in clause (i) or (ii) of 
                paragraph (8)(B).''.
  (b) Optional Direct Transfer of Eligible Rollover Distributions.--
Subparagraph (B) of section 401(a)(31) (relating to limitation) is 
amended by adding at the end the following: ``The preceding sentence 
shall not apply to such distribution if the plan to which such 
distribution is transferred--
                          ``(i) agrees to separately account for 
                        amounts so transferred, including separately 
                        accounting for the portion of such distribution 
                        which is includible in gross income and the 
                        portion of such distribution which is not so 
                        includible, or
                          ``(ii) is an eligible retirement plan 
                        described in clause (i) or (ii) of section 
                        402(c)(8)(B).''.
  (c) Rules for Applying Section 72 to IRAs.--Paragraph (3) of section 
408(d) (relating to special rules for applying section 72) is amended 
by inserting at the end the following:
                  ``(H) Application of section 72.--
                          ``(i) In general.--If--
                                  ``(I) a distribution is made from an 
                                individual retirement plan, and
                                  ``(II) a rollover contribution is 
                                made to an eligible retirement plan 
                                described in section 402(c)(8)(B)(iii), 
                                (iv), (v), or (vi) with respect to all 
                                or part of such distribution,
                        then, notwithstanding paragraph (2), the rules 
                        of clause (ii) shall apply for purposes of 
                        applying section 72.
                          ``(ii) Applicable rules.--In the case of a 
                        distribution described in clause (i)--
                                  ``(I) section 72 shall be applied 
                                separately to such distribution,
                                  ``(II) notwithstanding the pro rata 
                                allocation of income on, and investment 
                                in, the contract to distributions under 
                                section 72, the portion of such 
                                distribution rolled over to an eligible 
                                retirement plan described in clause (i) 
                                shall be treated as from income on the 
                                contract (to the extent of the 
                                aggregate income on the contract from 
                                all individual retirement plans of the 
                                distributee), and
                                  ``(III) appropriate adjustments shall 
                                be made in applying section 72 to other 
                                distributions in such taxable year and 
                                subsequent taxable years.''.
  (d) Effective Date.--The amendments made by this section shall apply 
to distributions made after December 31, 2000.

SEC. 404. HARDSHIP EXCEPTION TO 60-DAY RULE.

  (a) Exempt Trusts.--Paragraph (3) of section 402(c) (relating to 
transfer must be made within 60 days of receipt) is amended to read as 
follows:
          ``(3) Transfer must be made within 60 days of receipt.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), paragraph (1) shall not apply to any transfer of a 
                distribution made after the 60th day following the day 
                on which the distributee received the property 
                distributed.
                  ``(B) Hardship exception.--The Secretary may waive 
                the 60-day requirement under subparagraph (A) where the 
                failure to waive such requirement would be against 
                equity or good conscience, including casualty, 
                disaster, or other events beyond the reasonable control 
                of the individual subject to such requirement.''.
  (b) IRAs.--Paragraph (3) of section 408(d) (relating to rollover 
contributions), as amended by section 403, is amended by adding after 
subparagraph (H) the following new subparagraph:
                  ``(I) Waiver of 60-day requirement.--The Secretary 
                may waive the 60-day requirement under subparagraphs 
                (A) and (D) where the failure to waive such requirement 
                would be against equity or good conscience, including 
                casualty, disaster, or other events beyond the 
                reasonable control of the individual subject to such 
                requirement.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to distributions after December 31, 2000.

SEC. 405. TREATMENT OF FORMS OF DISTRIBUTION.

  (a) Plan Transfers.--
          (1) In general.--Paragraph (6) of section 411(d) (relating to 
        accrued benefit not to be decreased by amendment) is amended by 
        adding at the end the following:
                  ``(D) Plan transfers.--
                          ``(i) In general.--A defined contribution 
                        plan (in this subparagraph referred to as the 
                        `transferee plan') shall not be treated as 
                        failing to meet the requirements of this 
                        subsection merely because the transferee plan 
                        does not provide some or all of the forms of 
                        distribution previously available under another 
                        defined contribution plan (in this subparagraph 
                        referred to as the `transferor plan') to the 
                        extent that--
                                  ``(I) the forms of distribution 
                                previously available under the 
                                transferor plan applied to the account 
                                of a participant or beneficiary under 
                                the transferor plan that was 
                                transferred from the transferor plan to 
                                the transferee plan pursuant to a 
                                direct transfer rather than pursuant to 
                                a distribution from the transferor 
                                plan,
                                  ``(II) the terms of both the 
                                transferor plan and the transferee plan 
                                authorize the transfer described in 
                                subclause (I),
                                  ``(III) the transfer described in 
                                subclause (I) was made pursuant to a 
                                voluntary election by the participant 
                                or beneficiary whose account was 
                                transferred to the transferee plan,
                                  ``(IV) the election described in 
                                subclause (III) was made after the 
                                participant or beneficiary received a 
                                notice describing the consequences of 
                                making the election,
                                  ``(V) if the transferor plan provides 
                                for an annuity as the normal form of 
                                distribution under the plan in 
                                accordance with section 417, the 
                                transfer is made with the consent of 
                                the participant's spouse (if any), and 
                                such consent meets requirements similar 
                                to the requirements imposed by section 
                                417(a)(2), and
                                  ``(VI) the transferee plan allows the 
                                participant or beneficiary described in 
                                subclause (III) to receive any 
                                distribution to which the participant 
                                or beneficiary is entitled under the 
                                transferee plan in the form of a single 
                                sum distribution.
                          ``(ii) Exception.--Clause (i) shall apply to 
                        plan mergers and other transactions having the 
                        effect of a direct transfer, including 
                        consolidations of benefits attributable to 
                        different employers within a multiple employer 
                        plan.
                  ``(E) Elimination of form of distribution.--Except to 
                the extent provided in regulations, a defined 
                contribution plan shall not be treated as failing to 
                meet the requirements of this section merely because of 
                the elimination of a form of distribution previously 
                available thereunder. This subparagraph shall not apply 
                to the elimination of a form of distribution with 
                respect to any participant unless--
                          ``(i) a single sum payment is available to 
                        such participant at the same time or times as 
                        the form of distribution being eliminated, and
                          ``(ii) such single sum payment is based on 
                        the same or greater portion of the 
                        participant's account as the form of 
                        distribution being eliminated.''.
          (2) Effective date.--The amendment made by this subsection 
        shall apply to years beginning after December 31, 2000.
  (b) Regulations.--
          (1) In general.--The last sentence of paragraph (6)(B) of 
        section 411(d) (relating to accrued benefit not to be decreased 
        by amendment) is amended to read as follows: ``The Secretary 
        shall by regulations provide that this subparagraph shall not 
        apply to any plan amendment that does not adversely affect the 
        rights of participants in a material manner.''.
          (2) Secretary directed.--Not later than December 31, 2001, 
        the Secretary of the Treasury is directed to issue final 
        regulations under section 411(d)(6) of the Internal Revenue 
        Code of 1986, including the regulations required by the 
        amendments made by this subsection. Such regulations shall 
        apply to plan years beginning after December 31, 2001, or such 
        earlier date as is specified by the Secretary of the Treasury.

SEC. 406. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.

  (a) Modification of Same Desk Exception.--
          (1) Section 401(k).--
                  (A) Section 401(k)(2)(B)(i)(I) (relating to qualified 
                cash or deferred arrangements) is amended by striking 
                ``separation from service'' and inserting ``severance 
                from employment''.
                  (B) Subparagraph (A) of section 401(k)(10) (relating 
                to distributions upon termination of plan or 
                disposition of assets or subsidiary) is amended to read 
                as follows:
                  ``(A) In general.--An event described in this 
                subparagraph is the termination of the plan without 
                establishment or maintenance of another defined 
                contribution plan (other than an employee stock 
                ownership plan as defined in section 4975(e)(7)).''.
                  (C) Section 401(k)(10) is amended--
                          (i) in subparagraph (B)--
                                  (I) by striking ``An event'' in 
                                clause (i) and inserting ``A 
                                termination''; and
                                  (II) by striking ``the event'' in 
                                clause (i) and inserting ``the 
                                termination'';
                          (ii) by striking subparagraph (C); and
                          (iii) by striking ``or disposition of assets 
                        or subsidiary'' in the heading.
          (2) Section 403(b).--
                  (A) Paragraphs (7)(A)(ii) and (11)(A) of section 
                403(b) are each amended by striking ``separates from 
                service'' and inserting ``has a severance from 
                employment''.
                  (B) The heading for paragraph (11) of section 403(b) 
                is amended by striking ``separation from service'' and 
                inserting ``severance from employment''.
          (3) Section 457.--Clause (ii) of section 457(d)(1)(A) is 
        amended by striking ``is separated from service'' and inserting 
        ``has a severance from employment''.
  (b) Effective Date.--The amendments made by this section shall apply 
to distributions after December 31, 2000.

SEC. 407. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED BENEFIT 
                    PLANS.

  (a) 403(b) Plans.--Subsection (b) of section 403 is amended by adding 
at the end the following new paragraph:
          ``(13) Trustee-to-trustee transfers to purchase permissive 
        service credit.--No amount shall be includible in gross income 
        by reason of a direct trustee-to-trustee transfer to a defined 
        benefit governmental plan (as defined in section 414(d)) if 
        such transfer is--
                  ``(A) for the purchase of permissive service credit 
                (as defined in section 415(n)(3)(A)) under such plan, 
                or
                  ``(B) a repayment to which section 415 does not apply 
                by reason of subsection (k)(3) thereof.''.
  (b) 457 Plans.--Subsection (e) of section 457 is amended by adding 
after paragraph (16) the following new paragraph:
          ``(17) Trustee-to-trustee transfers to purchase permissive 
        service credit.--No amount shall be includible in gross income 
        by reason of a direct trustee-to-trustee transfer to a defined 
        benefit governmental plan (as defined in section 414(d)) if 
        such transfer is--
                  ``(A) for the purchase of permissive service credit 
                (as defined in section 415(n)(3)(A)) under such plan, 
                or
                  ``(B) a repayment to which section 415 does not apply 
                by reason of subsection (k)(3) thereof.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to trustee-to-trustee transfers after December 31, 2000.

SEC. 408. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF CASH-OUT 
                    AMOUNTS.

  (a) Qualified Plans.--Section 411(a)(11) (relating to restrictions on 
certain mandatory distributions) is amended by adding at the end the 
following:
                  ``(D) Special rule for rollover contributions.--A 
                plan shall not fail to meet the requirements of this 
                paragraph if, under the terms of the plan, the present 
                value of the nonforfeitable accrued benefit is 
                determined without regard to that portion of such 
                benefit which is attributable to rollover contributions 
                (and earnings allocable thereto). For purposes of this 
                subparagraph, the term `rollover contributions' means 
                any rollover contribution under sections 402(c), 
                403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 
                457(e)(16).''.
  (b) Eligible Deferred Compensation Plans.--Clause (i) of section 
457(e)(9)(A) is amended by striking ``such amount'' and inserting ``the 
portion of such amount which is not attributable to rollover 
contributions (as defined in section 411(a)(11)(D))''.
  (c) Effective Date.--The amendments made by this section shall apply 
to distributions after December 31, 2000.

SEC. 409. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR SECTION 
                    457 PLANS.

  (a) Minimum Distribution Requirements.--Paragraph (2) of section 
457(d) (relating to distribution requirements) is amended to read as 
follows:
          ``(2) Minimum distribution requirements.--A plan meets the 
        minimum distribution requirements of this paragraph if such 
        plan meets the requirements of section 401(a)(9).''.
  (b) Inclusion in Gross Income.--
          (1) Year of inclusion.--Subsection (a) of section 457 
        (relating to year of inclusion in gross income) is amended to 
        read as follows:
  ``(a) Year of inclusion in gross income.--
          ``(1) In general.--Any amount of compensation deferred under 
        an eligible deferred compensation plan, and any income 
        attributable to the amounts so deferred, shall be includible in 
        gross income only for the taxable year in which such 
        compensation or other income--
                  ``(A) is paid to the participant or other 
                beneficiary, in the case of a plan of an eligible 
                employer described in subsection (e)(1)(A), and
                  ``(B) is paid or otherwise made available to the 
                participant or other beneficiary, in the case of a plan 
                of an eligible employer described in subsection 
                (e)(1)(B).
          ``(2) Special rule for rollover amounts.--To the extent 
        provided in section 72(t)(9), section 72(t) shall apply to any 
        amount includible in gross income under this subsection.''.
          (2) Conforming amendments.--
                  (A) So much of paragraph (9) of section 457(e) as 
                precedes subparagraph (A) is amended to read as 
                follows:
          ``(9) Benefits of tax exempt organization plans not treated 
        as made available by reason of certain elections, etc.--In the 
        case of an eligible deferred compensation plan of an employer 
        described in subsection (e)(1)(B)''.
                  (B) Section 457(d) is amended by adding at the end 
                the following new paragraph:
          ``(3) Special rule for government plan.--An eligible deferred 
        compensation plan of an employer described in subsection 
        (e)(1)(A) shall not be treated as failing to meet the 
        requirements of this subsection solely by reason of making a 
        distribution described in subsection (e)(9)(A).''.
  (c) Effective Date.--The amendments made by this section shall apply 
to distributions after December 31, 2000.

        TITLE V--STRENGTHENING PENSION SECURITY AND ENFORCEMENT

SEC. 501. REPEAL OF 150 PERCENT OF CURRENT LIABILITY FUNDING LIMIT.

  (a) In General.--Section 412(c)(7) (relating to full-funding 
limitation) is amended--
          (1) by striking ``the applicable percentage'' in subparagraph 
        (A)(i)(I) and inserting ``in the case of plan years beginning 
        before January 1, 2004, the applicable percentage''; and
          (2) by amending subparagraph (F) to read as follows:
                  ``(F) Applicable percentage.--For purposes of 
                subparagraph (A)(i)(I), the applicable percentage shall 
                be determined in accordance with the following table:

                ``In the case of any plan year
                                                         The applicable
                  beginning in--
                                                        percentage is--
                  2001.....................................        160 
                  2002.....................................        165 
                  2003.....................................     170.''.

  (b) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2000.

SEC. 502. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND APPLIED TO 
                    ALL DEFINED BENEFIT PLANS.

  (a) In General.--Subparagraph (D) of section 404(a)(1) (relating to 
special rule in case of certain plans) is amended to read as follows:
                  ``(D) Special rule in case of certain plans.--
                          ``(i) In general.--In the case of any defined 
                        benefit plan, except as provided in 
                        regulations, the maximum amount deductible 
                        under the limitations of this paragraph shall 
                        not be less than the unfunded termination 
                        liability (determined as if the proposed 
                        termination date referred to in section 
                        4041(b)(2)(A)(i)(II) of the Employee Retirement 
                        Income Security Act of 1974 were the last day 
                        of the plan year).
                          ``(ii) Plans with less than 100 
                        participants.--For purposes of this 
                        subparagraph, in the case of a plan which has 
                        less than 100 participants for the plan year, 
                        termination liability shall not include the 
                        liability attributable to benefit increases for 
                        highly compensated employees (as defined in 
                        section 414(q)) resulting from a plan amendment 
                        which is made or becomes effective, whichever 
                        is later, within the last 2 years before the 
                        termination date.
                          ``(iii) Rule for determining number of 
                        participants.--For purposes of determining 
                        whether a plan has more than 100 participants, 
                        all defined benefit plans maintained by the 
                        same employer (or any member of such employer's 
                        controlled group (within the meaning of section 
                        412(l)(8)(C))) shall be treated as one plan, 
                        but only employees of such member or employer 
                        shall be taken into account.
                          ``(iv) Plans established and maintained by 
                        professional service employers.--Clause (i) 
                        shall not apply to a plan described in section 
                        4021(b)(13) of the Employee Retirement Income 
                        Security Act of 1974.''.
  (b) Conforming Amendment.--Paragraph (6) of section 4972(c) is 
amended to read as follows:
          ``(6) Exceptions.--In determining the amount of nondeductible 
        contributions for any taxable year, there shall not be taken 
        into account so much of the contributions to one or more 
        defined contribution plans which are not deductible when 
        contributed solely because of section 404(a)(7) as does not 
        exceed the greater of--
                  ``(A) the amount of contributions not in excess of 6 
                percent of compensation (within the meaning of section 
                404(a)) paid or accrued (during the taxable year for 
                which the contributions were made) to beneficiaries 
                under the plans, or
                  ``(B) the sum of--
                          ``(i) the amount of contributions described 
                        in section 401(m)(4)(A), plus
                          ``(ii) the amount of contributions described 
                        in section 402(g)(3)(A).
        For purposes of this paragraph, the deductible limits under 
        section 404(a)(7) shall first be applied to amounts contributed 
        to a defined benefit plan and then to amounts described in 
        subparagraph (B).''.
  (c) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2000.

SEC. 503. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.

  (a) In General.--Subsection (c) of section 4972 (relating to 
nondeductible contributions) is amended by adding at the end the 
following new paragraph:
          ``(7) Defined benefit plan exception.--In determining the 
        amount of nondeductible contributions for any taxable year, an 
        employer may elect for such year not to take into account any 
        contributions to a defined benefit plan except to the extent 
        that such contributions exceed the full-funding limitation (as 
        defined in section 412(c)(7), determined without regard to 
        subparagraph (A)(i)(I) thereof). For purposes of this 
        paragraph, the deductible limits under section 404(a)(7) shall 
        first be applied to amounts contributed to defined contribution 
        plans and then to amounts described in this paragraph. If an 
        employer makes an election under this paragraph for a taxable 
        year, paragraph (6) shall not apply to such employer for such 
        taxable year.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2000.

SEC. 504. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED BENEFIT 
                    PLANS SIGNIFICANTLY REDUCING FUTURE BENEFIT 
                    ACCRUALS.

  (a) In General.--Chapter 43 (relating to qualified pension, etc., 
plans) is amended by adding at the end the following new section:

``SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO 
                    SATISFY NOTICE REQUIREMENTS.

  ``(a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of any applicable pension plan to meet the requirements of 
subsection (e) with respect to any applicable individual.
  ``(b) Amount of Tax.--
          ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure with respect to any applicable 
        individual shall be $100 for each day in the noncompliance 
        period with respect to such failure.
          ``(2) Noncompliance period.--For purposes of this section, 
        the term `noncompliance period' means, with respect to any 
        failure, the period beginning on the date the failure first 
        occurs and ending on the date the failure is corrected.
  ``(c) Limitations on Amount of Tax.--
          ``(1) Overall limitation for unintentional failures.--In the 
        case of failures that are due to reasonable cause and not to 
        willful neglect, the tax imposed by subsection (a) for failures 
        during the taxable year of the employer (or, in the case of a 
        multiemployer plan, the taxable year of the trust forming part 
        of the plan) shall not exceed $500,000. For purposes of the 
        preceding sentence, all multiemployer plans of which the same 
        trust forms a part shall be treated as one plan. For purposes 
        of this paragraph, if not all persons who are treated as a 
        single employer for purposes of this section have the same 
        taxable year, the taxable years taken into account shall be 
        determined under principles similar to the principles of 
        section 1561.
          ``(2) Waiver by secretary.--In the case of a failure which is 
        due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive relative to the failure involved.
  ``(d) Liability for Tax.--The following shall be liable for the tax 
imposed by subsection (a):
          ``(1) In the case of a plan other than a multiemployer plan, 
        the employer.
          ``(2) In the case of a multiemployer plan, the plan.
  ``(e) Notice Requirements for Plans Significantly Reducing Benefit 
Accruals.--
          ``(1) In general.--If an applicable pension plan is amended 
        to provide for a significant reduction in the rate of future 
        benefit accrual, the plan administrator shall provide written 
        notice to each applicable individual (and to each employee 
        organization representing applicable individuals).
          ``(2) Notice.--The notice required by paragraph (1) shall be 
        written in a manner calculated to be understood by the average 
        plan participant and shall provide sufficient information (as 
        determined in accordance with regulations prescribed by the 
        Secretary) to allow applicable individuals to understand the 
        effect of the plan amendment.
          ``(3) Timing of notice.--Except as provided in regulations, 
        the notice required by paragraph (1) shall be provided within a 
        reasonable time before the effective date of the plan 
        amendment.
          ``(4) Designees.--Any notice under paragraph (1) may be 
        provided to a person designated, in writing, by the person to 
        which it would otherwise be provided.
          ``(5) Notice before adoption of amendment.--A plan shall not 
        be treated as failing to meet the requirements of paragraph (1) 
        merely because notice is provided before the adoption of the 
        plan amendment if no material modification of the amendment 
        occurs before the amendment is adopted.
  ``(f) Applicable Individual; Applicable Pension Plan.--For purposes 
of this section--
          ``(1) Applicable individual.--The term `applicable 
        individual' means, with respect to any plan amendment--
                  ``(A) any participant in the plan, and
                  ``(B) any beneficiary who is an alternate payee 
                (within the meaning of section 414(p)(8)) under an 
                applicable qualified domestic relations order (within 
                the meaning of section 414(p)(1)(A)),
        who may reasonably be expected to be affected by such plan 
        amendment.
          ``(2) Applicable pension plan.--The term `applicable pension 
        plan' means--
                  ``(A) any defined benefit plan, or
                  ``(B) an individual account plan which is subject to 
                the funding standards of section 412,
        which had 100 or more participants who had accrued a benefit, 
        or with respect to whom contributions were made, under the plan 
        (whether or not vested) as of the last day of the plan year 
        preceding the plan year in which the plan amendment becomes 
        effective. Such term shall not include a governmental plan 
        (within the meaning of section 414(d)) or a church plan (within 
        the meaning of section 414(e)) with respect to which the 
        election provided by section 410(d) has not been made.''.
  (b) Clerical Amendment.--The table of sections for chapter 43 is 
amended by adding at the end the following new item:

                               ``Sec. 4980F. Failure of applicable 
                                        plans reducing benefit accruals 
                                        to satisfy notice 
                                        requirements.''.

  (c) Effective Dates.--
          (1) In general.--The amendments made by this section shall 
        apply to plan amendments taking effect on or after the date of 
        the enactment of this Act.
          (2) Transition.--Until such time as the Secretary of the 
        Treasury issues regulations under sections 4980F(e)(2) and (3) 
        of the Internal Revenue Code of 1986 (as added by the 
        amendments made by this section), a plan shall be treated as 
        meeting the requirements of such sections if it makes a good 
        faith effort to comply with such requirements.
          (3) Special rule.--The period for providing any notice 
        required by the amendments made by this section shall not end 
        before the date which is 3 months after the date of the 
        enactment of this Act.
  (d) Study.--The Secretary of the Treasury shall prepare a report on 
the effects of conversions of traditional defined benefit plans to cash 
balance or hybrid formula plans. Such study shall examine the effect of 
such conversions on longer service participants, including the 
incidence and effects of ``wear away'' provisions under which 
participants earn no additional benefits for a period of time after the 
conversion. As soon as practicable, but not later than 60 days after 
the date of the enactment of this Act, the Secretary shall submit such 
report, together with recommendations thereon, to the Committee on Ways 
and Means of the House of Representatives and the Committee on Finance 
of the Senate.

SEC. 505. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

  (a) Compensation Limit.--Paragraph (11) of section 415(b) (relating 
to limitation for defined benefit plans) is amended to read as follows:
          ``(11) Special limitation rule for governmental and 
        multiemployer plans.--In the case of a governmental plan (as 
        defined in section 414(d)) or amultiemployer plan (as defined 
in section 414(f)), subparagraph (B) of paragraph (1) shall not 
apply.''.
  (b) Combining and Aggregation of Plans.--
          (1) Combining of plans.--Subsection (f) of section 415 
        (relating to combining of plans) is amended by adding at the 
        end the following:
          ``(3) Exception for multiemployer plans.--Notwithstanding 
        paragraph (1) and subsection (g), a multiemployer plan (as 
        defined in section 414(f)) shall not be combined or aggregated 
        with any other plan maintained by an employer for purposes of 
        applying the limitations established in this section, except 
        that such plan shall be combined or aggregated with another 
        plan which is not such a multiemployer plan solely for purposes 
        of determining whether such other plan meets the requirements 
        of subsections (b)(1)(A) and (c).''.
          (2) Conforming amendment for aggregation of plans.--
        Subsection (g) of section 415 (relating to aggregation of 
        plans) is amended by striking ``The Secretary'' and inserting 
        ``Except as provided in subsection (f)(3), the Secretary''.
  (c) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2000.

SEC. 506. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION ESOP.

  (a) In General.--Section 409 (relating to qualifications for tax 
credit employee stock ownership plans) is amended by redesignating 
subsection (p) as subsection (q) and by inserting after subsection (o) 
the following new subsection:
  ``(p) Prohibited Allocations of Securities in an S Corporation.--
          ``(1) In general.--An employee stock ownership plan holding 
        employer securities consisting of stock in an S corporation 
        shall provide that no portion of the assets of the plan 
        attributable to (or allocable in lieu of) such employer 
        securities may, during a nonallocation year, accrue (or be 
        allocated directly or indirectly under any plan of the employer 
        meeting the requirements of section 401(a)) for the benefit of 
        any disqualified person.
          ``(2) Failure to meet requirements.--
                  ``(A) In general.--If a plan fails to meet the 
                requirements of paragraph (1), the plan shall be 
                treated as having distributed to any disqualified 
                person the amount allocated to the account of such 
                person in violation of paragraph (1) at the time of 
                such allocation.
                  ``(B) Cross reference.--

                  ``For excise tax relating to violations of paragraph 
(1) and ownership of synthetic equity, see section 4979A.

          ``(3) Nonallocation year.--For purposes of this subsection--
                  ``(A) In general.--The term `nonallocation year' 
                means any plan year of an employee stock ownership plan 
                if, at any time during such plan year--
                          ``(i) such plan holds employer securities 
                        consisting of stock in an S corporation, and
                          ``(ii) disqualified persons own at least 50 
                        percent of the number of shares of stock in the 
                        S corporation.
                  ``(B) Attribution rules.--For purposes of 
                subparagraph (A)--
                          ``(i) In general.--The rules of section 
                        318(a) shall apply for purposes of determining 
                        ownership, except that--
                                  ``(I) in applying paragraph (1) 
                                thereof, the members of an individual's 
                                family shall include members of the 
                                family described in paragraph (4)(D), 
                                and
                                  ``(II) paragraph (4) thereof shall 
                                not apply.
                          ``(ii) Deemed-owned shares.--Notwithstanding 
                        the employee trust exception in section 
                        318(a)(2)(B)(i), individual shall be treated as 
                        owning deemed-owned shares of the individual.
                Solely for purposes of applying paragraph (5), this 
                subparagraph shall be applied after the attribution 
                rules of paragraph (5) have been applied.
          ``(4) Disqualified person.--For purposes of this subsection--
                  ``(A) In general.--The term `disqualified person' 
                means any person if--
                          ``(i) the aggregate number of deemed-owned 
                        shares of such person and the members of such 
                        person's family is at least 20 percent of the 
                        number of deemed-owned shares of stock in the S 
                        corporation, or
                          ``(ii) in the case of a person not described 
                        in clause (i), the number of deemed-owned 
                        shares of such person is at least 10 percent of 
                        the number of deemed-owned shares of stock in 
                        such corporation.
                  ``(B) Treatment of family members.--In the case of a 
                disqualified person described in subparagraph (A)(i), 
                any member of such person's family with deemed-owned 
                shares shall be treated as a disqualified person if not 
                otherwise treated as a disqualified person under 
                subparagraph (A).
                  ``(C) Deemed-owned shares.--
                          ``(i) In general.--The term `deemed-owned 
                        shares' means, with respect to any person--
                                  ``(I) the stock in the S corporation 
                                constituting employer securities of an 
                                employee stock ownership plan which is 
                                allocated to such person under the 
                                plan, and
                                  ``(II) such person's share of the 
                                stock in such corporation which is held 
                                by such plan but which is not allocated 
                                under the plan to participants.
                          ``(ii) Person's share of unallocated stock.--
                        For purposes of clause (i)(II), a person's 
                        share of unallocated S corporation stock held 
                        by such plan is the amount of the unallocated 
                        stock which would be allocated to such person 
                        if the unallocated stock were allocated to all 
                        participants in the same proportions as the 
                        most recent stock allocation under the plan.
                  ``(D) Member of family.--For purposes of this 
                paragraph, the term `member of the family' means, with 
                respect to any individual--
                          ``(i) the spouse of the individual,
                          ``(ii) an ancestor or lineal descendant of 
                        the individual or the individual's spouse,
                          ``(iii) a brother or sister of the individual 
                        or the individual's spouse and any lineal 
                        descendant of the brother or sister, and
                          ``(iv) the spouse of any individual described 
                        in clause (ii) or (iii).
                A spouse of an individual who is legally separated from 
                such individual under a decree of divorce or separate 
                maintenance shall not be treated as such individual's 
                spouse for purposes of this subparagraph.
          ``(5) Treatment of synthetic equity.--For purposes of 
        paragraphs (3) and (4), in the case of a person who owns 
        synthetic equity in the S corporation, except to the extent 
        provided in regulations, the shares of stock in such 
        corporation on which such synthetic equity is based shall be 
        treated as outstanding stock in such corporation and deemed-
        owned shares of such person if such treatment of synthetic 
        equity of 1 or more such persons results in--
                  ``(A) the treatment of any person as a disqualified 
                person, or
                  ``(B) the treatment of any year as a nonallocation 
                year.
        For purposes of this paragraph, synthetic equity shall be 
        treated as owned by a person in the same manner as stock is 
        treated as owned by a person under the rules of paragraphs (2) 
        and (3) of section 318(a). If, without regard to this 
        paragraph, a person is treated as a disqualified person or a 
        year is treated as a nonallocation year, this paragraph shall 
        not be construed to result in the person or year not being so 
        treated.
          ``(6) Definitions.--For purposes of this subsection--
                  ``(A) Employee stock ownership plan.--The term 
                `employee stock ownership plan' has the meaning given 
                such term by section 4975(e)(7).
                  ``(B) Employer securities.--The term `employer 
                security' has the meaning given such term by section 
                409(l).
                  ``(C) Synthetic equity.--The term `synthetic equity' 
                means any stock option, warrant, restricted stock, 
                deferred issuance stock right, or similar interest or 
                right that gives the holder the right to acquire or 
                receive stock of the S corporation in the future. 
                Except to the extent provided in regulations, synthetic 
                equity also includes a stock appreciation right, 
                phantom stock unit, or similar right to a future cash 
                payment based on the value of such stock or 
                appreciation in such value.
          ``(7) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the purposes of 
        this subsection.''.
  (b) Coordination With Section 4975(e)(7).--The last sentence of 
section 4975(e)(7) (defining employee stock ownership plan) is amended 
by inserting ``, section 409(p),'' after ``409(n)''.
  (c) Excise Tax.--
          (1) Application of tax.--Subsection (a) of section 4979A 
        (relating to tax on certain prohibited allocations of employer 
        securities) is amended--
                  (A) by striking ``or'' at the end of paragraph (1), 
                and
                  (B) by striking all that follows paragraph (2) and 
                inserting the following:
          ``(3) there is any allocation of employer securities which 
        violates the provisions of section 409(p), or a nonallocation 
        year described in subsection (e)(2)(C) with respect to an 
        employee stock ownership plan, or
          ``(4) any synthetic equity is owned by a disqualified person 
        in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership equal to 
50 percent of the amount involved.''.
          (2) Liability.--Section 4979A(c) (defining liability for tax) 
        is amended to read as follows:
  ``(c) Liability for Tax.--The tax imposed by this section shall be 
paid--
          ``(1) in the case of an allocation referred to in paragraph 
        (1) or (2) of subsection (a), by--
                  ``(A) the employer sponsoring such plan, or
                  ``(B) the eligible worker-owned cooperative,
        which made the written statement described in section 
        664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be), 
        and
          ``(2) in the case of an allocation or ownership referred to 
        in paragraph (3) or (4) of subsection (a), by the S corporation 
        the stock in which was so allocated or owned.''.
          (3) Definitions.--Section 4979A(e) (relating to definitions) 
        is amended to read as follows:
  ``(e) Definitions and Special Rules.--For purposes of this section--
          ``(1) Definitions.--Except as provided in paragraph (2), 
        terms used in this section have the same respective meanings as 
        when used in sections 409 and 4978.
          ``(2) Special rules relating to tax imposed by reason of 
        paragraph (3) or (4) of subsection (a).--
                  ``(A) Prohibited allocations.--The amount involved 
                with respect to any tax imposed by reason of subsection 
                (a)(3) is the amount allocated to the account of any 
                person in violation of section 409(p)(1).
                  ``(B) Synthetic equity.--The amount involved with 
                respect to any tax imposed by reason of subsection 
                (a)(4) is the value of the shares on which the 
                synthetic equity is based.
                  ``(C) Special rule during first nonallocation year.--
                For purposes of subparagraph (A), the amount involved 
                for the first nonallocation year of any employee stock 
                ownership plan shall be determined by taking into 
                account the total value of all the deemed-owned shares 
                of all disqualified persons with respect to such plan.
                  ``(D) Statute of limitations.--The statutory period 
                for the assessment of any tax imposed by this section 
                by reason of paragraph (3) or (4) of subsection (a) 
                shall not expire before the date which is 3 years from 
                the later of--
                          ``(i) the allocation or ownership referred to 
                        in such paragraph giving rise to such tax, or
                          ``(ii) the date on which the Secretary is 
                        notified of such allocation or ownership.''.
  (d) Effective Dates.--
          (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 2001.
          (2) Exception for certain plans.--In the case of any--
                  (A) employee stock ownership plan established after 
                July 11, 2000, or
                  (B) employee stock ownership plan established on or 
                before such date if employer securities held by the 
                plan consist of stock in a corporation with respect to 
                which an election under section 1362(a) of the Internal 
                Revenue Code of 1986 is not in effect on such date,
        the amendments made by this section shall apply to plan years 
        ending after July 11, 2000.

                 TITLE VI--REDUCING REGULATORY BURDENS

SEC. 601. MODIFICATION OF TIMING OF PLAN VALUATIONS.

  (a) In General.--Paragraph (9) of section 412(c)(9) (relating to 
annual valuation) is amended to read as follows:
          ``(9) Annual valuation.--
                  ``(A) In general.--For purposes of this section, a 
                determination of experience gains and losses and a 
                valuation of the plan's liability shall be made not 
                less frequently than once every year, except that such 
                determination shall be made more frequently to the 
                extent required in particular cases under regulations 
                prescribed by the Secretary.
                  ``(B) Valuation date.--
                          ``(i) Current year.--Except as provided in 
                        clause (ii), the valuation referred to in 
                        subparagraph (A) shall be made as of a date 
                        within the plan year to which the valuation 
                        refers or within one month prior to the 
                        beginning of such year.
                          ``(ii) Election to use prior year 
                        valuation.--The valuation referred to in 
                        subparagraph (A) may be made as of a date 
                        within the plan year prior to the year to which 
                        the valuation refers if--
                                  ``(I) an election is in effect under 
                                this clause with respect to the plan, 
                                and
                                  ``(II) as of such date, the value of 
                                the assets of the plan are not less 
                                than 125 percent of the plan's current 
                                liability (as defined in paragraph 
                                (7)(B)).
                          ``(iii) Adjustments.--Information under 
                        clause (ii) shall, in accordance with 
                        regulations, be actuarially adjusted to reflect 
                        significant differences in participants.
                          ``(iv) Election.--An election under clause 
                        (ii), once made, shall be irrevocable without 
                        the consent of the Secretary.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2000.

SEC. 602. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND 
                    DEDUCTION.

  (a) In General.--Section 404(k)(2)(A) (defining applicable dividends) 
is amended by striking ``or'' at the end of clause (ii), by 
redesignating clause (iii) as clause (iv), and by inserting after 
clause (ii) the following new clause:
                          ``(iii) is, at the election of such 
                        participants or their beneficiaries--
                                  ``(I) payable as provided in clause 
                                (i) or (ii), or
                                  ``(II) paid to the plan and 
                                reinvested in qualifying employer 
                                securities, or''.
  (b) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2000.

SEC. 603. REPEAL OF TRANSITION RULE RELATING TO CERTAIN HIGHLY 
                    COMPENSATED EMPLOYEES.

  (a) In General.--Paragraph (4) of section 1114(c) of the Tax Reform 
Act of 1986 is hereby repealed.
  (b) Effective Date.--The repeal made by subsection (a) shall apply to 
plan years beginning after December 31, 2000.

SEC. 604. EMPLOYEES OF TAX-EXEMPT ENTITIES.

  (a) In General.--The Secretary of the Treasury shall modify Treasury 
Regulations section 1.410(b)-6(g) to provide that employees of an 
organization described in section 403(b)(1)(A)(i) of the Internal 
Revenue Code of 1986 who are eligible to make contributions under 
section 403(b) of such Code pursuant to a salary reduction agreement 
may be treated as excludable with respect to a plan under section 
401(k) or (m) of such Code that is provided under the same general 
arrangement as a plan under such section 401(k), if--
          (1) no employee of an organization described in section 
        403(b)(1)(A)(i) of such Code is eligible to participate in such 
        section 401(k) plan or section 401(m) plan; and
          (2) 95 percent of the employees who are not employees of an 
        organization described in section 403(b)(1)(A)(i) of such Code 
        are eligible to participate in such plan under such section 
        401(k) or (m).
  (b) Effective Date.--The modification required by subsection (a) 
shall apply as of the same date set forth in section 1426(b) of the 
Small Business Job Protection Act of 1996.

SEC. 605. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT 
                    ADVICE.

  (a) In General.--Subsection (a) of section 132 (relating to exclusion 
from gross income) is amended by striking ``or'' at the end of 
paragraph (5), by striking the period at the end of paragraph (6) and 
inserting ``, or'', and by adding at the end the following new 
paragraph:
          ``(7) qualified retirement planning services.''.
  (b) Qualified Retirement Planning Services Defined.--Section 132 is 
amended by redesignating subsection (m) as subsection (n) and by 
inserting after subsection (l) the following:
  ``(m) Qualified Retirement Planning Services.--
          ``(1) In general.--For purposes of this section, the term 
        `qualified retirement planning services' means any retirement 
        planning service provided to an employee and his spouse by an 
        employer maintaining a qualified employer plan.
          ``(2) Nondiscrimination rule.--Subsection (a)(7) shall apply 
        in the case of highly compensated employees only if such 
        services are available on substantially the same terms to each 
        member of the group of employees normally provided education 
        and information regarding the employer's qualified employer 
        plan.
          ``(3) Qualified employer plan.--For purposes of this 
        subsection, the term `qualified employer plan' means a plan, 
        contract, pension, or account described in section 
        219(g)(5).''.
  (c) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2000.

SEC. 606. REPORTING SIMPLIFICATION.

  (a) Simplified Annual Filing Requirement for Owners and Their 
Spouses.--
          (1) In general.--The Secretary of the Treasury shall modify 
        the requirements for filing annual returns with respect to one-
        participant retirement plans to ensure that such plans with 
        assets of $250,000 or less as of the close of the plan year 
        need not file a return for that year.
          (2) One-participant retirement plan defined.--For purposes of 
        this subsection, the term ``one-participant retirement plan'' 
        means a retirement plan that--
                  (A) on the first day of the plan year--
                          (i) covered only the employer (and the 
                        employer's spouse) and the employer owned the 
                        entire business (whether or not incorporated); 
                        or
                          (ii) covered only one or more partners (and 
                        their spouses) in a business partnership 
                        (including partners in an S or C corporation);
                  (B) meets the minimum coverage requirements of 
                section 410(b) of the Internal Revenue Code of 1986 
                without being combined with any other plan of the 
                business that covers the employees of the business;
                  (C) does not provide benefits to anyone except the 
                employer (and the employer's spouse) or the partners 
                (and their spouses);
                  (D) does not cover a business that is a member of an 
                affiliated service group, a controlled group of 
                corporations, or a group of businesses under common 
                control; and
                  (E) does not cover a business that leases employees.
          (3) Other definitions.--Terms used in paragraph (2) which are 
        also used in section 414 of the Internal Revenue Code of 1986 
        shall have the respective meanings given such terms by such 
        section.
  (b) Simplified Annual Filing Requirement for Plans With Fewer Than 25 
Employees.--In the case of a retirement plan which covers less than 25 
employees on the first day of the plan year and meets the requirements 
described in subparagraphs (B), (D), and (E) of subsection (a)(2), the 
Secretary of the Treasury shall provide for the filing of a simplified 
annual return that is substantially similar to the annual return 
required to be filed by a one-participant retirement plan.
  (c) Effective Date.--The provisions of this section shall take effect 
on January 1, 2001.

SEC. 607. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.

  The Secretary of the Treasury shall continue to update and improve 
the Employee Plans Compliance Resolution System (or any successor 
program) giving special attention to--
          (1) increasing the awareness and knowledge of small employers 
        concerning the availability and use of the program;
          (2) taking into account special concerns and circumstances 
        that small employers face with respect to compliance and 
        correction of compliance failures;
          (3) extending the duration of the self-correction period 
        under the Administrative Policy Regarding Self-Correction for 
        significant compliance failures;
          (4) expanding the availability to correct insignificant 
        compliance failures under the Administrative Policy Regarding 
        Self-Correction during audit; and
          (5) assuring that any tax, penalty, or sanction that is 
        imposed by reason of a compliance failure is not excessive and 
        bears a reasonable relationship to the nature, extent, and 
        severity of the failure.

SEC. 608. REPEAL OF THE MULTIPLE USE TEST.

  (a) In General.--Paragraph (9) of section 401(m) is amended to read 
as follows:
          ``(9) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the purposes of 
        this subsection and subsection (k), including regulations 
        permitting appropriate aggregation of plans and 
        contributions.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2000.

SEC. 609. FLEXIBILITY IN NONDISCRIMINATION, COVERAGE, AND LINE OF 
                    BUSINESS RULES.

  (a) Nondiscrimination.--
          (1) In general.--The Secretary of the Treasury shall, by 
        regulation, provide that a plan shall be deemed to satisfy the 
        requirements of section 401(a)(4) of the Internal Revenue Code 
        of 1986 if such plan satisfies the facts and circumstances test 
        under section 401(a)(4) of such Code, as in effect before 
        January 1, 1994, but only if--
                  (A) the plan satisfies conditions prescribed by the 
                Secretary to appropriately limit the availability of 
                such test; and
                  (B) the plan is submitted to the Secretary for a 
                determination of whether it satisfies such test.
        Subparagraph (B) shall only apply to the extent provided by the 
        Secretary.
          (2) Effective dates.--
                  (A) Regulations.--The regulation required by 
                paragraph (1) shall apply to years beginning after 
                December 31, 2000.
                  (B) Conditions of availability.--Any condition of 
                availability prescribed by the Secretary under 
                paragraph (1)(A) shall not apply before the first year 
                beginning not less than 120 days after the date on 
                which such condition is prescribed.
  (b) Coverage Test.--
          (1) In general.--Section 410(b)(1) (relating to minimum 
        coverage requirements) is amended by adding at the end the 
        following:
                  ``(D) In the case that the plan fails to meet the 
                requirements of subparagraphs (A), (B) and (C), the 
                plan--
                          ``(i) satisfies subparagraph (B), as in 
                        effect immediately before the enactment of the 
                        Tax Reform Act of 1986,
                          ``(ii) is submitted to the Secretary for a 
                        determination of whether it satisfies the 
                        requirement described in clause (i), and
                          ``(iii) satisfies conditions prescribed by 
                        the Secretary by regulation that appropriately 
                        limit the availability of this subparagraph.
                Clause (ii) shall apply only to the extent provided by 
                the Secretary.''.
          (2) Effective dates.--
                  (A) In general.--The amendment made by paragraph (1) 
                shall apply to years beginning after December 31, 2000.
                  (B) Conditions of availability.--Any condition of 
                availability prescribed by the Secretary under 
                regulations prescribed by the Secretary under section 
                410(b)(1)(D) of the Internal Revenue Code of 1986 shall 
                not apply before the first year beginning not less than 
                120 days after the date on which such condition is 
                prescribed.
  (c) Line of Business Rules.--The Secretary of the Treasury shall, on 
or before December 31, 2000, modify the existing regulations issued 
under section 414(r) of the Internal Revenue Code of 1986 in order to 
expand (to the extent that the Secretary determines appropriate) the 
ability of a pension plan to demonstrate compliance with the line of 
business requirements based upon the facts and circumstances 
surrounding the design and operation of the plan, even though the plan 
is unable to satisfy the mechanical tests currently used to determine 
compliance.

SEC. 610. EXTENSION TO ALL GOVERNMENTAL PLANS OF MORATORIUM ON 
                    APPLICATION OF CERTAIN NONDISCRIMINATION RULES 
                    APPLICABLE TO STATE AND LOCAL PLANS.

  (a) In General.--
          (1) Subparagraph (G) of section 401(a)(5) and subparagraph 
        (H) of section 401(a)(26) are each amended by striking 
        ``section 414(d))'' and all that follows and inserting 
        ``section 414(d)).''.
          (2) Subparagraph (G) of section 401(k)(3) and paragraph (2) 
        of section 1505(d) of the Taxpayer Relief Act of 1997 are each 
        amended by striking ``maintained by a State or local government 
        or political subdivision thereof (or agency or instrumentality 
        thereof)''.
  (b) Conforming Amendments.--
          (1) The heading for subparagraph (G) of section 401(a)(5) is 
        amended to read as follows: ``Governmental plans''.
          (2) The heading for subparagraph (H) of section 401(a)(26) is 
        amended to read as follows: ``Exception for governmental 
        plans''.
          (3) Subparagraph (G) of section 401(k)(3) is amended by 
        inserting ``Governmental plans.--'' after ``(G)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2000.

SEC. 611. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.

  (a) Expansion of Period.--
          (1) In general.--Subparagraph (A) of section 417(a)(6) is 
        amended by striking ``90-day'' and inserting ``180-day''.
          (2) Modification of regulations.--The Secretary of the 
        Treasury shall modify the regulations under sections 402(f), 
        411(a)(11), and 417 of the Internal Revenue Code of 1986 to 
        substitute ``180 days'' for ``90 days'' each place it appears 
        in Treasury Regulations sections 1.402(f)-1, 1.411(a)-11(c), 
        and 1.417(e)-1(b).
          (3) Effective date.--The amendment made by paragraph (1) and 
        the modifications required by paragraph (2) shall apply to 
        years beginning after December 31, 2000.
  (b) Consent Regulation Inapplicable to Certain Distributions.--
          (1) In general.--The Secretary of the Treasury shall modify 
        the regulations under section 411(a)(11) of the Internal 
        Revenue Code of 1986 to provide that the description of a 
        participant's right, if any, to defer receipt of a distribution 
        shall also describe the consequences of failing to defer such 
        receipt.
          (2) Effective date.--The modifications required by paragraph 
        (1) shall apply to years beginning after December 31, 2000.

                       TITLE VII--PLAN AMENDMENTS

SEC. 701. PROVISIONS RELATING TO PLAN AMENDMENTS.

  (a) In General.--If this section applies to any plan or contract 
amendment--
          (1) such plan or contract shall be treated as being operated 
        in accordance with the terms of the plan during the period 
        described in subsection (b)(2)(A); and
          (2) such plan shall not fail to meet the requirements of 
        section 411(d)(6) of the Internal Revenue Code of 1986 by 
        reason of such amendment.
  (b) Amendments to Which Section Applies.--
          (1) In general.--This section shall apply to any amendment to 
        any plan or annuity contract which is made--
                  (A) pursuant to any amendment made by this Act, or 
                pursuant to any regulation issued under this Act, and
                  (B) on or before the last day of the first plan year 
                beginning on or after January 1, 2003.
        In the case of a governmental plan (as defined in section 
        414(d) of the Internal Revenue Code of 1986), this paragraph 
        shall be applied by substituting ``2005'' for ``2003''.
          (2) Conditions.--This section shall not apply to any 
        amendment unless--
                  (A) during the period--
                          (i) beginning on the date the legislative or 
                        regulatory amendment described in paragraph 
                        (1)(A) takes effect (or in the case of a plan 
                        or contract amendment not required by such 
                        legislative or regulatory amendment, the 
                        effective date specified by the plan); and
                          (ii) ending on the date described in 
                        paragraph (1)(B) (or, if earlier, the date the 
                        plan or contract amendment is adopted),
                the plan or contract is operated as if such plan or 
                contract amendment were in effect; and
                  (B) such plan or contract amendment applies 
                retroactively for such period.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary


                                Purpose

    The revenue provisions of the bill, H.R. 4843 included in 
the Committee bill (``Comprehensive Retirement Security and 
Pension Reform Act'') (the ``bill'') provide for: (1) modifying 
Individual Retirement Arrangement contributions limits (Title 
I); (2) expanding coverage (Title II); (3) enhancing fairness 
for women (Title III); (4) increasing portability for 
participants (Title IV); (5) strengthening pension security and 
enforcement (Title V); (6) reducing regulatory burdens (Title 
VI); and (7) plan amendments (Title VII).
    The bill provides net tax reductions of over $16 billion 
over fiscal years 2001-2005. This will provide needed 
retirement security and pension reform.

                                Summary

I. Individual Retirement Arrangements (``IRAs'')

    Increase in IRA contribution limit.--The bill increases the 
annual dollar IRA contribution limit from $2,000 to $3,000 in 
2001, $4,000 in 2002, and $5,000 in 2003, with indexing 
thereafter.
    Catch-up contributions.--The bill accelerates the increase 
of the IRA maximum contribution limit for individuals age 50 
and older. The limit for such individuals is $5,000 beginning 
in 2001, with indexing after 2003.

II. Expanding coverage

    Increase in benefit and contribution limits.--Beginning in 
2001, the bill increases the dollar limit on annual elective 
deferrals under section 401(k) plans, section 403(b) annuities 
and salary reduction SEPs in $1,000 annual increments until the 
limits reach $15,000 in 2005. Beginning in 2001, the bill 
increases the maximum annual elective deferrals that may be 
made to a SIMPLE plan in $1,000 annual increments until the 
limit reaches $10,000 in 2004. The $15,000 and $10,000 dollar 
limits are indexed in $500 increments, as under present law. 
The bill increases the dollar limit on deferrals under a 
section 457 plan to $11,000 in 2001, $12,000 in 2002, $13,000 
in 2003, $14,000 in 2004, and $15,000 in 2005. After 2005, the 
limit is indexed in $500 increments. The limit is twice the 
otherwise applicable dollar limit in the three years prior to 
retirement. Effective in 2001, the bill: increases the $135,000 
annual benefit limit for defined benefit plans to $160,000 
(indexed in $5,000 increments) and lowers the early retirement 
age to 62 and the normal retirement age to 65 for purposes of 
applying the limit; increases the $30,000 annual contribution 
limit for defined contribution plans to $40,000 (indexed in 
$1,000 increments); and increases the limit on compensation 
that may be taken into account under a plan to $200,000 
(indexed in $5,000 increments).
    Plan loans for subchapter S shareholders, partners, and 
sole proprietors.--The bill generally eliminates the special 
present-law rules relating to plan loans made to an owner-
employee. Thus, the general statutory exemption applies to such 
transactions. Present law applies with respect to IRAs. The 
provision is effective with respect to loans made in years 
beginning after December 31, 2000.
    Modification of top-heavy rules.--The bill provides that a 
safe-harbor section 401(k) plan is not a top-heavy plan and 
that matching contributions may be taken into account in 
satisfying the minimum contribution requirements. In addition, 
the bill simplifies the definition of key employee and the 
determination of top-heavy and status and repeals the family 
attribution rule used to determine whether an individual is a 
key employee by reason of being a 5-percent owner of the 
employer. The provision is effective for years beginning after 
December 31, 2000.
    Elective deferrals not taken into account for purposes of 
deduction limits.--The bill provides that the elective deferral 
contributions are not subject to the qualified plan deduction 
limits, and the application of a deduction limitation to any 
other employer contribution to a qualified retirement plan does 
not take into account elective deferral contributions. The 
provision is effective for years beginning after December 31, 
2000.
    Repeal of coordination requirements for deferred 
compensation plans of State and local governments and tax-
exempt organizations.--For years beginning after December 31, 
2000, the bill repeals the rules coordinating the section 457 
dollar limit with contributions under other types of plans.
    Eliminate IRS user fees for certain determination letter 
requests regarding employer plans.--Under the bill, an employer 
with no more than 100 employees is not required to pay a user 
fee for any determination letter request made during the first 
5 plan years with respect to the qualified status of a 
retirement plan that the employer maintains. The provision is 
effective for determination letter requests made after December 
31, 2000.
    Deduction limits.--The bill provides that for purposes of 
the qualified plan deduction limit the compensation otherwise 
paid or accrued during the employer's taxable year to the 
beneficiaries under the plan includes elective deferrals under 
a section 401(k) plan or a section 403(b) annuity, elective 
contributions under a section 457 plan, and salary reductions 
under a section 125 plan. In addition, the bill increases the 
limit on deductible contributions under a profit-sharing or 
stock bonus plan from 15 percent to 20 percent of the 
compensation of the employees covered by the plan. The 
provision is effective for years beginning after December 31, 
2000.
    Option to treat elective deferrals as after-tax 
contributions.--The bill provides that a section 401(k) plan or 
a section 403(b) annuity may permit a participant to elect to 
have all or a portion of the participant's elective deferrals 
under the plan treated as designated plus contributions. A 
qualified distribution from a participant's designated plus 
contributions account is not includible in the participant's 
gross income. Designated plus contributions are generally 
otherwise treated the same as elective deferrals for purposes 
of the qualified plan rules. The provision is effective for 
taxable years beginning after December 31, 2000.

III. Enhancing fairness for women

    Additional salary reduction catch-up contributions.--The 
bill permits individuals who are age 50 or older to make 
additional contributions to a section 401(k) (or similar plan). 
The maximum permitted additional contribution is $5,000 
(indexed in 2006 and thereafter). Catch-upcontributions to a 
section 401(k) (or similar) plan are not subject to any other 
contribution limits and are not taken into account in applying other 
contribution limits. Catch-up contributions are subject to 
nondiscrimination rules.
    Equitable treatment for contributions of employees to 
defined contribution plans.--The bill (1) increases the 25 
percent of compensation limitation on annual additions under a 
defined contribution plan to 100 percent, (2) conforms the 
limits on contributions to a tax-sheltered annuity to the 
limits applicable to tax-qualified plans, and (3) increases the 
33\1/3\ percent of compensation limitation on deferrals under a 
section 457 plan to 100 percent of compensation. The provision 
is effective for years beginning after December 31, 2000.
    Faster vesting of employer matching contributions.--Under 
the bill, employer matching contributions have to vest at least 
as rapidly as under 3-year cliff vesting or under 6-year graded 
vesting that provides for a nonforfeitable right to 20 percent 
of employer matching contributions for each year of service 
beginning with the participant's second year of service and 
ending with 100 percent after 6 years of service. The provision 
is effective for plan years beginning after December 31, 2000, 
with a delayed effective date for plans maintained pursuant to 
a collective bargaining agreement.
    Simplify and update the minimum distribution rules.--The 
bill applies the present-law rules applicable if the 
participant dies before distribution of minimum benefits has 
begun to all post-death distributions. The bill reduces the 
excise tax on failures to satisfy the minimum distribution 
rules to 10 percent of the amount that was required to be 
distributed but was not distributed. The Treasury is directed 
to update, simplify, and finalize the regulations relating to 
the minimum distribution rules. The bill repeals the special 
minimum distribution rules applicable to section 457 plans. The 
provision is effective for years beginning after December 31, 
2000.
    Clarification of tax treatment of division of section 457 
plan benefits upon divorce.--The bill applies the taxation 
rules for qualified plan distributions pursuant to a QDRO to 
distributions made pursuant to a domestic relations order from 
a section 457 plan. In addition, a section 457 plan is not 
treated as violating the restrictions on distributions from 
such plans due to payments to an alternate payee under a QDRO. 
The provision is effective for transfers, distributions and 
payments made after December 31, 2000.
    Modification of safe harbor relief for hardship withdrawals 
from 401(k) plans.--The bill directs the Secretary of the 
Treasury to revise the applicable regulations to reduce from 12 
months to 6 months the period during which an employee must be 
prohibited from making elective contributions and employee 
contributions in order for a distribution to be deemed 
necessary to satisfy an immediate and heavy financial need. The 
provision is effective for years beginning after December 31, 
2000.

IV. Increasing portability for participants

    Rollovers of retirement plan and IRA distributions.--The 
bill provides that eligible rollover distributions from 
qualified retirement plans, section 403(b) annuities, IRAs and 
governmental section 457 plans generally can be rolled over to 
any of such plans or arrangements. The direct rollover and 
withholding rules are extended to distributions from a section 
457 plan. The bill provides that employee after-tax 
contributions can be rolled over into another qualified plan or 
a traditional IRA. In the case of a rollover from a qualified 
plan to another qualified plan, the rollover can be 
accomplished only through a direct rollover. The bill provides 
that surviving spouses can roll over distributions to a 
qualified plan, section 403(b) annuity, or governmental section 
457 plan in which the spouse participates. The provision is 
effective for distributions made after December 31, 2000.
    Waiver of 60-day rule.--The bill provides that the 
Secretary may waive the 60-day rollover period if the failure 
to waive such requirement would be against equity or good 
conscience, including cases of casualty, disaster, or other 
events beyond the reasonable control of the individual subject 
to such requirement. The provision applies to distributions 
made after December 31, 2000.
    Treatment of forms of distribution.--Under the bill, if 
certain requirements are satisfied, a defined contribution plan 
may eliminate optional forms of benefit (1) in connection with 
certain transfers of benefits, or (2) if a single sum 
distribution is offered. In addition, the Secretary is to 
provide for circumstances under which early retirement 
benefits, retirement-type subsidies, or an optional form of 
benefit may be reduced or eliminated if the rights of 
participants are not materially affected. The provision is 
effective for years beginning after December 31, 2000.
    Rationalization of restrictions on distributions.--The bill 
modifies the distribution restrictions applicable to section 
401(k) plans, section 403(b) annuities, and section 457 plans 
to provide that distribution may occur upon severance from 
employment rather than separation from service. The provision 
is effective for distributions after December 31, 2000.
    Purchase of service credit under governmental pension 
plans.--Under the bill a participant in a State or local 
governmental plan is not required to include in gross income a 
direct trustee-to-trustee transfer to a governmental defined 
benefit plan from a section 403(b) annuity or a section 457 
plan if the transferred amount is used (1) to purchase 
permissive service credits under the plan, or (2) to repay 
certain contributions. The provision is effective for transfers 
after December 31, 2000.
    Employers may disregard rollovers for purposes of cash-out 
rules.--Under the bill a plan is permitted to disregard 
benefits attributable to rollover contributions for purposes of 
the cash-out rules. The provision is effective for 
distributions after December 31, 2000.

V. Strengthening pension security and enforcement

    Phase in repeal of 150 percent of current liability full 
funding limit; deduction for contributions to fund termination 
liability.--Under the bill, the current liability full funding 
limit is 160 percent of current liability for plan years 
beginning in 2001, 165 percent for plan years beginning in 
2002, and 170 percent for plan years beginning in 2003. The 
current liability full funding limit is repealed for plan years 
beginning in 2004 and thereafter. The special rule allowing a 
deduction for unfunded current liability generally is extended 
to all defined benefit pension plans covered by the PBGC. The 
provision is effective for years beginning after December 31, 
2000.
    Excise tax relief for sound pension funding.--Under the 
bill if an employer elects, contributions in excess of the 
current liability full funding limit are not subject to the 
excise tax on nondeductible contributions. The provision is 
effective for years beginning after December 31, 2000.
    Notice of significant reduction in plan benefit accruals.--
The bill requires the plan administrator of a defined benefit 
plan (other than governmental plans and certain church 
plans)with more than 100 participants to notify plan participants in 
advance of an amendment that significantly reduces the rate of future 
benefit accruals. The notice must include sufficient information to 
allow participants to understand the effect of the amendment. An excise 
tax applies if the required notice is not provided. The bill also 
directs the Secretary of the Treasury to report on the effects of 
conversions of traditional defined benefit plans to cash balance or 
hybrid formula plans.
    Modifications to section 415 limits for multiemployer 
plans.--The bill modifies the section 415 limits for 
multiemployer plans. The provision is effective for years 
beginning after December 31, 2000.

VI. Reducing regulatory burdens

    Modification of timing of plan valuations.--The bill 
permits a defined benefit plan with assets of at least 125 
percent of current liability to use a valuation date within the 
prior plan year. The provision is effective for plan years 
beginning after December 31, 2000.
    ESOP dividends may be reinvested without loss of dividend 
deduction.--Under the bill, an employer is entitled to deduct 
dividends that, at the election of plan participants or their 
beneficiaries, are paid to the plan and reinvested in employer 
securities. The provision is effective for taxable years 
beginning after December 31, 2000.
    Repeal transition rule relating to certain highly 
compensated employees.--The bill repeals the special definition 
of highly compensated employee under the Tax Reform Act of 
1986. The provision is effective for plan years beginning after 
December 31, 2000.
    Employees of tax-exempt entities.--The bill directs the 
Treasury Department to revise its regulations under section 
410(b) to provide that, if certain requirements are satisfied, 
employees of a tax-exempt charitable organization who are 
eligible to make salary reduction contributions under a section 
403(b) annuity may be treated as excludable employees for 
purposes of testing a section 401(k) plan.
    Treatment of employer-provided retirement advice.--Under 
the bill, qualified retirement planning services provided to an 
employee and his or her spouse by an employer maintaining a 
qualified plan are generally excludable from income and wages. 
The provision is effective with respect to taxable years 
beginning after December 31, 2000.
    Reporting simplification.--The bill directs the Secretary 
of the Treasury to provide for an exemption from the annual 
return requirement for a plan that covers only the sole owner 
of a business that maintains the plan (and such owner's 
spouse), or partners in a partnership that maintains the plan 
(and such partners' spouses), if the total value of the plan 
assets as of the end of the plan year and all prior plan years 
does not exceed $250,000 and the plan meets certain other 
requirements. In addition, the Secretary of the Treasury is 
directed to provide for the filing of a simplified annual 
return substantially similar to the Form 5500-EZ by a plan that 
meets certain requirements. The provision is effective on the 
date of enactment.
    Improvement to Employee Plans Compliance Resolution 
System.--The bill directs the Secretary of the Treasury to 
continue to update and improve EPCRS, giving special attention 
to (1) increasing the awareness and knowledge of small 
employers concerning the availability and use of EPCRS, (2) 
taking into account special concerns and circumstances that 
small employers face with respect to compliance and correction 
of compliance failures, (3) extending the duration of the self-
correction period under APRSC for significant compliance 
failures, (4) expanding the availability to correct 
insignificant compliance failures under APRSC during audit, and 
(5) assuring that any tax, penalty, or sanction that is imposed 
by reason of a compliance failure is not excessive and bears a 
reasonable relationship to the nature, extent, and severity of 
the failure. The provision is effective on the date of 
enactment.
    Repeal of the multiple use test.--The bill repeals the 
multiple use test, effective for years beginning after December 
31, 2000.
    Flexibility in nondiscrimination, coverage, and line of 
business rules.--The bill directs the Secretary of the Treasury 
to provide by regulation circumstances under which plans can 
use the prior-law facts and circumstances test to satisfy the 
nondiscrimination, coverage, and line of business rules. used 
to determine compliance. The provision is effective on the date 
of enactment.
    Extension to all governmental plans of moratorium on 
application of certain nondiscrimination rules applicable to 
State and local government plans.--Under the bill, a plan 
maintained by any governmental entity is exempt from the 
nondiscrimination and minimum participation rules. The 
provision is effective for plan years beginning after December 
31, 2000.
    Notice and consent period regarding distributions.--Under 
the bill, a qualified retirement plan is required to provide 
the applicable distribution notice no less than 30 days and no 
more than six months before the date distribution commences. 
The Secretary of the Treasury is directed to modify the 
applicable regulations to reflect the extension of the notice 
period to six months and to provide that the description of a 
participant's right, if any, to defer receipt of a distribution 
shall also describe the consequences of failing to defer such 
receipt. The provision is effective for years beginning after 
December 31, 2000.

VII. Provisions relating to plan amendments

    Any amendments to a plan or annuity contract required to be 
made by the bill are not required to be made before the last 
day of the first plan year beginning on or after January 1, 
2003. In the case of a governmental plan, the date for 
amendments is extended to the first plan year beginning on or 
after January 1, 2004. The provision is effective on the date 
of enactment.

                 B. Background and Need for Legislation

    The revenue provisions approved by the Committee reflect 
the need for tax relief for retirement security and pension 
reforms.

                         C. Legislative History


Committee action

    The Committee on Ways and Means marked up the revenue 
provisions of the bill on July 13, 2000, and approved the 
provisions, as amended, on July 13, 2000, by a roll call vote 
of 27 yeas and 9 nays, with a quorum present.

Committee hearings

    The following Committee and Subcommittee hearings related 
to provisions in the bill have been held during the 106th 
Congress.
            Full Committee hearings
    Tax-related hearings were held by the full Committee as 
follows:
     Outlook for the state of the U.S. economy (January 
20, 1999).
     President's fiscal year 2000 budget (February 4, 
1999).
     Revenue provisions in President's fiscal year 2000 
budget (March 10, 1999).
     Reducing the tax burden: Enhancing retirement and 
health security (June 16, 1999).
     President's fiscal year 2001 budget (February 9, 
2000).
            Subcommittee hearings
    The Oversight Subcommittee held tax-related hearings as 
follows:
     Pension issues (March 23, 1999).
     Impact of complexity in the Tax Code on individual 
taxpayers and small businesses (May 25, 1999).

         II. EXPLANATION OF THE REVENUE PROVISIONS OF THE BILL


         TITLE I. INDIVIDUAL RETIREMENT ARRANGEMENTS (``IRAs')


    (Sec. 101 of the Bill and Secs. 219, 408, and 408A of the Code)


                              present law

In general

    There are two general types of individual retirement 
arrangements (``IRAs'') under present law: traditional IRAs, to 
which both deductible and nondeductible contributions may be 
made, and Roth IRAs. The Federal income tax rules regarding 
each type of IRA (and IRA contribution) differ.

Traditional IRAs

    Under present law, an individual may make deductible 
contributions to an IRA up to the lesser of $2,000 or the 
individual's compensation if neither the individual nor the 
individual's spouse is an active participant in an employer-
sponsored retirement plan. In the case of a married couple, 
deductible IRA contributions of up to $2,000 can be made for 
each spouse (including, for example, a homemaker who does not 
work outside the home), if the combined compensation of both 
spouses is at least equal to the contributed amount. If the 
individual (or the individual's spouse) is an active 
participant in an employer-sponsored retirement plan, the 
$2,000 deduction limit is phased out for taxpayers with 
adjusted gross income (``AGI'') over certain levels for the 
taxable year.
    The AGI phase-out limits for taxpayers who are active 
participants in employer-sponsored plans are as follows.

Single taxpayers

        Taxable years beginning in                       Phase-out range
2000....................................................  $32,000-42,000
2001....................................................   33,000-43,000
2002....................................................   34,000-44,000
2003....................................................   40,000-50,000
2004....................................................   45,000-55,000
2005 and thereafter.....................................   50,000-60,000

Joint returns

2000....................................................   52,000-62,000
2001....................................................   53,000-63,000
2002....................................................   54,000-64,000
2003....................................................   60,000-70,000
2004....................................................   65,000-75,000
2005....................................................   70,000-80,000
2006....................................................   75,000-85,000
2007 and thereafter.....................................  80,000-100,000

    If the individual is not an active participant in an 
employer-sponsored retirement plan, but the individual's spouse 
is, the $2,000 deduction limit is phased out for taxpayers with 
AGI between $150,000 and $160,000.
    To the extent an individual cannot or does not make 
deductible contributions to an IRA or contributions to a Roth 
IRA, the individual may make nondeductible contributions to a 
traditional IRA.
    Amounts held in a traditional IRA are includible in income 
when withdrawn (except to the extent the withdrawal is a return 
of nondeductible contributions). Includible amounts withdrawn 
prior to attainment of age 59\1/2\ are subject to an additional 
10-percent early withdrawal tax, unless the withdrawal is due 
to death or disability, is made in the form of certain periodic 
payments, is used to pay medical expenses in excess of 7.5 
percent of AGI, is used to purchase health insurance of an 
unemployed individual, is used for education expenses, or is 
used for first-time homebuyer expenses of up to $10,000.

Roth IRAs

    Individuals with AGI below certain levels may make 
nondeductible contributions to a Roth IRA. The maximum annual 
contribution that may be made to a Roth IRA is the lesser of 
$2,000 or the individual's compensation for the year. The 
contribution limit is reduced to the extent an individual makes 
contributions to any other IRA for the same taxable year. As 
under the rules relating to IRAs generally, a contribution of 
up to $2,000 for each spouse may be made to a Roth IRA provided 
the combined compensation of the spouses is at least equal to 
the contributed amount. The maximum annual contribution that 
can be made to a Roth IRA is phased out for single individuals 
with AGI between $95,000 and $110,000 and for joint filers with 
AGI between $150,000 and $160,000.
    Taxpayers with modified AGI of $100,000 or less generally 
may convert a traditional IRA into an Roth IRA. The amount 
converted is includible in income as if a withdrawal had been 
made, except that the 10-percent early withdrawal tax does not 
apply and, if the conversionoccurred in 1998, the income 
inclusion may be spread ratably over 4 years. Married taxpayers who 
file separate returns cannot convert a traditional IRA into a Roth IRA.
    Amounts held in a Roth IRA that are withdrawn as a 
qualified distribution are not includible in income, nor 
subject to the additional 10-percent tax on early withdrawals. 
A qualified distribution is a distribution that (1) is made 
after the 5-taxable year period beginning with the first 
taxable year for which the individual made a contribution to a 
Roth IRA, and (2) which is made after attainment of age 59\1/
2\, on account of death or disability, or is made for first-
time homebuyer expenses of up to $10,000.
    Distributions from a Roth IRA that are not qualified 
distributions are includible in income to the extent 
attributable to earnings, and subject to the 10-percent early 
withdrawal tax (unless an exception applies).1 The 
same exceptions to the early withdrawal tax that apply to IRAs 
apply to Roth IRAs.
---------------------------------------------------------------------------
    \1\ Early distribution of converted amounts may also accelerate 
income inclusion of converted amounts that are taxable under the 4-year 
rule applicable to 1998 conversions.
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee is concerned about the low national savings 
rate, and that individuals may not be saving adequately for 
retirement. The present-law IRA contribution limits have not 
been increased since 1981. The Committee believes that the 
limits should be raised in order to allow greater savings 
opportunities.
    The Committee understands that, for a variety of reasons, 
other individuals may not have been saving sufficiently for 
retirement. Thus, the Committee believes it appropriate to 
accelerate the increase in the IRA contribution limits for such 
individuals.

                        Explanation of Provision

Increase in annual contribution limits

    The provision increases the maximum annual dollar 
contribution limit (before application of the AGI phase-out 
limits) for IRA contributions from $2,000 to $3,000 in 2001, 
$4,000 in 2002, and $5,000 in 2003. The limit is indexed in 
$500 increments in 2004 and thereafter.

Additional catch-up contributions

    The provision accelerates the increase of the IRA maximum 
contribution limit for individuals who have attained age 50 
before the end of the taxable year. The maximum dollar 
contribution limit (before application of the AGI phase-out 
limits) for such an individual is increased to $5,000 in 2001, 
2002, and 2003, and is indexed in $500 increments in 2004 and 
thereafter, under the general rule.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2000.

                      TITLE II. EXPANDING COVERAGE


 A. Increase in Benefit and Contribution Limits (Sec. 201 of the Bill 
     and Secs. 401(a)(17), 402(g), 408(p), 415 and 457 of the Code)


                              Present Law

In general

    Under present law, limits apply to contributions and 
benefits under qualified plans (sec. 415), the amount of 
compensation that may be taken into account under a plan for 
determining benefits (sec. 401(a)(17)), the maximum amount of 
elective deferrals that an individual may make to a salary 
reduction plan or tax sheltered annuity (sec. 402(g)), and 
deferrals under an eligible deferred compensation plan of a 
tax-exempt organization or a State or local government (sec. 
457).

Limitations on contributions and benefits

    Under present law, the limits on contributions and benefits 
under qualified plans are based on the type of plan. Under a 
defined contribution plan, the qualification rules limit the 
annual additions to the plan with respect to each plan 
participant to the lesser of (1) 25 percent of compensation or 
(2) $30,000 (for 2000). Annual additions are the sum of 
employer contributions, employee contributions, and forfeitures 
with respect to an individual under all defined contribution 
plans of the same employer. The $30,000 limit is indexed for 
cost-of-living adjustments in $5,000 increments.
    Under a defined benefit plan, the maximum annual benefit 
payable at retirement is generally the lesser of (1) 100 
percent of average compensation, or (2) $135,000 (for 2000). 
The dollar limit is adjusted for cost-of-living increases in 
$5,000 increments.
    Under present law, in general, the dollar limit on annual 
benefits is reduced if benefits under the plan begin before the 
social security retirement age (currently, age 65) and 
increased if benefits begin after social security retirement 
age.

Compensation limitation

    Under present law, the annual compensation of each 
participant that may be taken into account for purposes of 
determining contributions and benefits under a plan, applying 
the deduction rules, and for nondiscrimination testing purposes 
is limited to $170,000 (for 2000). The compensation limit is 
indexed for cost-of-living adjustments in $10,000 increments.

Elective deferral limitations

    Under present law, under certain salary reduction 
arrangements, an employee may elect to have the employer make 
payments as contributions to a plan on behalf of the employee, 
or to the employee directly in cash. Contributions made at the 
election of the employee are called elective deferrals.
    The maximum annual amount of elective deferrals that an 
individual may make to a qualified cash or deferred arrangement 
(a ``section 401(k) plan''), a tax-sheltered annuity (``section 
403(b) annuity'') or a salary reduction simplified employee 
pension plan (``SEP'') is $10,500 (for 2000). The maximum 
annual amount of elective deferrals that an individual may make 
to a SIMPLE plan is $6,000. These limits are indexed for 
inflation in $500 increments.

Section 457 plans

    The maximum annual deferral under a deferred compensation 
plan of a State or local government or a tax-exempt 
organization (a ``section 457 plan'') is the lesser of (1) 
$8,000 (for 2000) or (2) 33\1/3\ percent of compensation. The 
$8,000 dollar limit is increased for inflation in $500 
increments. Under a special catch-up rule, the section 457 plan 
may provide that, for one or more of the participant's last 3 
years before retirement, the otherwise applicable limit is 
increased to the lesser of (1) $15,000 or (2) the sum of the 
otherwise applicable limit for the year plus the amount by 
which the limit applicable in preceding years of participation 
exceeded the deferrals for that year.

                           Reasons for Change

    The tax benefits provided under qualified plans are a 
departure from the normally applicable income tax rules. The 
special tax benefits for qualified plans are generally 
justified on the ground that they serve an important social 
policy objective, i.e., the provision of retirement benefits to 
a broad group of employees. The limits on contributions and 
benefits, elective deferrals, and compensation that may be 
taken into account under a qualified plan all serve to limit 
the tax benefits associated with such plans. The level at which 
to place such limits involves a balancing of different policy 
objectives and a judgment as to what limits are most likely to 
best further policy goals.
    One of the factors that may influence the decision of an 
employer, particularly a small employer, to adopt a plan is the 
extent to which the owners of the business, the decision-
makers, or other highly compensated employees will benefit 
under the plan. The Committee believes that increasing the 
dollar limits on qualified plan contributions and benefits will 
encourage employers to establish qualified plans for their 
employees.
    The Committee understands that, in recent years, section 
401(k) plans have become increasingly more prevalent. The 
Committee believes it is important to increase the amount of 
employee elective deferrals allowed under such plans, and other 
plans that allow deferrals, to better enable plan participants 
to save for their retirement.

                        Explanation of Provision

Limits on contributions and benefits

    The provision increases the $30,000 annual addition limit 
for defined contribution plans to $40,000. This amount is 
indexed in $1,000 increments.2
---------------------------------------------------------------------------
    \2\ The 25 percent of compensation limitation is increased to 100 
percent of compensation under another provision of the bill.
---------------------------------------------------------------------------
    The provision increases the $135,000 annual benefit limit 
under a defined benefit plan to $160,000. The dollar limit is 
reduced for benefit commencement before age 62 and increased 
for benefit commencement after age 65.

Compensation limitation

    The provision increases the limit on compensation that may 
be taken into account under a plan to $200,000. This amount is 
indexed in $5,000 increments.

Elective deferral limitations

    Beginning in 2001, the provision increases the dollar limit 
on annual elective deferrals under section 401(k) plans, 
section 403(b) annuities and salary reduction SEPs in $1,000 
annual increments until the limits reach $15,000 in 2005, with 
indexing in $500 increments thereafter. Beginning in 2001, the 
provision increases the maximum annual elective deferrals that 
may be made to a SIMPLE plan in $1,000 annual increments until 
the limit reaches $10,000 in 2004. Beginning after 2004, the 
$10,000 dollar limit is indexed in $500 increments.

Section 457 plans

    The provision increases the dollar limit on deferrals under 
a section 457 plan to conform to the elective deferral 
limitation. Thus, the limit is $11,000 in 2001, and is 
increased in $1,000 annual increments until the limit reaches 
$15,000 in 2005. The limit is indexed thereafter in $500 
increments. The limit is twice the otherwise applicable dollar 
limit in the three years prior to retirement.3
---------------------------------------------------------------------------
    \3\ Another provision of the bill increases the 33-\1/3\ percentage 
of compensation limit to 100 percent.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2000.

    B. Plan Loans for Subchapter S Shareholders, Partners, and Sole 
      Proprietors (Sec. 202 of the Bill and Sec. 4975 of the Code)


                              PRESENT LAW

    The Internal Revenue Code prohibits certain transactions 
(``prohibited transactions'') between a qualified plan and a 
disqualified person in order to prevent persons with a close 
relationship to the qualified plan from using that relationship 
to the detriment of plan participants and 
beneficiaries.4 Certain types of transactions are 
exempted from the prohibited transaction rules, including loans 
from the plan to plan participants, if certain requirements are 
satisfied. In addition, the Department of Labor can grant an 
administrative exemption from the prohibited transaction rules 
if she finds the exemption is administratively feasible, in the 
interest of the plan and plan participants and beneficiaries, 
and protective of the rights of participants and beneficiaries 
of the plan. Pursuant to this exemption process, the Secretary 
of Labor grants exemptions both with respect to specific 
transactions and classes of transactions.
---------------------------------------------------------------------------
    \4\ Title I of the Employee Retirement Income Security Act of 1974, 
as amended (``ERISA''), also contains prohibited transaction rules. The 
Code and ERISA provisions are substantially similar, although not 
identical.
---------------------------------------------------------------------------
    The statutory exemptions to the prohibited transaction 
rules do not apply to certain transactions in which the plan 
makes a loan to an owner-employee.5 Loans to 
participants other than owner-employees are permitted if loans 
are available to all participants on a reasonably equivalent 
basis, are not made available to highly compensated employees 
in an amount greater than made available to other employees, 
are made in accordance with specific provisions in the plan, 
bear a reasonable rate of interest, and are adequately secured. 
In addition, the Code places limits on the amount of loans and 
repayment terms.
---------------------------------------------------------------------------
    \5\ Certain transactions involving a plan and Subchapter S 
shareholders are permitted.
---------------------------------------------------------------------------
    For purposes of the prohibited transaction rules, an owner-
employee means (1) a sole proprietor, (2) a partner who owns 
more than 10 percent of either the capital interest or the 
profits interest in the partnership, (3) an employee or officer 
of a Subchapter S corporation who owns more than 5 percent of 
the outstanding stock of the corporation, and (4) the owner of 
an individual retirement arrangement (``IRA''). The term owner-
employee also includes certain family members of an owner-
employee and certain corporations owned by an owner-employee.
    Under the Internal Revenue Code, a two-tier excise tax is 
imposed on disqualified persons who engage in a prohibited 
transaction. The first level tax is equal to 15 percent of the 
amount involved in the transaction. The second level tax is 
imposed if the prohibited transaction is not corrected within a 
certain period, and is equal to 100 percent of the amount 
involved.

                           REASONS FOR CHANGE

    The Committee believes that the present-law prohibited 
transaction rules regarding loans unfairly discriminate against 
the owners of unincorporated businesses and subchapter S 
corporations. For example, under present law, the sole 
shareholder of a C corporation may take advantage of the 
statutory exemption to the prohibited transaction rules for 
loans, but an individual who does business as a sole proprietor 
may not.

                        EXPLANATION OF PROVISION

     The provision generally eliminates the special present-law 
rules relating to plan loans made to an owner-employee. Thus, 
the general statutory exemption applies to such transactions. 
Present law continues to apply with respect to IRAs.

                             EFFECTIVE DATE

    The provision is effective with respect to loans made after 
December 31, 2000.

 C. Modification of Top-Heavy Rules (Sec. 203 of the Bill and Sec. 416 
                              of the Code)


                              PRESENT LAW

In general

    Under present law, additional qualification requirements 
apply to plans that primarily benefit an employer's key 
employees (``top-heavy plans''). These additional requirements 
provide (1) more rapid vesting for plan participants who are 
non-key employees and (2) minimum nonintegrated employer 
contributions or benefits for plan participants who are non-key 
employees.

Definition of top-heavy plan

    In general, a top-heavy plan is a plan under which more 
than 60 percent of the contributions or benefits are provided 
to key employees. More precisely, a defined benefit plan is a 
top-heavy plan if more than 60 percent of the cumulative 
accrued benefits under the plan are for key employees. A 
defined contribution plan is top heavy if the sum of the 
account balances of key employees is more than 60 percent of 
the total account balances under the plan. For each plan year, 
the determination of top-heavy status generally is made as of 
the last day of the preceding plan year (``the determination 
date'').
    For purposes of determining whether a plan is a top-heavy 
plan, benefits derived both from employer and employee 
contributions, including employee elective contributions, are 
taken into account. In addition, the accrued benefit of a 
participant in a defined benefit plan and the account balance 
of a participant in a defined contribution plan includes any 
amount distributed within the 5-year period ending on the 
determination date.
    An individual's accrued benefit or account balance is not 
taken into account in determining whether a plan is top-heavy 
if the individual has not performed services for the employer 
during the 5-year period ending on the determination date.
    In some cases, two or more plans of a single employer must 
be aggregated for purposes of determining whether the group of 
plans is top-heavy. The following plans must be aggregated: (1) 
plans which cover a key employee (including collectively 
bargained plans); and (2) any plan upon which a plan covering a 
key employee depends for purposes of satisfying the Code's 
nondiscrimination rules. The employer may be required to 
include terminated plans in the required aggregation group. In 
some circumstances, an employer may elect to aggregate plans 
for purposes of determining whether they are top heavy.
    SIMPLE plans are not subject to the top-heavy rules.

Definition of key employee

    A key employee is an employee who, during the plan year 
that ends on the determination date or any of the 4 preceding 
plan years, is (1) an officer earning over one-half of the 
defined benefit plan dollar limitation of section 415 ($67,500 
for 2000), (2) a 5-percent owner of the employer, (3) a 1-
percent owner of the employer earning over $150,000, or (4) one 
of the 10 employees earning more than the defined contribution 
plan dollar limit ($30,000 for 2000) with the largest ownership 
interests in the employer. A family ownership attribution rule 
applies to the determination of 1-percent owner status, 5-
percent owner status, and largest ownership interest. Under 
this attribution rule, an individual is treated as owning stock 
owned by the individual's spouse, children, grandchildren, or 
parents.

Minimum benefit for non-key employees

    A minimum benefit generally must be provided to all non-key 
employees in a top-heavy plan. In general, a top-heavy defined 
benefit plan must provide a minimum benefit equal to the lesser 
of (1) 2 percent of compensation multiplied by the employee's 
years of service, or (2) 20 percent of compensation. A top-
heavy defined contribution plan must provide a minimum annual 
contribution equal to the lesser of (1) 3 percent of 
compensation, or (2) the percentage of compensation at which 
contributions were made for key employees (including employee 
elective contributions made by key employees and employer 
matching contributions).
    For purposes of the minimum benefit rules, only benefits 
derived from employer contributions (other than amounts 
employees have elected to defer) to the plan are taken into 
account, and an employee's social security benefits are 
disregarded (i.e., the minimum benefit is nonintegrated). 
Employer matching contributions may be used to satisfy the 
minimum contribution requirement; however, in such a case the 
contributions are not treated as matching contributions for 
purposes of applying the special nondiscrimination requirements 
applicable to employee elective contributions and matching 
contributions under sections 401(k) and (m). Thus, such 
contributions would have to meet the general nondiscrimination 
test of section 401(a)(4).6
---------------------------------------------------------------------------
    \6\ Tres. Reg. sec. 1.416-1 Q&A M-19.
---------------------------------------------------------------------------

Top-heavy vesting

    Benefits under a top-heavy plan must vest at least as 
rapidly as under one of the following schedules: (1) 3-year 
cliff vesting, which provides for 100 percent vesting after 3 
years of service; and (2) 2-6 year graduated vesting, which 
provides for 20 percent vesting after 2 years of service, and 
20 percent more each year thereafter so that a participant is 
fully vested after 6 years of service.7
---------------------------------------------------------------------------
    \7\ Benefits under a plan that is not top heavy must vest at least 
as rapidly as under one of the following schedules: (1) 5-year cliff 
vesting; and (2) 3-7 year graded vesting, which provides for 20 percent 
vesting after 3 years and 20 percent more each year thereafter so that 
a participant is fully vested after 7 years of service.
---------------------------------------------------------------------------

Qualified cash or deferred arrangements

    Under a qualified cash or deferred arrangement (a ``section 
401(k) plan''), an employee may elect to have the employer make 
payments as contributions to a qualified plan on behalf of the 
employee, or to the employee directly in cash. Contributions 
made at the election of the employee are called elective 
deferrals. A special nondiscrimination test applies to elective 
deferrals under cash or deferred arrangements, which compares 
the elective deferrals of highly compensated employees with 
elective deferrals of nonhighly compensated employees. (This 
test is called the actual deferral percentage test or the 
``ADP'' test). Employer matching contributions under qualified 
defined contribution plans are also subject to a similar 
nondiscrimination test. (This test is called the actual 
contribution percentage test or the ``ACP'' test.)
    Under a design-based safe harbor, a cash or deferred 
arrangement is deemed to satisfy the ADP test if the plan 
satisfies one of two contribution requirements and satisfies a 
notice requirement. A plan satisfies the contribution 
requirement under the safe harbor rule for qualified cash or 
deferred arrangements if the employer either (1) satisfies a 
matching contribution requirement or (2) makes a nonelective 
contribution to a defined contribution plan of at least 3 
percent of an employee's compensation on behalf of each 
nonhighly compensated employee who is eligible to participate 
in the arrangement without regard to the permitted disparity 
rules (sec. 401(1)). A plan satisfies the matching contribution 
requirement if, under the arrangement: (1) the employer makes a 
matching contribution on behalf of each nonhighly compensated 
employee that is equal to (a) 100 percent of the employee's 
elective deferrals up to 3 percent of compensation and (b) 50 
percent of the employee's elective deferrals from 3 to 5 
percent of compensation; and (2), the rate of match with 
respect to any elective contribution for highly compensated 
employees is not greater than the rate of match for nonhighly 
compensated employees. Matching contributions that satisfy the 
design-based safe harbor for cash or deferred arrangements are 
deemed to satisfy the ACP test. Certain additional matching 
contributions are also deemed to satisfy the ACP test.

                           REASONS FOR CHANGE

    The top-heavy rules primarily affect the plans of small 
employers. While the top-heavy rules were intended to provide 
additional minimum benefits to rank-and-file employees, the 
Committee is concerned that in some cases the top-heavy rules 
may act as a deterrent to the establishment of a plan by a 
small employer. The Committee believes that simplification of 
the top-heavy rules will help alleviate the additional 
administrative burdens the rules place on small employers. The 
Committee also believes that, in applying the top-heavy minimum 
benefit rules, the employer should receive credit for all 
contributions the employer makes, including matching 
contributions.
    The Committee understands that some employers may have been 
discouraged from adopting a safe harbor section 401(k) plan due 
to concerns about the top-heavy rules. The Committee believes 
that facilitating the adoption of such plans will broaden 
coverage. Thus, the Committee believes it appropriate to 
provide that such plans are not subject to the top-heavy rules.

                        Explanation of Provision

Definition of top-heavy plan

    The provision provides that a plan consisting of a cash-or-
deferred arrangement that satisfies the design-based safe 
harbor for such plans and matching contributions that satisfy 
the safe harbor rule for such contributions is not a top-heavy 
plan. Matching or nonelective contributions provided under such 
a plan may be taken into account in satisfying the minimum 
contribution requirements applicable to top-heavy 
plans.8
---------------------------------------------------------------------------
    \8\ This provision is not intended to preclude the use of 
nonelective contributions that are used to satisfy the safe harbor 
rules from being used to satisfy other qualified retirement plan 
nondiscrimination rules, including those involving cross-testing.
---------------------------------------------------------------------------
    In determining whether a plan is top-heavy, the provision 
provides that distributions during the year ending on the date 
the top-heavy determination is being made are taken into 
account. The present-law 5-year rule applies with respect to 
in-service distributions. Similarly, the provision provides 
that an individual's accrued benefit or account balance is not 
taken into account if the individual has not performed services 
for the employer during the 1-year period ending on the date 
the top-heavy determination is being made.

Definition of key employee

    The provision (1) provides that an employee is not 
considered a key employee by reason of officer status unless 
the employee earns more than $150,000 in compensation for the 
year, and (2) repeals the top-10 owner key employee category.
    The provision repeals the 4-year lookback rule for 
determining key employee status and provides that an employee 
is a key employee only if he or she is a key employee during 
the current plan year.
    The family ownership attribution rule no longer applies in 
determining whether an individual is a 5-percent owner of the 
employer for purposes of the top-heavy rules only.

Minimum benefit for non-key employees

    Under the provision, matching contributions are taken into 
account in determining whether the minimum benefit requirement 
has been satisfied.9
---------------------------------------------------------------------------
    \9\ Thus, this provision overrides the provision in Treasury 
regulations that, if matching contributions are used to satisfy the 
minimum benefit requirement, then they are not treated as matching 
contributions for purposes of the section 401(m) nondiscrimination 
rules.
---------------------------------------------------------------------------
    The provision provides that, in determining the minimum 
benefit required under a defined benefit plan, a year of 
service does not include any year in which no employee benefits 
under the plan (as determined under sec. 410).

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2000.

D. Elective Deferrals Not Taken Into Account for Purposes of Deduction 
         Limits (Sec. 204 of the Bill and Sec. 404 of the Code)


                              Present Law

    Employer contributions to one or more qualified retirement 
plans are deductible subject to certain limits. In general, the 
deduction limit depends on the kind of plan.
    In the case of a defined benefit pension plan or a money 
purchase pension plan, the employer generally may deduct the 
amount necessary to satisfy the minimum funding cost of the 
plan for the year. If a defined benefit pension plan has more 
than 100 participants, the maximum amount deductible is at 
least equal to the plan's unfunded current liabilities.
    In the case of a profit-sharing or stock bonus plan, the 
employer generally may deduct an amount equal to 15 percent of 
compensation of the employees covered by the plan for the year.
    If an employer sponsors both a defined benefit pension plan 
and a defined contribution plan that covers some of the same 
employees (or a money purchase pension plan and another kind of 
defined contribution plan), the total deduction for all plans 
for a plan year generally is limited to the greater of (1) 25 
percent of compensation or (2) the contribution necessary to 
meet the minimum funding requirements of the defined benefit 
pension plan for the year (or the amount of the plan's unfunded 
current liabilities, in the case of a plan with more than 100 
participants).
    For purposes of the deduction limits, employee elective 
deferral contributions to a section 401(k) plan are treated as 
employer contributions and, thus, are subject to the generally 
applicable deduction limits.
    Subject to certain exceptions, nondeductible contributions 
are subject to a 10-percent excise tax.

                           Reasons for Change

    Subjecting elective deferrals to the normally applicable 
deduction limits may cause employers to restrict the amount of 
elective deferrals an employee may make or to restrict employer 
contributions to the plan, thereby reducing participants' 
ultimate retirement benefits and their ability to save 
adequately for retirement. The Committee believes that the 
amount of elective deferrals otherwise allowable should not be 
further limited through application of the deduction rules.

                        Explanation of Provision

    Under the provision, elective deferral contributions are 
not subject to the deduction limits, and the application of a 
deduction limitation to any other employer contribution to a 
qualified retirement plan does not take into account elective 
deferral contributions.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2000.

E. Repeal of Coordination Requirements for Deferred Compensation Plans 
 of State and Local Governments and Tax-Exempt Organizations (Sec. 205 
                 of the Bill and Sec. 457 of the Code)


                              Present Law

    Compensation deferred under an eligible deferred 
compensation plan of a tax-exempt or State and local government 
employer (a ``section 457 plan'') is not includible in gross 
income until paid or made available. In general, the maximum 
permitted annual deferral under such a plan is the lesser of 
(1) $8,000 (in 2000) or (2) 33\1/3\ percent of compensation. 
The $8,000 limit is increased for inflation in $500 increments. 
Under a special catch-up rule, a section 457 plan may provide 
that, for one or more of the participant's last 3 years before 
retirement, the otherwise applicable limit is increased to the 
lesser of (1) $15,000 or (2) the sum of the otherwise 
applicable limit for the year plus the amount by which the 
limit applicable in preceding years of participation exceeded 
the deferrals for that year.
    The $8,000 limit (as modified under the catch-up rule), 
applies to all deferrals under all section 457 plans in which 
the individual participates. In addition, in applying the 
$8,000 limit, contributions under a tax-sheltered annuity 
(``section 403(b) annuity''), elective deferrals under a 
qualified cash or deferred arrangement (``section 401(k) 
plan''), salary reduction contributions under a simplified 
employee pension plan (``SEP''), and contributions under a 
SIMPLE plan are taken into account. Further, the amount 
deferred under a section 457 plan is taken into account in 
applying a special catch-up rule for section 403(b) annuities.

                           Reasons for Change

    The Committee believes that individuals participating in a 
section 457 plan should also be able to fully participate in a 
section 403(b) annuity or section 401(k) plan of the employer. 
Eliminating the coordination rule may also encourage the 
establishment of section 403(b) or 401(k) plans by tax-exempt 
and governmental employers (as permitted under present law).

                        Explanation of Provision

    The provision repeals the rules coordinating the section 
457 dollar limit with contributions under other types of 
plans.10
---------------------------------------------------------------------------
    \10\ The limits on deferrals under a section 457 plan are modified 
under other provisions of the bill.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2000.

 F. Eliminate IRS User Fees for Certain Determination Letter Requests 
  Regarding Employer Plans (Sec. 206 of the Bill and Sec. 7527 of the 
                                 Code)


                              Present Law

    An employer that maintains a retirement plan for the 
benefit of its employees may request from the Internal Revenue 
Service (``IRS'') a determination as to whether the form of the 
plan satisfies the requirements applicable to tax-qualified 
plans (sec. 401(a)). In order to obtain from the IRS a 
determination letter on the qualified status of the plan, the 
employer must pay a user fee. The user fee may range from $125 
to $1,250, depending upon the scope of the request and the type 
and format of the plan.11
---------------------------------------------------------------------------
    \11\ User fees are statutorily authorized; however, the IRS sets 
the dollar amount of the fee applicable to any particular type of 
request.
---------------------------------------------------------------------------

                           Reasons for Change

    One of the factors affecting the decision of a small 
employer to adopt a plan is the levelof administrative costs 
associated with the plan. The Committee believes that reducing 
administrative costs, such as IRS user fees, will help further the 
establishment of qualified plans by small employers.

                        Explanation of Provision

    A small employer (100 or fewer employees) is not required 
to pay a user fee for a determination letter request with 
respect to the qualified status of a retirement plan that the 
employer maintains if the request is made within the first 5 
plan years of the plan. The provision applies only to requests 
by employers for determination letters concerning the qualified 
retirement plans they maintain. Therefore, a sponsor of a 
prototype plan is required to pay a user fee for a request for 
a notification letter, opinion letter, or similar ruling. A 
small employer that adopts a prototype plan, however, is not 
required to pay a user fee for a determination letter request 
with respect to the employer's plan.

                             Effective Date

    The provision is effective for determination letter 
requests made after December 31, 2000.

  G. Deduction Limits (Sec. 207 of the Bill and Sec. 404 of the Code)


                              Present Law

    Employer contributions to one or more qualified retirement 
plans are deductible subject to certain limits. In general, the 
deduction limit depends on the kind of plan. Subject to certain 
exceptions, nondeductible contributions are subject to a 10-
percent excise tax.
    In the case of a defined benefit pension plan or a money 
purchase pension plan, the employer generally may deduct the 
amount necessary to satisfy the minimum funding cost of the 
plan for the year. If a defined benefit pension plan has more 
than 100 participants, the maximum amount deductible is at 
least equal to the plan's unfunded current liabilities.
    In some cases, the amount of deductible contributions is 
limited by compensation. In the case of a profit-sharing or 
stock bonus plan, the employer generally may deduct an amount 
equal to 15 percent of compensation of the employees covered by 
the plan for the year.
    If an employer sponsors both a defined benefit pension plan 
and a defined contribution plan that covers some of the same 
employees (or a money purchase pension plan and another kind of 
defined contribution plan), the total deduction for all plans 
for a plan year generally is limited to the greater of (1) 25 
percent of compensation or (2) the contribution necessary to 
meet the minimum funding requirements of the defined benefit 
pension plan for the year (or the amount of the plan's unfunded 
current liabilities, in the case of a plan with more than 100 
participants).
    In the case of an employee stock ownership plan (``ESOP''), 
principal payments on a loan used to acquire qualifying 
employer securities are deductible up to 25 percent of 
compensation.
    For purposes of the deduction limits, employee elective 
deferral contributions to a qualified cash or deferred 
arrangement (``section 401(k) plan'') are treated as employer 
contributions and, thus, are subject to the generally 
applicable deduction limits.12
---------------------------------------------------------------------------
    \12\ Another provision in the bill provides that elective deferrals 
are not subject to the deduction limits.
---------------------------------------------------------------------------
    For purposes of the deduction limits, compensation means 
the compensation otherwise paid or accrued during the taxable 
year to the beneficiaries under the plan, and the beneficiaries 
under a profit-sharing or stock bonus plan are the employees 
who benefit under the plan with respect to the employer's 
contribution.13 An employee who is eligible to make 
elective deferrals under a section 401(k) plan is treated as 
benefitting under the arrangement even if the employee elects 
not to defer.14
---------------------------------------------------------------------------
    \13\ Rev. Rul. 65-295, 1965-2 C.B. 148.
    \14\ Treas. Reg. sec. 1.410(b)-3.
---------------------------------------------------------------------------
    For purposes of the deduction rules, compensation generally 
includes only taxable compensation, and thus does not include 
salary reduction amounts, such as elective deferrals under a 
section 401(k) plan or a tax-sheltered annuity (``section 
403(b) annuity''), elective contributions under a deferred 
compensation plan of a tax-exempt organization or a State or 
local government (``section 457 plan''), and salary reduction 
contributions under a section 125 cafeteria plan. For purposes 
of the contribution limits under section 415, compensation does 
include such salary reduction amounts.

                           Reasons for Change

    The Committee believes that compensation unreduced by 
employee elective contributions is a more appropriate measure 
of compensation for plan purposes, including deduction limits, 
than the present-law rule. Applying the same definition for 
deduction purposes as is generally used for other qualified 
plan purposes will also simplify application of the qualified 
plan rules. The Committee also believes that the 15 percent of 
compensation limit may restrict the amount of employer 
contributions to the plan, thereby reducing participants' 
ultimate retirement benefits and their ability to adequately 
save for retirement.

                        Explanation of Provision

    Under the provision, the definition of compensation for 
purposes of the deduction rules includes salary reduction 
amounts treated as compensation under section 415. In addition, 
the annual limitation on the amount of deductible contributions 
to a profit-sharing or stock bonusplan is increased from 15 
percent to 20 percent of compensation of the employees who benefit 
under the plan for the year.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2000.

H. Option To Treat Elective Deferrals as After-tax Contributions (Sec. 
             208 of the Bill and New Sec. 402a of the Code)


                              Present Law

    A qualified cash or deferred arrangement (``section 401(k) 
plan'') or a tax-sheltered annuity (``section 403(b) annuity'') 
may permit a participant to elect to have the employer make 
payments as contributions to the plan or to the participant 
directly in cash. Contributions made to the plan at the 
election of a participant are elective deferrals. Elective 
deferrals must be nonforfeitable and are subject to an annual 
dollar limitation (sec. 402(g)) and distribution restrictions. 
In addition, elective deferrals under a section 401(k) plan are 
subject to special nondiscrimination rules. Elective deferrals 
(and earnings attributable thereto) are not includible in a 
participant's gross income until distributed from the plan.
    Individuals with adjusted gross income below certain levels 
generally may make nondeductible contributions to a Roth IRA 
and may convert a deductible or nondeductible IRA into a Roth 
IRA. Amounts held in a Roth IRA that are withdrawn as a 
qualified distribution are not includible in income, nor 
subject to the additional 10-percent tax on early withdrawals. 
A qualified distribution is a distribution that (1) is made 
after the 5-taxable year period beginning with the first 
taxable year for which the individual made a contribution to a 
Roth IRA, and (2) is made after attainment of age 59\1/2\, is 
made on account of death or disability, or is a qualified 
special purpose distribution (i.e., for first-time homebuyer 
expenses of up to $10,000). A distribution from a Roth IRA that 
is not a qualified distribution is includible in income to the 
extent attributable to earnings, and is subject to the 10-
percent tax on early withdrawals (unless an exception 
applies).15
---------------------------------------------------------------------------
    \15\ Early distributions of converted amounts may also accelerate 
income inclusion of converted amounts that are taxable under the 4-year 
rule applicable to 1998 conversions.
---------------------------------------------------------------------------

                           Reasons for Change

    The recently-enacted Roth IRA provisions have provided 
individuals with another form of tax-favored retirement 
savings. For a variety of reasons, some individuals may prefer 
to save through a Roth IRA rather than a traditional deductible 
IRA. The Committee believes that similar savings choices should 
be available to participants in section 401(k) plans and tax-
sheltered annuities.

                        Explanation of Provision

    A section 401(k) plan or a section 403(b) annuity is 
permitted to include a ``qualified plus contribution program'' 
that permits a participant to elect to have all or a portion of 
the participant's elective deferrals under the plan treated as 
designated plus contributions. Designated plus contributions 
are elective deferrals that the participant designates as not 
excludable from the participant's gross income.
    The annual dollar limitation on a participant's designated 
plus contributions is the section 402(g) annual limitation on 
elective deferrals, reduced by the participant's elective 
deferrals that the participant does not designate as designated 
plus contributions. Designated plus contributions are treated 
as any other elective deferral for purposes of 
nonforfeitability requirements and distribution restrictions. 
Under a section 401(k) plan, designated plus contributions also 
are treated as any other elective deferral for purposes of the 
special nondiscrimination requirements.
    The plan is required to establish a separate account, and 
maintain separate recordkeeping, for a participant's designated 
plus contributions (and earnings allocable thereto). A 
qualified distribution from a participant's designated plus 
contributions account is not includible in the participant's 
gross income. A qualified distribution is a distribution that 
is made after the end of a specified nonexclusion period and 
that is (1) made on or after the date on which the participant 
attains age 59\1/2\, (2) made to a beneficiary (or to the 
estate of the participant) on or after the death of the 
participant, or (3) attributable to the participant's being 
disabled.16 The nonexclusion period is the 5-year-
taxable period beginning with the earlier of (1) the first 
taxable year for which the participant made a designated plus 
contribution to any designated plus contribution account 
established for the participant under the plan, or (2) if the 
participant has made a rollover contribution to the designated 
plus contribution account that is the source of the 
distribution from a designated plus contribution account 
established for the participant under another plan, the first 
taxable year for which the participant made a designated plus 
contribution to the previously established account.
---------------------------------------------------------------------------
    \16\ A qualified special purpose distribution, as defined under the 
rules relating to Roth IRAs, does not qualify as a tax-free 
distribution from a designated plus contributions account.
---------------------------------------------------------------------------
    A distribution from a designated plus contributions account 
that is a corrective distribution of an elective deferral (and 
income allocable thereto) that exceeds the section 402(g) 
annual limit on elective deferrals is not a qualified 
distribution.
    A participant is permitted to roll over a distribution from 
a designated plus contributions account only to another 
designated plus contributions account or a Roth IRA of the 
participant.
    The Secretary of the Treasury is directed to require the 
plan administrator of each section 401(k) plan or section 
403(b) annuity that permits participants to make designated 
plus contributions to make such returns and reports regarding 
designated plus contributions to theSecretary, plan 
participants and beneficiaries, and other persons that the Secretary 
may designate.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2000.

                TITLE III. ENHANCING FAIRNESS FOR WOMEN


A. Additional Salary Reduction Catch-Up Contributions (Sec. 301 of the 
                     Bill and Sec. 414 of the Code)


                              Present Law

Elective deferral limitations

    Under present law, under certain salary reduction 
arrangements, an employee may elect to have the employer make 
payments as contributions to a plan on behalf of the employee, 
or to the employee directly in cash. Contributions made at the 
election of the employee are called elective deferrals.
    The maximum annual amount of elective deferrals that an 
individual may make to a qualified cash or deferred arrangement 
(a ``401(k) plan''), a tax-sheltered annuity (``section 403(b) 
annuity'') or a salary reduction simplified employee pension 
plan (``SEP'') is $10,500 (for 2000). The maximum annual amount 
of elective deferrals that an individual may make to a SIMPLE 
plan is $6,000. These limits are indexed for inflation in $500 
increments.

Section 457 plans

    The maximum annual deferral under a deferred compensation 
plan of a State or local government or a tax-exempt 
organization (a ``section 457 plan'') is the lesser of (1) 
$8,000 (for 2000) or (2) 33\1/3\ percent of compensation. The 
$8,000 dollar limit is increased for inflation in $500 
increments. Under a special catch-up rule, the section 457 plan 
may provide that, for one or more of the participant's last 3 
years before retirement, the otherwise applicable limit is 
increased to the lesser of (1) $15,000 or (2) the sum of the 
otherwise applicable limit for the year plus the amount by 
which the limit applicable in preceding years of participation 
exceeded the deferrals for that year.

                           Reasons for Change

    Although the Committee believes that individuals should be 
saving for retirement throughout their working lives, as a 
practical matter, many individuals simply do not focus on the 
amount of retirement savings they need until they near 
retirement. In addition, many individuals may have difficulty 
saving more in earlier years, e.g., because an employee leaves 
the workplace to care for a family. Some individuals may have a 
greater ability to save as they near retirement.
    The Committee believes that the pension laws should assist 
individuals who are nearing retirement to save more for their 
retirement.

                        Explanation of Provision

    The provision provides that the otherwise applicable dollar 
limit on elective deferrals under a section 401(k) plan, 
section 403(b) annuity, or SIMPLE, or deferrals under a section 
457 plan are increased for individuals who have attained age 50 
by the end of the year.17 Additional contributions 
are permitted to be made by an individual who has attained age 
50 before the end of the plan year and with respect to whom no 
other elective deferrals may otherwise be made to the plan for 
the year because of the application of any limitation of the 
Code (e.g., the annual limit on elective deferrals) or of the 
plan. Under the provision, the additional amount of elective 
contributions that are permitted to be made by an eligible 
individual participating in such a plan is the lesser of (1) 
$5,000, or (2) the participant's compensation for the year 
reduced by any other elective deferrals of the participant for 
the year.18 This $5,000 amount is increased for 
inflation in $500 increments in 2006 and thereafter.
---------------------------------------------------------------------------
    \17\ Another provision of the bill increases the dollar limit on 
elective deferrals under such arrangements.
    \18\ In the case of a section 457 plan, this catch-up rule does not 
apply during the participant's last 3 years before retirement (in those 
years, the regularly applicable dollar limit is doubled).
---------------------------------------------------------------------------
    Catch-up contributions made under the provision are not 
subject to any other contribution limits and are not taken into 
account in applying other contribution limits. Such 
contributions are subject to applicable nondiscrimination 
rules.19
---------------------------------------------------------------------------
    \19\ Another provision of the bill provides that elective 
contributions are deductible without regard to the otherwise applicable 
deduction limits.
---------------------------------------------------------------------------
    An employer is permitted to make matching contributions 
with respect to catch-up contributions. Any such matching 
contributions are subject to the normally applicable rules.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2000.

   B. Equitable Treatment for Contributions of Employees to Defined 
Contribution Plans (Sec. 302 of the Bill and Secs. 403(b), 415, and 457 
                              of the Code)


                              Present Law

    Present law imposes limits on the contributions that may be 
made to tax-favored retirement plans.

Defined contribution plans

    In the case of a tax-qualified defined contribution plan, 
the limit on annual additions that can be made to the plan on 
behalf of an employee is the lesser of $30,000 (for 2000) or 25 
percent of the employee's compensation (sec. 415(c)). Annual 
additions include employer contributions, including 
contributions made at the election of the employee (i.e., 
employee elective deferrals), after-tax employee contributions, 
and any forfeitures allocated to the employee. For this 
purpose, compensation means taxable compensation of the 
employee, plus elective deferrals, and similar salary reduction 
contributions. A separate limit applies to benefits under a 
defined benefit plan.
    For years before January 1, 2000, an overall limit applies 
if an employee is a participant in both a defined contribution 
plan and a defined benefit plan of the same employer.

Tax-sheltered annuities

    In the case of a tax-sheltered annuity (a ``section 403(b) 
annuity'), the annual contribution generally cannot exceed the 
lesser of the exclusion allowance or the section 415(c) defined 
contribution limit. The exclusion allowance for a year is equal 
to 20 percent of the employee's includible compensation, 
multiplied by the employee's years of service, minus excludable 
contributions for prior years under qualified plans, tax-
sheltered annuities or section 457 plans of the employer.
    In addition to this general rule, employees of nonprofit 
educational institutions, hospitals, home health service 
agencies, health and welfare service agencies, and churches may 
elect application of one of several special rules that increase 
the amount of the otherwise permitted contributions. The 
election of a special rule is irrevocable; an employee may not 
elect to have more than one special rule apply.
    Under one special rule, in the year the employee separates 
from service, the employee may elect to contribute up to the 
exclusion allowance, without regard to the 25 percent of 
compensation limit under section 415. Under this rule, the 
exclusion allowance is determined by taking into account no 
more than 10 years of service.
    Under a second special rule, the employee may contribute up 
to the lesser of: (1) the exclusion allowance; (2) 25 percent 
of the participant's includible compensation; or (3) $15,000.
    Under a third special rule, the employee may elect to 
contribute up to the section 415(c) limit, without regard to 
the exclusion allowance. If this option is elected, then 
contributions to other plans of the employer are also taken 
into account in applying the limit.
    For purposes of determining the contribution limits 
applicable to section 403(b) annuities, includible compensation 
means the amount of compensation received from the employer for 
the most recent period which may be counted as a year of 
service under the exclusion allowance. In addition, includible 
compensation includes elective deferrals and similar salary 
reduction amounts.
    Treasury regulations include provisions regarding 
application of the exclusion allowance in cases where the 
employee participates in a section 403(b) annuity and a defined 
benefit plan. The Taxpayer Relief Act of 1997 directed the 
Secretary of the Treasury to revise these regulations, 
effective for years beginning after December 31, 1999, to 
reflect the repeal of the overall limit on contributions and 
benefits.

Section 457 plans

    Compensation deferred under an eligible deferred 
compensation plan of a tax-exempt or State and local 
governmental employer (a ``section 457 plan'') is not 
includible in gross income until paid or made available. In 
general, the maximum permitted annual deferral under such a 
plan is the lesser of (1) $8,000 (in 2000) or (2) 
33\1/3\ percent of compensation. The $8,000 limit is increased 
for inflation in $500 increments.

                           Reasons for Change

    The present-law rules that limit contributions to defined 
contribution plans by a percentage of compensation reduce the 
amount that lower- and middle-income workers can save for 
retirement. The present-law limits may not allow such workers 
to accumulate adequate retirement benefits, particularly if a 
defined contribution plan is the only type of retirement plan 
maintained by the employer.
    Conforming the contribution limits for tax-sheltered 
annuities to the limits applicable to retirement plans will 
simplify the administration of the pension laws, and provide 
more equitable treatment for participants in similar types of 
plans.

                        Explanation of Provision

Increase in defined contribution plan limit

    The provision increases the 25 percent of compensation 
limitation on annual additions under a defined contribution 
plan to 100 percent.20
---------------------------------------------------------------------------
    \20\ Another provision of the bill increases the defined 
contribution plan dollar limit.
---------------------------------------------------------------------------

Conforming limits on tax-sheltered annuities

    The provision repeals the exclusion allowance applicable to 
contributions to tax-sheltered annuities. Thus, such annuities 
are subject to the limits applicable to tax-qualified plans.
    The provision also directs the Secretary of the Treasury to 
revise the regulations relating to the exclusion allowance 
under section 403(b)(2) to render void the requirement that 
contributions to a defined benefit plan be treated as 
previously excluded amounts for purposes of the exclusion 
allowance. For taxable years beginning after December 31, 1999, 
the regulatory provisions regarding the exclusion allowance are 
to be applied as if the requirement that contributions to a 
defined benefit plan be treated as previously excluded amounts 
for purposes of the exclusion allowance were void.

Section 457 plans

    The provision increases the 33\1/3\ percent of compensation 
limitation on deferrals under a section 457 plan to 100 percent 
of compensation.

                             effective date

    The provision is generally effective for years beginning 
after December 31, 2000. The provision regarding the 
regulations under section 403(b)(2) is effective on the date of 
enactment.

 C. Faster Vesting of Employer Matching Contributions (Sec. 303 of the 
                     Bill and Sec. 411 of the Code)


                              Present Law

    Under present law, a plan is not a qualified plan unless a 
participant's employer-provided benefit vests at least as 
rapidly as under one of two alternative minimum vesting 
schedules. A plan satisfies the first schedule if a participant 
acquires a nonforfeitable right to 100 percent of the 
participant's accrued benefit derived from employer 
contributions upon the completion of 5 years of service. A plan 
satisfies the second schedule if a participant has a 
nonforfeitable right to at least 20 percent of the 
participant's accrued benefit derived from employer 
contributions after 3 years of service, 40 percent after 4 
years of service, 60 percent after 5 years of service, 80 
percent after 6 years of service, and 100 percent after 7 years 
of service.\21\
---------------------------------------------------------------------------
    \21\ The minimum vesting requirements are also contained in Title I 
of the Employee Retirement Income Security Act of 1974, as amended 
(``ERISA'').
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee understands that many employees, particularly 
lower- and middle-income employees, do not take full advantage 
of the retirement savings opportunities provided by their 
employer's section 401(k) plan. The Committee believes that 
providing faster vesting for matching contributions will make 
section 401(k) plans more attractive for employees, 
particularly lower- and middle-income employees, and will 
encourage employees to save more for their own retirement. In 
addition, faster vesting for matching contributions will enable 
short-service employees to accumulate greater retirement 
savings.

                        Explanation of Provision

    The provision applies faster vesting schedules to employer 
matching contributions. Under the provision, employer matching 
contributions have to vest at least as rapidly as under one of 
the following two alternative minimum vesting schedules. A plan 
satisfies the first schedule if a participant acquires a 
nonforfeitable right to 100 percent of employer matching 
contributions upon the completion of 3 years of service. A plan 
satisfies the second schedule if a participant has a 
nonforfeitable right to 20 percent of employer matching 
contributions for each year of service beginning with the 
participant's second year of service and ending with 100 
percent after 6 years of service.

                             effective date

    The provision is effective for plan years beginning after 
December 31, 2000, with a delayed effective date for plans 
maintained pursuant to a collective bargaining agreement. The 
provision does not apply to any employee until the employee has 
an hour of service after the effective date. In applying the 
new vesting schedule, service before the effective date is 
taken into account.

 D. Simplify and Update the Minimum Distribution Rules (Secs. 304 and 
        409 of the Bill and Secs. 401(a)(9) and 457 of the Code)


                              Present Law

In general

    Minimum distribution rules apply to all types of tax-
favored retirement vehicles, including qualified plans, 
individual retirement arrangements (``IRAs''), tax-sheltered 
annuities (``section 403(b) annuities''), and eligible deferred 
compensation plans of tax-exempt and State and local government 
employers (``section 457 plans''). In general, under these 
rules, distribution of minimum benefits must begin no later 
than the required beginning date. Minimum distribution rules 
also apply to benefits payable with respect to a plan 
participant who has died. Failure to comply with the minimum 
distribution rules results in an excise tax imposed on the 
individual plan participant equal to 50 percent of the required 
minimum distribution not distributed for the year. The excise 
tax can be waived if the individual establishes to the 
satisfaction of the Secretary that the shortfall in the amount 
distributed was due to reasonable error and reasonable steps 
are being taken to remedy the shortfall.

Distributions prior to the death of the individual

    In the case of distributions prior to the death of the plan 
participant, the minimum distribution rules are satisfied if 
either (1) the participant's entire interest in the plan is 
distributed by the required beginning date, or (2) the 
participant's interest in the plan is to be distributed (in 
accordance with regulations), beginning not later than the 
required beginning date, over a permissible period. The 
permissible periods are (1) the life of the participant, (2) 
the lives of theparticipant and a designated beneficiary, (3) 
the life expectancy of the participant, or (4) the joint life and last 
survivor expectancy of the participant and a designated beneficiary. In 
calculating minimum required distributions, life expectancies of the 
participant and the participant's spouse may be recomputed annually.
    In the case of qualified plans, tax-sheltered annuities, 
and section 457 plans, the required beginning date is the April 
1 of the calendar year following the later of (1) the calendar 
year in which the employee attains age 70\1/2\ or (2) the 
calendar year in which the employee retires. However, in the 
case of a 5-percent owner of the employer, distributions are 
required to begin no later than the April 1 of the calendar 
year following the year in which the 5-percent owner attains 
age 70\1/2\. If commencement of benefits is delayed beyond age 
70\1/2\ from a defined benefit plan, then the accrued benefit 
of the employee must be actuarially increased to take into 
account the period after age 70\1/2\ in which the employee was 
not receiving benefits under the plan.22 In the case 
of distributions from an IRA other than a Roth IRA, the 
required beginning date is the April 1 following the calendar 
year in which the IRA owner attains age 70\1/2.\ The pre-death 
minimum distribution rules do not apply to Roth IRAs.
---------------------------------------------------------------------------
    \22\ State and local government plans and church plans are not 
required to actuarially increase benefits that begin after age 70\1/2\.
---------------------------------------------------------------------------
    In general, under proposed regulations, in order to satisfy 
the minimum distribution rules, annuity payments under a 
defined benefit plan must be paid in period payments made at 
intervals not longer than one year over a permissible period, 
and must be nonincreasing, or increase only as a result of the 
following: (1) cost-of-living adjustments; (2) cash refunds of 
employee contributions; (3) benefit increases under the plan; 
or (4) an adjustment due to death of the employee's 
beneficiary. In the case of a defined contribution plan, the 
minimum required distribution is determined by dividing the 
employee's benefit by the applicable life expectancy.

Distributions after the death of the plan participant

    The minimum distribution rules also apply to distributions 
to beneficiaries of deceased participants. In general, if the 
participant dies after minimum distributions have begun, the 
remaining interest must be distributed at least as rapidly as 
under the minimum distribution method being used as of the date 
of death. If the participant dies before minimum distributions 
have begun, then the entire remaining interest must generally 
be distributed within 5 years of the participant's death. The 
5-year rule does not apply if distributions begin within 1 year 
of the participant's death and are payable over the life of a 
designated beneficiary or over the life expectancy of a 
designated beneficiary. A surviving spouse beneficiary is not 
required to begin distribution until the date the deceased 
participant would have attained age 70\1/2\.

Special rules for section 457 plans

    Eligible deferred compensation plans of State and local and 
tax-exempt employers (``section 457 plans'') are subject to the 
minimum distribution rules described above. Such plans are also 
subject to additional minimum distribution requirements (sec. 
457(d)(2)(b)).

                           reasons for change

    The Committee believes that the minimum distribution rules 
are among the most complex of the rules relating to tax-favored 
arrangements. While a plan or IRA trustee may assist the 
individual in complying with the minimum distribution rules, 
ultimately the responsibility for compliance falls on the 
individual. Many of the complexities of the present-law rules 
are contained in Treasury regulations, which have not yet been 
finalized. The Committee believes that the present-law rules 
impose undue burdens on individuals and plan administrators.
    The sanction for failure to comply with the minimum 
distribution rules is severe. The Committee believes this 
sanction is inappropriate, particularly given the complexity of 
the rules, and the likelihood of inadvertent mistakes.

                        Explanation of Provision

Modification of post-death distribution rules

    The provision applies the present-law rules applicable if 
the participant dies before distribution of minimum benefits 
has begun to all post-death distributions. Thus, in general, if 
the employee dies before his or her entire interest has been 
distributed, distribution of the remaining interest must be 
made within 5 years of the date of death, or begin within one 
year of the date of death and be paid over the life or life 
expectancy of a designated beneficiary. In the case of a 
surviving spouse, distributions are not required to begin until 
the surviving spouse attains age 70\1/2\. Minimum distributions 
that have already begun may be recalculated under the new rule.

Reduction in excise tax

    The provision reduces the excise tax on failures to satisfy 
the minimum distribution rules to 10 percent of the amount that 
was required to be distributed but was not distributed.

Treasury regulations

    The Treasury is directed to update, simplify and finalize 
the regulations relating to the minimum distribution rules. The 
Treasury is directed to reflect in the regulations current life 
expectancies and to revise the required distribution methods so 
that, under reasonable assumptions, the amount of the required 
distribution does not decrease over time. The regulations are 
to permit recalculation of distributions for future years to 
reflect the change in the regulations, and to permit the 
election of a new designated beneficiary and method of 
calculating life expectancy. The regulations are to be 
effective for years beginning after December 31, 2000.

Section 457 plans

    The provision repeals the special minimum distribution 
rules applicable to section 457 plans. Thus, such plans are 
subject to the same minimum distribution rules applicable to 
other types of tax-favored arrangements.

                             Effective Date

    In general, the provision is effective for years beginning 
after December 31, 2000.

   E. Clarification of Tax Treatment of Division of Section 457 Plan 
Benefits Upon Divorce (Sec. 305 of the Bill and Secs. 414(p) and 457 of 
                               the Code)


                              Present Law

    Under present law, benefits provided under a qualified 
retirement plan for a participant may not be assigned or 
alienated to creditors of the participant, except in very 
limited circumstances. One exception to the prohibition on 
assignment or alienation rule is a qualified domestic relations 
order (``QDRO''). A QDRO is a domestic relations order that 
creates or recognizes a right of an alternate payee to any plan 
benefit payable with respect to a participant, and that meets 
certain procedural requirements.
    Under present law, a distribution from a governmental plan 
or a church plan is treated as made pursuant to a QDRO if it is 
made pursuant to a domestic relations order that creates or 
recognizes a right of an alternate payee to any plan benefit 
payable with respect to a participant. Such distributions are 
not required to meet the procedural requirements that apply 
with respect to distributions from qualified plans.
    Under present law, amounts distributed from a qualified 
plan generally are taxable to the participant in the year of 
distribution. However, if amounts are distributed to the spouse 
(or former spouse) of the participant by reason of a QDRO, the 
benefits are taxable to the spouse (or former spouse). Amounts 
distributed pursuant to a QDRO to an alternate payee other than 
the spouse (or former spouse) are taxable to the plan 
participant.
    Section 457 of the Internal Revenue Code provides rules for 
deferral of compensation by an individual participating in an 
eligible deferred compensation plan (``section 457 plan'') of a 
tax-exempt or State and local government employer. The QDRO 
rules do not apply to section 457 plans.

                           Reasons for Change

    The Committee believes that the rules regarding qualified 
domestic relations orders should apply to all types of 
employer-sponsored retirement plans.

                        Explanation of Provision

    The provision applies the taxation rules for qualified plan 
distributions pursuant to a QDRO to distributions made pursuant 
to a domestic relations order from a section 457 plan. In 
addition, a section 457 plan is not treated as violating the 
restrictions on distributions from such plans due to payments 
to an alternate payee under a QDRO. The special rule applicable 
to governmental plans and church plans applies for purposes of 
determining whether a distribution is pursuant to a QDRO.

                             Effective Date

    The provision is effective for transfers, distributions and 
payments made after December 31, 2000.

  F. Modification of Safe Harbor Relief for Hardship Withdrawals from 
                  401(k) Plans (Sec. 306 of the Bill)


                              Present Law

    Elective deferrals under a qualified cash or deferred 
arrangement (a ``section 401(k) plan'') may not be 
distributable prior to the occurrence of one or more specified 
events. One event upon which distribution is permitted is the 
financial hardship of the employee. Applicable Treasury 
regulations 23 provide that a distribution is made 
on account of hardship only if the distribution is made on 
account of an immediate and heavy financial need of the 
employee and is necessary to satisfy the heavy need.
---------------------------------------------------------------------------
    \23\ Treas. Reg. sec. 1.401(k)-1.
---------------------------------------------------------------------------
    The Treasury regulations provide a safe harbor under which 
a distribution may be deemed necessary to satisfy an immediate 
and heavy financial need. One requirement of this safe harbor 
is that the employee be prohibited from making elective 
contributions and employee contributions to the plan and all 
other plans maintained by the employer for at least 12 months 
after receipt of the hardship distribution.

                           Reasons for Change

    Although the Committee believes that it is appropriate to 
restrict the circumstances in which an in-service distribution 
from a 401(k) plan is permitted and to encourage participants 
to take such distributions only when necessary to satisfy an 
immediate and heavy financial need, the Committee is concerned 
about the impact that a 12-month suspension of contributions 
may have on the retirement savings of a participant who 
experiences a hardship. The Committee believes that the 
combination of a 6-month contribution suspension and the other 
elements of the regulatory safe harbor will provide an adequate 
incentive for a participant to seek sources of funds other than 
his or her 401(k) plan account balance in order to satisfy 
financial hardships.

                        Explanation of Provision

    The Secretary of the Treasury is directed to revise the 
applicable regulations to reduce from 12 months to 6 months the 
period during which an employee must be prohibited from making 
elective contributions and employee contributions in order for 
a distribution to be deemed necessary to satisfy an immediate 
and heavy financial need.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2000.

           TITLE IV. INCREASING PORTABILITY FOR PARTICIPANTS


 A. Rollovers of Retirement Plan and IRA Distributions (Secs. 401-403 
 and 409 of the Bill and Secs. 401, 402, 403(b), 408, 457, and 3405 of 
                               the Code)


                              Present Law

In general

    Present law permits the rollover of funds from a tax-
favored retirement plan to another tax-favored retirement plan. 
The rules that apply depend on the type of plan involved. 
Similarly, the rules regarding the tax treatment of amounts 
that are not rolled over depend on the type of plan involved.

Distributions from qualified plans

    Under present law, an ``eligible rollover distribution'' 
from a tax-qualified employer-sponsored retirement plan may be 
rolled over tax free to a traditional individual retirement 
arrangement (``IRA'') 24 or another qualified plan. 
25 An ``eligible rollover distribution'' means any 
distribution to an employee of all or any portion of the 
balance to the credit of the employee in a qualified plan, 
except the term does not include (1) any distribution which is 
one of a series of substantially equal periodic payments made 
(a) for the life (or life expectancy) of the employee or the 
joint lives (or joint life expectancies) of the employee and 
the employee's designated beneficiary, or (b) for a specified 
period of 10 years or more, (2) any distribution to the extent 
such distribution is required under the minimum distribution 
rules, and (3) certain hardship distributions. The maximum 
amount that can be rolled over is the amount of the 
distribution includible in income, i.e., after-tax employee 
contributions cannot be rolled over. Qualified plans are not 
required to accept rollovers.
---------------------------------------------------------------------------
    \24\ A ``traditional'' IRA refers to IRAs other than Roth IRAs or 
SIMPLE IRAs. All references to IRAs refers only to traditional IRAs.
    \25\ An eligible rollover distribution may either be rolled over by 
the distributee within 60 days of the date of the distribution or, as 
described below, directly rolled over by the distributing plan.
---------------------------------------------------------------------------

Distributions from tax-sheltered annuities

    Eligible rollover distributions from a tax-sheltered 
annuity (``section 403(b) annuity'') may be rolled over into an 
IRA or another section 403(b) annuity. Distributions from a 
section 403(b) annuity cannot be rolled over into a tax-
qualified plan. Section 403(b) annuities are not required to 
accept rollovers.

IRA distributions

    Distributions from a traditional IRA, other than minimum 
required distributions, can be rolled over into another IRA. In 
general, distributions from an IRA cannot be rolled over into a 
qualified plan or section 403(b) annuity. An exception to this 
rule applies in the case of so-called ``conduit IRAs.'' Under 
the conduit IRA rule, amounts can be rolled from a qualified 
plan into an IRA and then subsequently rolled back to another 
qualified plan if the amounts in the IRA are attributable 
solely to rollovers from a qualified plan. Similarly, an amount 
may be rolled over from a section 403(b) annuity to an IRA and 
subsequently rolled back into a section 403(b) annuity if the 
amounts in the IRA are attributable solely to rollovers from a 
section 403(b) annuity.

Distributions from section 457 plans

    A ``section 457 plan'' is an eligible deferred compensation 
plan of a State or local government or tax-exempt employer that 
meets certain requirements. In some cases, different rules 
apply under section 457 to governmental plans and plans of tax-
exempt employers. For example, governmental section 457 plans 
are like qualified plans in that plan assets are required to be 
held in a trust for the exclusive benefit of plan participants 
and beneficiaries. In contrast, benefits under a section 457 
plan of a tax-exempt employer are unfunded, like nonqualified 
deferred compensation plans of private employers.
    Section 457 benefits can be transferred to another section 
457 plan. Distributions from a section 457 plan cannot be 
rolled over to another section 457 plan, a qualified plan, a 
section 403(b) annuity, or an IRA.

Rollovers by surviving spouses

    A surviving spouse that receives an eligible rollover 
distribution may roll over the distribution into an IRA, but 
not a qualified plan or section 403(b) annuity.

Direct rollovers and withholding requirements

    Qualified plans and section 403(b) annuities are required 
to provide that a plan participant has the right to elect that 
an eligible rollover distribution be directly rolled over to 
another eligible retirement plan. If the plan participant does 
not elect the direct rollover option, then withholding is 
required on the distribution at a 20-percent rate.

Notice of eligible rollover distribution

    The plan administrator of a qualified plan or a section 
403(b) annuity is required to provide a written explanation of 
rollover rules to individuals who receive a distribution 
eligible for rollover. In general, the notice is to be provided 
within a reasonable period of time before making the 
distribution and is to include an explanation of (1) the 
provisions under which the individual may have the distribution 
directly rolled over to another eligible retirement plan, (2) 
the provision that requires withholding if the distribution is 
not directly rolled over, (3) the provision under which the 
distribution may be rolled over within 60 days of receipt, and 
(4) if applicable, certain other rules that may apply to the 
distribution. The Treasury Department has provided more 
specific guidance regarding timing and content of the notice.

Taxation of distributions

    As is the case with the rollover rules, different rules 
regarding taxation of benefits apply to different types of tax-
favored arrangements. In general, distributions from a 
qualified plan, section 403(b) annuity, or IRA are includible 
in income in the year received. In certain cases, distributions 
from qualified plans are eligible for capital gains treatment 
and averaging. These rules do not apply to distributions from 
another type of plan. Distributions from a qualified plan, IRA, 
and section 403(b) annuity generally are subject to an 
additional 10-percent early withdrawal tax if made before age 
59\1/2\. There are a number of exceptions to the early 
withdrawal tax. Some of the exceptions apply to all three types 
of plans, and others apply only to certain types of plans. For 
example, the 10-percent early withdrawal tax does not apply to 
IRA distributions for educational expenses, but does apply to 
similar distributions from qualified plans and section 403(b) 
annuities. Benefits under a section 457 plan are generally 
includible in income when paid or made available. The 10-
percent early withdrawal tax does not apply to section 457 
plans.

                           Reasons for Change

    Present law encourages individuals who receive 
distributions from qualified plans and similar arrangements to 
save those distributions for retirement by facilitating tax-
free rollovers to an IRA or another qualified plan. The 
Committee believes that expanding the rollover options for 
individuals in employer-sponsored retirement plans and owners 
of IRAs will provide further incentives for individuals to 
continue to accumulate funds for retirement. The Committee 
believes it appropriate to extend the same rollover rules to 
governmental section 457 plans; like qualified plans, such 
plans are required to hold plan assets in trust for employees.

                        Explanation of Provision

In general

    The provision provides that eligible rollover distributions 
from qualified retirement plans, section 403(b) annuities, and 
governmental section 457 plans generally could be rolled over 
to any of such plans or arrangements.26 Similarly, 
distributions from an IRA generally may be rolled over into a 
qualified plan, section 403(b) annuity, or governmental section 
457 plan. The direct rollover and withholding rules are 
extended to distributions from a governmental section 457 plan, 
and such plans are required to provide the written notification 
regarding eligible rollover distributions. The rollover notice 
(with respect to all plans) is required to include a 
description of the provisions under which distributions from 
the plan to which the distribution is rolled over may be 
subject to restrictions and tax consequences different than 
those applicable to distributions from the distributing plan. 
Qualified plans, section 403(b) annuities, and section 457 
plans are not required to accept rollovers.
---------------------------------------------------------------------------
    \26\ Hardship distributions from governmental section 457 plans 
would be considered eligible rollover distributions.
---------------------------------------------------------------------------
    Some special rules apply in certain cases. A distribution 
from a qualified plan is not eligible for capital gains or 
averaging treatment if there was a rollover to the plan that 
would not have been permitted under present law. Thus, in order 
to preserve capital gains and averaging treatment for a 
qualified plan distribution that is rolled over, the rollover 
has to be made to a ``conduit IRA'' as under present law, and 
then rolled back into a qualified plan. Amounts distributed 
from a section 457 plan are subject to the early withdrawal tax 
to the extent the distribution consists of amounts attributable 
to rollovers from another type of plan. Section 457 plans are 
required to separately account for such amounts.
    The provision also provides that benefits in governmental 
section 457 plans are includible in income when paid.

Rollover of after-tax contributions

    The provision provides that employee after-tax 
contributions may be rolled over into another qualified plan or 
a traditional IRA. In the case of a rollover from a qualified 
plan to another qualified plan, the rollover may be 
accomplished only through a direct rollover. In addition, a 
qualified plan may not accept rollovers of after-tax 
contributions unless the plan provides separate accounting for 
such contributions (and earnings thereon). After-tax 
contributions (including nondeductible contributions to an IRA) 
may not be rolled over from an IRA into a qualified plan, tax-
sheltered annuity, or section 457 plan.
    In the case of a distribution from a traditional IRA that 
is rolled over into an eligible rollover plan that is not an 
IRA, the distribution is attributed first to amounts other than 
after-tax contributions.

Expansion of spousal rollovers

    The provision provides that surviving spouses may roll over 
eligible rollover distributions to a qualified plan, section 
403(b) annuity, or governmental section 457 plan in which the 
spouse participates.

Treasury regulations

    The Secretary is directed to prescribe rules necessary to 
carry out the provisions. Such rules may include, for example, 
reporting requirements and mechanisms to address mistakes 
relating to rollovers. It is anticipated that the IRS will 
develop forms to assist individuals who roll over after-tax 
contributions to an IRA in keeping track of such contributions. 
Such forms could, for example, expand Form 8606--Nondeductible 
IRAs, to include information regarding after-tax contributions.

                             Effective Date

    The provision is effective for distributions made after 
December 31, 2000.

B. Waiver of 60-Day Rule (Sec. 404 of the Bill and Secs. 402 and 408 of 
                               the Code)


                              Present Law

    Under present law, amounts received from an IRA or 
qualified plan may be rolled over tax free if the rollover is 
made within 60 days of the date of the distribution. The 
Secretary does not have the authority to waive the 60-day 
requirement.

                           Reasons for Change

    The inability of the Secretary to waive the 60-day rollover 
period can result in adverse tax consequences for individuals. 
The Committee believes such harsh results are inappropriate and 
that providing for waivers of the rule will help facilitate 
rollovers.

                        Explanation of Provision

    The provision provides that the Secretary may waive the 60-
day rollover period if the failure to waive such requirement 
would be against equity or good conscience, including cases of 
casualty, disaster, or other events beyond the reasonable 
control of the individual subject to such requirement.

                             Effective Date

    The provision applies to distributions made after December 
31, 2000.

 C. Treatment of Forms of Distribution (Sec. 405 of the Bill and Sec. 
                         411(d)(6) of the Code)


                              Present Law

    An amendment of a qualified retirement plan may not 
decrease the accrued benefit of a plan participant. An 
amendment is treated as reducing an accrued benefit if, with 
respect to benefits accrued before the amendment is adopted, 
the amendment has the effect of either (1) eliminating or 
reducing an early retirement benefit or a retirement-type 
subsidy, or (2) except as provided by Treasury regulations, 
eliminating an optional form of benefit (sec. 
411(d)(6)).27
---------------------------------------------------------------------------
    \27\ A similar provision is contained in Title I of ERISA.
---------------------------------------------------------------------------
    The prohibition against the elimination of an optional form 
of benefit applies to plan mergers, spinoffs, transfers, and 
transactions amending or having the effect of amending a plan 
or plans to transfer plan benefits. For example, if Plan A, a 
profit-sharing plan that provides for distribution of benefits 
in annual installments over ten or twenty years, is merged with 
Plan B, a profit-sharing plan that provides for distribution of 
benefits in annual installments over life expectancy at the 
time of retirement, the merged plan must preserve the ten- or 
twenty-year installment option with respect to benefits accrued 
under Plan A as of the date of the merger and the installments 
over life expectancy with respect to benefits accrued under 
Plan B as of the date of the merger. Similarly, for example, if 
a participant's benefit under a defined contribution plan is 
transferred to another defined contribution plan maintained by 
the same or a different employer, the optional forms of benefit 
available with respect to the participant's accrued benefit 
under the transferor plan must be preserved.28
---------------------------------------------------------------------------
    \28\ Treas. Reg. sec. 1.411(d)-4, Q&A-2(a)(3)(i).
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee understands that the application of the 
prohibition against the elimination of any optional form of 
benefit frequently results in complexity and confusion, 
especially in the context of business acquisitions and similar 
transactions, and makes it difficult for participants to 
understand their benefit options and make choices that are 
best-suited to their needs. The Committee believes that it is 
appropriate to permit the elimination of duplicative benefit 
options that develop following plan mergers and similar events 
while ensuring that meaningful early retirement benefit payment 
options and subsidies may not be eliminated. In addition, the 
Committee understands that a defined contribution plan 
participant who is entitled to receive a single sum 
distribution generally may roll over such a distribution to an 
IRA and control the manner of distribution from the IRA, thus 
reducing the need to prohibit the elimination of all optional 
forms of benefits.

                        Explanation of Provision

    A defined contribution plan to which benefits are 
transferred is not treated as reducing a participant's or 
beneficiary's accrued benefit even though it does not provide 
all of the forms of distribution previously available under the 
transferor plan if (1) the plan receives from another defined 
contribution plan a direct transfer of the participant's or 
beneficiary's benefit accrued under the transferor plan, or the 
plan results from a merger or other transaction that has the 
effect of a direct transfer (including consolidations of 
benefits attributable to different employers within a multiple 
employer plan), (2) the terms of both the transferor plan and 
the transferee plan authorize the transfer, (3) the transfer 
occurs pursuant to a voluntary election by the participant 
orbeneficiary that is made after the participant or beneficiary 
received a notice describing the consequences of making the election, 
(4) if the transferor plan provides for an annuity as the normal form 
of distribution in accordance with the joint and survivor annuity rules 
(sec. 417), the participant's spouse (if any) consents to the transfer 
in a manner similar to the consent required by section 417, and (5) the 
transferee plan allows the participant or beneficiary to receive 
distribution of his or her benefit under the transferee plan in the 
form of a single sum distribution.
    In addition, except to the extent provided by the Secretary 
of the Treasury in regulations, a defined contribution plan is 
not treated as reducing a participant's accrued benefit if (1) 
a plan amendment eliminates a form of distribution previously 
available under the plan, (2) a single sum distribution is 
available to the participant at the same time or times as the 
form of distribution eliminated by the amendment, and (3) the 
single sum distribution is based on the same or greater portion 
of the participant's accrued benefit as the form of 
distribution eliminated by the amendment.
    Furthermore, the provision directs the Secretary of the 
Treasury to provide by regulations that the prohibitions 
against eliminating or reducing an early retirement benefit, a 
retirement-type subsidy, or an optional form of benefit shall 
not apply to plan amendments that do not adversely affect the 
rights of participants in a material manner but that do 
eliminate or reduce early retirement benefits, retirement-type 
subsidies, and optional forms of benefit that create 
significant burdens and complexities for a plan and its 
participants.
    It is intended that the factors to be considered in 
determining whether an amendment has a materially adverse 
effect on a participant would include (1) all of the 
participant's early retirement benefits, retirement-type 
subsidies, and optional forms of benefits that are reduced or 
eliminated by the amendment, (2) the extent to which early 
retirement benefits, retirement-type subsidies, and optional 
forms of benefit in effect with respect to a participant after 
the amendment effective date provide rights that are comparable 
to the rights that are reduced or eliminated by the plan 
amendment, (3) the number of years before the participant 
attains normal retirement age under the plan (or early 
retirement age, as applicable), (4) the size of the 
participant's benefit that is affected by the plan amendment, 
in relation to the amount of the participant's compensation, 
and (5) the number of years before the plan amendment is 
effective.
    The Secretary is directed to issue, not later than December 
31, 2001, final regulations under section 411(d)(6), including 
regulations required under the provision.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2000, except that the direction to the Secretary 
is effective on the date of enactment.

 D. Rationalization of Restrictions on Distributions (Sec. 406 of the 
          Bill and Secs. 401(k), 403(b), and 457 of the Code)


                              Present Law

    Elective deferrals under a qualified cash or deferred 
arrangement (``section 401(k) plan''), tax-sheltered annuity 
(``section 403(b) annuity''), or an eligible deferred 
compensation plan of a tax-exempt organization or State or 
local government (``section 457 plan''), may not be 
distributable prior to the occurrence of one or more specified 
events. These permissible distributable events include 
``separation from service.''
    A separation from service occurs only upon a participant's 
death, retirement, resignation or discharge, and not when the 
employee continues on the same job for a different employer as 
a result of the liquidation, merger, consolidation or other 
similar corporate transaction. A severance from employment 
occurs when a participant ceases to be employed by the employer 
that maintains the plan. Under a so-called ``same desk rule,'' 
a participant's severance from employment does not necessarily 
result in a separation from service. 29
---------------------------------------------------------------------------
    \29\  Rev. Rul. 79-336, 1979-2 C.B. 187.
---------------------------------------------------------------------------
    In addition to separation from service and other events, a 
section 401(k) plan that is maintained by a corporation may 
permit distributions to certain employees who experience a 
severance from employment with the corporation that maintains 
the plan but does not experience a separation from service 
because the employee continues on the same job for a different 
employer as a result of a corporate transaction. If the 
corporation disposes of substantially all of the assets used by 
the corporation in a trade or business, a distributable event 
occurs with respect to the accounts of the employees who 
continue employment with the corporation that acquires the 
assets. If the corporation disposes of its interest in a 
subsidiary, a distributable event occurs with respect to the 
accounts of the employees who continue employment with the 
subsidiary.

                           Reasons for Change

    The Committee believes that application of the ``same 
desk'' rule is inappropriate because it hinders portability of 
retirement benefits, creates confusion for employees, and 
results in significant administrative burdens for employers 
that engage in business acquisition transactions.

                        Explanation of Provision

    The provision modifies the distribution restrictions 
applicable to section 401(k) plans, section 403(b) annuities, 
and section 457 plans to provide that distribution may occur 
upon severance from employment rather than separation from 
service. In addition, the provisions for distribution from a 
section 401(k) plan based upon a corporation's disposition of 
its assets or a subsidiary are repealed; this special rule is 
no longer necessary under the provision.

                             Effective Date

    The provision is effective for distributions after December 
31, 2000.

 E. Purchase of Service Credit Under Governmental Pension Plans (Sec. 
         407 of the Bill and Secs. 403(b) and 457 of the Code)


                              Present Law

    A qualified retirement plan maintained by a State or local 
government employer may provide that a participant may make 
after-tax employee contributions in order to purchase 
permissive service credit, subject to certain limits (sec. 
415). Permissive service credit means credit for a period of 
service recognized by the governmental plan only if the 
employee voluntarily contributes to the plan an amount (as 
determined by the plan) that does not exceed the amount 
necessary to fund the benefit attributable to the period of 
service and that is in addition to the regular employee 
contributions, if any, under the plan.
    In the case of any repayment of contributions and earnings 
to a governmental plan with respect to an amount previously 
refunded upon a forfeiture of service credit under the plan (or 
another plan maintained by a State or local government employer 
within the same State), any such repayment is not taken into 
account for purposes of the section 415 limits on contributions 
and benefits. Also, service credit obtained as a result of such 
a repayment is not considered permissive service credit for 
purposes of the section 415 limits.
    A participant may not use a rollover or direct transfer of 
benefits from a tax-sheltered annuity (``section 403(b) 
annuity'') or an eligible deferred compensation plan of a tax-
exempt organization of a State or local government (``section 
457 plan'') to purchase permissive service credits or repay 
contributions and earnings with respect to a forfeiture of 
service credit.

                           Reasons for Change

    The Committee understands that many employees work for 
multiple State or local government employers during their 
careers. The Committee believes that allowing such employees to 
use their section 403(b) annuity and section 457 plan accounts 
to purchase permissive service credits or make repayments with 
respect to forfeitures of service credit will result in more 
significant retirement benefits for employees who would not 
otherwise be able to afford such credits or repayments.

                        Explanation of Provision

    A participant in a State or local governmental plan is not 
required to include in gross income a direct trustee-to-trustee 
transfer to a governmental defined benefit plan from a section 
403(b) annuity or a section 457 plan if the transferred amount 
is used (1) to purchase permissive service credits under the 
plan, or (2) to repay contributions and earnings with respect 
to an amount previously refunded under a forfeiture of service 
credit under the plan (or another plan maintained by a State or 
local government employer within the same State).

                             Effective Date

    The provision is effective for transfers after December 31, 
2000.

  F. Employers May Disregard Rollovers for Purposes of Cash-Out Rules 
         (Sec. 408 of the Bill and Sec. 411(a)(11) of the Code)


                              Present Law

    If an qualified retirement plan participant ceases to be 
employed by the employer that maintains the plan, the plan may 
distribute the participant's nonforfeitable accrued benefit 
without the consent of the participant and, if applicable, the 
participant's spouse, if the present value of the benefit does 
not exceed $5,000. If such an involuntary distribution occurs 
and the participant subsequently returns to employment covered 
by the plan, then service taken into account in computing 
benefits payable under the plan after the return need not 
include service with respect to which a benefit was 
involuntarily distributed unless the employee repays the 
benefit.30
---------------------------------------------------------------------------
    \30\ A similar provision is contained in Title I of ERISA.
---------------------------------------------------------------------------
    Generally, a participant may roll over an involuntary 
distribution from a qualified plan to an IRA or to another 
qualified plan.31
---------------------------------------------------------------------------
    \31\ Other provisions of the bill expand the kinds of plans to 
which benefits may be rolled over.
---------------------------------------------------------------------------

                           Reasons for Change

    The present-law cash-out rule reflects a balancing of 
various policies. On the one hand is the desire to assist 
individuals to save for retirement by making it easier to keep 
retirement funds in tax-favored vehicles. On the other hand is 
the recognition that keeping track of small account balances of 
former employees creates administrative burdens for plans.
    The Committee is concerned that, in some cases, the cash-
out rule may discourage plans from accepting rollovers because 
the rollover will increase participants' benefits to above the 
cash-out amount, and increase administrative burdens. The 
Committee believes that disregarding rollovers for purposes of 
the cash-out rule will further the intent of the cash-out rule 
by removing a possible disincentive for plans to accept 
rollovers.

                        Explanation of Provision

    A plan is permitted to provide that the present value of a 
participant's nonforfeitable accrued benefit is determined 
without regard to the portion of such benefit that is 
attributable to rollover contributions (and any earnings 
allocable thereto).

                             Effective Date

    The provision is effective for distributions after December 
31, 2000.

        TITLE V. STRENGTHENING PENSION SECURITY AND ENFORCEMENT


 A. Phase in Repeal of 150 Percent of Current Liability Funding Limit; 
 Deduction for Contributions to Fund Termination Liability (Secs. 501 
and 502 of the Bill and Secs. 404(a)(1), 412(c)(7), and 4972(c) of the 
                                 Code)


                              present law

    Under present law, defined benefit pension plans are 
subject to minimum funding requirements designed to ensure that 
pension plans have sufficient assets to pay benefits. A defined 
benefit pension plan is funded using one of a number of 
acceptable actuarial cost methods.
    No contribution is required under the minimum funding rules 
in excess of the full funding limit. The full funding limit is 
generally defined as the excess, if any, of (1) the lesser of 
(a) the accrued liability under the plan (including normal 
cost) or (b) 155 percent of the plan's current liability, over 
(2) the value of the plan's assets (sec. 
412(c)(7)).32 In general, current liability is all 
liabilities to plan participants and beneficiaries accrued to 
date, whereas the accrued liability full funding limit is based 
on projected benefits. The current liability full funding limit 
is scheduled to increase as follows: 160 percent for plan years 
beginning in 2001 or 2002, 165 percent for plan years beginning 
in 2003 and 2004, and 170 percent for plan years beginning in 
2005 and thereafter. 33 In no event is a plan's full 
funding limit less than 90 percent of the plan's current 
liability over the value of the plan's assets.
---------------------------------------------------------------------------
    \32\ The minimum funding requirements, including the full funding 
limit, are also contained in title I of ERISA.
    \33\ As originally enacted in the Pension Protection Act of 1997, 
the current liability full funding limit was 150 percent of current 
liability. The Taxpayer Relief Act of 1997 increased the current 
liability full funding limit to 155 percent in 1999 and 2000, and 
adopted the scheduled increases described in the text.
---------------------------------------------------------------------------
    An employer sponsoring a defined benefit pension plan 
generally may deduct amounts contributed to satisfy the minimum 
funding standard for the plan year. Contributions in excess of 
the full funding limit generally are not deductible. Under a 
special rule, an employer that sponsors a defined benefit 
pension plan (other than a multiemployer plan) which has more 
than 100 participants for the plan year may deduct amounts 
contributed of up to 100 percent of the plan's unfunded current 
liability.

                           Reasons for Change

    The Committee is concerned that the current liability full 
funding limit, which focuses on current but not projected 
benefits, may result in inadequate funding of pension plans and 
thus jeopardize pension security. The Committee believes that 
repealing the current liability full funding limit will 
encourage responsible pension funding and help ensure that plan 
participants receive promised benefits. Also, the Committee 
believes that the special deduction rule should be expanded to 
give more plan sponsors incentives to adequately fund their 
plans.

                        Explanation of Provision

Current liability full funding limit

    The provision gradually increases and then repeals the 
current liability full funding limit. The current liability 
full funding limit is 160 percent of current liability for plan 
years beginning in 2001, 165 percent for plan years beginning 
in 2002, and 170 percent for plan years beginning in 2003. The 
current liability full funding limit is repealed for plan years 
beginning in 2004 and thereafter.

Deduction for contributions to fund termination liability

    The special rule allowing a deduction for unfunded current 
liability generally is modified to apply with respect to 
unfunded termination liability and is extended to all defined 
benefit pension plans, i.e., the provision applies to 
multiemployer plans and plans with 100 or fewer participants. 
The special rule does not apply to plans not covered by the 
PBGC termination insurance program.34
---------------------------------------------------------------------------
    \34\ The PBGC termination insurance program does not cover plans of 
professional service employers that have fewer than 25 participants.
---------------------------------------------------------------------------
    The provision also modifies the rule by providing that the 
deduction is for up to 100 percent of unfunded termination 
liability, determined as if the plan terminated at the end of 
the plan year. In the case of a plan with less than 100 
participants for the plan year, termination liability does not 
include the liability attributable to benefit increases for 
highly compensated employees resulting from a plan amendment 
which was made or became effective, whichever is later, within 
the last two years.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2000.

 B. Excise Tax Relief for Sound Pension Funding (Sec. 503 of the Bill 
                       and Sec. 4972 of the Code)


                              Present Law

    Under present law, defined benefit pension plans are 
subject to minimum fundingrequirements designed to ensure that 
pension plans have sufficient assets to pay benefits. A defined benefit 
pension plan is funded using one of a number of acceptable actuarial 
cost methods.
    No contribution is required under the minimum funding rules 
in excess of the full funding limit. The full funding limit is 
generally defined as the excess, if any, of (1) the lesser of 
(a) the accrued liability under the plan (including normal 
cost) or (b) 155 percent of the plan's current liability, over 
(2) the value of the plan's assets (sec. 412(c)(7)). In 
general, current liability is all liabilities to plan 
participants and beneficiaries accrued to date, whereas the 
accrued liability full funding limit is based on projected 
benefits. The current liability full funding limit is scheduled 
to increase as follows: 160 percent for plan years beginning in 
2001 or 2002, 165 percent for plan years beginning in 2003 and 
2004, and 170 percent for plan years beginning in 2005 and 
thereafter. 35 In no event is a plan's full funding 
limit less than 90 percent of the plan's current liability over 
the value of the plan's assets.
---------------------------------------------------------------------------
    \35\ As originally enacted in the Pension Protection Act of 1997, 
the current liability full funding limit was 150 percent of current 
liability. The Taxpayer Relief Act of 1997 increased the current 
liability full funding limit to 155 percent in 1999 and 2000, and 
adopted the scheduled increases described in the text. Another 
provision in the bill gradually increases and then repeals the current 
liability full funding limit.
---------------------------------------------------------------------------
    An employer sponsoring a defined benefit pension plan 
generally may deduct amounts contributed to satisfy the minimum 
funding standard for the plan year. Contributions in excess of 
the full funding limit generally are not deductible. Under a 
special rule, an employer that sponsors a defined benefit 
pension plan (other than a multiemployer plan) which has more 
than 100 participants for the plan year may deduct amounts 
contributed of up to 100 percent of the plan's unfunded current 
liability.
    Present law also provides that contributions to defined 
contribution plans are deductible, subject to certain 
limitations.
    Subject to certain exceptions, an employer that makes 
nondeductible contributions to a plan is subject to an excise 
tax equal to 10 percent of the amount of the nondeductible 
contributions for the year. The 10-percent excise tax does not 
apply to contributions to certain terminating defined benefit 
plans. The 10-percent excise tax also does not apply to 
contributions of up to 6 percent of compensation to a defined 
contribution plan for employer matching and employee elective 
deferrals.

                           Reasons for Change

    The Committee believes that employers should be encouraged 
to adequately fund their pension plans. Therefore, the 
Committee does not believe that an excise tax should be imposed 
on employer contributions that do not exceed the accrued 
liability full funding limit.

                        Explanation of Provision

    In determining the amount of nondeductible contributions, 
the employer may elect not to take into account contributions 
to a defined benefit pension plan except to the extent they 
exceed the accrued liability full funding limit. Thus, if an 
employer elects, contributions in excess of the current 
liability full funding limit are not subject to the excise tax 
on nondeductible contributions.36 An employer making 
such an election for a year may not take advantage of the 
present-law exceptions for certain terminating plans and 
certain contributions to defined contribution plans.
---------------------------------------------------------------------------
    \36\ Other provisions of the bill repeal the current liability full 
funding limit for years beginning in 2004 and thereafter.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2000.

 C. Notice of Significant Reduction in Plan Benefit Accruals (Sec. 504 
              of the Bill and New Sec. 4980f of the Code)


                              Present Law

    Section 204(h) of Title I of ERISA provides that a defined 
benefit pension plan or a money purchase pension plan may not 
be amended so as to provide for a significant reduction in the 
rate of future benefit accrual, unless, after adoption of the 
plan amendment and not less than 15 days before the effective 
date of the plan amendment, the plan administrator provides a 
written notice (``section 204(h) notice''), setting forth the 
plan amendment (or a summary of the amendment written in a 
manner calculated to be understood by the average plan 
participant) and its effective date. The plan administrator 
must provide the section 204(h) notice to each plan 
participant, each alternate payee under an applicable qualified 
domestic relations order (``QDRO''), and each employee 
organization representing participants in the plan. The 
applicable Treasury regulations 37 provide, however, 
that a plan administrator need not provide the section 204(h) 
notice to any participant or alternate payee whose rate of 
future benefit accrual is reasonably expected not to be reduced 
by the amendment, nor to an employee organization that does not 
represent a participant to whom the section 204(h) notice must 
be provided. In addition, the regulations provide that the rate 
of future benefit accrual is determined without regard to 
optional forms of benefit, early retirement benefits, 
retirement-type subsidiaries, ancillary benefits, and certain 
other rights and features.
---------------------------------------------------------------------------
    \37\ Treas. Reg. sec. 1.411(d)-6.
---------------------------------------------------------------------------
    A covered amendment generally will not become effective 
with respect to any participants and alternate payees whose 
rate of future benefit accrual is reasonably expected to be 
reduced by the amendment but who do not receive a section 
204(h) notice. An amendment willbecome effective with respect 
to all participants and alternate payees to whom the section 204(h) 
notice was required to be provided if the plan administrator (1) has 
made a good faith effort to comply with the section 204(h) notice 
requirements, (2) has provided a section 204(h) notice to each employee 
organization that represents any participant to whom a section 204(h) 
notice was required to be provided, (3) has failed to provide a section 
204(h) notice to no more than a de minimis percentage of participants 
and alternate payees to whom a section 204(h) notice was required to be 
provided, and (4) promptly upon discovering the oversight, provides a 
section 204(h) notice to each omitted participant and alternate payee.
    The Internal Revenue Code does not require any notice 
concerning a plan amendment that provides for a significant 
reduction in the rate of future benefit accrual.

                           REASONS FOR CHANGE

    The Committee is aware of recent significant publicity 
concerning conversions of traditional defined benefit pension 
plans to ``cash balance'' plans, with particular focus on the 
impact such conversions have on affected workers. Several 
legislative proposals have been introduced to address some of 
the issues relating to such conversions.
    The Committee believes that employees are entitled to 
meaningful disclosure concerning plan amendments that may 
result in reductions of future benefit accruals. The Committee 
has determined that present law does not require employers to 
provide such disclosure, particularly in cases where 
traditional defined benefit plans are converted to cash balance 
plans. The Committee also believes that any disclosure 
requirements applicable to plan amendments should strike a 
balance between providing meaningful disclosure and avoiding 
the imposition of unnecessary administrative burdens on 
employers, and that this balance may best be struck through the 
regulatory process with an opportunity for input from affected 
parties.
    The Committee understands that there are other issues in 
addition to disclosure that have arisen with respect to the 
conversion of defined benefit plans to cash balance or other 
hybrid plans, particularly situations in which plan 
participants do not earn any additional benefit under the plan 
for some time after conversion (called a ``wear away''). The 
Committee believes that this issue should be further studied by 
the Treasury in order to provide guidance to the Congress.

                        EXPLANATION OF PROVISION

    The provision adds to the Internal Revenue Code a 
requirement that the plan administrator of a defined benefit 
pension plan or a money purchase pension plan with more than 
100 participants furnish a written notice concerning a plan 
amendment that provides for a significant reduction in the rate 
of future benefit accrual. The plan administrator is required 
to provide in this notice, in a manner calculated to be 
understood by the average plan participant, sufficient 
information (as defined in Treasury regulations) to allow 
participants to understand the effect of the amendment.
    The notice requirement does not apply to governmental plans 
or church plans with respect to which an election to have the 
qualified plan participation, vesting, and funding rules apply 
has not been made (sec. 410(d)).
    The plan administrator is required to provide this notice 
to each affected participant, each affected alternate payee, 
and each employee organization representing affected 
participants. For purposes of the provision, an affected 
participant or alternate payee is a participant or alternate 
payee to whom the significant reduction in the rate of future 
benefit accrual is reasonably expected to apply.
    Except to the extent provided by Treasury regulations, the 
plan administrator is required to provide the notice within a 
reasonable time before the effective date of the plan 
amendment.
    The provision imposes on a plan administrator that fails to 
comply with the notice requirement an excise tax equal to $100 
per day per omitted participant and alternate payee. For 
failures due to reasonable cause and not to willful neglect, 
the total excise tax imposed during a taxable year of the 
employer will not exceed $500,000. Furthermore, in the case of 
a failure due to reasonable cause and not to willful neglect, 
the Secretary of the Treasury is authorized to waive the excise 
tax to the extent that the payment of the tax would be 
excessive relative to the failure involved.
    The Committee anticipates that the Secretary will issue the 
necessary regulations with respect to disclosure within 90 days 
of enactment. The Committee also anticipates that such guidance 
may be relatively detailed because of the need to provide for 
alternative disclosures rather than a single disclosure 
methodology that may not fit all situations, and the need to 
consider the complex actuarial calculations and assumptions 
involved in providing necessary disclosures.
    In addition, the provision directs the Secretary of the 
Treasury to prepare a report on the effects of conversions of 
traditional defined benefit plans to cash balance or hybrid 
formula plans. Such study is to examine the effect of such 
conversions on longer service participants, including the 
incidence and effects of ``wear away'' provisions under which 
participants earn no additional benefits for a period of time 
after the conversion. The Secretary is directed to submit such 
report, together with recommendations thereon, to the Committee 
on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate as soon as practicable, but 
not later than 60 days after the date of enactment. The 
Committee understands that the Treasury has been studying 
issues related to conversions to cash balance and other hybrid 
plans for some time. Thus, the Committee expects that the 
Secretary will be able to provide its study well within the 60-
day deadline specified by the bill.

                             EFFECTIVE DATE

    The provision is effective for plan amendments taking 
effect on or after the date of enactment. The period for 
providing any notice required under the provision will not end 
before the last day of the 3-month period following the date of 
enactment. Prior to the issuance of Treasury regulations, a 
plan will be treated as meeting the requirements of the 
provision if theplan makes a good faith effort to comply with 
such requirements.

 D. Modifications to Section 415 Limits for Multiemployer Plans (Sec. 
               505 of the Bill and Sec. 415 of the Code)


                              PRESENT LAW

    Under present law, limits apply to contributions and 
benefits under qualified plans (sec. 415). The limits on 
contributions and benefits under qualified plans are based on 
the type of plan.
    Under a defined benefit plan, the maximum annual benefit 
payable at retirement is generally the lesser of (1) 100 
percent of average compensation for the highest three years, or 
(2) $135,000 (for 2000). The dollar limit is adjusted for cost-
of-living increases in $5,000 increments. The dollar limit is 
reduced in the case of retirement before the social security 
retirement age and increases in the case of retirement after 
the social security retirement age.
    A special rule applies to governmental defined benefit 
plans. In the case of such plans, the defined benefit dollar 
limit is reduced in the case of retirement before age 62 and 
increased in the case of retirement after age 65. In addition, 
there is a floor on early retirement benefits. Pursuant to this 
floor, the minimum benefit payable at age 55 is $75,000.
    In the case of a defined contribution plan, the limit on 
annual additions is the lesser of (1) 25 percent of 
compensation 38 or (2) $30,000 (for 2000). In 
applying the limits on contributions and benefits, plans of the 
same employer are aggregated.
---------------------------------------------------------------------------
    \38\ Another provision increases this limit to 100 percent of 
compensation.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee understands that, because pension benefits 
under multiemployer plans are typically based upon factors 
other than compensation, the section 415 benefit limits 
frequently result in benefit reductions for employees in 
industries in which wages vary annually.

                        EXPLANATION OF PROVISION

    Under the provision, the 100 percent of compensation 
defined benefit plan limit does not apply to multiemployer 
plans. In addition, except in applying the defined benefit plan 
dollar limitation and the limitation on annual additions, 
multiemployer plans are not aggregated with other plans 
maintained by an employer contributing to the multiemployer 
plan.

                             EFFECTIVE DATE

    The provision is effective for years beginning after 
December 31, 2000.

 E. Prohibited Allocations of Stock in an S Corporation ESOP (Sec. 506 
            of the Bill and Secs. 409 and 4979a of the Code)


                              PRESENT LAW

    The Small Business Job Protection Act of 1996 allowed 
qualified retirement plan trusts described in section 401(a) to 
own stock in an S corporation. That Act treated the plan's 
share of the S corporation's income (and gain on the 
disposition of the stock) as includible in full in the trust's 
unrelated business taxable income (``UBTI'').
    The Tax Relief Act of 1997 repealed the provision treating 
items of income or loss of an S corporation as UBTI in the case 
of an employee stock ownership plan (``ESOP'). Thus, the income 
of an S corporation allocable to an ESOP is not subject to 
current taxation.
    Present law provides a deferral of income on the sales of 
certain employer securities to an ESOP (sec. 1042). A 50-
percent excise tax is imposed on certain prohibited allocations 
of securities acquired by an ESOP in a transaction to which 
section 1042 applies. In addition, such allocations are 
currently includible in the gross income of the individual 
receiving the prohibited allocation.

                           REASONS FOR CHANGE

    In enacting the 1996 Act provision allowing ESOPs to be 
shareholders of S corporations, the Congress intended to 
encourage employee ownership of closely-held businesses, and to 
facilitate the establishment of ESOPs by S corporations. At the 
same time, the Congress provided that all income flowing 
through to an ESOP (or other tax-exempt S shareholder), and 
gains and losses from the disposition of the stock, was treated 
as unrelated business taxable income. This treatment was 
consistent with the premise underlying the S corporation rules 
that all income of an S corporation (including all gains of the 
sale of the stock of the corporation) should be subject to a 
shareholder-level tax.
    In enacting the present-law rule relating to S corporation 
ESOPs in 1997, the Congress was concerned that the 1996 Act 
rule imposed double taxation on such ESOPs and ESOP 
participants. The Congress believed such a result was 
inappropriate. Since the enactment of the 1997 Act, however, 
the Committee has become aware that the present-law rules allow 
inappropriate deferral and possibly tax avoidance in some 
cases.
    The Committee continues to believe that S corporations 
should be able to encourage employee ownership through an ESOP. 
The Committee does not believe, however, that ESOPs should be 
used by S corporations owners to obtain inappropriate tax 
deferral or avoidance. Specifically, the Committee believes 
that the tax deferral opportunities provided by an S 
corporation ESOP should be limited to those situations in which 
there is broad-based employee coverage under the ESOP and the 
ESOP benefits rank-and-file employees as well as highly 
compensated employees and historical owners.

                        Explanation of Provision

In general

    Under the provision, if there is a nonallocation year with 
respect to an ESOP maintained by an S corporation: (1) the 
amount allocated in a prohibited allocation to an individual 
who is a disqualified person is treated as distributed to such 
individual (i.e., the value of the prohibited allocation is 
includible in the gross income of the individual receiving the 
prohibited allocation); (2) an excise tax is imposed on the S 
corporation equal to 50 percent of the amount involved in a 
prohibited allocation; and (3) an excise tax is imposed on the 
S corporation with respect to any synthetic equity owned by a 
disqualified person.\39\
---------------------------------------------------------------------------
    \39\ A prohibited allocation does not result in disqualification of 
the plan.
---------------------------------------------------------------------------
    It is expected that the provision will limit the 
establishment of ESOPs by S corporations to those that provide 
broad-based employee coverage and that benefit rank-and-file 
employees as well as highly compensated employees and 
historical owners. For example, suppose 5 individuals are the 
sole, equal shareholders and sole employees of an S 
corporation.40 Under the provision, it is expected 
that such individuals would not be able to obtain deferral by 
establishing an ESOP. In this case, the ESOP would benefit only 
the 5 highly compensated historical owners of the S corporation 
and the ESOP would not result in broad-based employee 
ownership.
---------------------------------------------------------------------------
    \40\ Under the nondiscrimination rules applicable to qualified 
plans, including ESOPs, such individuals would be highly compensated.
---------------------------------------------------------------------------

Definition of nonallocation year

    A nonallocation year means any plan year of an ESOP holding 
shares in an S corporation if, at any time during the plan 
year, disqualified persons own at least 50 percent of the 
number of outstanding shares of the S corporation.
    A person is a disqualified person if the person is either 
(1) a member of a ``deemed 20-percent shareholder group'' or 
(2) a ``deemed 10-percent shareholder.'' A person is a member 
of a ``deemed 20-percent shareholder group'' if the aggregate 
number of deemed-owned shares of the person and his or her 
family members is at least 20 percent of the number of deemed-
owned shares of stock in the S corporation.41 A 
person is a deemed 10-percent shareholder if the person is not 
a member of a deemed 20-percent shareholder group and the 
number of the person's deemed-owned shares is at least 10 
percent of the number of deemed-owned shares of stock of the 
corporation.
---------------------------------------------------------------------------
    \41\ A family member of a member of a ``deemed 20-percent 
shareholder group'' with deemed owned shares would also be treated as a 
disqualified person.
---------------------------------------------------------------------------
    In general, ``deemed-owned shares'' means: (1) stock 
allocated to the account of an individual under the ESOP, and 
(2) an individual's share of unallocated stock held by the 
ESOP. An individual's share of unallocated stock held by an 
ESOP is determined in the same manner as the most recent 
allocation of stock under the terms of the plan.
    For purposes of determining whether there is a 
nonallocation year, ownership of stock is generally attributed 
under the rules of section 318,42 except that: (1) 
the family attribution rules are modified to include certain 
other family members, as described below, (2) option 
attribution does not apply (but instead special rules relating 
to synthetic equity described below would apply), and (3) 
``deemed-owned shares'' held by the ESOP are treated as held by 
the individual with respect to whom they are deemed owned.
---------------------------------------------------------------------------
    \42\ These attribution rules also apply to stock treated as owned 
by reason of the ownership of synthetic equity.
---------------------------------------------------------------------------
    Under the provision, family members of an individual 
include (1) the spouse 43 of the individual, (2) an 
ancestor or lineal descendant of the individual or his or her 
spouse, (3) a sibling of the individual (or the individual's 
spouse) and any lineal descendant of the brother or sister, and 
(4) the spouse of any person described in (2) or (3).
---------------------------------------------------------------------------
    \43\ As under section 318, an individual's spouse is not treated as 
a member of the individual's family if the spouses are legally 
separated.
---------------------------------------------------------------------------
    The provision contains special rules applicable to 
synthetic equity interests. Except to the extent provided in 
regulations, the stock on which a synthetic equity interest is 
based is treated as outstanding stock of the S corporation and 
as deemed-owned shares of the person holding the synthetic 
equity interest if such treatment would result in the treatment 
of any person as a disqualified person or the treatment of any 
year as a nonallocation year. Thus, for example, disqualified 
persons for a year include those individuals who are 
disqualified persons under the general rule (i.e., treating 
only those shares held by the ESOP as deemed-owned shares) and 
those individuals who are disqualified individuals if synthetic 
equity interests are treated as deemed-owned shares.
    ``Synthetic equity'' means any stock option, warrant, 
restricted stock, deferred issuance stock right, or similar 
interest that gives the holder the right to acquire or receive 
stock of the S corporation in the future. Except to the extent 
provided in regulations, synthetic equity also includes a stock 
appreciation right, phantom stock unit, or similar right to a 
future cash payment based on the value of such stock or 
appreciation in such value.44
---------------------------------------------------------------------------
    \44\ The provisions relating to synthetic equity do not modify the 
rules relating to S corporations, e.g., the circumstances in which 
options or similar interests are treated as creating a second class of 
stock.
---------------------------------------------------------------------------
    Ownership of synthetic equity is attributed in the same 
manner as stock would beattributed under the proposal (as 
described above). In addition, ownership of synthetic equity is 
attributed under the rules of section 318(a)(2) and (3) in the same 
manner as stock.

Definition of prohibited allocation

    An ESOP of an S corporation is required to provide that no 
portion of the assets of the plan attributable to (or allocable 
in lieu of) S corporation stock may, during a nonallocation 
year, accrue (or be allocated directly or indirectly under any 
qualified plan of the S corporation) for the benefit of a 
disqualified person. A ``prohibited allocation'' refers to 
violation of this provision. A prohibited allocation occurs, 
for example, if income on S corporation stock held by an ESOP 
is allocated to the account of an individual who is a 
disqualified person.

Application of excise tax

    In the case of a prohibited allocation, the S corporation 
is liable for an excise tax equal to 50 percent of the amount 
of the allocation. For example, if S corporation stock is 
allocated in a prohibited allocation, the excise tax is equal 
to 50 percent of the fair market value of such stock.
    A special rule applies in the case of the first 
nonallocation year, regardless of whether there is a prohibited 
allocation. In that year, the excise tax also applies to the 
fair market value of the deemed-owned shares of any 
disqualified person held by the ESOP, even though those shares 
are not allocated to the disqualified person in that year.
    As mentioned above, the S corporation is also liable for an 
excise tax with respect to any synthetic equity interest owned 
by any disqualified person in a nonallocation year. The excise 
tax would be 50 percent of the value of the shares on which 
synthetic equity is based.

Treasury regulations

    The Treasury Department is given the authority to prescribe 
such regulations as may be necessary to carry out the purposes 
of the provision.

                             Effective Date

    The provision generally is effective with respect to plan 
years beginning after December 31, 2001. In the case of an ESOP 
established after July 11, 2000, or an ESOP established on or 
before such date if the employer maintaining the plan was not 
an S corporation on such date, the provision is effective with 
respect to plan years ending after July 11, 2000.

                 TITLE VI. REDUCING REGULATORY BURDENS


A. Modification of Timing of Plan Valuations (Sec. 601 of the Bill and 
                         Sec. 412 of the Code)


                              Present Law

    Under present law, plan valuations are generally required 
annually for plans subject to the minimum funding rules. Under 
proposed Treasury regulations, except as provided by the 
Commissioner, the valuation must be as of a date within the 
plan year to which the valuation refers or within the month 
prior to the beginning of that year

                           Reasons for Change

    While plan valuations are necessary to ensure adequate 
funding of defined benefit pension plans, they also create 
administrative burdens for employers. The Committee believes 
that permitting limited elections to use as the valuation date 
for a plan year any date within the immediately preceding plan 
year in the case of well-funded plans strikes an appropriate 
balance between funding concerns and employer concerns about 
plan administrative burdens.

                        Explanation of Provision

    The provision incorporates into the statute the proposed 
regulation regarding the date of valuations. The provision also 
provides, as an exception to this general rule, that the 
valuation date with respect to a plan year may be any date 
within the immediately preceding plan year if, as of such date, 
plan assets are not less than 125 percent of the plan's current 
liability. Information determined as of such date is required 
to be adjusted actuarially, in accordance with Treasury 
regulations, to reflect significant differences in plan 
participants. An election to use a prior plan year valuation 
date, once made, may only be revoked with the consent of the 
Secretary.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2000.

B. ESOP Dividends May Be Reinvested Without Loss of Dividend Deduction 
            (Sec. 602 of the Bill and Sec. 404 of the Code)


                              Present Law

    An employer is entitled to deduct certain dividends paid in 
cash during the employer's taxable year with respect to stock 
of the employer that is held by an employee stock ownership 
plan (``ESOP''). The deduction is allowed with respect to 
dividends that, in accordance with plan provisions, are (1) 
paid in cash directly to the plan participants or their 
beneficiaries, (2) paid to the plan and subsequently 
distributed to the participants or beneficiaries in cash no 
later than 90 days after the close of the plan year in which 
the dividends are paid to the plan, or (3) used to make 
payments on loans (including payments of interest as well as 
principal) that were used to acquire the employer securities 
(whether or not allocated to participants) with respect to 
which the dividend is paid.

                           Reasons for Change

    The Committee believes that it is appropriate to provide 
incentives for the accumulationof retirement benefits and 
expansion of employee ownership. The Committee has determined that the 
present-law rules concerning the deduction of dividends on employer 
stock held by an ESOP discourage employers from permitting such 
dividends to be reinvested in employer stock and accumulated for 
retirement purposes.

                        Explanation of Provision

    In addition to the deductions permitted under present law 
for dividends paid with respect to employer securities that are 
held by an ESOP, an employer is entitled to deduct dividends 
that, at the election of plan participants or their 
beneficiaries, are (1) payable in cash directly to plan 
participants or beneficiaries, (2) paid to the plan and 
subsequently distributed to the participants or beneficiaries 
in cash no later than 90 days after the close of the plan year 
in which the dividends are paid to the plan, or (3) paid to the 
plan and reinvested in qualifying employer securities.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2000.

   C. Repeal Transition Rule Relating to Certain Highly Compensated 
 Employees (Sec. 603 of the Bill and Sec. 1114(c)(4) of the Tax Reform 
                              Act of 1986)


                              Present Law

     Under present law, for purposes of the rules relating to 
qualified plans, a highly compensated employee is generally 
defined as an employee 45 who (1) was a 5-percent 
owner of the employer at any time during the year or the 
preceding year or (2) either (a) had compensation for the 
preceding year in excess of $85,000 (for 2000) or (b) at the 
election of the employer, had compensation in excess of $85,000 
for the preceding year and was in the top 20 percent of 
employees by compensation for such year.
---------------------------------------------------------------------------
    \45\ An employee includes a self-employed individual.
---------------------------------------------------------------------------
    Under a rule enacted in the Tax Reform Act of 1986, a 
special definition of highly compensated employee applies for 
purposes of the nondiscrimination rules relating to qualified 
cash or deferred arrangements (``section 401(k) plans'') and 
matching contributions. This special definition applies to an 
employer incorporated on December 15, 1924, that meets certain 
specific requirements.

                           Reasons for Change

    The Committee believes that it is appropriate to repeal the 
special definition of highly compensated employee in light of 
the substantial modification of the general definition of 
highly compensated employee in the Small Business Job 
Protection Act of 1996.

                        Explanation of Provision

    The provision repeals the special definition of highly 
compensated employee under the Tax Reform Act of 1986. Thus, 
the present-law definition applies.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2000.

       D. Employees of Tax-Exempt Entities (Sec. 604 of the Bill)


                              Present Law

    The Tax Reform Act of 1986 provided that nongovernmental 
tax-exempt employers were not permitted to maintain a qualified 
cash or deferred arrangement (``section 401(k) plan''). This 
prohibition was repealed, effective for years beginning after 
December 31, 1996, by the Small Business Job Protection Act of 
1996.
     Treasury regulations provide that, in applying the 
nondiscrimination rules to a section 401(k) plan (or a section 
401(m) plan that is provided under the same general arrangement 
as the section 401(k) plan), the employer may treat as 
excludable those employees of a tax-exempt entity who could not 
participate in the arrangement due to the prohibition on 
maintenance of a section 401(k) plan by such entities. Such 
employees may be disregarded only if more than 95 percent of 
the employees who could participate in the section 401(k) plan 
benefit under the plan for the plan year.46
---------------------------------------------------------------------------
    \46\ Treas. Reg. sec. 1.410(b)-6(g).
---------------------------------------------------------------------------
    Tax-exempt charitable organizations may maintain a tax-
sheltered annuity (a ``section 403(b) annuity'') that allows 
employees to make salary reduction contributions.

                           Reasons for Change

    The Committee believes that it is appropriate to modify the 
special rule regarding the treatment of certain employees of a 
tax-exempt organization as excludable for section 401(k) plan 
nondiscrimination testing purposes in light of the provision of 
the Small Business Job Protection Act of 1996 that permits such 
organizations to maintain section 401(k) plans.

                        Explanation of Provision

    The Treasury Department is directed to revise its 
regulations under section 410(b) to provide that employees of a 
tax-exempt charitable organization who are eligible to make 
salary reduction contributions under a section 403(b) annuity 
may be treated as excludable employees for purposes of testing 
a section 401(k) plan, or a section 401(m) plan that is 
provided under thesame general arrangement as the section 
401(k) plan of the employer if (1) no employee of such tax-exempt 
entity is eligible to participate in the section 401(k) or 401(m) plan 
and (2) at least 95 percent of the employees who are not employees of 
the charitable employer are eligible to participate in such section 
401(k) plan or section 401(m) plan.
    The revised regulations will be effective for years 
beginning after December 31, 1996.

                             Effective Date

    The provision is effective on the date of enactment.

 E. Treatment of Employer-Provided Retirement Advice (Sec. 605 of the 
                     Bill and Sec. 132 of the Code)


                              Present Law

    Under present law, certain employer-provided fringe 
benefits are excludable from gross income (sec. 132) and wages 
for employment tax purposes. These excludable fringe benefits 
include working condition fringe benefits and de minimis 
fringes. In general, a working condition fringe benefit is any 
property or services provided by an employer to an employee to 
the extent that, if the employee paid for such property or 
services, such payment would be allowable as a deduction as a 
business expense. A de minimis fringe benefit is any property 
or services provided by the employer the value of which, after 
taking into account the frequency with which similar fringes 
are provided, is so small as to make accounting for it 
unreasonable or administratively impracticable.
    In addition, if certain requirements are satisfied, up to 
$5,250 annually of employer-provided educational assistance is 
excludable from gross income (sec. 127) and wages. This 
exclusion expires with respect to courses beginning after 
December 31, 2001.47 Education not excludable under 
section 127 may be excludable as a working condition fringe.
---------------------------------------------------------------------------
    \47\ The exclusion does not apply with respect to graduate-level 
courses.
---------------------------------------------------------------------------
    There is no specific exclusion under present law for 
employer-provided retirement planning services. However, such 
services may be excludable as employer-provided educational 
assistance or a fringe benefit.

                           Reasons for Change

    In order to plan adequately for retirement, individuals 
must anticipate retirement income needs and understand how 
their retirement income goals can be achieved. Employer-
sponsored plans are a key part of retirement income planning. 
The Committee believes that employers sponsoring retirement 
plans should be encouraged to provide retirement planning 
services for their employees in order to assist them in 
preparing for retirement.

                        Explanation of Provision

    Qualified retirement planning services provided to an 
employee and his or her spouse by an employer maintaining a 
qualified plan are excludable from income and wages. The 
exclusion does not apply with respect to highly compensated 
employees unless the services are available on substantially 
the same terms to each member of the group of employees 
normally provided education and information regarding the 
employer's qualified plan. The exclusion is intended to allow 
employers to provide advice and information regarding 
retirement planning. The exclusion is not limited to 
information regarding the qualified plan, and, thus, for 
example, applies to advice and information regarding retirement 
income planning for an individual and his or her spouse and how 
the employer's plan fits into the individual's overall 
retirement income plan. On the other hand, the exclusion is not 
intended to apply to services that may be related to retirement 
planning, such as tax preparation, accounting, legal or 
brokerage services. The Committee also intends that the 
provision is not to be interpreted as narrowing present law.

                             Effective Date

    The provision is effective with respect to taxable years 
beginning after December 31, 2000.

           F. Reporting Simplification (Sec. 606 of the Bill)


                              Present Law

    A plan administrator of a pension, annuity, stock bonus, 
profit-sharing or other funded plan of deferred compensation 
generally must file with the Secretary of the Treasury an 
annual return for each plan year containing certain information 
with respect to the qualification, financial condition, and 
operation of the plan. Title I of ERISA also may require the 
plan administrator to file annual reports concerning the plan 
with the Department of Labor and the Pension Benefit Guaranty 
Corporation (``PBGC''). The plan administrator must use the 
Form 5500 series as the format for the required annual 
return.48 The Form 5500 series annual return/report, 
which consists of a primary form and various schedules, 
includes the information required to be filed with all three 
agencies. The plan administrator satisfies the reporting 
requirement with respect to each agency by filing the Form 5500 
series annual return/report with the Department of Labor, which 
forwards the form to the Internal Revenue Service and the PBGC.
---------------------------------------------------------------------------
    \48\ Treas. Reg. sec. 301.6058-1(a).
---------------------------------------------------------------------------
    The Form 5500 series consists of 3 different forms: Form 
5500, Form 5500-C/R, and Form 5500-EZ. Form 5500 is the most 
comprehensive of the forms and requires the most detailed 
financial information. Form 5500-C/R requires less information 
than Form 5500, and Form 5500-EZ, which consists of only 1 
page, is the simplest of the forms.
    The size of the plan determines which form a plan 
administrator must file. If the plan has more than 100 
participants at the beginning of the plan year, the plan 
administrator generally must file Form 5500. If the plan has 
fewer than 100 participants at the beginning of the plan year, 
the plan administrator generally may file Form 5500-C/R. A plan 
administrator generally may file Form 5500-EZ if (1) the only 
participants in the plan are the sole owner of a business that 
maintains the plan (and such owner's spouse), or partners in a 
partnership that maintains the plan (and such partners'' 
spouses), (2) the plan is not aggregated with another plan in 
order to satisfy the minimum coverage requirements of section 
410(b), (3) the employer is not a member of a related group of 
employers, and (4) the employer does not receive the services 
of leased employees. If the plan satisfies the eligibility 
requirements for Form 5500-EZ and the total value of the plan 
assets as of the end of the plan year and all prior plan years 
does not exceed $100,000, the plan administrator is not 
required to file a return.

                           Reasons for Change

    The Committee believes that simplification of the reporting 
requirements applicable to plans of small employers will 
encourage such employers to provide retirement benefits for 
their employees.

                        Explanation of Provision

    The Secretary of the Treasury is directed to provide for 
the filing of a simplified annual return substantially similar 
to the Form 5500-EZ by a plan that (1) covers less than 25 
employees on the first day of the plan year, (2) is not 
aggregated with another plan in order to satisfy the minimum 
coverage requirements of section 410(b), (3) is maintained by 
an employer that is not a member of a related group of 
employers, and (4) is maintained by an employer that does not 
receive the services of leased employees.
    In addition, the Secretary is directed to modify the annual 
return filing requirements with respect to plans that satisfy 
the eligibility requirements for Form 5500-EZ to provide that 
if the total value of the plan assets of such a plan as of the 
end of the plan year and all prior plan years does not exceed 
$250,000, the plan administrator is not required to file a 
return.

                             Effective Date

    The provision is effective on the date of enactment.

G. Improvement to Employee Plans Compliance Resolution System (Sec. 607 
                              of the Bill)


                              Present Law

    A retirement plan that is intended to be a tax-qualified 
plan provides retirement benefits on a tax-favored basis if the 
plan satisfies all of the requirements of section 401(a). 
Similarly, an annuity that is intended to be a tax-sheltered 
annuity provides retirement benefits on a tax- favored basis if 
the program satisfies all of the requirements of section 
403(b). Failure to satisfy all of the applicable requirements 
of section 401(a) or section 403(b) may disqualify a plan or 
annuity for the intended tax-favored treatment.
    The Internal Revenue Service (``IRS'') has established the 
Employee Plans Compliance Resolution System (``EPCRS''), which 
is a comprehensive system of correction programs for sponsors 
of retirement plans and annuities that are intended, but have 
failed, to satisfy the requirements of section 401(a) and 
section 403(b), as applicable.49 EPCRS permits 
employers to correct compliance failures and continue to 
provide their employees with retirement benefits on a tax-
favored basis.
---------------------------------------------------------------------------
    \49\ Rev. Proc. 98-22, 1998-12 I.R.B. 11, as modified by Rev. Proc. 
99-13, 1999-5, I.R.B. 52.
---------------------------------------------------------------------------
    The IRS has designed EPCRS to (1) encourage operational and 
formal compliance, (2) promote voluntary and timely correction 
of compliance failures, (3) provide sanctions for compliance 
failures identified on audit that are reasonable in light of 
the nature, extent, and severity of the violation, (4) provide 
consistent and uniform administration of the correction 
programs, and (5) permit employers to rely on the availability 
of EPCRS in taking corrective actions to maintain the tax-
favored status of their retirement plans and annuities.
    The basic elements of the programs that comprise EPCRS are 
self-correction, voluntary correction with IRS approval, and 
correction on audit. The Administrative Policy Regarding Self-
Correction (``APRSC'') permits a plan sponsor that has 
established compliance practices to correct certain 
insignificant failures at any time (including during an audit), 
and certain significant failures within a 2-year period, 
without payment of any fee or sanction. The Voluntary 
Compliance Resolution (``VCR'') program, the Walk-In Closing 
Agreement Program (``Walk-In CAP'), and the Tax-Sheltered 
Annuity Voluntary Correction (``TVC'') program permit an 
employer, at any time before an audit, to pay a limited fee and 
receive IRS approval of a correction. For a failure that is 
discovered on audit and corrected, the Audit Closing Agreement 
Program (``Audit CAP'') provides for a sanction that bears a 
reasonable relationship to the nature, extent, and severity of 
the failure and that takes into account the extent to which 
correction occurred before audit.
    The IRS has expressed its intent that EPCRS will be updated 
and improved periodically in light of experience and comments 
from those who use it.

                           Reasons for Change

    The Committee commends the IRS for the establishment of 
EPCRS and agrees with the IRS that EPCRS should be updated and 
improved periodically. The Committee believes that future 
improvements should facilitate use of the compliance and 
correction programs by small employers and expand the 
flexibility of the programs.

                        Explanation of Provision

    The Secretary of the Treasury is directed to continue to 
update and improve EPCRS, giving special attention to (1) 
increasing the awareness and knowledge of small employers 
concerning the availability and use of EPCRS, (2) taking into 
account special concerns and circumstances that small employers 
face with respect to compliance and correction of compliance 
failures, (3) extending the duration of the self-correction 
period under APRSC for significant compliance failures, (4) 
expanding the availability to correct insignificant compliance 
failures under APRSC during audit, and (5) assuring that any 
tax, penalty, or sanction that is imposed by reason of a 
compliance failure is not excessive and bears a reasonable 
relationship to the nature, extent, and severity of the 
failure.

                             Effective Date

    The provision is effective on the date of enactment.

   H. Repeal of the Multiple Use Test (Sec. 608 of the Bill and Sec. 
                          401(m) of the Code)


                              Present Law

    Elective deferrals under a qualified cash or deferred 
arrangement (``section 401(k) plan'') are subject to a special 
annual nondiscrimination test (``ADP test''). The ADP test 
compares the actual deferral percentages (``ADPs'') of the 
highly compensated employee group and the nonhighly compensated 
employee group. The ADP for each group generally is the average 
of the deferral percentages separately calculated for the 
employees in the group who are eligible to make elective 
deferrals for all or a portion of the relevant plan year. Each 
eligible employee's deferral percentage generally is the 
employee's elective deferrals for the year divided by the 
employee's compensation for the year.
    The plan generally satisfies the ADP test if the ADP of the 
highly compensated employee group for the current plan year is 
either (1) not more than 125 percent of the ADP of the 
nonhighly compensated employee group for the prior plan year, 
or (2) not more than 200 percent of the ADP of the nonhighly 
compensated employee group for the prior plan year and not more 
than 2 percentage points greater than the ADP of the nonhighly 
compensated employee group for the prior plan year.
    Employer matching contributions and after-tax employee 
contributions under a defined contribution plan also are 
subject to a special annual nondiscrimination test (``ACP 
test''). The ACP test compares the actual deferral percentages 
(``ACPs'') of the highly compensated employee group and the 
nonhighly compensated employee group. The ACP for each group 
generally is the average of the contribution percentages 
separately calculated for the employees in the group who are 
eligible to make after-tax employee contributions or who are 
eligible for an allocation of matching contributions for all or 
a portion of the relevant plan year. Each eligible employee's 
contribution percentage generally is the employee's aggregate 
after-tax employee contributions and matching contributions for 
the year divided by the employee's compensation for the year.
    The plan generally satisfies the ACP test if the ACP of the 
highly compensated employee group for the current plan year is 
either (1) not more than 125 percent of the ACP of the 
nonhighly compensated employee group for the prior plan year, 
or (2) not more than 200 percent of the ACP of the nonhighly 
compensated employee group for the prior plan year and not more 
than 2 percentage points greater than the ACP of the nonhighly 
compensated employee group for the prior plan year.
    For any year in which (1) at least one highly compensated 
employee is eligible to participate in an employer's plan or 
plans that are subject to both the ADP test and the ACP test, 
(2) the plan subject to the ADP test satisfies the ADP test but 
the ADP of the highly compensated employee group exceeds 125 
percent of the ADP of the nonhighly compensated employee group, 
and (3) the plan subject to the ACP test satisfies the ACP test 
but the ACP of the highly compensated employee group exceeds 
125 percent of the ACP of the nonhighly compensated employee 
group, an additional special nondiscrimination test (``multiple 
use test'') applies to the elective deferrals, employer 
matching contributions, and after-tax employee contributions. 
The plan or plans generally satisfy the multiple use test if 
the sum of the ADP and the ACP of the highly compensated 
employee group does not exceed the greater of (1) the sum of 
(A) 1.25 times the greater of the ADP or the ACP of the 
nonhighly compensated employee group, and (B) 2 percentage 
points plus (but not more than 2 times) the lesser of the ADP 
or the ACP of the nonhighly compensated employee group, or (2) 
the sum of (A) 1.25 times the lesser of the ADP or the ACP of 
the nonhighly compensated employee group, and (B) 2 percentage 
points plus (but not more than 2 times) the greater of the ADP 
or the ACP of the nonhighly compensated employee group.

                           Reasons for Change

    The Committee believes that the ADP test and the ACP test 
are adequate to prevent discrimination in favor of highly 
compensated employees under 401(k) plans and has determined 
that the multiple use test unnecessarily complicates 401(k) 
plan administration.

                        Explanation of Provision

    The provision repeals the multiple use test.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2000.

  I. Flexibility in Nondiscrimination, Coverage, and Line of Business 
Rules (Sec. 609 of the Bill and Secs. 401(a)(4), 410(b), and 414(r) of 
                               the Code)


                              Present Law

    A plan is not a qualified retirement plan if the 
contributions or benefits provided under the plan discriminate 
in favor of highly compensated employees (sec. 401(a)(4)). The 
applicableTreasury regulations set forth the exclusive rules 
for determining whether a plan satisfies the nondiscrimination 
requirement. These regulations state that the form of the plan and the 
effect of the plan in operation determine whether the plan is 
nondiscriminatory and that intent is irrelevant.
    Similarly, a plan is not a qualified retirement plan if the 
plan does not benefit a minimum number of employees (sec. 
410(b)). A plan satisfies this minimum coverage requirement if 
and only if it satisfies one of the tests specified in the 
applicable Treasury regulations. If an employer is treated as 
operating separate lines of business, the employer may apply 
the minimum coverage requirements to a plan separately with 
respect to the employees in each separate line of business 
(sec. 414(r)). Under a so-called ``gateway'' requirement, 
however, the plan must benefit a classification of employees 
that does not discriminate in favor of highly compensated 
employees in order for the employer to apply the minimum 
coverage requirements separately for the employees in each 
separate line of business. A plan satisfies this gateway 
requirement only if it satisfies one of the tests specified in 
the applicable Treasury regulations.

                           Reasons for Change

    It has been brought to the attention of the Committee that 
some plans are unable to satisfy the mechanical tests used to 
determine compliance with the nondiscrimination and line of 
business requirements solely as a result of relatively minor 
plan provisions. The Committee believes that, in such cases, it 
may be appropriate to expand the consideration of facts and 
circumstances in the application of the mechanical tests.

                        Explanation of Provision

    The Secretary of the Treasury is directed to modify, on or 
before December 31, 2000, the existing regulations issued under 
section 414(r) in order to expand (to the extent that the 
Secretary may determine to be appropriate) the ability of a 
plan to demonstrate compliance with the line of business 
requirements based upon the facts and circumstances surrounding 
the design and operation of the plan, even though the plan is 
unable to satisfy the mechanical tests currently used to 
determine compliance.
    The Secretary of the Treasury is directed to provide by 
regulation applicable to years beginning after December 31, 
2000, that a plan is deemed to satisfy the nondiscrimination 
requirements of section 401(a)(4) if the plan satisfies the 
pre-1994 facts and circumstances test, satisfies the conditions 
prescribed by the Secretary to appropriately limit the 
availability of such test, and is submitted to the Secretary 
for a determination of whether it satisfies such test (to the 
extent provided by the Secretary).
    Similarly, a plan complies with the minimum coverage 
requirement of section 410(b) if the plan satisfies the pre-
1989 coverage rules, is submitted to the Secretary for a 
determination of whether it satisfies the pre-1989 coverage 
rules (to the extent provided by the Secretary), and satisfies 
conditions prescribed by the Secretary by regulation that 
appropriately limit the availability of the pre-1989 coverage 
rules.

                             Effective Date

    The provision is effective on the date of enactment.

J. Extension to All Governmental Plans of Moratorium on Application of 
     Certain Nondiscrimination Rules Applicable to State and Local 
   Government Plans (Sec. 610 of the Bill, Sec. 1505 of the Taxpayer 
      Relief Act of 1997, and Secs. 401(a) and 401(k) of the Code)


                              Present Law

    All governmental plans are exempt from the minimum coverage 
rules (sec. 410(b)). A qualified retirement plan maintained by 
a State or local government is exempt from the rules concerning 
nondiscrimination (sec. 401(a)(4)) and minimum participation 
(sec. 401(a)(26)). All other governmental plans are not exempt 
from the nondiscrimination and minimum participation rules.

                           Reasons for Change

    The Committee believes that application of the 
nondiscrimination and minimum participation rules to 
governmental plans is unnecessary and inappropriate in light of 
the unique circumstances under which such plans and 
organizations operate. Further, the Committee believes that it 
is appropriate to provide for consistent application of the 
minimum coverage, nondiscrimination, and minimum participation 
rules for governmental plans.

                        Explanation of Provision

    The provision exempts all governmental plans (as defined in 
sec. 414(d)) from the nondiscrimination and minimum 
participation rules.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2000.

 K. Notice and Consent Period Regarding Distributions (Sec. 611 of the 
                     Bill and Sec. 417 of the Code)


                              Present Law

    Notice and consent requirements apply to certain 
distributions from qualified retirement plans. These 
requirements relate to the content and timing of information 
that a plan must provide to a participant prior to a 
distribution, and to whether the plan must obtain the 
participant's consent to the distribution. The nature and 
extent of the notice and consent requirements applicable to a 
distribution depend upon the value of the participant's vested 
accrued benefit and whether the joint and survivor annuity 
requirements (sec. 417) apply to theparticipant.50
---------------------------------------------------------------------------
    \50\ Similar provisions are contained in Title I of ERISA.
---------------------------------------------------------------------------
    If the present value of the participant's vested accrued 
benefit exceeds $5,000, the plan may not distribute the 
participant's benefit without the written consent of the 
participant. The participant's consent to a distribution is not 
valid unless the participant has received from the plan a 
notice that contains a written explanation of (1) the material 
features and the relative values of the optional forms of 
benefit available under the plan, (2) the participant's right, 
if any, to have the distribution directly transferred to 
another retirement plan or IRA, and (3) the rules concerning 
the taxation of a distribution. If the joint and survivor 
annuity requirements apply to the participant, this notice also 
must contain a written explanation of (1) the terms and 
conditions of the qualified joint and survivor annuity 
(``QJSA''), (2) the participant's right to make, and the effect 
of, an election to waive the QJSA, (3) the rights of the 
participant's spouse with respect to a participant's waiver of 
the QJSA, and (4) the right to make, and the effect of, a 
revocation of a waiver of the QJSA. The plan generally must 
provide this notice to the participant no less than 30 and no 
more than 90 days before the date distribution commences.
    If the participant's vested accrued benefit does not exceed 
$5,000, the terms of the plan may provide for distribution 
without the participant's consent. The plan generally is 
required, however, to provide to the participant a notice that 
contains a written explanation of (1) the participant's right, 
if any, to have the distribution directly transferred to 
another retirement plan or IRA, and (2) the rules concerning 
the taxation of a distribution. The plan generally must provide 
this notice to the participant no less than 30 and no more than 
90 days before the date distribution commences.

                           Reasons for Change

    The Committee understands that an employee is not always 
able to evaluate distribution alternatives, select the most 
appropriate alternative, and notify the plan of the selection 
within a 90-day period. The Committee believes that requiring a 
plan to furnish multiple distribution notices to an employee 
who does not make a distribution election within 90 days is 
administratively burdensome. In addition, the Committee 
believes that participants who are entitled to defer 
distributions should be informed of the impact of a decision 
not to defer distribution on the taxation and accumulation of 
their retirement benefits.

                        Explanation of Provision

    A qualified retirement plan is required to provide the 
applicable distribution notice no less than 30 days and no more 
than 180 days before the date distribution commences. The 
Secretary of the Treasury is directed to modify the applicable 
regulations to reflect the extension of the notice period to 
180 days and to provide that the description of a participant's 
right, if any, to defer receipt of a distribution shall also 
describe the consequences of failing to defer such receipt.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2000.

           TITLE VII. PROVISIONS RELATING TO PLAN AMENDMENTS


                         (Sec. 701 of the Bill)


                              Present Law

    Plan amendments to reflect amendments to the law generally 
must be made by the time prescribed by law for filing the 
income tax return of the employer for the employer's taxable 
year in which the change in law occurs.

                           Reasons for Change

    The Committee believes that employers should have adequate 
time to amend their plans to reflect amendments to the law 
while operating their plans in compliance with such amendments.

                        Explanation of Provision

    Any amendments to a plan or annuity contract required to be 
made by the provisions of this Act or pursuant to any 
regulation issued under this Act are not required to be made 
before the last day of the first plan year beginning on or 
after January 1, 2003. In the case of a governmental plan, the 
date for amendments is extended to the last day of the first 
plan year beginning on or after January 1, 2005. The delayed 
amendment date shall not apply to any amendment required or 
permitted by the provisions of this Act or any regulation 
issued under this Act unless, during the period beginning on 
the date the applicable section of the provision takes effect 
and ending on the delayed amendment date, (1) the plan or 
annuity contract is operated as if such amendment were in 
effect, and (2) such amendment applies retroactively for such 
period.

                             Effective Date

    The provision is effective on the date of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 4843.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 4843, as amended, was ordered favorably 
reported by a rollcall vote of 27 yeas to 9 nays (with a quorum 
being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................  ........  ........  .........  Mr. Stark........  ........        X   .........
Mr. Thomas.....................        X   ........  .........  Mr. Matsui.......  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Coyne........        X   ........  .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Houghton...................        X   ........  .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. McNulty......  ........  ........  .........
Mr. Johnson....................        X   ........  .........  Mr. Jefferson....  ........        X   .........
Ms. Dunn.......................        X   ........  .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. Portman....................        X   ........  .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................        X   ........  .........  Mr. Doggett......  ........  ........  .........
Mr. Watkins....................        X   ........  .........
Mr. Hayworth...................        X   ........  .........
Mr. Weller.....................        X   ........  .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                          VOTES ON AMENDMENTS

    A rollcall vote was conducted on the following amendment to 
the Chairman's amendment in the nature of a substitute.
    An amendment by Messrs. Jefferson, Rangel, Matsui, Coyne, 
Levin, Cardin, McDermott, Lewis of Georgia, Neal, Becerra, and 
Thurman, regarding retirement benefits for low- and middle-
income workers, tax relief for small employers who establish 
and maintain pension plans, relief for multiemployer plans, and 
a sense of the Congress regarding cash balance plans, was 
defeated by a rollcall vote of 13 yeas to 22 nays. The vote was 
as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........  ........  .........  Mr. Stark........        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...  ........  ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......  ........  ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Doggett......  ........  ........  .........
Mr. Watkins....................  ........        X   .........
Mr. Hayworth...................  ........        X   .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of Rule XIII of the Rules 
of the House of Representatives, the following statement is 
made concerning the affects on the budget of the revenue 
provisions of the bill, H.R. 4843, as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2001-2005:

 ESTIMATED BUDGET EFFECTS OF H.R. 4843, THE ``COMPREHENSIVE RETIREMENT SECURITY AND PENSION REFORM ACT,'' AS REPORTED BY THE COMMITTEE ON WAYS AND MEANS
                                                     [Fiscal Years 2001-2005 in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                Provision                             Effective                 2001         2002         2003         2004         2005       2001-05
--------------------------------------------------------------------------------------------------------------------------------------------------------
Individual Retirement Account
 Provisions:
    1. Modification of IRA Contribution   tyba 12/31/00...................         -395       -1,194       -2,013       -2,726       -3,404       -9,733
     Limits--increase the maximum
     contribution limit for traditional
     and Roth IRAs to $4,000 in 2001,
     $4,000 in 2002, $5,000 in 2003, and
     index for inflation thereafter.
    2. IRA Catch-Up Contributions--       tyba 12/31/00...................         -201         -275          -87          -27          -26         -616
     increase maximum contribution
     limits for traditional and Roth
     IRAs for individuals age 50 and
     above to $5,000 in 2001 and 2002.
                                         ---------------------------------------------------------------------------------------------------------------
      Total of Individual Retirement      ................................         -596       -1,469       -2,100       -2,753       -3,430      -10,349
       Account Provisions.
                                         ===============================================================================================================
Provisions for Expanding Coverage
    1. Increase contribution and benefit
     limits:
        a. Increase limitation on         yba 12/31/00....................         -130         -310         -452         -557         -640       -2,089
         exclusion for elective
         deferrals to $11,000 in 2001,
         $12,000 in 2002, $13,000 in
         2003, $14,000 in 2004, and
         $15,000 in 2005; index
         thereafter \1\ \2\.
        b. Increase limitation on SIMPLE  yba 12/31/00....................           -4          -14          -21          -26          -28          -93
         elective contributions to:
         $7,000 in 2001, $8,000 in 2002,
         $9,000 in 2003, and $10,000 in
         2004; index thereafter  \1\ \2\.
        c. Increase defined benefit       yba 12/31/00....................          -18          -31          -40          -45          -48         -182
         dollar limit to $160,000.
        d. Lower early retirement age to  yba 12/31/00....................           -3           -4           -4           -4           -5          -21
         62; lower normal retirement age
         to 65.
        e. Increase annual addition       yba 12/31/00....................           -6          -12          -14          -15          -16          -63
         limitation for defined
         contribution plans to $40,000
         \1\.
        f. Increase qualified plan        yba 12/31/00....................          -43          -74          -84          -91          -99         -391
         compensation limit to $200,000
         \1\.
        g. Increase limits on deferrals   yba 12/31/00....................          -52          -91         -104         -114         -125         -486
         under deferred compensation
         plans of State and local
         governments and tax-exempt
         organizations to: $11,000 in
         2001, $12,000 in 2002, $13,000
         in 2003, $14,000 in 2004, and
         $15,000 in 2005; index
         thereafter \1\ \2\.
    2. Plan loans for subchapter S        lma 12/31/00....................          -18          -30          -33          -35          -37         -153
     owners, partners, and sole
     proprietors.
    3. Modification of top-heavy rules..  yba 12/31/00....................           -4           -9          -11          -12          -14          -50
    4. Elective deferrals not taken into  yba 12/31/00....................          -40          -75          -87          -94         -101         -396
     account for purposes of deduction
     limits.
    5. Repeal of coordination             yba 12/31/00....................          -16          -22          -22          -22          -22         -104
     requirements for deferred
     compensation plans of State and
     local governments and tax-exempt
     organizations.
    6. Elimination of user fee for        rma 12/31/00....................           -9           -5           -5  ...........  ...........          -19
     certain requests regarding small
     employer pension plans; waiver
     applies only for request made
     during first 5 plan years \3\.
    7. Definition of compensation for     yba 12/31/00....................           -1           -2           -3           -3           -3          -12
     purposes of deduction limits \1\.
    8. Option to treat effective          tyba 12/31/00...................           50          100          131          144           89          514
     deferrals as after-tax
     contributions.
    9. Increase stock bonus and profit    tyba 12/31/00...................           -5           -9          -10          -11          -12          -47
     sharing plan deduction limit from
     15% to 20%.
                                         ---------------------------------------------------------------------------------------------------------------
      Total of Provisions for Expanding   ................................         -299         -588         -759         -885       -1,061       -3,592
       coverage.
                                         ===============================================================================================================
Provisions for Enhancing Fairness for
 Women:
    1. Additional catch-up contributions  tyba 12/31/00...................          -34          -52          -55          -57          -59         -257
     for individuals age 50 and above--
     increase the otherwise applicable
     contribution limit by $5,000 in
     2001 through 2005 and index for
     inflation thereafter.
    2. Equitable treatment for            yba 12/31/00....................          -51          -78          -84          -91          -97         -401
     contributions of employees to
     defined contribution plans\1\.
    3. Faster vesting of certain          pyba 12/31/00...................                            Negligible Revenue Effect
     employer matching contributions.
    4. Simplify and update the minimum    yba 12/31/00....................         -118         -212         -239         -268         -297       -1,135
     distribution rules by modifying
     post-death distribution rules,
     reducing (to 10%) the excise tax on
     failures to make minimum
     distributions, and directing the
     Treasury to simplify and finalize
     regulations relating to the minimum
     distribution rules.
    5. Clarification of tax treatment of  tdapma 12/31/00.................                            Negligible Revenue Effect
     division of section 457 plan
     benefits upon divorce.
    6. Modification of safe harbor        yba 12/31/00....................                            Negligible Revenue Effect
     relief for hardship withdrawals
     from 401(k) plans.
                                         ---------------------------------------------------------------------------------------------------------------
      Total of Provisions for Enhancing   ................................         -203         -342         -378         -416         -453       -1,793
       Fairness for Women.
                                         ===============================================================================================================
Provisions for Increasing Portability
 for Participants:
    1. Rollovers allowed among            da 12/31/00.....................           26           -5           -5           -5           -5           -6
     governmental section 457 plans,
     section 403(b) plans, and qualified
     plans.
    2. Rollovers of IRAs to workplace     da 12/31/00.....................                            Negligible Revenue Effect
     retirement plans.
    3. Rollovers of after-tax retirement  dma 12/31/00....................                            Negligible Revenue Effect
     plan contributions.
    4. Waiver of 60-day rule............  da 12/31/00.....................                            Negligible Revenue Effect
    5. Treatment of forms of qualified    yba12/31/00.....................                            Negligible Revenue Effect
     plan distributions.
    6. Rationalization of restrictions    da 12/31/00.....................                            Negligible Revenue Effect
     on distributions.
    7. Purchase of service credit in      ta 12/31/00.....................                            Negligible Revenue Effect
     governmental defined benefit plans.
    8. Employers may disregard rollovers  da 12/31/00.....................                            Negligible Revenue Effect
     for cash-out amounts.
    9. Minimum distribution and           da 12/31/00.....................                         Considered in Other Provisions
     inclusion requirements for section
     457 plans.
                                         ---------------------------------------------------------------------------------------------------------------
      Total of Provisions for Increasing  ................................           26           -5           -5           -5           -5           -6
       Portability for Participants.
                                         ===============================================================================================================
Provisions for Strengthening Pension
 Security and Enforcement:
    1. Phase-in repeal of 150% of         pyba 12/31/00...................           -3          -14          -20          -36          -36         -109
     current liability funding limit;
     extend maximum deduction rule.
    2. Excise tax relief for sound        yba.............................           -2           -3           -3           -3           -3          -14
     pension funding.
    3. Notice of significant reduction    pateo/a DOE.....................                            Negligible Revenue Effect
     in plan benefit accruals.
    4. Repeal 100% of compensation limit  yba 12/31/00....................           -2           -4           -4           -4           -4          -19
     for multiemployer plans.
    5. Modification of section 415        tyba 12/31/00...................           -1           -1           -1           -1           -1           -5
     aggregation rules for multi-
     employer plans.
    6. Prohibited allocations of stock    (\4\)...........................            1            4            5            6            8           24
     in an ESOP of a subchapter S
     corporation.
                                         ---------------------------------------------------------------------------------------------------------------
      Total of Provisions for             ................................           -7          -18          -23          -38          -36         -122
       Strengthening Pension Security
       and Enforcement.
                                         ===============================================================================================================
Provisions for Reducing Regulatory
 Burdens:
     1. Modification of timing of plan    pyba 12/31/00...................                            Negligible Revenue Effect
     valuations.
     2. ESOP dividends may be reinvested  tyba 12/31/00...................          -19          -44          -56          -61          -63         -243
     without loss of dividend deduction.
     3. Repeat transition rule relating   pyba 12/31/00...................           -2           -3           -3           -3           -3          -13
     to certain highly compensated
     employes.
     4. Employees of tax-exempt entities  DOE.............................                            Negligible Revenue Effect
     \5\.
     5. Treatment of employer-provided    yba 12/31/00....................                            Negligible Revenue Effect
     retirement advice.
     6. Pension plan reporting            1/1/01..........................                            Negligible Revenue Effect
     simplification \5\.
     7. Improvement to Employee Plans     DOE.............................                            Negligible Revenue Effect
     Compliance Resolution System \5\.
     8. Repeal of multiple use test.....  yba 12/31/00....................                         Considered in Other Provisions
     9. Flexibility in                    DOE.............................                            Negligible Revenue Effect
     nondiscrimination, coverage, and
     line of business rules \5\.
    10. Extension to all governmental     yba 12/31/00....................                            Negligible Revenue Effect
     plans of moratorium on application
     of certain nondiscrimination rules
     applicable to State and local
     government plans.
    11. Notice and consent period         yba 12/31/00....................                                No Revenue Effect
     regarding distributions.
                                         ---------------------------------------------------------------------------------------------------------------
      Total of Provisions for Reducing    ................................          -21          -47          -59          -64          -66         -256
       Regulatory Burdens.
                                         ===============================================================================================================
Provisions Relating to Plan Amendments..  DOE.............................                                No Revenue Effect
      Net Total.........................  ................................       -1,100       -2,469       -3,324       -4,161       -5,051      -16,106
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Provision includes interaction with other provisions in Provisions for Expanding coverage.
\2\ Provision includes interaction with the Individual Retirement Arrangement Provisions.
\3\ Estimate provided by the Congressional Budget Office.
\4\ Generally effective with respect to years beginning after December 31, 2001. In the case of an ESOP established after July 11, 2000, or an ESOP
  established on or before such date if the employer maintaining the plan was not an S corporation on such date, the proposal would be effective with
  respect to plan years ending after July 11, 2000.
\5\ Directs the Secretary of the Treasury to modify rules through regulations.

Legend for ``Effective'' column; da = distributions after; dma = distributions made after; DOE = date of enactment; lma = loans made after; pateo/a =
  plan amendments taking effect on or after; pyba = plan years beginning after; rma = requests made after; ta = transfer after; tdapma = transfers,
  distributions, and payments made after; tyba = taxable years beginning after; and yba = years beginning after.

 Note.--Details may not add to totals due to rounding.

 Source: Joint Committee on Taxation.

    B. Statement Regarding New Budget Authority and Tax Expenditures


Budget authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority.

Tax expenditures

    In compliance with clause 2(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
revenue-reducing income tax provisions involve increased tax 
expenditures, and the revenue-increasing income tax provisions 
involve reduced tax expenditures. (See amounts in table in Part 
IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the Congressional Budget Office (CBO), the 
following statement by CBO provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 17, 2000.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4843, the 
Comprehensive Retirement Security and Pension Reform Act of 
2000.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Hester 
Grippando (for revenues), and John R. Righter (for federal 
spending).
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 4843--Comprehensive Retirement Security and Pension Reform Act of 
        2000

    Summary: H.R. 4843 would increase the maximum contribution 
limit for Individual Retirement Accounts (IRAs) to $3,000 in 
2001, $4,000 in 2002, and $5,000 in 2003. After 2003, the 
maximum contribution rate would be indexed for inflation. The 
bill also would increase the maximum IRA contribution to $5,000 
for individuals aged 50 or older in years 2001 and 2002. In 
addition, the bill would make numerous changes to pension laws.
    The Joint Committee on Taxation (JCT) estimates that the 
bill would reduce revenues by $1 billion in fiscal year 2001, 
by $16 billion over the 2001-2005 period, and by $52 billion 
over the 2001-2010 period. In addition, CBO estimates that the 
bill would decrease direct spending by between $1 million and 
$2 million over the 2001-2004 period. Because the bill would 
affect receipts and direct spending, pay-as-you-go procedures 
would apply.
    H.R. 4843 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would impose no 
costs on state, local or tribal governments. The bill contains 
one new private-sector mandate. JCT has determined the cost of 
this mandate would not exceed the threshold established by UMRA 
for private-sector mandates ($109 million in fiscal year 2000, 
adjusted annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact on H.R. 4843 is shown in the following table. 
The outlay impact of this legislation falls within budget 
function 800 (general government).

----------------------------------------------------------------------------------------------------------------
                                                            By fiscal year, in millions of dollars--
                                               -----------------------------------------------------------------
                                                   2000       2001       2002       2003       2004       2005
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Estimated Revenues............................          0     -1,100     -2,469     -3,324     -4,161     -5,051

                                           CHANGES IN DIRECT SPENDING

Estimated Budget Authority....................          0         -1      (\1\)      (\1\)      (\1\)          0
Estimated Outlays.............................          0         -1      (\1\)      (\1\)      (\1\)          0
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.

    Basis of estimate: JCT estimated the impact of the bill on 
federal revenues, with the exception of the change in fees 
charged by the Internal Revenue Service (IRS). Most of the 
revenue loss would result from the increase in the limit on IRA 
contributions. Those provisions would account for $35 billion 
of the $52 billion reduction in revenues over the 2001-2010 
period.
    Beginning on January 1, 2001, the bill would eliminate the 
fee the IRS currently charges for determination letters 
regarding small business pension plans that are less than five 
years old. CBO estimates that eliminating these fees would 
decrease governmental receipts (revenue) by $19 million over 
the 2001-2003 period, net of income and payroll tax offsets. 
Under current law, the authority to charge such fees will 
expire at the end of fiscal year 2003. Thus this provision 
would have no impact beyond 2003. This estimate is based on 
recent fee collections and on information from the IRS.
    The IRS has the authority to retain and spend, without 
further appropriation action, a small portion of the fees it 
collects from taxpayers for certain rulings and determinations. 
By eliminating the fee paid by small businesses for 
determination letters, H.R. 4348 would reduce the amounts 
available for the IRS to spend. CBO estimates that eliminating 
the fees would decrease direct spending by nearly $1 million in 
2001 and by amounts less than $500,000 in each of fiscal years 
2002-2004.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Act sets up pay-as-you-go procedures for 
legislation affecting direct spending or receipts. The net 
changes in outlays and governmental receipts that are subject 
to pay-as-you-go procedures are shown in the following table. 
For the purposes of enforcing pay-as-you-go procedures, only 
the effects in the current year, the budget year, and the 
succeeding four years are counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              By fiscal year, in millions of dollars--
                                           -------------------------------------------------------------------------------------------------------------
                                              2000      2001      2002      2003      2004      2005      2006      2007      2008      2009      2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts.......................         0    -1,100    -2,469    -3,324    -4,161    -5,051    -5,858    -6,498    -7,168    -7,906    -8,722
Changes in outlays........................         0        -1         0         0         0         0         0         0         0         0         0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Estimated impact on state, local, and tribal governments: 
JCT has determined that H.R. 4843 contains no intergovernmental 
mandates as defined in UMRA and would impose no costs on state, 
local, or tribal governments.
    Estimated impact on the private sector: JCT has determined 
the provision that would prohibit allocations of stock in an 
Employee Stock Ownership Plan of a subchapter S corporation 
would be a new private sector mandate. JCT has estimated that 
the cost of this mandate would not exceed the threshold 
established by UMRA for private-sector mandates ($109 million 
in fiscal year 2000, adjusted annually for inflation).
    Estimate prepared by: Federal Revenues: Hester Grippando. 
Federal Spending: John R. Righter.
    Estimate approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis. G. Thomas Woodward, Assistant 
Director for Tax Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning retirement security and pension 
reforms, that the Committee concluded that it is appropriate 
and timely to enact the revenue provisions included in the bill 
as reported.

    B. Summary of Findings and Recommendations of the Committee on 
                           Government Reform

    With respect to clause 3(c)(4) of rule XII of the Rules of 
the House of Representatives, the Committee advises that no 
oversight findings or recommendations have been submitted to 
this Committee by the Committee on Government Reform with 
respect to the provisions contained in the bill.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of rule XIII of the Rules of 
the House of Representatives (relating to Constitutional 
Authority), the Committee states that the Committee's action in 
reporting this bill is derived from Article I of the 
Constitution, Section 8 (``The Congress shall have Power To lay 
and collect Taxes, Duties, Imposts and Excises * * *''), and 
from the 16th Amendment to the Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the following provision 
of the bill contains Federal mandates on the private sector 
(for amounts, see tables in Part IV.A., above): prohibited 
allocation of stock in an S corporation ESOP.
    The costs required to comply with the Federal private 
sector mandate generally are no greater than the estimated 
budget effects of the provision. Benefits from the provision 
include improved administration of the Federal tax laws and a 
more accurate measurement of income for Federal income tax 
purposes.
    The bill will not impose a Federal intergovernmental 
mandate on State, local, and tribal governments.

                 E. Applicability of House Rule XXI5(b)

    Rule XXI5(b) of the Rules of the House of Representatives 
provides, in part, that ``No bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase shall be considered as passed or agreed to unless 
determined by a vote of not less than three-fifths of the 
Members.'' The Committee has carefully reviewed the provisions 
of the bill, and states that the provisions of the bill do not 
involve any Federal income tax rate increase within the meaning 
of the rule.

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the House Committee on Ways and 
Means, the Senate Committee on Finance, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Internal Revenue Code and has 
``widespread applicability'' to individuals or small 
businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Internal Revenue Code and that have 
widespread applicability to individuals or small businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *



Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

           *       *       *       *       *       *       *


SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE INSURANCE 
                    CONTRACTS.

  (a)  * * *

           *       *       *       *       *       *       *

  (f) Special rules for computing employees' contributions.--In 
computing, for purposes of subsection (c)(1)(A), the aggregate 
amount of premiums or other consideration paid for the 
contract, and for purposes of subsection (e)(6), the aggregate 
premiums or other consideration paid, amounts contributed by 
the employer shall be included, but only to the extent that--
          (1) * * *

           *       *       *       *       *       *       *

Paragraph (2) shall not apply to amounts which were contributed 
by the employer after December 31, 1962, and which would not 
have been includible in the gross income of the employee by 
reason of the application of section 911 if such amounts had 
been paid directly to the employee at the time of contribution. 
The preceding sentence shall not apply to amounts which were 
contributed by the employer, as determined under regulations 
prescribed by the Secretary, to provide pension or annuity 
credits, to the extent such credits are attributable to 
services performed before January 1, 1963, and are provided 
pursuant to pension or annuity plan provisions in existence on 
March 12, 1962, and on that date applicable to such services, 
or to the extent such credits are attributable to services 
performed as a foreign missionary (within the meaning of 
[section 403(b)(2)(D)(iii))] section 403(b)(2)(D)(iii), as in 
effect before the enactment of the Comprehensive Retirement 
Security and Pension Reform Act of 2000).

           *       *       *       *       *       *       *

  (o) Special Rules for Distributions From Qualified Plans to 
Which Employee Made Deductible Contributions.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Special rule for treatment of rollover amounts.--
        For purposes of sections 402(c), 403(a)(4), [and 
        408(d)(3)] 403(b)(8), 408(d)(3), and 457(e)(16), the 
        Secretary shall prescribe regulations providing for 
        such allocations of amounts attributable to accumulated 
        deductible employee contributions, and for such other 
        rules, as may be necessary to insure that such 
        accumulated deductible employee contributions do not 
        become eligible for additional tax benefits (or freed 
        from limitations) through the use of rollovers.

           *       *       *       *       *       *       *

  (t) 10-Percent Additional Tax on Early Distributions From 
Qualified Retirement Plans.--
          (1) * * *

           *       *       *       *       *       *       *

          (9) Special rule for rollovers to section 457 
        plans.--For purposes of this subsection, a distribution 
        from an eligible deferred compensation plan (as defined 
        in section 457(b)) of an employer described in section 
        457(e)(1)(A) shall be treated as a distribution from a 
        qualified retirement plan described in 4974(c)(1) to 
        the extent that such distribution is attributable to an 
        amount transferred to an eligible deferred compensation 
        plan from a qualified retirement plan (as defined in 
        section 4974(c)).

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *


SEC. 132. CERTAIN FRINGE BENEFITS.

  (a) Exclusion From Gross Income.--Gross income shall not 
include any fringe benefit which qualifies as a--
          (1) * * *

           *       *       *       *       *       *       *

          (5) qualified transportation fringe, [or]
          (6) qualified moving expense reimbursement[.], or
          (7) qualified retirement planning services.

           *       *       *       *       *       *       *

  (m) Qualified Retirement Planning Services.--
          (1) In general.--For purposes of this section, the 
        term ``qualified retirement planning services'' means 
        any retirement planning service provided to an employee 
        and his spouse by an employer maintaining a qualified 
        employer plan.
          (2) Nondiscrimination rule.--Subsection (a)(7) shall 
        apply in the case of highly compensated employees only 
        if such services are available on substantially the 
        same terms to each member of the group of employees 
        normally provided education and information regarding 
        the employer's qualified employer plan.
          (3) Qualified employer plan.--For purposes of this 
        subsection, the term ``qualified employer plan'' means 
        a plan, contract, pension, or account described in 
        section 219(g)(5).
  [(m)] (n) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.

           *       *       *       *       *       *       *


PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

           *       *       *       *       *       *       *


SEC. 219. RETIREMENT SAVINGS.

  (a) * * *
  (b) Maximum Amount of Deduction.--
          (1) In general.--The amount allowable as a deduction 
        under subsection (a) to any individual for any taxable 
        year shall not exceed the lesser of--
                  (A) [$2,000] the deductible amount, or
                  (B) an amount equal to the compensation 
                includible in the individual's gross income for 
                such taxable year.

           *       *       *       *       *       *       *

          (5) Deductible amount.--For purposes of paragraph 
        (1)(A)--
                  (A) In general.--The deductible amount shall 
                be determined in accordance with the following 
                table:

        For taxable years                                 The deductible
          beginning in:                                     amount is:  
          2001................................................   $3,000 
          2002................................................   $4,000 
          2003 and thereafter.................................   $5,000.

                  (B) Catch-up contributions for individuals 50 
                or older.--In the case of an individual who has 
                attained the age of 50 before the close of the 
                taxable year, the deductible amount for taxable 
                years beginning in 2001 or 2002 shall be 
                $5,000.
                  (C) Cost-of-living adjustment.--
                          (i) In general.--In the case of any 
                        taxable year beginning in a calendar 
                        year after 2003, the $5,000 amount 
                        under subparagraph (A) shall be 
                        increased by an amount equal to--
                                  (I) such dollar amount, 
                                multiplied by
                                  (II) the cost-of-living 
                                adjustment determined under 
                                section 1(f )(3) for the 
                                calendar year in which the 
                                taxable year begins, determined 
                                by substituting ``calendar year 
                                2002'' for ``calendar year 
                                1992'' in subparagraph (B) 
                                thereof.
                          (ii) Rounding rules.--If any amount 
                        after adjustment under clause (i) is 
                        not a multiple of $500, such amount 
                        shall be rounded to the next lower 
                        multiple of $500.

           *       *       *       *       *       *       *

  (d) Other Limitations and Restrictions.--
          (1) * * *
          (2) Recontributed amounts.--No deduction 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)] 408(d)(3), or 457(e)(16).

           *       *       *       *       *       *       *


Subchapter D--Deferred Compensation, Etc.

           *       *       *       *       *       *       *


PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.

           *       *       *       *       *       *       *


                        Subpart A--General Rule

        Sec. 401. Qualified pension, profit-sharing, and stock bonus 
                  plans.
     * * * * * * *
        Sec. 402A. Optional treatment of elective deferrals as plus 
                  contributions.

           *       *       *       *       *       *       *


SEC. 401. QUALIFIED PENSION, PROFIT-SHARING, AND STOCK BONUS PLANS.

  (a) Requirements for Qualification.--A trust created or 
organized in the United States and forming part of a stock 
bonus, pension, or profit-sharing plan of an employer for the 
exclusive benefit of his employees or their beneficiaries shall 
constitute a qualified trust under this section--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Special rules relating to nondiscrimination 
        requirements.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (G) [State and local governmental plans] 
                Governmental plans.--Paragraphs (3) and (4) 
                shall not applyto a governmental plan (within 
the meaning of [section 414(d)) maintained by a State or local 
government or political subdivision thereof (or agency or 
instrumentality thereof).] section 414(d)).

           *       *       *       *       *       *       *

          (9) Required distributions.--
                  (A) * * *
                  (B) Required distribution where employee dies 
                before entire interest is distributed.--
                          [(i) Where distributions have begun 
                        under subparagraph (A)(ii).--A trust 
                        shall not constitute a qualified trust 
                        under this section unless the plan 
                        provides that if--
                                  [(I) the distribution of the 
                                employee's interest has begun 
                                in accordance with subparagraph 
                                (A)(ii), and
                                  [(II) the employee dies 
                                before his entire interest has 
                                been distributed to him, the 
                                remaining portion of such 
                                interest will be distributed at 
                                least as rapidly as under the 
                                method of distributions being 
                                used under subparagraph (A)(ii) 
                                as of the date of his death.]
                          [(ii)] (i) 5-year rule [for other 
                        cases].--A trust shall not constitute a 
                        qualified trust under this section 
                        unless the plan provides that, if an 
                        employee dies before [the distribution 
                        of the employee's interest has begun in 
                        accordance with subparagraph (A)(ii)] 
                        his entire interest has been 
                        distributed to him, the entire interest 
                        of the employee will be distributed 
                        within 5 years after the death of such 
                        employee.
                          [(iii)] (ii) Exception to 5-year rule 
                        for certain amounts payable over life 
                        of beneficiary.--If--
                                  (I) any portion of the 
                                employee's interest is payable 
                                to (or for the benefit of) a 
                                designated beneficiary,
                                  (II) such portion will be 
                                distributed (in accordance with 
                                regulations) over the life of 
                                such designated beneficiary (or 
                                over a period not extending 
                                beyond the life expectancy of 
                                such beneficiary), and
                                  (III) such distributions 
                                begin not later than 1 year 
                                after the date of the 
                                employee's death or such later 
                                date as the Secretary may by 
                                regulations prescribe,
                        for purposes of [clause (ii)] clause 
                        (i), the portion referred to in 
                        subclause (I) shall be treated as 
                        distributed on the date on which such 
                        distributions begin.
                          [(iv)] (iii) Special rule for 
                        surviving spouse of employee.--If the 
                        designated beneficiary referred to in 
                        [clause (iii)(I)] clause (ii)(I) is the 
                        surviving spouse of the employee--
                                  (I) the date on which the 
                                distributions are required to 
                                begin under clause [(iii)(III)] 
                                clause (ii)(III) shall not be 
                                earlier than [the date on which 
                                the employee would have 
                                attained age 70\1/2\,] April 1 
                                of the calendar year following 
                                the calendar year in which the 
                                spouse attains 70\1/2\, and
                                  (II) if the surviving spouse 
                                dies before [the distributions 
                                to such spouse begin,] his 
                                entire interest has been 
                                distributed to him, this 
                                subparagraph shall be applied 
                                as if the surviving spouse were 
                                the employee.

           *       *       *       *       *       *       *

          (17) Compensation limit.--
                  (A) In general.--A trust shall not constitute 
                a qualified trust under this section unless, 
                under the plan of which such trust is a part, 
                the annual compensation of each employee taken 
                into account under the plan for any year does 
                not exceed [$150,000] $200,000.
                  (B) Cost-of-living adjustment.--The Secretary 
                shall adjust annually the [$150,000] $200,000 
                amount in subparagraph (A) for increases in the 
                cost-of-living at the same time and in the same 
                manner as adjustments under section 415(d); 
                except that the base period shall be the 
                calendar quarter beginning [October 1, 1993] 
                July 1, 2000, and any increase which is not a 
                multiple of [$10,000] $5,000 shall be rounded 
                to the next lowest multiple of [$10,000] 
                $5,000.

           *       *       *       *       *       *       *

          (26) Additional participation requirements.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (H) [Exception for state and local 
                governmental plans] Exception for governmental 
                plans.--This paragraph shall not apply to a 
                governmental plan (within the meaning of 
                [section 414(d)) maintained by a State or local 
                government or political subdivision thereof (or 
                agency or instrumentality thereof).] section 
                414(d)).

           *       *       *       *       *       *       *

          (31) Optional direct transfer of eligible rollover 
        distributions.--
                  (A) * * *
                  (B) Limitation.--Subparagraph (A) shall apply 
                only to the extent that the eligible rollover 
                distribution would be includible in gross 
                income if not transferred as provided in 
                subparagraph (A) (determined without regard to 
                sections 402(c) [and 403(a)(4)], 403(a)(4), 
                403(b)(8), and 457(e)(16)). The preceding 
                sentence shall not apply to such distribution 
                if the plan to which such distribution is 
                transferred--
                          (i) agrees to separately account for 
                        amounts so transferred, including 
                        separately accounting for the portion 
                        of such distribution which is 
                        includible in gross income and the 
                        portion of such distribution which is 
                        not so includible, or
                          (ii) is an eligible retirement plan 
                        described in clause (i) or (ii) of 
                        section 402(c)(8)(B).

           *       *       *       *       *       *       *

  (k) Cash or Deferred Arrangements.--
          (1) * * *
          (2) Qualified cash or deferred arrangement.--A 
        qualified cash or deferred arrangement is any 
        arrangement which is part of a profit-sharing or stock 
        bonus plan, a pre-ERISA money purchase plan, or a rural 
        cooperative plan which meets the requirements of 
        subsection (a)--
                  (A) under which a covered employee may elect 
                to have the employer make payments as 
                contributions to a trust under the plan on 
                behalf of the employee, or to the employee 
                directly in cash;
                  (B) under which amounts held by the trust 
                which are attributable to employer 
                contributions made pursuant to the employee's 
                election--
                          (i) may not be distributable to 
                        participants or other beneficiaries 
                        earlier than--
                                  (I) [separation from service] 
                                severance from employment, 
                                death, or disability,

           *       *       *       *       *       *       *

          (3) Application of participation and discrimination 
        standards.--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (G) Governmental plans.--A governmental plan 
                (within the meaning of section 414(d)) 
                [maintained by a State or local government or 
                political subdivision thereof (or agency or 
                instrumentality thereof)] shall be treated as 
                meeting the requirements of this paragraph.

           *       *       *       *       *       *       *

          (10) Distributions upon termination of plan [or 
        disposition of assets or subsidiary].--
                  [(A) In general.--The following events are 
                described in this paragraph:
                          [(i) Termination.--The termination of 
                        the plan without establishment or 
                        maintenance of another defined 
                        contribution plan (other than an 
                        employee stock ownership plan as 
                        defined in section 4975(e)(7)).
                          [(ii) Disposition of assets.--The 
                        disposition by a corporation of 
                        substantially all of the assets (within 
                        the meaning of section 409(d)(2)) used 
                        by such corporation in a trade or 
                        business of such corporation, but only 
                        with respect to an employee who 
                        continues employment with the 
                        corporation acquiring such assets.
                          [(iii) Disposition of subsidiary.--
                        The disposition by a corporation of 
                        such corporation's interest in a 
                        subsidiary (within the meaning of 
                        section 409(d)(3)), but only with 
                        respect to an employee who continues 
                        employment with such subsidiary.]
                  (A) In general.--An event described in this 
                subparagraph is the termination of the plan 
                without establishment or maintenance of another 
                defined contribution plan (other than an 
                employee stock ownership plan as defined in 
                section 4975(e)(7)).
                  (B) Distributions must be lump sum 
                distributions.--
                          (i) In general.--[An event] A 
                        termination shall not be treated as 
                        described in subparagraph (A) with 
                        respect to any employee unless the 
                        employee receives a lump sum 
                        distribution by reason of [the event] 
                        the termination.

           *       *       *       *       *       *       *

                  [(C) Transferor corporation must maintain 
                plan.--An event shall not be treated as 
                described in clause (ii) or (iii) of 
                subparagraph (A) unless the transferor 
                corporation continues to maintain the plan 
                after the disposition.]
          (11) Adoption of simple plan to meet 
        nondiscrimination tests.--
                  (A) * * *
                  (B) Contribution requirements.--
                          (i) In general.--The requirements of 
                        this subparagraph are met if, under the 
                        arrangement--
                                  (I) an employee may elect to 
                                have the employer make elective 
                                contributions for the year on 
                                behalf of the employee to a 
                                trust under the plan in an 
                                amount which is expressed as a 
                                percentage of compensation of 
                                the employee but which in no 
                                event exceeds [$6,000] the 
                                amount in effect under section 
                                408(p)(2)(A)(ii).

           *       *       *       *       *       *       *

                  [(E) Cost-of-living adjustment.--The 
                Secretary shall adjust the $6,000 amount under 
                subparagraph (B)(i)(I) at the same time and in 
                the same manner as under section 408(p)(2)(E).]

           *       *       *       *       *       *       *

  (m) Nondiscrimination Test for Matching Contributions and 
Employee Contributions.--
          (1) * * *

           *       *       *       *       *       *       *

          [(9) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the 
        purposes of this subsection and subsection (k) 
        including--
                  [(A) such regulations as may be necessary to 
                prevent the multiple use of the alternative 
                limitation with respect to any highly 
                compensated employee, and
                  [(B) regulations permitting appropriate 
                aggregation of plans and contributions.
        For purposes of the preceding sentence, the term 
        ``alternative limitation'' means the limitation of 
        section 401(k)(3)(A)(ii)(II) and the limitation of 
        paragraph (2)(A)(ii) of this subsection.]
          (9) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the 
        purposes of this subsection and subsection (k), 
        including regulations permitting appropriate 
        aggregation of plans and contributions.

           *       *       *       *       *       *       *


SEC. 402. TAXABILITY OF BENEFICIARY OF EMPLOYEES' TRUST.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Rules Applicable to Rollovers From Exempt Trusts.--
          (1) * * *
          (2) Maximum amount which may be rolled over.--In the 
        case of any eligible rollover distribution, the maximum 
        amount transferred to which paragraph (1) applies shall 
        not exceed the portion of such distribution which is 
        includible in gross income (determined without regard 
        to paragraph (1)). The preceding sentence shall not 
        apply to such distribution to the extent--
                  (A) such portion is transferred in a direct 
                trustee-to-trustee transfer to a qualified 
                trust which is part of a plan which is a 
                defined contribution plan and which agrees to 
                separately account for amounts so transferred, 
                including separately accounting for the portion 
                of such distribution which is includible in 
                gross income and the portion of such 
                distribution which is not so includible, or
                  (B) such portion is transferred to an 
                eligible retirement plan described in clause 
                (i) or (ii) of paragraph (8)(B).
          [(3) Transfer must be made within 60 days of 
        receipt.--Paragraph (1) shall not apply to any transfer 
        of a distribution made after the 60th day following the 
        day on which the distributee received the property 
        distributed.]
          (3) Transfer must be made within 60 days of 
        receipt.--
                  (A) In general.--Except as provided in 
                subparagraph (B), paragraph (1) shall not apply 
                to any transfer of a distribution made after 
                the 60th day following the day on which the 
                distributee received the property distributed.
                  (B) Hardship exception.--The Secretary may 
                waive the 60-day requirement under subparagraph 
                (A) where the failure to waive such requirement 
                would be against equity or good conscience, 
                including casualty, disaster, or other events 
                beyond the reasonable control of the individual 
                subject to such requirement.

           *       *       *       *       *       *       *

          (8) Definitions.--For purposes of this subsection--
                  (A) * * *

           *       *       *       *       *       *       *

                  (B) Eligible retirement plan.--The term 
                ``eligible retirement plan'' means--
                          (i) an individual retirement account 
                        described in section 408(a),
                          (ii) an individual retirement annuity 
                        described in section 408(b) (other than 
                        an endowment contract),
                          (iii) a qualified trust, [and]
                          (iv) an annuity plan described in 
                        section 403(a)[.],
                          (v) an eligible deferred compensation 
                        plan described in section 457(b) of an 
                        employer described in section 
                        457(e)(1)(A), and
                          (vi) an annuity contract described in 
                        section 403(b).
                If any portion of an eligible rollover 
                distribution is attributable to payments or 
                distributions from a designated plus account 
                (as defined in section 402A), an eligible 
                retirement plan with respect to such portion 
                shall include only another designated plus 
                account and a Roth IRA.
          (9) Rollover where spouse receives distribution after 
        death of employee.--If any distribution attributable to 
        an employee is paid to the spouse of the employee after 
        the employee's death, the preceding provisions of this 
        subsection shall apply to such distribution in the same 
        manner as if the spouse were the employee[; except that 
        a trust or plan described in clause (iii) or (iv) of 
        paragraph (8)(B) shall not be treated as an eligible 
        retirement plan with respect to such distribution].

           *       *       *       *       *       *       *

          (11) Separate accounting.--Unless a plan described in 
        clause (v) of paragraph (8)(B) agrees to separately 
        account for amounts rolled into such plan from eligible 
        retirement plans not described in such clause, the plan 
        described in such clause may not accept transfers or 
        rollovers from such retirement plans.

           *       *       *       *       *       *       *

  (f) Written Explanation to Recipients of Distributions 
Eligible for Rollover Treatment.--
          (1) In general.--The plan administrator of any plan 
        shall, within a reasonable period of time before making 
        an eligible rollover distribution [from an eligible 
        retirement plan], provide a written explanation to the 
        recipient--
                  (A) of the provisions under which the 
                recipient may have the distribution directly 
                transferred to [another eligible retirement 
                plan] an eligible retirement plan,
                  (B) of the provision which requires the 
                withholding of tax on the distribution if it is 
                not directly transferred to [another eligible 
                retirement plan] an eligible retirement plan,
                  (C) of the provisions under which the 
                distribution will not be subject to tax if 
                transferred to an eligible retirement plan 
                within 60 days after the date on which the 
                recipient received the distribution, [and]
                  (D) if applicable, of the provisions of 
                subsections (d) and (e) of this section[.], and
                  (E) of the provisions under which 
                distributions from the eligible retirement plan 
                receiving the distribution may be subject to 
                restrictions and tax consequences which are 
                different from those applicable to 
                distributions from the plan making such 
                distribution.
          (2) Definitions.--For purposes of this subsection--
                  (A) Eligible rollover distribution.--The term 
                ``eligible rollover distribution'' has the same 
                meaning as when used in subsection (c) of this 
                section [or paragraph (4) of section 403(a)], 
                paragraph (4) of section 403(a), subparagraph 
                (A) of section 403(b)(8), or subparagraph (A) 
                of section 457(e)(16).

           *       *       *       *       *       *       *

  (g) Limitation on Exclusion for Elective Deferrals.--
          [(1) In general.--Notwithstanding subsections (e)(3) 
        and (h)(1)(B), the elective deferrals of any individual 
        for any taxable year shall be included in such 
        individual's gross income to the extent the amount of 
        such deferrals for the taxable year exceeds $7,000.]
          (1) In general.--
                  (A) Limitation.--Notwithstanding subsections 
                (e)(3) and (h)(1)(B), the elective deferrals of 
                any individual for any taxable year shall be 
                included in such individual's gross income to 
                the extent the amount of such deferrals for the 
                taxable year exceeds the applicable dollar 
                amount.
                  (B) Applicable dollar amount.--For purposes 
                of subparagraph (A), the applicable dollar 
                amount shall be the amount determined in 
                accordance with the following table:

        For taxable years                                 The applicable
          beginning in                                    dollar amount:
          calendar year:
          2001................................................  $11,000 
          2002................................................  $12,000 
          2003................................................  $13,000 
          2004................................................  $14,000 
          2005 or thereafter..................................  $15,000.

        The preceding sentence shall not apply to so much of 
        such excess as does not exceed the designated plus 
        contributions of the individual for the taxable year.
          (2) Distribution of excess deferrals.--
                  (A) In general.--If any amount (hereinafter 
                in this paragraph referred to as ``excess 
                deferrals'') is included in the gross income of 
                an individual under paragraph (1) (or would be 
                included but for the last sentence thereof) for 
                any taxable year--
                          (i)  * * *

           *       *       *       *       *       *       *

          [(4) Increase in limit for amounts contributed under 
        section 403(b) contracts.--The limitation under 
        paragraph (1) shall be increased (but not to an amount 
        in excess of $9,500) by the amount of any employer 
        contributions for the taxable year described in 
        paragraph (3)(C).
          [(5) Cost-of-living adjustment.--The Secretary shall 
        adjust the $7,000 amount under paragraph (1) at the 
        same time and in the same manner as under section 
        415(d); except that any increase under this paragraph 
        which is not a multiple of $500 shall be rounded to the 
        next lowest multiple of $500.]
          (4) Cost-of-living adjustment.--In the case of 
        taxable years beginning after December 31, 2005, the 
        Secretary shall adjust the $15,000 amount under 
        paragraph (1)(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 beginning July 1, 
        2004, and any increase under this paragraph which is 
        not a multiple of $500 shall be rounded to the next 
        lowest multiple of $500.
          [(6)] (5) Disregard of community property laws.--This 
        subsection shall be applied without regard to community 
        property laws.
          [(7)] (6) Coordination with section 72.--For purposes 
        of applying section 72, any amount includible in gross 
        income for any taxable year under this subsection but 
        which is not distributed from the plan during such 
        taxable year shall not be treated as investment in the 
        contract.
          [(8)] (7) Special rule for certain organizations.--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (B) Qualified organization.--For purposes of 
                this paragraph, the term ``qualified 
                organization'' means any educational 
                organization, hospital, home health service 
                agency, health and welfare service agency, 
                church, or convention or association of 
                churches. Such term includes any organization 
                described in section 414(e)(3)(B)(ii). Terms 
                used in this subparagraph shall have the same 
                meaning as when used in section 415(c)(4) (as 
                in effect before the enactment of the 
                Comprehensive Retirement Security and Pension 
                Reform Act of 2000).

           *       *       *       *       *       *       *

          [(9)] (8) Matching contributions on behalf of self-
        employed individuals not treated as elective employer 
        contributions.--Except as provided in section 
        401(k)(3)(D)(ii), any matching contribution described 
        in section 401(m)(4)(A) which is made on behalf of a 
        self-employed individual (as defined in section 401(c) 
        shall not be treated as an elective employer 
        contribution under a qualified cash or deferred 
        arrangement (as defined in section 401(k) for purposes 
        of this title.

           *       *       *       *       *       *       *


SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS PLUS 
                    CONTRIBUTIONS.

  (a) General Rule.--If an applicable retirement plan includes 
a qualified plus contribution program--
          (1) any designated plus contribution made by an 
        employee pursuant to the program shall be treated as an 
        elective deferral for purposes of this chapter, except 
        that such contribution shall not be excludable from 
        gross income, and
          (2) such plan (and any arrangement which is part of 
        such plan) shall not be treated as failing to meet any 
        requirement of this chapter solely by reason of 
        including such program.
  (b) Qualified Plus Contribution Program.--For purposes of 
this section--
          (1) In general.--The term ``qualified plus 
        contribution program'' means a program under which an 
        employee may electto make designated plus contributions 
in lieu of all or a portion of elective deferrals the employee is 
otherwise eligible to make under the applicable retirement plan.
          (2) Separate accounting required.--A program shall 
        not be treated as a qualified plus contribution program 
        unless the applicable retirement plan--
                  (A) establishes separate accounts 
                (``designated plus accounts'') for the 
                designated plus contributions of each employee 
                and any earnings properly allocable to the 
                contributions, and
                  (B) maintains separate recordkeeping with 
                respect to each account.
  (c) Definitions and Rules Relating to Designated Plus 
Contributions.--For purposes of this section--
          (1) Designated plus contribution.--The term 
        ``designated plus contribution'' means any elective 
        deferral which--
                  (A) is excludable from gross income of an 
                employee without regard to this section, and
                  (B) the employee designates (at such time and 
                in such manner as the Secretary may prescribe) 
                as not being so excludable.
          (2) Designation limits.--The amount of elective 
        deferrals which an employee may designate under 
        paragraph (1) shall not exceed the excess (if any) of--
                  (A) the maximum amount of elective deferrals 
                excludable from gross income of the employee 
                for the taxable year (without regard to this 
                section), over
                  (B) the aggregate amount of elective 
                deferrals of the employee for the taxable year 
                which the employee does not designate under 
                paragraph (1).
          (3) Rollover contributions.--
                  (A) In general.--A rollover contribution of 
                any payment or distribution from a designated 
                plus account which is otherwise allowable under 
                this chapter may be made only if the 
                contribution is to--
                          (i) another designated plus account 
                        of the individual from whose account 
                        the payment or distribution was made, 
                        or
                          (ii) a Roth IRA of such individual.
                  (B) Coordination with limit.--Any rollover 
                contribution to a designated plus account under 
                subparagraph (A) shall not be taken into 
                account for purposes of paragraph (1).
  (d) Distribution Rules.--For purposes of this title--
          (1) Exclusion.--Any qualified distribution from a 
        designated plus account shall not be includible in 
        gross income.
          (2) Qualified distribution.--For purposes of this 
        subsection--
                  (A) In general.--The term ``qualified 
                distribution'' has the meaning given such term 
                by section 408A(d)(2)(A) (without regard to 
                clause (iv) thereof).
                  (B) Distributions within nonexclusion 
                period.--A payment or distribution from a 
                designated plus account shall not be treated as 
                a qualified distribution if such payment or 
                distribution is made within the 5-taxable-year 
                period beginning with the earlier of--
                          (i) the first taxable year for which 
                        the individual made a designated plus 
                        contribution to any designated plus 
                        account established for such individual 
                        under the same applicable retirement 
                        plan, or
                          (ii) if a rollover contribution was 
                        made to such designated plus account 
                        from a designated plus account 
                        previously established for such 
                        individual under another applicable 
                        retirement plan, the first taxable year 
                        for which the individual made a 
                        designated plus contribution to such 
                        previously established account.
                  (C) Distributions of excess deferrals and 
                earnings.--The term ``qualified distribution'' 
                shall not include any distribution of any 
                excess deferral under section 402(g)(2) and any 
                income on the excess deferral.
          (3) Aggregation rules.--Section 72 shall be applied 
        separately with respect to distributions and payments 
        from a designated plus account and other distributions 
        and payments from the plan.
  (e) Other Definitions.--For purposes of this section--
          (1) Applicable retirement plan.--The term 
        ``applicable retirement plan'' means--
                  (A) an employees' trust described in section 
                401(a) which is exempt from tax under section 
                501(a), and
                  (B) a plan under which amounts are 
                contributed by an individual's employer for an 
                annuity contract described in section 403(b).
          (2) Elective deferral.--The term ``elective 
        deferral'' means any elective deferral described in 
        subparagraph (A) or (C) of section 402(g)(3).

SEC. 403. TAXATION OF EMPLOYEE ANNUITIES.

  (a) * * *

           *       *       *       *       *       *       *

  (b) Taxability of Beneficiary Under Annuity Purchased by 
Section 501(c)(3) Organization or Public School.--
          (1) General rule.--If--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (E) in the case of a contract purchased under 
                a salary reduction agreement, the contract 
                meets the requirements of section 401(a)(30), 
                then amounts contributed by such employer for 
                such annuity contract on or after such rights 
                become nonforfeitable shall be excluded from 
                the gross income of the employee for the 
                taxable year to the extent that the aggregate 
                of such amounts does not exceed [the exclusion 
                allowance for such taxable year] the applicable 
                limit under section 415. The amount actually 
                distributed to any distributee under such 
                contract shall be taxable to the distributee 
                (in the year in which so distributed) under 
                section 72 (relating to annuities). For 
                purposes of applying the rules of this 
                subsection to amounts contributed by an 
                employer for a taxable year, amounts 
                transferred to a contract described in this 
                paragraph by reason of a rollover contribution 
                described in paragraph (8) of this subsection 
                or [section 408(d)(3)(A)(iii)] section 
                408(d)(3)(A)(ii) shall not be considered 
                contributed by such employer.
          [(2) Exclusion allowance.--
                  [(A) In general.--For purposes of this 
                subsection, the exclusion allowance for any 
                employee for the taxable year is an amount 
                equal to the excess, if any, of--
                          [(i) the amount determined by 
                        multiplying 20 percent of his 
                        includible compensation by the number 
                        of years of service, over
                          [(ii) the aggregate of the amounts 
                        contributed by the employer for annuity 
                        contracts and excludable from the gross 
                        income of the employee for any prior 
                        taxable year.
                  [(B) Election to have allowance determined 
                under section 415 rules.--In the case of an 
                employee who makes an election under section 
                415(c)(4)(D) to have the provisions of section 
                415(c)(4)(C) (relating to special rule for 
                section 403(b) contracts purchased by 
                educational institutions, hospitals, home 
                health service agencies, and certain churches, 
                etc.) apply, the exclusion allowance for any 
                such employee for the taxable year is the 
                amount which could be contributed (under 
                section 415 without regard to section 
                415(c)(8)) by his employer under a plan 
                described in section 403(a) if the annuity 
                contract for the benefit of such employee were 
                treated as a defined contribution plan 
                maintained by the employer.
                  [(C) Number of years of service for duly 
                ordained, commissioned, or licensed ministers 
                or lay employees.--For purposes of this 
                subsection and section 415(c)(4)(A)--
                          [(i) all years of service by--
                                  [(I) a duly ordained, 
                                commissioned, or licensed 
                                minister of a church, or
                                  [(II) a lay person,
                        as an employee of a church, a 
                        convention or association of churches, 
                        including an organization described in 
                        section 414(e)(3)(B)(ii), shall be 
                        considered as years of service for 1 
                        employer, and
                          [(ii) all amounts contributed for 
                        annuity contracts by each such church 
                        (or convention or association of 
                        churches) or such organization during 
                        such years for such minister or lay 
                        person shall be considered to have been 
                        contributed by 1 employer.
                For purposes of the preceding sentence, the 
                terms ``church'' and ``convention or 
                association of churches'' have the same meaning 
                as when used in section 414(e).
                  [(D) Alternative exclusion allowance.--
                          [(i) In general.--In the case of any 
                        individual described in subparagraph 
                        (C), the amount determined under 
                        subparagraph (A) shall not be less than 
                        the lesser of--
                                  [(I) $3,000, or
                                  [(II) the includible 
                                compensation of such 
                                individual.
                          [(ii) Subparagraph not to apply to 
                        individuals with adjusted gross income 
                        over $17,000.--This subparagraph shall 
                        not apply with respect to any taxable 
                        year to any individual whose adjusted 
                        gross income for such taxable year 
                        (determined separately and without 
                        regard to any community property laws) 
                        exceeds $17,000.
                          [(iii) Special rule for foreign 
                        missionaries.--In the case of an 
                        individual described in subparagraph 
                        (C)(i) performing services outside the 
                        United States, there shall be included 
                        as includible compensation for any year 
                        under clause (i)(II) any amount 
                        contributed during such year by a 
                        church (or convention or association of 
                        churches) for an annuity contract with 
                        respect to such individual.]
          (3) Includible compensation.--For purposes of this 
        subsection, the term ``includible compensation'' means, 
        in the case of any employee, the amount of compensation 
        which is received from the employer described in 
        paragraph (1)(A), and which is includible in gross 
        income (computed without regard to section 911) for the 
        most recent period (ending not later than the close of 
        the taxable year) which under paragraph (4) may be 
        counted as one year of service. Such term does not 
        include any amount contributed by the employer for any 
        annuity contract to which this subsection applies. Such 
        term includes--
                  (A) any elective deferral (as defined in 
                section 402(g)(3), and
                  (B) any amount which is contributed or 
                deferred by the employer at the election of the 
                employee and which is not includible in the 
                gross income of the employee by reason of 
                section 125 or 457 or any amount received by a 
                former employee after the fifth taxable year 
                following the taxable year in which such 
                employee was terminated.

           *       *       *       *       *       *       *

          (7) Custodial accounts for regulated investment 
        company stock.--
                  (A) Amounts paid treated as contributions.--
                For purposes of this title, amounts paid by an 
                employer described in paragraph (1)(A) to a 
                custodial account which satisfies the 
                requirements of section 401(f)(2) shall be 
                treated as amounts contributed by him for an 
                annuity contract for his employee if--
                          (i) the amounts are to be invested in 
                        regulated investment company stock to 
                        be held in that custodial account, and
                          (ii) under the custodial account no 
                        such amounts may be paid or made 
                        available to any distributee before the 
                        employee dies, attains age 59\1/2\, 
                        [separates from service] has a 
                        severance from employment, becomes 
                        disabled (within the meaning of section 
                        72(m)(7)), or in the case of 
                        contributions made pursuant to a salary 
                        reduction agreement (within the meaning 
                        of section 3121(a)(1)(D), encounters 
                        financial hardship.

           *       *       *       *       *       *       *

          (8) Rollover amounts.--
                  (A) General rule.--If--
                          (i) any portion of the balance to the 
                        credit of an employee in an annuity 
                        contract described in paragraph (1) is 
                        paid to him in an eligible rollover 
                        distribution (within the meaning of 
                        section 402(c)(4),
                          (ii) the employee transfers any 
                        portion of the property he receives in 
                        [such distribution to an individual 
                        retirement plan or to an annuity 
                        contract described in paragraph (1), 
                        and] such distribution to an eligible 
                        retirement plan described in section 
                        402(c)(8)(B), and
                          (iii) in the case of a distribution 
                        of property other than money, the 
                        property so transferred consists of the 
                        property distributed,
                then such distribution (to the extent so 
                transferred) shall not be includible in gross 
                income for the taxable year in which paid.
                  [(B) Certain rules made applicable.--Rules 
                similar to the rules of paragraphs (2) through 
                (7) of section 402(c) (including paragraph 
                (4)(C) thereof) shall apply for purposes of 
                subparagraph (A).]
                  (B) Certain rules made applicable.--The rules 
                of paragraphs (2) through (7) and (9) of 
                section 402(c) and section 402(f) shall apply 
                for purposes of subparagraph (A), except that 
                section 402(f) shall be applied to the payor in 
                lieu of the plan administrator.

           *       *       *       *       *       *       *

          (11) Requirement that distributions not begin before 
        age 59\1/2\, [separation from service] severance from 
        employment, death, or disability.--This subsection 
        shall not apply to any annuity contract unless under 
        such contract distributions attributable to 
        contributions made pursuant to a salary reduction 
        agreement (within the meaning of section 402(g)(3)(C)) 
        may be paid only--
                  (A) when the employee attains age 59\1/2\, 
                [separates from service] has a severance from 
                employment, dies, or becomes disabled (within 
                the meaning of section 72(m)(7)), or
                  (B) in the case of hardship.
        Such contract may not provide for the distribution of 
        any income attributable to such contributions in the 
        case of hardship.

           *       *       *       *       *       *       *

          (13) Trustee-to-trustee transfers to purchase 
        permissive service credit.--No amount shall be 
        includible in gross income by reason of a direct 
        trustee-to-trustee transfer to a defined benefit 
        governmental plan (as defined in section 414(d)) if 
        such transfer is--
                  (A) for the purchase of permissive service 
                credit (as defined in section 415(n)(3)(A)) 
                under such plan, or
                  (B) a repayment to which section 415 does not 
                apply by reason of subsection (k)(3) thereof.

           *       *       *       *       *       *       *


SEC. 404. DEDUCTION FOR CONTRIBUTIONS OF AN EMPLOYER TO AN EMPLOYEES' 
                    TRUST OR ANNUITY PLAN AND COMPENSATION UNDER A 
                    DEFERRED-PAYMENT PLAN.

  (a) General Rule.--If contributions are paid by an employer 
to or under a stock bonus, pension, profit-sharing, or annuity 
plan, or if compensation is paid or accrued on account of any 
employee under a plan deferring the receipt of such 
compensation, such contributions or compensation shall not be 
deductible under this chapter; but, if they would otherwise be 
deductible, they shall be deductible under this section, 
subject, however, to the following limitations as to the 
amounts deductible in any year:
          (1) Pension trusts.--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(D) Special rule in case of certain plans.--
                In the case of any defined benefit plan (other 
                than a multiemployer plan) which has more than 
                100 participants for the plan year, except as 
                provided in regulations, the maximum amount 
                deductible under the limitations of this 
                paragraph shall not be less than the unfunded 
                current liability determined under section 
                412(l). For purposes of determining whether a 
                plan has more than 100 participants, all 
                defined benefit plans maintained by the same 
                employer (or any member of such employer's 
                controlled group (within the meaning of section 
                412(l)(8)(C))) shall be treated as 1 plan, but 
                only employees of such member or employer shall 
                be taken into account.]
                  (D) Special rule in case of certain plans.--
                          (i) In general.--In the case of any 
                        defined benefit plan, except as 
                        provided in regulations, the maximum 
                        amount deductible under the limitations 
                        of this paragraph shall not be less 
                        than the unfunded termination liability 
                        (determined as if the proposed 
                        termination date referred to in section 
                        4041(b)(2)(A)(i)(II) of the Employee 
                        Retirement Income Security Act of 1974 
                        were the last day of the plan year).
                          (ii) Plans with less than 100 
                        participants.--For purposes of this 
                        subparagraph, in the case of a plan 
                        which has less than 100 participants 
                        for the plan year, termination 
                        liability shall not include the 
                        liability attributable to benefit 
                        increases for highly compensated 
                        employees (as defined in section 
                        414(q)) resulting from a plan amendment 
                        which is made or becomes effective, 
                        whichever is later, within the last 2 
                        years before the termination date.
                          (iii) Rule for determining number of 
                        participants.--For purposes of 
                        determining whether a plan has more 
                        than 100 participants, all defined 
                        benefit plans maintained by the same 
                        employer (or any member of such 
                        employer's controlled group (within the 
                        meaning of section 412(l)(8)(C))) shall 
                        be treated as one plan, but only 
                        employees of such member or employer 
                        shall be taken into account.
                          (iv) Plans established and maintain 
                        by professional service employers.--
                        Clause (i) shall not apply to a plan 
                        described in section 4021(b)(13) of the 
                        Employee Retirement Income Security Act 
                        of 1974.

           *       *       *       *       *       *       *

          (3) Stock bonus and profit-sharing trusts.--
                  (A) Limits on deductible contributions.--
                          (i) In general.--In the taxable year 
                        when paid, if the contributions are 
                        paid into a stock bonus or profit-
                        sharing trust, and if such taxable year 
                        ends within or with a taxable year of 
                        the trust with respect to which the 
                        trust is exempt under section 501(a), 
                        in an amount not in excess of the 
                        greater of--
                                  (I) [15] 20 percent of the 
                                compensation otherwise paid or 
                                accrued during the taxable year 
                                to the beneficiaries under the 
                                stock bonus or profit-sharing 
                                plan, or

           *       *       *       *       *       *       *

                  (B) Profit-sharing plan of affiliated 
                group.--In the case of a profit-sharing plan, 
                or a stock bonus plan in which contributions 
                are determined with reference to profits, of a 
                group of corporations which is an affiliated 
                group within the meaning of section 1504, if 
                any member of such affiliated group is 
                prevented from making a contribution which it 
                would otherwise have made under the plan, by 
                reason of having no current or accumulated 
                earnings or profits or because such earnings or 
                profits are less than the contributions which 
                it would otherwise have made, then so much of 
                the contribution which such member was so 
                prevented from making may be made, for the 
                benefit of the employees of such member, by the 
                other members of the group, to the extent of 
                current or accumulated earnings or profits, 
                except that such contribution by each such 
                other member shall be limited, where the group 
                does not file a consolidated return, to that 
                proportion of its total current and accumulated 
                earnings or profits remaining after adjustment 
                for its contribution deductible without regard 
                to this subparagraph which the total prevented 
                contribution bears to the total current and 
                accumulated earnings or profits of all the 
                members of the group remaining after adjustment 
                for all contributions deductible without regard 
                to this subparagraph. Contributions made under 
                the preceding sentence shall be deductible 
                under subparagraph (A) of this paragraph by the 
                employer making such contribution, and, for the 
                purpose of determining amounts which may be 
                carried forward and deducted under the second 
                sentence of subparagraph (A) of this paragraph 
                in succeeding taxable years, shall be deemed to 
                have been made by the employer on behalf of 
                whose employees such contributions were made. 
                [The term ``compensation otherwise paid or 
                accrued during the taxable year to all 
                employees'' shall include any amount with 
                respect to which an election under section 
                415(c)(3)(C) is in effect, but only to the 
                extent that any contribution with respect to 
                such amount is nonforfeitable.]

           *       *       *       *       *       *       *

          (10) Contributions by certain ministers to retirement 
        income accounts.--In the case of contributions made by 
        a minister described in section 414(e)(5) to a 
        retirement income account described in section 
        403(b)(9) and not by a person other than such minister, 
        such contributions--
                  (A) * * *
                  (B) shall be deductible under this subsection 
                to the extent such contributions do not exceed 
                the limit on elective deferrals under section 
                402(g)[, the exclusion allowance under section 
                403(b)(2),] or the limit on annual additions 
                under section 415.
        For purposes of this paragraph, all plans in which the 
        minister is a participant shall be treated as one plan.

           *       *       *       *       *       *       *

          (12) Definition of compensation.--For purposes of 
        paragraphs (3), (7), (8), and (9), the term 
        ``compensation otherwise paid or accrued during the 
        taxable year'' shall include amounts treated as 
        ``participant's compensation'' under subparagraph (C) 
        or (D) of section 415(c)(3).

           *       *       *       *       *       *       *

  (h) Special Rules for Simplified Employee Pensions.--
          (1) In general.--Employer contributions to a 
        simplified employee pension shall be treated as if they 
        are made to a plan subject to the requirements of this 
        section. Employer contributions to a simplified 
        employee pension are subject to the following 
        limitations:
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) The amount deductible in a taxable year 
                for a simplified employee pension shall not 
                exceed [15] 20 percent of the compensation paid 
                to the employees during the calendar year 
                ending with or within the taxable year (or 
                during the taxable year in the case of a 
                taxable year described in subparagraph 
                (A)(ii)). The excess of the amount contributed 
                over the amount deductible for a taxable year 
                shall be deductible in the succeeding taxable 
                years in order of time, subject to the [15] 20 
                percent limit of the preceding sentence.

           *       *       *       *       *       *       *

  (k) Deduction for Dividends Paid on Certain Employer 
Securities.--
          (1) * * *
          (2) Applicable dividend.--For purposes of this 
        subsection--
                  (A) In general.--The term ``applicable 
                dividend'' means any dividend which, in 
                accordance with the plan provisions--
                          (i) is paid in cash to the 
                        participants in the plan or their 
                        beneficiaries,
                          (ii) is paid to the plan and is 
                        distributed in cash to participants in 
                        the plan or their beneficiaries not 
                        later than 90 days after the close of 
                        the plan year in which paid, [or]
                          (iii) is, at the election of such 
                        participants or their beneficiaries--
                                  (I) payable as provided in 
                                clause (i) or (ii), or
                                  (II) paid to the plan and 
                                reinvested in qualifying 
                                employer securities, or
                          [(iii)] (iv) is used to make payments 
                        on a loan described in subsection 
                        (a)(9) the proceeds of which were used 
                        to acquire the employer securities 
                        (whether or not allocated to 
                        participants) with respect to which the 
                        dividend is paid.

           *       *       *       *       *       *       *

  (l) Limitation on Amount of Annual Compensation Taken Into 
Account.--For purposes of applying the limitations of this 
section, the amount of annual compensation of each employee 
taken into account under the plan for any year shall not exceed 
[$150,000] $200,000. The Secretary shall adjust the [$150,000] 
$200,000 amount at the same time, and by the same amount, as 
any adjustment under section 401(a)(17)(B). For purposes of 
clause (i), (ii), or   (iii) of subsection (a)(1)(A), and in 
computing the full funding limitation, any adjustment under the 
preceding sentence shall not be taken into account for any year 
before the year for which such adjustment first takes effect.

           *       *       *       *       *       *       *

  (n) Elective Deferrals Not Taken Into Account for Purposes of 
Deduction Limits.--Elective deferrals (as defined in section 
402(g)(3)) shall not be subject to any limitation contained in 
paragraph (3), (7), or (9) of subsection (a), and such elective 
deferrals shall not be taken into account in applying any such 
limitation to any other contributions.

           *       *       *       *       *       *       *


SEC. 408. INDIVIDUAL RETIREMENT ACCOUNTS.

  (a) Individual Retirement Account.--For purposes of this 
section, the term ``individual retirement account'' means a 
trust created or organized in the United States for the 
exclusive benefit of an individual or his beneficiaries, but 
only if the written governing instrument creating the trust 
meets the following requirements:
          (1) Except in the case of a rollover contribution 
        described in subsection (d)(3) in section 402(c), 
        403(a)(4), [or 403(b)(8),] 403(b)(8), or 457(e)(16), no 
        contribution will be accepted unless it is in cash, and 
        contributions will not be accepted for the taxable year 
        [in excess of $2,000 on behalf of any individual] on 
        behalf of any individual in excess of the amount in 
        effect for such taxable year under section 
        219(b)(1)(A).

           *       *       *       *       *       *       *

  (b) Individual Retirement Annuity.--For purposes of this 
section, the term ``individual retirement annuity'' means an 
annuity contract, or an endowment contract (as determined under 
regulations prescribed by the Secretary), issued by an 
insurance company which meets the following requirements:
          (1) * * *
          (2) Under the contract.--
                  (A) the premiums are not fixed,
                  (B) the annual premium on behalf of any 
                individual will not exceed [$2,000] the dollar 
                amount in effect under section 219(b)(1)(A), 
                and

           *       *       *       *       *       *       *

          (4) The entire interest of the owner is 
        nonforfeitable.
Such term does not include such an annuity contract for any 
taxable year of the owner in which it is disqualified on the 
application of subsection (e) or for any subsequent taxable 
year. For purposes of this subsection, no contract shall be 
treated as an endowment contract if it matures later than the 
taxable year in which the individual in whose name such 
contract is purchased attains age 70\1/2\; if it is not for the 
exclusive benefit of the individual in whose name it is 
purchased or his beneficiaries; or if the aggregate annual 
premiums under all such contracts purchased in the name of such 
individual for any taxable year exceed [$2,000] the dollar 
amount in effect under section 219(b)(1)(A).

           *       *       *       *       *       *       *

  (d) Tax treatment of distributions
          (1) * * *

           *       *       *       *       *       *       *

          (3) Rollover contribution.--An amount is described in 
        this paragraph as a rollover contribution if it meets 
        the requirements of subparagraphs (A) and (B).
                  (A) In general.--Paragraph (1) does not apply 
                to any amount paid or distributed out of an 
                individual retirement account or individual 
                retirement annuity to the individual for whose 
                benefit the account or annuity is maintained 
                if--
                          (i) the entire amount received 
                        (including money and any other 
                        property) is paid into an individual 
                        retirement account or individual 
                        retirement annuity (other than an 
                        endowment contract) for the benefit of 
                        such individual not later than the 60th 
                        day after the day on which he receives 
                        the payment or distribution; or
                          [(ii) no amount in the account and no 
                        part of the value of the annuity is 
                        attributable to any source other than a 
                        rollover contribution (as defined in 
                        section 402 from an employee's trust 
                        described in section 401(a) which is 
                        exempt from tax under section 501(a) or 
                        from an annuity plan described in 
                        section 403(a) (and any earnings on 
                        such contribution), and the entire 
                        amount received (including property and 
                        other money) is paid (for the benefit 
                        of such individual) into another such 
                        trust or annuity plan not later than 
                        the 60th day on which the individual 
                        receives the payment or the 
                        distribution; or
                          [(iii)(I) the entire amount received 
                        (including money and other property) 
                        represents the entire interest in the 
                        account or the entire value of the 
                        annuity,
                                  [(II) no amount in the 
                                account and no part of the 
                                value of the annuity is 
                                attributable to any source 
                                other than a rollover 
                                contribution from an annuity 
                                contract described in section 
                                403(b) and any earnings on such 
                                rollover, and
                                  [(II) the entire amount 
                                thereof is paid into another 
                                annuity contract described in 
                                section 403(b) (for the benefit 
                                of such individual) not later 
                                than the 60th day after he 
                                receives the payment or 
                                distribution.
                                  [(III) the entire amount 
                                thereof is paid into another 
                                annuity contract described in 
                                section 403(b) (for the benefit 
                                of such individual) not later 
                                than the 60th day after he 
                                receives the payment or 
                                distribution.]
                          (ii) the entire amount received 
                        (including money and any other 
                        property) is paid into an eligible 
                        retirement plan for the benefit of such 
                        individual not later than the 60th day 
                        after the date on which the payment or 
                        distribution is received, except that 
                        the maximum amount which may be paid 
                        into such plan may not exceed the 
                        portion of the amount received which is 
                        includible in gross income (determined 
                        without regard to this paragraph).
                For purposes of clause (ii), the term 
                ``eligible retirement plan'' means an eligible 
                retirement plan described in clause (iii), 
                (iv), (v), or (vi) of section 402(c)(8)(B).

           *       *       *       *       *       *       *

                  (D) Partial rollovers permitted.--
                          (i)  general.--If any amount paid or 
                        distributed out of an individual 
                        retirement account or individual 
                        retirement annuity would meet the 
                        requirements of subparagraph (A) but 
                        for the fact that the entire amount was 
                        not paid into an eligible plan as 
                        required by clause [(i), (ii), or 
                        (iii)] (i) or (ii) of subparagraph (A), 
                        such amount shall be treated as meeting 
                        the requirements of subparagraph (A) to 
                        the extent it is paid into an eligible 
                        plan referred to in such clause not 
                        later than the 60th day referred to in 
                        such clause.

           *       *       *       *       *       *       *

                  [(G) Simple retirements accounts.--This 
                paragraph shall not apply to any amount paid or 
                distributed out of a simple retirement account 
                (as defined in subsection (p)) unless--
                          [(i) it is paid into another simple 
                        retirement account, or
                          [(ii) in the case of any payment or 
                        distribution to which section 72(t)(6) 
                        does not apply, it is paid into an 
                        individual retirement plan.]
                  (G) Simple retirement accounts.--In the case 
                of any payment or distribution out of a simple 
                retirement account (as defined in subsection 
                (p)) to which section 72(t)(6) applies, this 
                paragraph shall not apply unless such payment 
                or distribution is paid into another simple 
                retirement account.
                  (H) Application of section 72.--
                          (i) In general.--If--
                                  (I) a distribution is made 
                                from an individual retirement 
                                plan, and
                                  (II) a rollover contribution 
                                is made to an eligible 
                                retirement plan described in 
                                section 402(c)(8)(B)(iii), 
                                (iv), (v), or (vi) with respect 
                                to all or part of such 
                                distribution,
                        then, notwithstanding paragraph (2), 
                        the rules of clause (ii) shall apply 
                        for purposes of applying section 72.
                          (ii) Applicable rules.--In the case 
                        of a distribution described in clause 
                        (i)--
                                  (I) section 72 shall be 
                                applied separately to such 
                                distribution,
                                  (II) notwithstanding the pro 
                                rata allocation of income on, 
                                and investment in, the contract 
                                to distributions under section 
                                72, the portion of such 
                                distribution rolled over to an 
                                eligible retirement plan 
                                described in clause (i) shall 
                                be treated as from income on 
                                the contract (to the extent of 
                                the aggregate income on the 
                                contract from all individual 
                                retirement plans of the 
                                distributee), and
                                  (III) appropriate adjustments 
                                shall be made in applying 
                                section 72 to other 
                                distributions in such taxable 
                                year and subsequent taxable 
                                years.
                  (I) Waiver of 60-day requirement.--The 
                Secretary may waive the 60-day requirement 
                under subparagraphs (A) and (D) where the 
                failure to waive such requirement would be 
                against equity or good conscience, including 
                casualty, disaster, or other events beyond the 
                reasonable control of the individual subject to 
                such requirement.

           *       *       *       *       *       *       *

  (j) Increase in Maximum Limitations for Simplified Employee 
Pensions.--In the case of any simplified employee pension, 
subsections (a)(1) and (b)(2) of this section shall be applied 
by increasing the [$2,000] amounts contained therein by the 
amount of the limitation in effect under section 415(c)(1)(A).
  (k) Simplified Employee Pension Defined.--
          (1)  * * *

           *       *       *       *       *       *       *

          (3) Contributions may not discriminate in favor of 
        the highly compensated, etc.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Contributions must bear uniform 
                relationship to total compensation.--For 
                purposes of subparagraph (A), and except as 
                provided in subparagraph (D), employer 
                contributions to simplified employee pensions 
                (other than contributions under an arrangement 
                described in paragraph (6)) shall be considered 
                discriminatory unless contributions thereto 
                bear a uniform relationship to the compensation 
                (not in excess of the first [$150,000] 
                $200,000) of each employee maintaining a 
                simplified employee pension.

           *       *       *       *       *       *       *

          (6) Employee may elect salary reduction 
        arrangement.--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (D) Deferral percentage.--For purposes of 
                this paragraph, the deferral percentage for an 
                employee for a year shall be the ratio of--
                          (i) the amount of elective employer 
                        contributions actually paid over to the 
                        simplified employee pension on behalf 
                        of the employee for the year, to
                          (ii) the employee's compensation (not 
                        in excess of the first [$150,000] 
                        $200,000) for the year.

           *       *       *       *       *       *       *

          (8) Cost-of-living adjustment.--The Secretary shall 
        adjust the $300 amount in paragraph (2)(C) at the same 
        time and in the same manner as under section 415(d) and 
        shall adjust the [$150,000] $200,000 amount in 
        paragraphs (3)(C) and (6)(D)(ii) at the same time, and 
        by the same amount, as any adjustment under section 
        401(a)(17)(B); except that any increase in the $300 
        amount which is not a multiple of $50 shall be rounded 
        to the next lowest multiple of $50.

           *       *       *       *       *       *       *

  (p) Simple retirement accounts.--
          (1) * * *
          (2) Qualified salary reduction arrangement.--
                  (A) In general.--For purposes of this 
                subsection, the term ``qualified salary 
                reduction arrangement'' means a written 
                arrangement of an eligible employer under 
                which--
                          (i) * * *
                          (ii) the amount which an employee may 
                        elect under clause (i) for any year is 
                        required to be expressed as a 
                        percentage of compensation and may not 
                        exceed a total of [$6,000] the 
                        applicable dollar amount for any year,

           *       *       *       *       *       *       *

                  [(E) Cost-of-living adjustment.--The 
                Secretary shall adjust the $6,000 amount under 
                subparagraph (A)(ii) at the same time and in 
                the same manner as under section 415(d), except 
                that the base period taken into account shall 
                be the calendar quarter ending September 30, 
                1996, and any increase under this subparagraph 
                which is not a multiple of $500 shall be 
                rounded to the next lower multiple of $500.]
                  (E) Applicable dollar amount; cost-of-living 
                adjustment.--
                          (i) In general.--For purposes of 
                        subparagraph (A)(ii), the applicable 
                        dollar amount shall be the amount 
                        determined in accordance with the 
                        following table:

        For taxable years                                 The applicable
          beginning in                                    dollar amount:
          calendar year:
              2001............................................   $7,000 
              2002............................................   $8,000 
              2003............................................   $9,000 
              2004 or thereafter..............................  $10,000.

                          (ii) Cost-of-living adjustment.--In 
                        the case of a year beginning after 
                        December 31, 2004, the Secretary shall 
                        adjust the $10,000 amount under clause 
                        (i) at the same time and in the same 
                        manner as under section 415(d), except 
                        that the base period taken into account 
                        shall be the calendar quarter beginning 
                        July 1, 2003, and any increase under 
                        this subparagraph which is not a 
                        multiple of $500 shall be rounded to 
                        the next lower multiple of $500.

           *       *       *       *       *       *       *

          (8) Coordination with maximum limitation under 
        subsection (a).--In the case of any simple retirement 
        account, subsections (a)(1) and (b)(2) shall be applied 
        by substituting ``the sum of the dollar amount in 
        effect under paragraph (2)(A)(ii) of this subsection 
        and the employer contribution required under 
        subparagraph (A)(ii) or (B)(i) of paragraph (2) of this 
        subsection, whichever is applicable'' for ``[$2,000] 
        the dollar amount in effect under section 
        219(b)(1)(A)''.

           *       *       *       *       *       *       *


SEC. 408A. ROTH IRA'S.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Qualified Rollover Contribution.--For purposes of this 
section, the term ``qualified rollover contribution'' means a 
rollover contribution to a Roth IRA from another such account, 
or from an individual retirement plan, but only if such 
rollover contribution meets the requirements of section 
408(d)(3). Such term includes a rollover contribution described 
in section 402A(c)(3)(A). For purposes of section 408(d)(3)(B), 
there shall be disregarded any qualified rollover contribution 
from an individual retirement plan (other than a Roth IRA) to a 
Roth IRA.

           *       *       *       *       *       *       *


SEC. 409. QUALIFICATIONS FOR TAX CREDIT EMPLOYEE STOCK OWNERSHIP PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (p) Prohibited Allocations of Securities in an S 
Corporation.--
          (1) In general.--An employee stock ownership plan 
        holding employer securities consisting of stock in an S 
        corporation shall provide that no portion of the assets 
        of the plan attributable to (or allocable in lieu of) 
        such employer securities may, during a nonallocation 
        year, accrue (or be allocated directly or indirectly 
        under any plan of the employer meeting the requirements 
        of section 401(a)) for the benefit of any disqualified 
        person.
          (2) Failure to meet requirements.--
                  (A) In general.--If a plan fails to meet the 
                requirements of paragraph (1), the plan shall 
                be treated as having distributed to any 
                disqualified person the amount allocated to the 
                account of such person in violation of 
                paragraph (1) at the time of such allocation.
                  (B) Cross reference.--

          For excise tax relating to violations of paragraph (1) and 
        ownership of synthetic equity, see section 4979A.

          (3) Nonallocation year.--For purposes of this 
        subsection--
                  (A) In general.--The term ``nonallocation 
                year'' means any plan year of an employee stock 
                ownership plan if, at any time during such plan 
                year--
                          (i) such plan holds employer 
                        securities consisting of stock in an S 
                        corporation, and
                          (ii) disqualified persons own at 
                        least 50 percent of the number of 
                        shares of stock in the S corporation.
                  (B) Attribution rules.--For purposes of 
                subparagraph (A)--
                          (i) In general.--The rules of section 
                        318(a) shall apply for purposes of 
                        determining ownership, except that--
                                  (I) in applying paragraph (1) 
                                thereof, the members of an 
                                individual's family shall 
                                include members of the family 
                                described in paragraph (4)(D), 
                                and
                                  (II) paragraph (4) thereof 
                                shall not apply.
                          (ii) Deemed-owned shares.--
                        Notwithstanding the employee trust 
                        exception in section 318(a)(2)(B)(i), 
                        individual shall be treated as owning 
                        deemed-owned shares of the individual.
                Solely for purposes of applying paragraph (5), 
                this subparagraph shall be applied after the 
                attribution rules of paragraph (5) have been 
                applied.
          (4) Disqualified person.--For purposes of this 
        subsection--
                  (A) In general.--The term ``disqualified 
                person'' means any person if--
                          (i) the aggregate number of deemed-
                        owned shares of such person and the 
                        members of such person's family is at 
                        least 20 percent of the number of 
                        deemed-owned shares of stock in the S 
                        corporation, or
                          (ii) in the case of a person not 
                        described in clause (i), the number of 
                        deemed-owned shares of such person is 
                        at least 10 percent of the number of 
                        deemed-owned shares of stock in such 
                        corporation.
                  (B) Treatment of family members.--In the case 
                of a disqualified person described in 
                subparagraph (A)(i), any member of such 
                person's family with deemed-owned shares shall 
                be treated as a disqualified person if not 
                otherwise treated as a disqualified person 
                under subparagraph (A).
                  (C) Deemed-owned shares.--
                          (i) In general.--The term ``deemed-
                        owned shares'' means, with respect to 
                        any person--
                                  (I) the stock in the S 
                                corporation constituting 
                                employer securities of an 
                                employee stock ownership plan 
                                which is allocated to such 
                                person under the plan, and
                                  (II) such person's share of 
                                the stock in such corporation 
                                which is held by such plan but 
                                which is not allocated under 
                                the plan to participants.
                          (ii) Person's share of unallocated 
                        stock.--For purposes of clause (i)(II), 
                        a person's share of unallocated S 
                        corporation stock held by such plan is 
                        the amount of the unallocated stock 
                        which would be allocated to such person 
                        if the unallocated stock were allocated 
                        to all participants in the same 
                        proportions as the most recent stock 
                        allocation under the plan.
                  (D) Member of family.--For purposes of this 
                paragraph, the term ``member of the family'' 
                means, with respect to any individual--
                          (i) the spouse of the individual,
                          (ii) an ancestor or lineal descendant 
                        of the individual or the individual's 
                        spouse,
                          (iii) a brother or sister of the 
                        individual or the individual's spouse 
                        and any lineal descendant of the 
                        brother or sister, and
                          (iv) the spouse of any individual 
                        described in clause (ii) or (iii).
                A spouse of an individual who is legally 
                separated from such individual under a decree 
                of divorce or separate maintenance shall not be 
                treated as such individual's spouse for 
                purposes of this subparagraph.
          (5) Treatment of synthetic equity.--For purposes of 
        paragraphs (3) and (4), in the case of a person who 
        owns synthetic equity in the S corporation, except to 
        the extent provided in regulations, the shares of stock 
        in such corporation on which such synthetic equity is 
        based shall be treated as outstanding stock in such 
        corporation and deemed-owned shares of such person if 
        such treatment of synthetic equity of 1 or more such 
        persons results in--
                  (A) the treatment of any person as a 
                disqualified person, or
                  (B) the treatment of any year as a 
                nonallocation year.
        For purposes of this paragraph, synthetic equity shall 
        be treated as owned by a person in the same manner as 
        stock is treated as owned by a person under the rules 
        of paragraphs (2) and (3) of section 318(a). If, 
        without regard to this paragraph, a person is treated 
        as a disqualified person or a year is treated as a 
        nonallocation year, this paragraph shall not be 
        construed to result in the person or year not being so 
        treated.
          (6) Definitions.--For purposes of this subsection--
                  (A) Employee stock ownership plan.--The term 
                ``employee stock ownership plan'' has the 
                meaning given such term by section 4975(e)(7).
                  (B) Employer securities.--The term ``employer 
                security'' has the meaning given such term by 
                section 409(l).
                  (C) Synthetic equity.--The term ``synthetic 
                equity'' means any stock option, warrant, 
                restricted stock, deferred issuance stock 
                right, or similar interest or right that gives 
                the holder the right to acquire or receive 
                stock of the S corporation in the future. 
                Except to the extent provided in regulations, 
                synthetic equity also includes a stock 
                appreciation right, phantom stock unit, or 
                similar right to a future cash payment based on 
                the value of such stock or appreciation in such 
                value.
          (7) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the 
        purposes of this subsection.
  [(p)] (q) Cross References.--

          (1) For requirements for allowance of employee plan credit, 
        see section 48(n).
          (2) For assessable penalties for failure to meet requirements 
        of this section, or for failure to make contributions required 
        with respect to the allowance of an employee plan credit or 
        employee stock ownership credit, see section 6699.
          (3) For requirements for allowance of an employee stock 
        ownership credit, see section 41.

Subpart B--Special Rules

           *       *       *       *       *       *       *


SEC. 410. MINIMUM PARTICIPATION STANDARDS.

  (a) * * *
  (b) Minimum Coverage Requirements.--
          (1) In general.--A trust shall not constitute a 
        qualified trust under section 401(a) unless such trust 
        is designated by the employer as part of a plan which 
        meets 1 of the following requirements:
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) In the case that the plan fails to meet 
                the requirements of subparagraphs (A), (B) and 
                (C), the plan--
                          (i) satisfies subparagraph (B), as in 
                        effect immediately before the enactment 
                        of the Tax Reform Act of 1986,
                          (ii) is submitted to the Secretary 
                        for a determination of whether it 
                        satisfies the requirement described in 
                        clause (i), and
                          (iii) satisfies conditions prescribed 
                        by the Secretary by regulation that 
                        appropriately limit the availability of 
                        this subparagraph.
                Clause (ii) shall apply only to the extent 
                provided by the Secretary.

           *       *       *       *       *       *       *


SEC. 411. MINIMUM VESTING STANDARDS.

  (a) General Rule.--A trust shall not constitute a qualified 
trust under section 401(a) unless the plan of which such trust 
is a part provides that an employee's right to his normal 
retirement benefit is nonforfeitable upon the attainment of 
normal retirement age (as defined in paragraph (8)) and in 
addition satisfies the requirements of paragraphs (1), (2), and 
(11) of this subsection and the requirements of subsection 
(b)(3), and also satisfies, in the case of a defined benefit 
plan, the requirements of subsection (b)(1) and, in the case of 
a defined contribution plan, the requirements of subsection 
(b)(2).
          (1) * * *
          (2) Employer contributions.--[A plan] Except as 
        provided in paragraph (12), a plan satisfies the 
        requirements of this paragraph if it satisfies the 
        requirements of subparagraph (A) or (B).

           *       *       *       *       *       *       *

          (11) Restrictions on certain mandatory 
        distributions.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Special rule for rollover 
                contributions.--A plan shall not fail to meet 
                the requirements of this paragraph if, under 
                the terms of the plan, the present value of the 
                nonforfeitable accrued benefit is determined 
                without regard to that portion of such benefit 
                which is attributable to rollover contributions 
                (and earnings allocable thereto). For purposes 
                of this subparagraph, the term ``rollover 
                contributions'' means any rollover contribution 
                under sections 402(c), 403(a)(4), 403(b)(8), 
                408(d)(3)(A)(ii), and 457(e)(16).

           *       *       *       *       *       *       *

          (12) Faster vesting for matching contributions.--In 
        the case of matching contributions (as defined in 
        section 401(m)(4)(A)), paragraph (2) shall be applied--
                  (A) by substituting ``3 years'' for ``5 
                years'' in subparagraph (A), and
                  (B) by substituting the following table for 
                the table contained in subparagraph (B):

                                                      The nonforfeitable
        Years of service:                               percentage is:  
          2...................................................      20  
          3...................................................      40  
          4...................................................      60  
          5...................................................      80  
100.    6...................................................

           *       *       *       *       *       *       *

  (d) Special Rules.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Accrued benefit not to be decreased by 
        amendment.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (B) Treatment of certain plan amendments.--
                For purposes of subparagraph (A), a plan 
                amendment which has the effect of--
                          (i) eliminating or reducing an early 
                        retirement benefit or a retirement-type 
                        subsidy (as defined in regulations), or
                          (ii) eliminating an optional form of 
                        benefit,
                with respect to benefits attributable to 
                service before the amendment shall be treated 
                as reducing accrued benefits. In the case of a 
                retirement-type subsidy, the preceding sentence 
                shall apply only with respect to a participant 
                who satisfies (either before or after the 
                amendment) the preamendment conditions for the 
                subsidy. [The Secretary may by regulations 
                provide that this subparagraph shall not apply 
                to a plan amendment described in clause (ii) 
                (other than a plan amendment having an effect 
                described in clause (i)).] The Secretary shall 
                by regulations provide that this subparagraph 
                shall not apply to any plan amendment that does 
                not adversely affect the rights of participants 
                in a material manner.

           *       *       *       *       *       *       *

                  (D) Plan transfers.--
                          (i) In general.--A defined 
                        contribution plan (in this subparagraph 
                        referred to as the ``transferee plan'') 
                        shall not be treated as failing to meet 
                        the requirements of this subsection 
                        merely because the transferee plan does 
                        not provide some or all of the forms of 
                        distribution previously available under 
                        another defined contribution plan (in 
                        this subparagraph referred to as the 
                        ``transferor plan'') to the extent 
                        that--
                                  (I) the forms of distribution 
                                previously available under the 
                                transferor plan applied to the 
                                account of a participant or 
                                beneficiary under the 
                                transferor plan that was 
                                transferred from the transferor 
                                plan to the transferee plan 
                                pursuant to a direct transfer 
                                rather than pursuant to a 
                                distribution from the 
                                transferor plan,
                                  (II) the terms of both the 
                                transferor plan and the 
                                transferee plan authorize the 
                                transfer described in subclause 
                                (I),
                                  (III) the transfer described 
                                in subclause (I) was made 
                                pursuant to a voluntary 
                                election by the participant or 
                                beneficiary whose account was 
                                transferred to the transferee 
                                plan,
                                  (IV) the election described 
                                in subclause (III) was made 
                                after the participant or 
                                beneficiary received a notice 
                                describing the consequences of 
                                making the election,
                                  (V) if the transferor plan 
                                provides for an annuity as the 
                                normal form of distribution 
                                under the plan in accordance 
                                with section 417, the transfer 
                                is made with the consent of the 
                                participant's spouse (if any), 
                                and such consent meets 
                                requirements similar to the 
                                requirements imposed by section 
                                417(a)(2), and
                                  (VI) the transferee plan 
                                allows the participant or 
                                beneficiary described in 
                                subclause (III) to receive any 
                                distribution to which the 
                                participant or beneficiary is 
                                entitled under the transferee 
                                plan in the form of a single 
                                sum distribution.
                          (ii) Exception.--Clause (i) shall 
                        apply to plan mergers and other 
                        transactions having the effect of a 
                        direct transfer, including 
                        consolidations of benefits attributable 
                        to different employers within a 
                        multiple employer plan.
                  (E) Elimination of form of distribution.--
                Except to the extent provided in regulations, a 
                defined contribution plan shall not be treated 
                as failing to meet the requirements of this 
                section merely because of the elimination of a 
                form of distribution previously available 
                thereunder. This subparagraph shall not apply 
                to the elimination of a form of distribution 
                with respect to any participant unless--
                          (i) a single sum payment is available 
                        to such participant at the same time or 
                        times as the form of distribution being 
                        eliminated, and
                          (ii) such single sum payment is based 
                        on the same or greater portion of the 
                        participant's account as the form of 
                        distribution being eliminated.

SEC. 412. MINIMUM FUNDING STANDARDS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Special Rules.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Full-funding limitation.--
                  (A) In general.--For purposes of paragraph 
                (6), the term ``full-funding limitation'' means 
                the excess (if any) of--
                          (i) the lesser of
                                  (I) [the applicable 
                                percentage] in the case of plan 
                                years beginning before January 
                                1, 2004, the applicable 
                                percentage of current liability 
                                (including the expected 
                                increase in current liability 
                                due to benefits accruing during 
                                the plan year), or

           *       *       *       *       *       *       *

                  [(F) Applicable percentage.--For purposes of 
                subparagraph (A)(i)(I), the applicable 
                percentage shall be determined in accordance 
                with the following table:

        [In the case of any plan year                     The applicable
          beginning in--                                 percentage is--
          1999 or 2000........................................      155 
          2001 or 2002........................................      160 
          2003 or 2004........................................      165 
          2005 and succeeding years...........................     170.]

                4  (F) Applicable percentage.--For purposes of 
                subparagraph (A)(i)(I), the applicable 
                percentage shall be determined in accordance 
                with the following table:

        In the case of any plan year                      The applicable
          beginning in--                                 percentage is--
          2001................................................      160 
          2002................................................      165 
170.    2003................................................

           *       *       *       *       *       *       *

          [(9) Annual valuation.--For purposes of this section, 
        a determination of experience gains and losses and a 
        valuation of the plan's liability shall be made not 
        less frequently than once every year, except that such 
        determination shall be made more frequently to the 
        extent required in particular cases under regulations 
        prescribed by the Secretary.]
          (9) Annual valuation.--
                  (A) In general.--For purposes of this 
                section, a determination of experience gains 
                and losses and a valuation of the plan's 
                liability shall be made not less frequently 
                than once every year, except that such 
                determination shall be made more frequently to 
                the extent required in particular cases under 
                regulations prescribed by the Secretary.
                  (B) Valuation date.--
                          (i) Current year.--Except as provided 
                        in clause (ii), the valuation referred 
                        to in subparagraph (A) shall be made as 
                        of a date within the plan year to which 
                        the valuation refers or within one 
                        month prior to the beginning of such 
                        year.
                          (ii) Election to use prior year 
                        valuation.--The valuation referred to 
                        in subparagraph (A) may be made as of a 
                        date within the plan year prior to the 
                        year to which the valuation refers if--
                                  (I) an election is in effect 
                                under this clause with respect 
                                to the plan, and
                                  (II) as of such date, the 
                                value of the assets of the plan 
                                are not less than 125 percent 
                                of the plan's current liability 
                                (as defined in paragraph 
                                (7)(B)).
                          (iii) Adjustments.--Information under 
                        clause (ii) shall, in accordance with 
                        regulations, be actuarially adjusted to 
                        reflect significant differences in 
                        participants.
                          (iv) Election.--An election under 
                        clause (ii), once made, shall be 
                        irrevocable without the consent of the 
                        Secretary.

           *       *       *       *       *       *       *


SEC. 414. DEFINITIONS AND SPECIAL RULES.

  (a) * * *

           *       *       *       *       *       *       *

  (p) Qualified Domestic Relations Order Defined.--For purposes 
of this subsection and section 401(a)(13)--
          (1)  * * *

           *       *       *       *       *       *       *

          (10) Waiver of certain distribution requirements.--
        With respect to the requirements of subsections (a) and 
        (k) of section 401, section 403(b), [and section 
        409(d)] section 409(d), and section 457(d), a plan 
        shall not be treated as failing to meet such 
        requirements solely by reason of payments to an 
        alternative payee pursuant to a qualified domestic 
        relations order.
          (11) Application of rules to [governmental and church 
        plans] certain other plans.--For purposes of this 
        title, a distribution or payment from a governmental 
        plan (as defined in subsection (d)) or a church plan 
        (as described in subsection (e)) or an eligible 
        deferred compensation plan (within the meaning of 
        section 457(b)) shall be treated as made pursuant to a 
        qualified domestic relations order if it is made 
        pursuant to a domestic relations order which meets the 
        requirement of clause (i) of paragraph (1)(A).
          (12) Tax treatment of payments from a section 457 
        plan.--If a distribution or payment from an eligible 
        deferred compensation plan described in section 457(b) 
        is made pursuant to a qualified domestic relations 
        order, rules similar to the rules of section 
        402(e)(1)(A) shall apply to such distribution or 
        payment.
          [(12)] (13) Consultation with the secretary.--In 
        prescribing regulations under this subsection and 
        section 401(a)(13), the Secretary of Labor shall 
        consult with the Secretary.

           *       *       *       *       *       *       *

  (v) Catch-up Contributions for Individuals Age 50 or Over.--
          (1) In general.--An applicable employer plan shall 
        not be treated as failing to meet any requirement of 
        this title solely because the plan permits an eligible 
        participant to make additional elective deferrals in 
        any plan year.
          (2) Limitation on amount of additional deferrals.--A 
        plan shall not permit additional elective deferrals 
        under paragraph (1) for any year in an amount greater 
        than the lesser of--
                  (A) $5,000, or
                  (B) the excess (if any) of--
                          (i) the participant's compensation 
                        for the year, over
                          (ii) any other elective deferrals of 
                        the participant for such year which are 
                        made without regard to this subsection.
          (3) Treatment of contributions.--In the case of any 
        contribution to a plan under paragraph (1), such 
        contribution shall not, with respect to the year in 
        which the contribution is made--
                  (A) be subject to any otherwise applicable 
                limitation contained in section 402(g), 
                402(h)(2), 404(a), 404(h), 408(p)(2)(A)(ii), 
                415, or 457, or
                  (B) be taken into account in applying such 
                limitations to other contributions or benefits 
                under such plan or any other such plan.
          (4) Eligible participant.--For purposes of this 
        subsection, the term ``eligible participant'' means, 
        with respect to any plan year, a participant in a 
        plan--
                  (A) who has attained the age of 50 before the 
                close of the plan year, and
                  (B) with respect to whom no other elective 
                deferrals may (without regard to this 
                subsection) be made to the plan for the plan 
                year by reason of the application of any 
                limitation or other restriction described in 
                paragraph (3) or comparable limitation 
                contained in the terms of the plan.
          (5) Other definitions and rules.--For purposes of 
        this subsection--
                  (A) Applicable employer plan.--The term 
                ``applicable employer plan'' means--
                          (i) an employees' trust described in 
                        section 401(a) which is exempt from tax 
                        under section 501(a),
                          (ii) a plan under which amounts are 
                        contributed by an individual's employer 
                        for an annuity contract described in 
                        section 403(b),
                          (iii) an eligible deferred 
                        compensation plan under section 457 of 
                        an eligible employer as defined in 
                        section 457(e)(1)(A), and
                          (iv) an arrangement meeting the 
                        requirements of section 408 (k) or (p).
                  (B) Elective deferral.--The term ``elective 
                deferral'' has the meaning given such term by 
                subsection (u)(2)(C).
                  (C) Exception for section 457 plans.--This 
                subsection shall not apply to an applicable 
                employer plan described in subparagraph 
                (A)(iii) for any year to which section 
                457(b)(3) applies.
                  (D) Cost-of-living adjustment.--For years 
                beginning after December 31, 2005, the 
                Secretary shall adjust annually the $5,000 
                amount in subparagraph (A) for increases in the 
                cost-of-living at the same time and in the same 
                manner as adjustments under section 415(d); 
                except that the base period shall be the 
                calendar quarter beginning July 1, 2004, and 
                any increase which is not a multiple of $500 
                shall be rounded to the next lowest multiple of 
                $500.

SEC. 415. LIMITATIONS ON BENEFITS AND CONTRIBUTIONS UNDER QUALIFIED 
                    PLANS.

  (a) General Rule.--
          (1) * * *
          (2) Section applies to certain annuities and 
        accounts.--In the case of--
                  (A) an employee annuity plan described in 
                section 403(a),
                  (B) an annuity contract described in section 
                403(b), or
                  (C) a simplified employee pension described 
                in section 408(k), such a contract, plan, or 
                pension shall not be considered to be described 
                in section 403(a), 403(b), or 408(k), as the 
                case may be, unless it satisfies the 
                requirements of subparagraph (A) or 
                subparagraph (B) of paragraph (1), whichever is 
                appropriate, and has not been disqualified 
                under subsection (g). In the case of an annuity 
                contract described in section 403(b), the 
                preceding sentence shall apply only to the 
                portion of the annuity contract which exceeds 
                the limitation of subsection (b) or the 
                limitation of subsection (c), whichever is 
                appropriate, [and the amount of the 
                contribution for such portion shall reduce the 
                exclusion allowance as provided in section 
                403(b)(2)].
  (b) Limitation for Defined Benefit Plans.--
          (1) In general.--Benefits with respect to a 
        participant exceed the limitation of this subsection 
        if, when expressed as an annual benefit (within the 
        meaning of paragraph (2)), such annual benefit is 
        greater than the lesser of--
                  (A) [$90,000] $160,000, or
                  (B) 100 percent of the participant's average 
                compensation for his high 3 years.
          (2) Annual benefit.--
                  (A) In general.--For purposes of paragraph 
                (1), the term ``annual benefit'' means a 
                benefit payable annually in the form of a 
                straight life annuity (with no ancillary 
                benefits) under a plan to which employees do 
                not contribute and under which no rollover 
                contributions (as defined in sections 402(c), 
                403(a)(4), [and 408(d)(3)] 403(b)(8), 
                408(d)(3), and 457(e)(16)) are made.
                  (B) Adjustment for certain other forms of 
                benefit.--If the benefit under the plan is 
                payable in any form other than the form 
                described in subparagraph (A), or if the 
                employees contribute to the plan or make 
                rollover contributions (as defined in sections 
                402(c), 403(a)(4), [and 408(d)(3)] 403(b)(8), 
                408(d)(3), and 457(e)(16)), the determinations 
                as to whether the limitation described in 
                paragraph (1) has been satisfied shall be made, 
                in accordance with regulations prescribed by 
                the Secretary by adjusting such benefit so that 
                it is equivalent to the benefit described in 
                subparagraph (A). For purposes of this 
                subparagraph, any ancillary benefit which is 
                not directly related to retirement income 
                benefits shall not be taken into account; and 
                that portion of any joint and survivor annuity 
                which constitutes a qualified joint and 
                survivor annuity (as defined in section 417 
                shall not be taken into account.
                  (C) Adjustment to [$90,000] $160,000 limit 
                where benefit begins before [the social 
                security retirement age] age 62.--If the 
                retirement income benefit under the plan begins 
                before [the social security retirement age] age 
                62, the determination as to whether the 
                [$90,000] $160,000 limitation set forth in 
                paragraph (1)(A) has been satisfied shall be 
                made, in accordance with regulations prescribed 
                by the Secretary, by reducing the limitation of 
                paragraph (1)(A) so that such limitation (as so 
                reduced) equals an annual benefit (beginning 
                when such retirement income benefit begins) 
                which is equivalent to a [$90,000] $160,000 
                annual benefit beginning at [the social 
                security retirement age] age 62. The reduction 
                under this subparagraph shall be made in such 
                manner as the Secretary may prescribe which is 
                consistent with the reduction for old-age 
                insurance benefits commencing before [the 
                social security retirement age] age 62 under 
                the Social Security Act.
                  (D) Adjustment to [$90,000] $160,000  limit 
                where benefit begins after [the social security 
                retirement age] age 65.--If the retirement 
                income benefit under the plan begins after [the 
                social security retirement age] age 65, the 
                determination as to whether the [$90,000] 
                $160,000 limitation set forth in paragraph 
                (1)(A) has been satisfied shall be made, in 
                accordance with regulations prescribed by the 
                Secretary, by increasing the limitation of 
                paragraph (1)(A) so that such limitation (as so 
                increased) equals an annual benefit (beginning 
                when such retirement income benefit begins) 
                which is equivalent to a [$90,000] $160,000 
                annual benefit beginning at [the social 
                security retirement age] age 65.

           *       *       *       *       *       *       *

                  [(F) Plans maintained by governments and tax-
                exempt organizations.--In the case of a 
                governmental plan (within the meaning of 
                section 414(d)), a plan maintained by an 
                organization (other than a governmental unit) 
                exempt from tax under this subtitle, or a 
                qualified merchant marine plan--
                          [(i) subparagraph (C) shall be 
                        applied--
                                  [(I) by substituting ``age 
                                62'' for ``social security 
                                retirement age'' each place it 
                                appears, and
                                  [(II) as if the last sentence 
                                thereof read as follows: ``The 
                                reduction under this 
                                subparagraph shall not reduce 
                                the limitation of paragraph 
                                (1)(A) below (i) $75,000 if the 
                                benefit begins at or after age 
                                55, or
                          [(ii) if the benefit begins before 
                        age 55, the equivalent of the $75,000 
                        limitation for age 55.'', and
                          [(ii) subparagraph (D) shall be 
                        applied by substituting ``age 65'' for 
                        ``social security retirement age'' each 
                        place it appears.
                For purposes of this subparagraph, the term 
                ``qualified merchant marine plan'' means a plan 
                in existence on January 1, 1986, the 
                participants in which are merchant marine 
                officers holding licenses issued by the 
                Secretary of Transportation under title 46, 
                United States Code.]

           *       *       *       *       *       *       *

          (7) Benefits under certain collectively bargained 
        plans.--For a year, the limitation referred to in 
        paragraph (1)(B) shall not apply to benefits with 
        respect to a participant under a defined benefit plan--
                  (A) * * *

           *       *       *       *       *       *       *

        This paragraph shall not apply to a participant whose 
        compensation for any 3 years during the 10-year period 
        immediately preceding the year in which he separates 
        from service exceeded the average compensation for such 
        3 years of all participants in such plan. This 
        paragraph shall not apply to a participant for any 
        period for which he is a participant under another plan 
        to which this section applies which is maintained by an 
        employer maintaining this plan. For any year for which 
        the paragraph applies to benefits with respect to a 
        participant, paragraph (1)(A) and subsection (d)(1)(A) 
        shall be applied with respect to such participant by 
        substituting [the greater of $68,212 or one-half the 
        amount otherwise applicable for such year under 
        paragraph (1)(A) for ``$90,000''] one-half the amount 
        otherwise applicable for such year under paragraph 
        (1)(A) for ``$160,000''.

           *       *       *       *       *       *       *

          [(11) Special limitation rule for governmental 
        plans.--In the case of a governmental plan (as defined 
        in section 414(d), subparagraph (B) of paragraph (1) 
        shall not apply.]
          (11) Special limitation rule for governmental and 
        multiemployer plans.--In the case of a governmental 
        plan (as defined in section 414(d)) or a multiemployer 
        plan (as defined in section 414(f)), subparagraph (B) 
        of paragraph (1) shall not apply.

           *       *       *       *       *       *       *

  (c) Limitation for Defined Contribution Plans.--
          (1) In general.--Contributions and other additions 
        with respect to a participant exceed the limitation of 
        this subsection if, when expressed as an annual 
        addition (within the meaning of paragraph (2)) to the 
        participant's account, such annual addition is greater 
        than the lesser of--
                  (A) [$30,000] $40,000, or
                  (B) [25] 100 percent of the participant's 
                compensation.
          (2) Annual addition.--For purposes of paragraph (1), 
        the term ``annual addition'' means the sum for any year 
        of--
                  (A) employer contributions,
                  (B) the employee contributions, and
                  (C) forfeitures.
        For the purposes of this paragraph, employee 
        contributions under subparagraph (B) are determined 
        without regard to any rollover contributions (as 
        defined in sections 402(c), 403(a)(4),403(b)(8), [and 
408(d)(3)] 408(d)(3), and 457(e)(16)) without regard to employee 
contributions to a simplified employee pension which are excludable 
from gross income under section 408(k)(6). Subparagraph (B) of 
paragraph (1) shall not apply to any contribution for medical benefits 
(within the meaning of section 419A(f)(2)) after separation from 
service which is treated as an annual addition.
          (3) Participant's compensation.--For purposes of 
        paragraph (1)--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (E) Annuity contracts.--In the case of an 
                annuity contract described in section 403(b), 
                the term ``participant's compensation'' means 
                the participant's includible compensation 
                determined under section 403(b)(3).
          [(4) Special election for section 403(b) contracts 
        purchased by educational organizations, hospitals, home 
        health service agencies, and certain churches, etc.--
                  [(A) In the case of amounts contributed for 
                an annuity contract described in section 403(b) 
                for the year in which occurs a participant's 
                separation from the service with an educational 
                organization, a hospital, a home health service 
                agency, a health and welfare service agency, or 
                a church, convention or association of 
                churches, or an organization described in 
                section 414(e)(3)(B)(ii), at the election of 
                the participant there is substituted for the 
                amount specified in paragraph (1)(B) the amount 
                of the exclusion allowance which would be 
                determined under section 403(b)(2) (without 
                regard to this section) for the participant's 
                taxable year in which such separation occurs if 
                the participant's years of service were 
                computed only by taking into account his 
                service for the employer (as determined for 
                purposes of section 403(b)(2)) during the 
                period of years (not exceeding ten) ending on 
                the date of such separation.
                  [(B) In the case of amounts contributed for 
                an annuity contract described in section 403(b) 
                for any year in the case of a participant who 
                is an employee of an educational organization, 
                a hospital, a home health service agency, a 
                health and welfare service agency, or a church, 
                convention or association of churches, or an 
                organization described in section 
                414(e)(3)(B)(ii), at the election of the 
                participant there is substituted for the amount 
                specified in paragraph (1)(B) the least of--
                          [(i) 25 percent of the participant's 
                        includible compensation (as defined in 
                        section 403(b)(3)) plus $4,000,
                          [(ii) the amount of the exclusion 
                        allowance determined for the year under 
                        section 403(b)(2), or
                          [(iii) $15,000.
                  [(C) In the case of amounts contributed for 
                an annuity contract described in section 403(b) 
                for any year for a participant who is an 
                employee of an educational organization, a 
                hospital, a home health service agency, a 
                health and welfare service agency, or a church, 
                convention or association of churches, or an 
                organization described in section 
                414(e)(3)(B)(ii), at the election of the 
                participant the provisions of section 
                403(b)(2)(A) shall not apply.
                  [(D)(i) The provisions of this paragraph 
                apply only if the participant elects its 
                application at the time and in the manner 
                provided under regulations prescribed by the 
                Secretary. Not more than one election may be 
                made under subparagraph (A) by any participant. 
                A participant who elects to have the provisions 
                of subparagraph (A), (B), or (C) of this 
                paragraph apply to him may not elect to have 
                any other subparagraph of this paragraph apply 
                to him. Any election made under this paragraph 
                is irrevocable.
                          [(ii) For purposes of this paragraph 
                        the term ``educational organization'' 
                        means an educational organization 
                        described in section 170(b)(1)(A)(ii).
                          [(iii) For purposes of this paragraph 
                        the term ``home health service agency'' 
                        means an organization described in 
                        subsection 501(c)(3) which is exempt 
                        from tax under section 501(a) and which 
                        has been determined by the Secretary of 
                        Health, Education, and Welfare to be a 
                        home health agency (as defined in 
                        section 1861(o) of the Social Security 
                        Act).
                          [(iv) For purposes of this paragraph, 
                        the terms ``church'' and ``convention 
                        or association of churches'' have the 
                        same meaning as when used in section 
                        414(e).]

           *       *       *       *       *       *       *

          [(7) Certain contributions by church plans not 
        treated as exceeding limits.--
                  [(A) Alternative exclusion allowance.--Any 
                contribution or addition with respect to any 
                participant, when expressed as an annual 
                addition, which is allocable to the application 
                of section 403(b)(2)(D) to such participant for 
                such year, shall be treated as not exceeding 
                the limitations of paragraph (1).
                  [(B) Contributions not in excess of $40,000 
                ($10,000 per year).--
                          [(i) In general.--Notwithstanding any 
                        other provision of this subsection, at 
                        the election of a participant who is an 
                        employee of a church, a convention or 
                        association of churches, including an 
                        organization described in section 
                        414(e)(3)(B)(ii), contributions and 
                        other additions for an annuity contract 
                        or retirement income account described 
                        in section 403(b) with respect to such 
                        participant, when expressed as an 
                        annual addition to such participant's 
                        account, shall be treated as not 
                        exceeding the limitation of paragraph 
                        (1) if such annual addition is not in 
                        excess of $10,000.
                          [(ii) $40,000 aggregate limitation.--
                        The total amount of additions with 
                        respect to any participant which may be 
                        taken into account for purposes of this 
                        subparagraph for all years may not 
                        exceed $40,000.
                          [(iii) No election if paragraph 
                        (4)(A) election made.--No election may 
                        be made under this subparagraph for any 
                        year if an election is made under 
                        paragraph (4)(A) for such year.
                  [(C) Annual addition.--For purposes of this 
                paragraph, the term ``annual addition'' has the 
                meaning given such term by paragraph (2).]
          (7) Certain contributions by church plans not treated 
        as exceeding limit.--
                  (A) In general.--Notwithstanding any other 
                provision of this subsection, at the election 
                of a participant who is an employee of a church 
                or a convention or association of churches, 
                including an organization described in section 
                414(e)(3)(B)(ii), contributions and other 
                additions for an annuity contract or retirement 
                income account described in section 403(b) with 
                respect to such participant, when expressed as 
                an annual addition to such participant's 
                account, shall be treated as not exceeding the 
                limitation of paragraph (1) if such annual 
                addition is not in excess of $10,000.
                  (B) $40,000 aggregate limitation.--The total 
                amount of additions with respect to any 
                participant which may be taken into account for 
                purposes of this subparagraph for all years may 
                not exceed $40,000.
                  (C) Annual addition.--For purposes of this 
                paragraph, the term ``annual addition'' has the 
                meaning given such term by paragraph (2).
  (d) Cost-of-living adjustments.--
          (1) In general.--The Secretary shall adjust 
        annually--
                  (A) the [$90,000] $160,000 amount in 
                subsection (b)(1)(A),
                  (B) in the case of a participant who 
                separated from service, the amount taken into 
                account under subsection (b)(1)(B), and
                  (C) the [$30,000] $40,000 amount in 
                subsection (c)(1)(A), for increases in the 
                cost-of-living in accordance with regulations 
                prescribed by the Secretary.

           *       *       *       *       *       *       *

          (3) Base period.--For purposes of paragraph (2)--
                  (A) [$90,000] $160,000 amount.--The base 
                period taken into account for purposes of 
                paragraph (1)(A) is the calendar quarter 
                beginning [October 1, 1986] July 1, 2000.

           *       *       *       *       *       *       *

                  (D) [$30,000] $40,000 amount.--The base 
                period taken into account for purposes of 
                paragraph (1)(C) is the calendar quarter 
                beginning [October 1, 1993] July 1, 2000.
          [(4) Rounding.--Any increase under subparagraph (A) 
        or (C) of paragraph (1) which is not a multiple of 
        $5,000 shall be rounded to the next lowest multiple of 
        $5,000.]
          (4) Rounding.--
                  (A) $160,000 amount.--Any increase under 
                subparagraph (A) of paragraph (1) which is not 
                a multiple of$5,000 shall be rounded to the 
next lowest multiple of $5,000.
                  (B) $40,000 amount.--Any increase under 
                subparagraph (C) of paragraph (1) which is not 
                a multiple of $1,000 shall be rounded to the 
                next lowest multiple of $1,000.

           *       *       *       *       *       *       *

  (f) Combining of Plans.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Exception for multiemployer plans.--
        Notwithstanding paragraph (1) and subsection (g), a 
        multiemployer plan (as defined in section 414(f)) shall 
        not be combined or aggregated with any other plan 
        maintained by an employer for purposes of applying the 
        limitations established in this section, except that 
        such plan shall be combined or aggregated with another 
        plan which is not such a multiemployer plan solely for 
        purposes of determining whether such other plan meets 
        the requirements of subsections (b)(1)(A) and (c).
  (g) Aggregation of Plans.--[The Secretary] Except as provided 
in subsection (f)(3), the Secretary, in applying the provisions 
of this section to benefits or contributions under more than 
one plan maintained by the same employer, and to any trusts, 
contracts, accounts, or bonds referred to in subsection (a)(2), 
with respect to which the participant has the control required 
under section 414(b) or (c), as modified by subsection (h), 
shall, under regulations prescribed by the Secretary, 
disqualify one or more trusts, plans, contracts, accounts, or 
bonds, or any combination thereof until such benefits or 
contributions do not exceed the limitations contained in this 
section. In addition to taking into account such other factors 
as may be necessary to carry out the purposes of subsection 
(f), the regulations prescribed under this paragraph shall 
provide that no plan which has been terminated shall be 
disqualified until all other trusts, plans, contracts, 
accounts, or bonds have been disqualified.

           *       *       *       *       *       *       *

  (k) Special Rules.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Special rules for sections 403(b) and 408.--For 
        purposes of this section, any annuity contract 
        described in section 403(b) for the benefit of a 
        participant shall be treated as a defined contribution 
        plan maintained by each employer with respect to which 
        the participant has the control required under 
        subsection (b) or (c) of section 414 (as modified by 
        subsection (h)). For purposes of this section, any 
        contribution by an employer to a simplified employee 
        pension plan for an individual for a taxable year shall 
        be treated as an employer contribution to a defined 
        contribution plan for such individual for such year.

           *       *       *       *       *       *       *


SEC. 416. SPECIAL RULES FOR TOP-HEAVY PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Plan Must Provide Minimum Benefits.--
          (1) Defined benefit plans.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Years of service.--For purposes of this 
                paragraph--
                          (i) In general.--Except as provided 
                        in [clause (ii)] clause (ii) or (iii), 
                        years of service shall be determined 
                        under the rules of paragraphs (4), (5), 
                        and (6) of section 411(a).

           *       *       *       *       *       *       *

                          (iii) Exception for frozen plan.--For 
                        purposes of determining an employee's 
                        years of service with the employer, any 
                        service with the employer shall be 
                        disregarded to the extent that such 
                        service occurs during a plan year when 
                        the plan benefits (within the meaning 
                        of section 410(b)) no employee or 
                        former employee.

           *       *       *       *       *       *       *

          (2) Defined contribution plans.--
                  (A) In general.--A defined contribution plan 
                meets the requirements of the subsection if the 
                employer contribution for the year for each 
                participant who is a non-key employee is not 
                less than 3 percent of such participant's 
                compensation (within the meaning of section 
                415). Employer matching contributions (as 
                defined in section 401(m)(4)(A)) shall be taken 
                into account for purposes of this subparagraph.

           *       *       *       *       *       *       *

  (g) Top-Heavy Plan Defined.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          [(3) Distributions during last 5 years taken into 
        account.--For purposes of determining--
                  [(A) the present value of the cumulative 
                accrued benefit for any employee, or
                  [(B) the amount of the account of any 
                employee,such present value or amount shall be 
                increased by the aggregate distributions made 
                with respect to such employee under the plan 
                during the 5-year period ending on the 
                determination date. The preceding sentence 
                shall also apply to distributions under a 
                terminated plan which if it had not been 
                terminated would have been required to be 
                included in an aggregation group.]
          (3) Distributions during last year before 
        determination date taken into account.--
                  (A) In general.--For purposes of 
                determining--
                          (i) the present value of the 
                        cumulative accrued benefit for any 
                        employee, or
                          (ii) the amount of the account of any 
                        employee,
                such present value or amount shall be increased 
                by the aggregate distributions made with 
                respect to such employee under the plan during 
                the 1-year period ending on the determination 
                date. The preceding sentence shall also apply 
                to distributions under a terminated plan which 
                if it had not been terminated would have been 
                required to be included in an aggregation 
                group.
                  (B) 5-year period in case of in-service 
                distribution.--In the case of any distribution 
                made for a reason other than separation from 
                service, death, or disability, subparagraph (A) 
                shall be applied by substituting ``5-year 
                period'' for ``1-year period''.
          (4) Other special rules.--For purposes of this 
        subsection--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) Benefits not taken into account if 
                employee not employed for [last 5 years] last 
                year before determination date.--If any 
                individual has not performed services for the 
                employer maintaining the plan at any time 
                during the [5-year period] 1-year period ending 
                on the determination date, any accrued benefit 
                for such individual (and the account of such 
                individual) shall not be taken into account.

           *       *       *       *       *       *       *

                  (H) Cash or deferred arrangements using 
                alternative methods of meeting 
                nondiscrimination requirements.--The term 
                ``top-heavy plan'' shall not include a plan 
                which consists solely of--
                          (i) a cash or deferred arrangement 
                        which meets the requirements of section 
                        401(k)(12), and
                          (ii) matching contributions with 
                        respect to which the requirements of 
                        section 401(m)(11) are met.
                If, but for this subparagraph, a plan would be 
                treated as a top-heavy plan because it is a 
                member of an aggregation group which is a top-
                heavy group, contributions under the plan may 
                be taken into account in determining whether 
                any other plan in the group meets the 
                requirements of subsection (c)(2).

           *       *       *       *       *       *       *

  (i) Definitions.--For purposes of this section--
          (1) Key employee.--
                  (A) In general.--The term ``key employee'' 
                means an employee who, at any time during the 
                plan year [or any of the 4 preceding plan 
                years], is--
                          [(i) an officer of the employer 
                        having an annual compensation greater 
                        than 50 percent of the amount in effect 
                        under section 415(b)(1)(A) for any such 
                        plan year,
                          [(ii) 1 of the 10 employees having 
                        annual compensation from the employer 
                        of more than the limitation in effect 
                        under section 415(c)(1)(A) and owning 
                        (or considered as owning within the 
                        meaning of section 318 the largest 
                        interests in the employer,]
                          (i) an officer of the employer having 
                        an annual compensation greater than 
                        $150,000,
                          [(iii)] (ii) a 5-percent owner of the 
                        employer, or
                          [(iv)] (iii) a 1-percent owner of the 
                        employer having an annual compensation 
                        from the employer of more than 
                        $150,000.
                For purposes of clause (i), no more than 50 
                employees (or, if lesser, the greater of 3 or 
                10 percent of the employees) shall be treated 
                as officers. [For purposes of clause (ii), if 2 
                employees have the same interest in the 
                employer, the employee having greater annual 
                compensation from the employer shall be treated 
                as having a larger interest.] Such term shall 
                not include any officer or employee of an 
                entity referred to in section 414(d) (relating 
                to governmental plans). For purposes of 
                determining the number of officers taken into 
                account under clause (i), employees described 
                in section 414(q)(5) shall be excluded.
                  (B) Percentage owners.--
                          (i)  * * *

           *       *       *       *       *       *       *

                          (iii) Constructive ownership rules.--
                        For purposes of this subparagraph [and 
                        subparagraph (A)(ii)]--
                                  (I) subparagraph (C) of 
                                section 318(a)(2) shall be 
                                applied by substituting ``5 
                                percent'' for ``50 percent'', 
                                and
                                  (II) in the case of any 
                                employer which is not a 
                                corporation, ownership in such 
                                employer shall be determined in 
                                accordance with regulations 
                                prescribed by the Secretary 
                                which shall be based on 
                                principles similar to the 
                                principles of section 318 (as 
                                modified by subclause (I)).
                          (iv) Family attribution 
                        disregarded.--Solely for purposes of 
                        applying this paragraph (and not for 
                        purposes of any provision of this title 
                        which incorporates by reference the 
                        definition of a key employee or 5-
                        percent owner under this paragraph), 
                        section 318 shall be applied without 
                        regard to subsection (a)(1) thereof in 
                        determining whether any person is a 5-
                        percent owner.

           *       *       *       *       *       *       *


SEC. 417. DEFINITIONS AND SPECIAL RULES FOR PURPOSES OF MINIMUM 
                    SURVIVOR ANNUITY REQUIREMENTS.

  (a) Election To Waive Qualified Joint and Survivor Annuity or 
Qualified Preretirement Survivor Annuity.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Applicable election period defined.--For purposes 
        of this subsection, the term ``applicable election 
        period'' means--
                  (A) in the case of an election to waive the 
                qualified joint and survivor annuity form of 
                benefit, the [90-day] 180-day period ending on 
                the annuity starting date, or

           *       *       *       *       *       *       *


Subchapter E--Accounting periods and methods of accounting

           *       *       *       *       *       *       *


PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *


Subpart B--Taxable Year for Which Items of Gross Income Included

           *       *       *       *       *       *       *


SEC. 457. DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS 
                    AND TAX-EXEMPT ORGANIZATIONS.

  [(a) Year of Inclusion in Gross Income.--In the case of a 
participant in an eligible deferred compensation plan, any 
amount of compensation deferred under the plan, and any income 
attributable to the amounts so deferred, shall be includible in 
gross income only for the taxable year in which such 
compensation or other income is paid or otherwise made 
available to the participant or other beneficiary.]
  (a) Year of inclusion in gross income.--
          (1) In general.--Any amount of compensation deferred 
        under an eligible deferred compensation plan, and any 
        income attributable to the amounts so deferred, shall 
        be includible in gross income only for the taxable year 
        in which such compensation or other income--
                  (A) is paid to the participant or other 
                beneficiary, in the case of a plan of an 
                eligible employer described in subsection 
                (e)(1)(A), and
                  (B) is paid or otherwise made available to 
                the participant or other beneficiary, in the 
                case of a plan of an eligible employer 
                described in subsection (e)(1)(B).
          (2) Special rule for rollover amounts.--To the extent 
        provided in section 72(t)(9), section 72(t) shall apply 
        to any amount includible in gross income under this 
        subsection.
  (b) Eligible Deferred Compensation Plan Defined.--For 
purposes of this section, the term ``eligible deferred 
compensation plan'' means a plan established and maintained by 
an eligible employer--
          (1) in which only individuals who perform service for 
        the employer may be participants,
          (2) which provides that (except as provided in 
        paragraph (3)) the maximum amount which may be deferred 
        under the plan for the taxable year (other than 
        rollover amounts) shall not exceed the lesser of--
                  (A) [$7,500] the applicable dollar amount, or
                  (B) [33\1/3\] 100 percent of the 
                participant's includible compensation,
          (3) which may provide that, for 1 or more of the 
        participant's last 3 taxable years ending before he 
        attains normal retirement age under the plan, the 
        ceiling set forth in paragraph (2) shall be the lesser 
        of--
                  (A) [$15,000] twice the dollar amount in 
                effect under subsection (b)(2)(A), or

           *       *       *       *       *       *       *

  (c) Individuals Who Are Participants in More Than 1 Plan.--
          (1) In general.--The maximum amount of the 
        compensation of any one individual which may be 
        deferred under subsection (a) during any taxable year 
        shall not exceed [$7,500] the applicable dollar amount 
        (as modified by any adjustment provided under 
        subsection (b)(3)).
          (2) Coordination with certain other deferrals.--In 
        applying paragraph (1) of this subsection--
                  (A) any amount excluded from gross income 
                under section 403(b) for the taxable year, and
                  (B) any amount--
                          (i) excluded from gross income under 
                        section 402(e)(3) or section 
                        402(h)(1)(B) or (k) for the taxable 
                        year, or
                          (ii) with respect to which a 
                        deduction is allowable by reason of a 
                        contribution to an organization 
                        described in section 501(c)(18) for the 
                        taxable year,
        shall be treated as an amount deferred under subsection 
        (a). In applying section [402(g)(8)(A)(iii)] 
        402(g)(7)(A)(iii) or 403(b)(2)(A)(ii), an amount 
        deferred under subsection (a) for any year of service 
        shall be taken into account as if described in section 
        402(g)(3)(C) or 403(b)(2)(A)(ii), respectively. 
        Subparagraph (B) shall not apply in the case of a 
        participant in a rural cooperative plan (as defined in 
        section 401(k)(7)).

[For years beginning after December 31, 2000, subsection (c) is amended 
                          to read as follows:]

  (c) Limitation.--The maximum amount of the compensation of 
any one individual which may be deferred under subsection (a) 
during any taxable year shall not exceed the amount in effect 
under subsection (b)(2)(A) (as modified by any adjustment 
provided under subsection (b)(3)).

  (d) Distribution Requirements.--
          (1) In general.--For purposes of subsection (b)(5), a 
        plan meets the distribution requirements of this 
        subsection if--
                  (A) under the plan amounts will not be made 
                available to participants or beneficiaries 
                earlier than--
                          (i) the calendar year in which the 
                        participant attains age 70\1/2\,
                          (ii) when the participant [is 
                        separated from service] has a severance 
                        from employment with the employer, or
                          (iii) when the participant is faced 
                        with an unforeseeable emergency 
                        (determined in the manner prescribed by 
                        the Secretary in regulations), [and]
                  (B) the plan meets the minimum distribution 
                requirements of paragraph (2)[.], and
                  (C) in the case of a plan maintained by an 
                employer described in subsection (e)(1)(A), the 
                plan meets requirements similar to the 
                requirements of section 401(a)(31).
        Any amount transferred in a direct trustee-to-trustee 
        transfer in accordance with section 401(a)(31) shall 
        not be includible in gross income for the taxable year 
        of transfer.
          [(2) Minimum distribution requirements.--A plan meets 
        the minimum distribution requirements of this paragraph 
        if such plan meets the requirements of subparagraphs 
        (A), (B), and (C):
                  [(A) Application of section 401(a)(9).--A 
                plan meets the requirements of this 
                subparagraph if the plan meets the requirements 
                of section 401(a)(9).
                  [(B) Additional distribution requirement.--A 
                plan meets the requirements of this 
                subparagraph if--
                          [(i) in the case of a distribution 
                        beginning before the death of the 
                        participant, such distribution will be 
                        made in a form under which--
                                  [(I) the amounts payable with 
                                respect to the participant will 
                                be paid at times specified by 
                                the Secretary which are not 
                                later than the time determined 
                                under section 401(a)(9)(G) 
                                (relating to incidental death 
                                benefits), and
                                  [(II) any amount not 
                                distributed to the participant 
                                during his life will be 
                                distributed after the death of 
                                the participant at least as 
                                rapidly as under the method of 
                                distributions being used under 
                                subclause (I) as of the date of 
                                his death, or
                          [(ii) in the case of a distribution 
                        which does not begin before the death 
                        of the participant, the entire amount 
                        payable with respect to the participant 
                        will be paid during a period not to 
                        exceed 15 years (or the life expectancy 
                        of the surviving spouse if such spouse 
                        is the beneficiary).
                  [(C) Nonincreasing benefits.--A plan meets 
                the requirements of this subparagraph if any 
                distribution payable over a period of more than 
                1 year can only be made in substantially 
                nonincreasing amounts (paid not less frequently 
                than annually).]
          (2) Minimum distribution requirements.--A plan meets 
        the minimum distribution requirements of this paragraph 
        if such plan meets the requirements of section 
        401(a)(9).
          (3) Special rule for government plan.--An eligible 
        deferred compensation plan of an employer described in 
        subsection (e)(1)(A) shall not be treated as failing to 
        meet the requirements of this subsection solely by 
        reason of making a distribution described in subsection 
        (e)(9)(A).

           *       *       *       *       *       *       *

  (e) Other Definitions and Special Rules.--For purposes of 
this section--
          (1) * * *

           *       *       *       *       *       *       *

          [(9) Benefits not treated as made available by reason 
        of certain elections, etc.--]
          (9) Benefits of tax exempt organization plans not 
        treated as made available by reason of certain 
        elections, etc.--In the case of an eligible deferred 
        compensation plan of an employer described in 
        subsection (e)(1)(B)--
                  (A) Total amount payable is dollar limit or 
                less.--The total amount payable to a 
                participant 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] the portion of such 
                        amount which is not attributable to 
                        rollover contributions (as defined in 
                        section 411(a)(11)(D)) does not exceed 
                        the dollar limit under section 
                        411(a)(11)(A), 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 
                                distribution under the plan to 
                                such participant 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 subparagraph applies.

           *       *       *       *       *       *       *

          [(15) 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.]
          (15) Applicable dollar amount.--
                  (A) In general.--The applicable dollar amount 
                shall be the amount determined in accordance 
                with the following table:

        For taxable years                                 The applicable
          beginning in                                    dollar amount:
          calendar year:
          2001................................................  $11,000 
          2002................................................  $12,000 
          2003................................................  $13,000 
          2004................................................  $14,000 
          2005 or thereafter..................................  $15,000.

                  (B) Cost-of-living adjustments.--In the case 
                of taxable years beginning after December 31, 
                2005, the Secretary shall adjust the $15,000 
                amount specified in the table in subparagraph 
                (A) at the same time and in the same manner as 
                under section 415(d), except that the base 
                period shall be the calendar quarter beginning 
                July 1, 2004, and any increase under this 
                paragraph which is not a multiple of $500 shall 
                be rounded to the next lowest multiple of $500.
          (16) Rollover amounts.--
                  (A) General rule.--In the case of an eligible 
                deferred compensation plan established and 
                maintained by an employer described in 
                subsection (e)(1)(A), if--
                          (i) any portion of the balance to the 
                        credit of an employee in such plan is 
                        paid to such employee in an eligible 
                        rollover distribution (within the 
                        meaning of section 402(c)(4) without 
                        regard to subparagraph (C) thereof),
                          (ii) the employee transfers any 
                        portion of the property such employee 
                        receives in such distribution to an 
                        eligible retirement plan described in 
                        section 402(c)(8)(B), and
                          (iii) in the case of a distribution 
                        of property other than money, the 
                        amount so transferred consists of the 
                        property distributed,
                then such distribution (to the extent so 
                transferred) shall not be includible in gross 
                income for the taxable year in which paid.
                  (B) Certain rules made applicable.--The rules 
                of paragraphs (2) through (7) (other than 
                paragraph (4)(C)) and (9) of section 402(c) and 
                section 402(f) shall apply for purposes of 
                subparagraph (A).
                  (C) Reporting.--Rollovers under this 
                paragraph shall be reported to the Secretary in 
                the same manner as rollovers from qualified 
                retirement plans (as defined in section 
                4974(c)).
          (17) Trustee-to-trustee transfers to purchase 
        permissive service credit.--No amount shall be 
        includible in gross income by reason of a direct 
        trustee-to-trustee transfer to a defined benefit 
        governmental plan (as defined in section 414(d)) if 
        such transfer is--
                  (A) for the purchase of permissive service 
                credit (as defined in section 415(n)(3)(A)) 
                under such plan, or
                  (B) a repayment to which section 415 does not 
                apply by reason of subsection (k)(3) thereof.

           *       *       *       *       *       *       *


Subchapter F--Exempt organizations

           *       *       *       *       *       *       *


PART I--GENERAL RULE

           *       *       *       *       *       *       *


SEC. 501. EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN TRUSTS, ETC.

  (a) * * *

           *       *       *       *       *       *       *

  (c) List of Exempt Organizations.--The following 
organizations are referred to in subsection (a):
          (1) * * *

           *       *       *       *       *       *       *

          (18) A trust or trusts created before June 25, 1959, 
        forming part of a plan providing for the payment of 
        benefits under a pension plan funded only by 
        contributions of employees, if--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) in the case of a plan under which an 
                employee may designate certain contributions as 
                deductible--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) such contributions are treated 
                        as elective deferrals for purposes of 
                        section 402(g) [(other than paragraph 
                        (4) thereof)], and
                          (iv) the requirements of section 
                        401(a)(30) are met.

           *       *       *       *       *       *       *


SEC. 505. ADDITIONAL REQUIREMENTS FOR ORGANIZATIONS DESCRIBED IN 
                    PARAGRAPH (9), (17), OR (20) OF SECTION 501(C).

  (a) * * *
  (b) Nondiscrimination Requirements.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Compensation limit.--A plan shall not be treated 
        as meeting the requirements of this subsection unless 
        under the plan the annual compensation of each employee 
        taken into account for any year does not exceed 
        [$150,000] $200,000. The Secretary shall adjust the 
        [$150,000] $200,000 amount at the same time, and by the 
        same amount, as any adjustment under section 
        401(a)(17)(B). This paragraph shall not apply in 
        determining whether the requirements of section 79(d) 
        are met.

           *       *       *       *       *       *       *


Subtitle C--Employment Taxes

           *       *       *       *       *       *       *


CHAPTER 24--COLLECTION OF INCOME TAX AT SOURCE ON WAGES

           *       *       *       *       *       *       *


SEC. 3401. DEFINITIONS.

  (a) Wages.--For purposes of this chapter, the term ``wages'' 
means all remuneration (other than fees paid to a public 
official) for services performed by an employee for his 
employer, including the cash value of all remuneration 
(including benefits) paid in any medium other than cash; except 
that such term shall not include remuneration paid--
          (1) * * *

           *       *       *       *       *       *       *

          (12) to, or on behalf of, an employee or his 
        beneficiary--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) under or to an eligible deferred 
                compensation plan which, at the time of such 
                payment, is a plan described in section 457(b) 
                maintained by an employer described in section 
                457(e)(1)(A); or

           *       *       *       *       *       *       *


SEC. 3405. SPECIAL RULES FOR PENSIONS, ANNUITIES, AND CERTAIN OTHER 
                    DEFERRED INCOME.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Eligible rollover distributions.--
          (1) * * *

           *       *       *       *       *       *       *

          [(3) Eligible rollover distribution.--For purposes of 
        this subsection, the term ``eligible rollover 
        distribution'' has the meaning given such term by 
        section 402(f)(2)(A) (or in the case of an annuity 
        contract under section 403(b), a distribution from such 
        contract described in section 402(f)(2)(A)).]
          (3) Eligible rollover distribution.--For purposes of 
        this subsection, the term ``eligible rollover 
        distribution'' has the meaning given such term by 
        section 402(f)(2)(A).

           *       *       *       *       *       *       *

  (d) Liability for Withholding.--
          (1) * * *
          (2) Plan administrator liable in certain cases.--
                  (A) * * *
                  (B) Plans to which paragraph applies.--This 
                paragraph applies to any plan described in, or 
                which at any time has been determined to be 
                described in--
                          (i) section 401(a),
                          (ii) section 403(a), [or]
                          (iii) section 301(d) of the Tax 
                        Reduction Act of 1975[.], or
                          (iv) section 457(b).

           *       *       *       *       *       *       *


Subtitle D--Miscellaneous Excise Taxes

           *       *       *       *       *       *       *


               CHAPTER 43--QUALIFIED PENSION, ETC., PLANS

        Sec. 4971. Taxes on failure to meet minimum funding standards.
     * * * * * * *
        Sec. 4980F. Failure of applicable plans reducing benefit 
                  accruals to satisfy notice requirements.
     * * * * * * *

SEC. 4972. TAX ON NONDEDUCTIBLE CONTRIBUTIONS TO QUALIFIED EMPLOYER 
                    PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Nondeductible Contributions.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Exceptions.--In determining the amount of 
        nondeductible contributions for any taxable year, there 
        shall not be taken into account--
                  (A) contributions that would be deductible 
                under section 404(a)(1)(D) if the plan had more 
                than 100 participants if--
                          (i) the plan is covered under section 
                        4021 of the Employee Retirement Income 
                        Security Act of 1974, and
                          (ii) the plan is terminated under 
                        section 4041(b) of such Act on or 
                        before the last day of the taxable 
                        year, and
                  (B) so much of the contributions to 1 or more 
                defined contribution plans which are not 
                deductible when contributed solely because of 
                section 404(a)(7) as does not exceed the 
                greater of--
                          (i) the amount of contributions not 
                        in excess of 6 percent of compensation 
                        [(within the meaning of section 
                        404(a))] (within the meaning of section 
                        404(a) and as adjusted under section 
                        404(a)(12)) paid or accrued (during the 
                        taxable year for which the 
                        contributions were made) to 
                        beneficiaries under the plans, or
                          (ii) the sum of--
                                  (I) the amount of 
                                contributions described in 
                                section 401(m)(4)(A), plus
                                  (II) the amount of 
                                contributions described in 
                                section 402(g)(3)(A).
        If 1 or more defined benefit plans were taken into 
        account in determining the amount allowable as a 
        deduction under section 404 for contributions to any 
        defined contribution plan, subparagraph (B) shall apply 
        only if such defined benefit plans are described in 
        section 404(a)(1)(D). For purposes of subparagraph (B), 
        the deductible limits under section 404(a)(7) shall 
        first be applied to amounts contributed to a defined 
        benefit plan and then to amounts described in 
        subparagraph (B).

[For years beginning after December 31, 2000, paragraph (6) is amended 
                          to read as follows:]

          (6) Exceptions.--In determining the amount of 
        nondeductible contributions for any taxable year, there 
        shall not be taken into account so much of the 
        contributions to one or more defined contribution plans 
        which are not deductible when contributed solely 
        because of section 404(a)(7) as does not exceed the 
        greater of--
                  (A) the amount of contributions not in excess 
                of 6 percent of compensation (within the 
                meaning of section 404(a)) paid or accrued 
                (during the taxable year for which the 
                contributions were made) to beneficiaries under 
                the plans, or
                  (B) the sum of--
                          (i) the amount of contributions 
                        described in section 401(m)(4)(A), plus
                          (ii) the amount of contributions 
                        described in section 402(g)(3)(A).
        For purposes of this paragraph, the deductible limits 
        under section 404(a)(7) shall first be applied to 
        amounts contributed to a defined benefit plan and then 
        to amounts described in subparagraph (B).
          (7) Defined benefit plan exception.--In determining 
        the amount of nondeductible contributions for any 
        taxable year, an employer may elect for such year not 
        to take into account any contributions to a defined 
        benefit plan except to the extent that such 
        contributions exceed the full-funding limitation (as 
        defined in section 412(c)(7), determined without regard 
        to subparagraph (A)(i)(I) thereof). For purposes of 
        this paragraph, the deductible limits under section 
        404(a)(7) shall first be applied to amounts contributed 
        to defined contribution plans and then to amounts 
        described in this paragraph. If an employer makes an 
        election under this paragraph for a taxable year, 
        paragraph (6) shall not apply to such employer for such 
        taxable year.

           *       *       *       *       *       *       *


SEC. 4973. TAX ON EXCESS CONTRIBUTIONS TO CERTAIN TAX-FAVORED ACCOUNTS 
                    AND ANNUITIES.

  (a) * * *
  (b) Excess Contributions.--For purposes of this section, in 
the case of individual retirement accounts or individual 
retirement annuities, the term ``excess contributions'' means 
the sum of--
          (1) the excess (if any) of--
                  (A) the amount contributed for the taxable 
                year to the accounts or for the annuities 
                (other than a contribution to a Roth IRA or a 
                rollover contribution described in section 
                402(c), 403(a)(4), 403(b)(8), [or 408(d)(3)] 
                408(d)(3), or 457(e)(16)), over

           *       *       *       *       *       *       *


SEC. 4974. EXCISE TAX ON CERTAIN ACCUMULATIONS IN QUALIFIED RETIREMENT 
                    PLANS.

  (a) General Rule.--If the amount distributed during the 
taxable year of the payee under any qualified retirement plan 
or any eligible deferred compensation plan (as defined in 
section 457(b)) is less than the minimum required distribution 
for such taxable year, there is hereby imposed a tax equal to 
[50] 10 percent of the amount by which such minimum required 
distribution exceeds the actual amount distributed during the 
taxable year. The tax imposed by this section shall be paid by 
the payee.

           *       *       *       *       *       *       *


SEC. 4975. TAX ON PROHIBITED TRANSACTIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Definitions.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Employee stock ownership plan.--The term 
        ``employee stock ownership plan'' means a defined 
        contribution plan--
                  (A) * * *

           *       *       *       *       *       *       *

        A plan shall not be treated as an employee stock 
        ownership plan unless it meets the requirements of 
        section 409(h), section 409(o), and, if applicable, 
        section 409(n), section 409(p), and section 664(g) and, 
        if the employer has a registration-type class of 
        securities (as defined in section 409(e)(4)), it meets 
        the requirements of section 409(e).

           *       *       *       *       *       *       *

  (f) Other Definitions and Special Rules.--For purposes of 
this section--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Exemptions not to apply to certain 
        transactions.--
                  (A) * * *
                  (B) Special rules for shareholder-employees, 
                etc.--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) Loan exception.--For purposes 
                        of subparagraph (A)(i), the term 
                        ``owner-employee'' shall only include a 
                        person described in subclause (II) or 
                        (III) of clause (i).

           *       *       *       *       *       *       *


SEC. 4979A. TAX ON CERTAIN PROHIBITED ALLOCATIONS OF QUALIFIED 
                    SECURITIES.

  (a) Imposition of Tax.--If--
          (1) there is a prohibited allocation of qualified 
        securities by any employee stock ownership plan or 
        eligible worker-owned cooperative, [or]
          (2) there is an allocation described in section 
        664(g)(5)(A),
[there is hereby imposed a tax on such allocation equal to 50 
percent of the amount involved.]
          (3) there is any allocation of employer securities 
        which violates the provisions of section 409(p), or a 
        nonallocation year described in subsection (e)(2)(C) 
        with respect to an employee stock ownership plan, or
          (4) any synthetic equity is owned by a disqualified 
        person in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership 
equal to 50 percent of the amount involved.

           *       *       *       *       *       *       *

  [(c) Liability for Tax.--The tax imposed by this section 
shall be paid by--
          [(1) the employer sponsoring such plan, or
          [(2) the eligible worker-owned cooperative, which 
        made the written statement described in section 
        664(g)(1)(E) or in section 1042(b)(3)(B) (as the case 
        may be).]
  (c) Liability for Tax.--The tax imposed by this section shall 
be paid--
          (1) in the case of an allocation referred to in 
        paragraph (1) or (2) of subsection (a), by--
                  (A) the employer sponsoring such plan, or
                  (B) the eligible worker-owned cooperative,
        which made the written statement described in section 
        664(g)(1)(E) or in section 1042(b)(3)(B) (as the case 
        may be), and
          (2) in the case of an allocation or ownership 
        referred to in paragraph (3) or (4) of subsection (a), 
        by the S corporation the stock in which was so 
        allocated or owned.

           *       *       *       *       *       *       *

  [(e) Definitions.--Terms used in this section have the same 
respective meaning as when used in section 4978.]
  (e) Definitions and Special Rules.--For purposes of this 
section--
          (1) Definitions.--Except as provided in paragraph 
        (2), terms used in this section have the same 
        respective meanings as when used in sections 409 and 
        4978.
          (2) Special rules relating to tax imposed by reason 
        of paragraph (3) or (4) of subsection (a).--
                  (A) Prohibited allocations.--The amount 
                involved with respect to any tax imposed by 
                reason of subsection (a)(3) is the amount 
                allocated to the account of any person in 
                violation of section 409(p)(1).
                  (B) Synthetic equity.--The amount involved 
                with respect to any tax imposed by reason of 
                subsection (a)(4) is the value of the shares on 
                which the synthetic equity is based.
                  (C) Special rule during first nonallocation 
                year.--For purposes of subparagraph (A), the 
                amount involved for the first nonallocation 
                year of any employee stock ownership plan shall 
                be determined by taking into account the total 
                value of all the deemed-owned shares of all 
                disqualified persons with respect to such plan.
                  (D) Statute of limitations.--The statutory 
                period for the assessment of any tax imposed by 
                this section by reason of paragraph (3) or (4) 
                of subsection (a) shall not expire before the 
                date which is 3 years from the later of--
                          (i) the allocation or ownership 
                        referred to in such paragraph giving 
                        rise to such tax, or
                          (ii) the date on which the Secretary 
                        is notified of such allocation or 
                        ownership.

           *       *       *       *       *       *       *


SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO 
                    SATISFY NOTICE REQUIREMENTS.

  (a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of any applicable pension plan to meet the requirements 
of subsection (e) with respect to any applicable individual.
  (b) Amount of Tax.--
          (1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure with respect to any 
        applicable individual shall be $100 for each day in the 
        noncompliance period with respect to such failure.
          (2) Noncompliance period.--For purposes of this 
        section, the term ``noncompliance period'' means, with 
        respect to any failure, the period beginning on the 
        date the failure first occurs and ending on the date 
        the failure is corrected.
  (c) Limitations on Amount of Tax.--
          (1) Overall limitation for unintentional failures.--
        In the case of failures that are due to reasonable 
        cause and not to willful neglect, the tax imposed by 
        subsection (a) for failures during the taxable year of 
        the employer (or, in the case of a multiemployer plan, 
        the taxable year of the trust forming part of the plan) 
        shall not exceed $500,000. For purposes of the 
        preceding sentence, all multiemployer plans of which 
        the same trust forms a part shall be treated as one 
        plan. For purposes of this paragraph, if not all 
        persons who are treated as a single employer for 
        purposes of this section have the same taxable year, 
        the taxable years taken into account shall be 
        determined under principles similar to the principles 
        of section 1561.
          (2) Waiver by secretary.--In the case of a failure 
        which is due to reasonable cause and not to willful 
        neglect, the Secretary may waive part or all of the tax 
        imposed by subsection (a) to the extent that the 
        payment of such tax would be excessive relative to the 
        failure involved.
  (d) Liability for Tax.--The following shall be liable for the 
tax imposed by subsection (a):
          (1) In the case of a plan other than a multiemployer 
        plan, the employer.
          (2) In the case of a multiemployer plan, the plan.
  (e) Notice Requirements for Plans Significantly Reducing 
Benefit Accruals.--
          (1) In general.--If an applicable pension plan is 
        amended to provide for a significant reduction in the 
        rate of future benefit accrual, the plan administrator 
        shall provide written notice to each applicable 
        individual (and to each employee organization 
        representing applicable individuals).
          (2) Notice.--The notice required by paragraph (1) 
        shall be written in a manner calculated to be 
        understood by the average plan participant and shall 
        provide sufficient information (as determined in 
        accordance with regulations prescribed by the 
        Secretary) to allow applicable individuals to 
        understand the effect of the plan amendment.
          (3) Timing of notice.--Except as provided in 
        regulations, the notice required by paragraph (1) shall 
        be provided within a reasonable time before the 
        effective date of the plan amendment.
          (4) Designees.--Any notice under paragraph (1) may be 
        provided to a person designated, in writing, by the 
        person to which it would otherwise be provided.
          (5) Notice before adoption of amendment.--A plan 
        shall not be treated as failing to meet the 
        requirements of paragraph (1) merely because notice is 
        provided before the adoption of the plan amendment if 
        no material modification of the amendment occurs before 
        the amendment is adopted.
  (f) Applicable Individual; Applicable Pension Plan.--For 
purposes of this section--
          (1) Applicable individual.--The term ``applicable 
        individual'' means, with respect to any plan 
        amendment--
                  (A) any participant in the plan, and
                  (B) any beneficiary who is an alternate payee 
                (within the meaning of section 414(p)(8)) under 
                an applicable qualified domestic relations 
                order (within the meaning of section 
                414(p)(1)(A)),
        who may reasonably be expected to be affected by such 
        plan amendment.
          (2) Applicable pension plan.--The term ``applicable 
        pension plan'' means--
                  (A) any defined benefit plan, or
                  (B) an individual account plan which is 
                subject to the funding standards of section 
                412,
        which had 100 or more participants who had accrued a 
        benefit, or with respect to whom contributions were 
        made, under the plan (whether or not vested) as of the 
        last day of the plan year preceding the plan year in 
        which the plan amendment becomes effective. Such term 
        shall not include a governmental plan (within the 
        meaning of section 414(d)) or a church plan (within the 
        meaning of section 414(e)) with respect to which the 
        election provided by section 410(d) has not been made.

           *       *       *       *       *       *       *


Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *


Subchapter A--Returns and Records

           *       *       *       *       *       *       *


PART III--INFORMATIONAL RETURNS

           *       *       *       *       *       *       *



Subpart B--Information Concerning Transactions With Other Persons

           *       *       *       *       *       *       *



SEC. 6047. INFORMATION RELATING TO CERTAIN TRUSTS AND ANNUITY PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Designated Plus Contributions.--The Secretary shall 
require the plan administrator of each applicable retirement 
plan (as defined in section 402A) to make such returns and 
reports regarding designated plus contributions (as so defined) 
to the Secretary, participants and beneficiaries of the plan, 
and such other persons as the Secretary may prescribe.
  [(f)] (g) Cross references

          (1) For provisions relating to penalties for failures to file 
        returns and reports required under this section, see sections 
        6652(e), 6721, and 6722.
          (2) For criminal penalty for furnishing fraudulent 
        information, see section 7207.
          (3) For provisions relating to penalty for failure to comply 
        with the provisions of subsection (d), see section 6704.

           *       *       *       *       *       *       *


Subpart C--Information Regarding Wages Paid Employees

           *       *       *       *       *       *       *


SEC. 6051. RECEIPTS FOR EMPLOYEES.

  (a) Requirement.--Every person required to deduct and 
withhold from an employee a tax under section 3101 or 3402, or 
who would have been required to deduct and withhold a tax under 
section 3402 (determined without regard to subsection (n)) if 
the employee had claimed no more than one withholding 
exemption, or every employer engaged in a trade or business who 
pays remuneration for services performed by an employee, 
including the cash value of such remuneration paid in any 
medium other than cash, shall furnish to each such employee in 
respect of the remuneration paid by such person to such 
employee during the calendar year, on or before January 31 of 
the succeeding year, or, if his employment is terminated before 
the close of such calendar year, within 30 days after the date 
of receipt of a written request from the employee if such 30-
day period ends before January 31, a written statement showing 
the following:
          (1) * * *

           *       *       *       *       *       *       *

          (8) the total amount of elective deferrals (within 
        the meaning of section 402(g)(3)) and compensation 
        deferred under section 457, including the amount of 
        designated plus contributions (as defined in section 
        402A),

           *       *       *       *       *       *       *

                              ----------                              


               SECTION 1114 OF THE TAX REFORM ACT OF 1986

SEC. 1114. DEFINITION OF HIGHLY COMPENSATED EMPLOYEE.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Effective Date.--
          (1) * * *

           *       *       *       *       *       *       *

          [(4) Special rule for determining highly compensated 
        employees.--For purposes of sections 401(k) and 401(m) 
        of the Internal Revenue Code of 1986, in the case of an 
        employer incorporated on December 15, 1924, if more 
        than 50 percent of its employees in the top-paid group 
        (within the meaning of section 414(q)(4) of such Code) 
        earn less than $25,000 (indexed at the same time and in 
        the same manner as under section 415(d) of such Code), 
        then the highly compensated employees shall include 
        employees described in section 414(q)(1)(C) of such 
        Code determined without regard to the level of 
        compensation of such employees.]
                              ----------                              


            SECTION 1505 OF THE TAXPAYER RELIEF ACT OF 1997

SEC. 1505. EXTENSION OF MORATORIUM ON APPLICATION OF CERTAIN 
                    NONDISCRIMINATION RULES TO STATE AND LOCAL 
                    GOVERNMENTS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Effective Dates.--
          (1) * * *
          (2) Treatment for years beginning before date of 
        enactment.--A governmental plan (within the meaning of 
        section 414(d) of the Internal Revenue Code of 1986) 
        [maintained by a State or local government or political 
        subdivision thereof (or agency or instrumentality 
        thereof)] shall be treated as satisfying the 
        requirements of sections 401(a)(3), 401(a)(4), 
        401(a)(26), 401(k), 401(m), 403 (b)(1)(D) and (b)(12), 
        and 410 of such Code for all taxable years beginning 
        before the date of enactment of this Act.

                         VII. ADDITIONAL VIEWS

    H.R. 4843, the Comprehensive Retirement Security and 
Pension Reform Act of 2000, is designed to: (1) increase 
retirement savings mainly through tax-preferred employment-
based vehicles or Individual Retirement Accounts (IRAs), (2) 
enhance long-term security of pension benefits, and (3) reduce 
certain regulatory burdens relating to establishing and 
administering employer-sponsored pension plans.
    We strongly support the underlying goal of H.R. 4843, to 
provide expanded opportunities for working Americans to save 
for their retirement. This goal is shared by Members of both 
parties and is reflected in the level of bipartisan support 
this legislation has received. Many of the provisions that were 
included in the original bill, H.R. 1102, are noncontroversial, 
while others have been improved since the date of introduction. 
Consequently, H.R. 4843 is a more balanced bill than the 
original bill. However, there are some provisions we hope will 
continue to be debated and improved as this bill moves through 
the legislative process.
    H.R. 4843 provides us with an opportunity to respond to the 
pressing need for adequate and secure retirement benefits for 
all workers. This bill should provide additional incentives for 
increased retirement savings by rank and file workers. 
Expanding pension coverage and increasing the rate of 
participation in employment-based pension plans is even more 
important now as we face a declining national savings rate 
coupled with the imminent retirement of many baby boomers. In 
addition, a significant number of workers will face retirement 
with either insufficient or no retirement savings other than 
their Social Security benefit.
    Our current retirement system is built on the assumption 
that benefits provided under Social Security would be 
supplemented by other sources of income such as employment-
based pensions and personal savings. Thus, it is very important 
that we develop legislation designed to increase and enhance 
retirement savings for all working Americans.
    H.R. 4843 contains many needed provisions such as those 
designed to enhance and expand portability of pension benefits 
by workers as they move from one employer to another, to 
enhance fairness in pensions for women, and to strengthen 
pension security and enforcement.
    The current level of mobility among workers requires a 
modified approach to our retirement system. There is great 
demand for a system that incorporates flexibility for employers 
and portability of pension benefits for workers. Lack of 
pension portability in such a mobile workforce could result in 
workers being shortchanged in pension benefits merely because 
they changed jobs.
    H.R. 4843 contains provisions that respond directly to this 
need. Under this legislation, workers will have greater 
flexibility to transfer their pension benefits between employer 
plans or to an IRA. This flexibility would be available for all 
forms of employer-sponsored qualified pension plans and IRAs. 
We strongly support these provisions.
    In addition, H.R. 4843 contains various proposals designed 
to enhance the security of pension benefits for women. One such 
proposal would improve the ability of workers to vest in their 
accrued benefits through faster vesting requirements. Under the 
bill, this rule would apply to certain employer matching 
contributions to a section 401(k) plan. Because all workers 
should have the opportunity to vest in these employer 
contributions on an equal basis, we hope this provision sets 
the precedent with respect to vesting in all employer 
contributions under all pensions plans. There is no policy 
reason for workers to vest more slowly in their pension 
benefits based solely on the type of pension plan offered by 
their employer.
    Several provisions contained in H.R. 4843 are designed to 
increase benefit and contribution limits for taxpayers who are 
currently saving the maximum permitted under our current 
pension laws. These taxpayers would be allowed to save 
additional amounts on a tax-preferred basis through their 
employer-sponsored plan. We believe the opportunity either to 
begin to save or to increase current retirement savings through 
a tax-preferred vehicle must be extended to all workers, not 
just those who contribute the maximum contributions permitted 
under current law. This has not been accomplished by H.R. 4843 
in its present form.
    While H.R. 4843 provides significant opportunities for 
those workers who can most afford to, and currently do, save 
the maximum amount allowed, few or no opportunities are 
available to low- and moderate-income workers under the bill. 
We must continue to work together to improve this aspect of the 
bill. We must ensure that no segment of our workforce is 
excluded from the opportunity to improve their retirement years 
financially. The pressure to save adequately for retirement 
affects all working Americans. We must respond to these needs 
in a fair manner.
    The Amendment offered by Congressman Jefferson and other 
Democrats in Committee but defeated on a party line vote, is 
essential to make H.R. 4843 a more balanced pension package. 
The Amendment would increase savings opportunities for all 
workers, not just those workers who can most afford to save, by 
including low- and moderate-income workers in this legislation.
    The Amendment would have added to H.R. 4843 a Retirement 
Savings Account (RSA) proposal as developed by the 
Administration. We support the goal of the RSA proposal and 
consider it an important element to perfect the Comprehensive 
Retirement Security and Pension Reform Act of 2000.
    The RSA proposal would be a good first step in addressing 
the balance needed in this legislation. It would provide a 
refundable credit to low- and middle-income workers who 
participate in an employer-sponsored pension plan or an IRA. 
The maximum credit would equal 50 percent of the annual 
contribution limit allowed under a traditional IRA. The credit 
would be available to all qualifying taxpayers whose adjusted 
gross income does not exceed certain specified levels.
    The RSA proposal does not create a separate savings 
account. Rather, it works with existing employer-sponsored 
plans and IRAs. This feature would provide simplicity and ease 
of administration for plan sponsors. The proposal is designed 
to promote significant savings among low- and middle-income 
workers who are not currently participating in a pension plan 
or who are participating at a minimal level.
    The RSA proposal is intended to provide a strong incentive 
for our most vulnerable workers to save for their retirement. 
Because many of these workers have not yet begun to save or are 
saving at a minimal level, we believe a 50-percent credit would 
encourage them to take an important step toward creating 
increased retirement savings. Many of these workers will begin 
with a small account balance but will watch it grow over the 
years to an amount that could provide a more financially 
secured retirement. In addition, the satisfaction of seeing a 
small amount of savings grow through continuous contributions 
and compound interest will be an additional incentive for these 
individuals to continue the practice of saving for retirement. 
Workers who have little or no retirement savings can be brought 
into our current retirement system only through a different 
form of saving incentive such as the RSA proposal. It is our 
responsibility to ensure that these workers also benefit from 
any legislation that expands opportunities to save for 
retirement.
    Statistics confirm that low-income workers are far less 
likely to participate in an employment based retirement savings 
plan than workers with higher incomes even when a plan is 
available to them. Individuals earning between $10,000 and 
$14,000 annually participate at a rate of 31 percent even 
though 51 percent of them have access to plans at work. 
However, the participation rate for workers earning $50,000 or 
more increases to 83 percent, with 88 percent of such workers 
having access to employer-sponsored plans.
    The refundable aspect of the RSA credit is a key feature in 
reaching the workers it is intended to help. This credit allows 
us to include in our retirement system workers who simply 
cannot afford to save without such an incentive. Receiving a 
matching contribution of up to 50 percent of the annual 
contribution amount will motivate many low- and middle-income 
workers to direct some of their income or tax refund to 
retirement savings. The RSA proposal included in our Amendment 
would have accomplished all of these goals.
    Another important aspect of our Amendment is the incentive 
provided to small employers to establish and maintain pension 
plans for their workers. These incentives would have been 
provided through two credits for small employers.
    First, the Amendment would give a 50-percent tax credit to 
small employers for their start-up costs associated with 
establishing and administering pension plans for their 
employees. The credit would be available for the first three 
years of the life of the plan. This credit would provide a 
strong incentive for small businesses to offer pension plans 
for their employees. In addition, it could be used as a 
marketing tool by financial institutions and pension plan 
advisors to promote the adoption of plans among small 
employers.
    Second, the Amendment would provide eligible small 
employers with a 50-percent credit for certain employer 
contributions made to a pension plan for their non-highly 
compensated employees. The credit would encourage small 
employers to make contributions on behalf of those workers who 
have little or no money to contribute to the plan. The credit 
would be available for non-elective employer contributions of 
up to 1 percent of the employee's compensation, up to a total 
of 3 percent for both non-elective and matching contributions. 
By encouraging small employers to make contributions on behalf 
of their non-highly compensated employees, retirement savings 
for those workers will increase.
    It is critical to improve plan sponsorship among small 
employers who lag behind large employers in establishing 
retirement plans. Today, small businesses (100 or fewer 
employees) employ approximately two of every five U.S. workers, 
yet less than one-third of these businesses offer any 
retirement plan to their workers. The employees of small 
employers have the same need to save for their retirement, and 
we must provide them with the same opportunities to save in a 
tax-preferred employment-based vehicle as their counterparts 
who are employed by larger businesses.
    We hope that these proposals, which form the cornerstone of 
any inclusive pension reform package, will be given serious 
consideration as this process moves forward. We remain hopeful 
that any pension package signed into law this year will contain 
these proposals.
    Some have concerns that other provisions contained in H.R. 
4843, such as the provisions to modify the top-heavy rules and 
the nondiscrimination requirements, will be used by employers 
to reduce coverage to rank and file workers while increasing 
benefits for their highly-compensated workers. However, all of 
us hope that H.R. 4843 can be improved by the addition of the 
Administration's Retirement Saving Account proposal and the 
small business tax credit incentives to expand pension coverage 
and increase benefits for rank and file workers. This 
legislation should be improved to address the retirement needs 
of workers at all income levels. We intend to work in a 
bipartisan manner to achieve this goal.

                                   Xavier Becerra.
                                   Richard E. Neal.
                                   William J. Coyne.
                                   Sander Levin.
                                   John Lewis.
                                   Charles B. Rangel.
                                   Robert T. Matsui.
                                   Jim McDermott.
                                   William J. Jefferson.
                                   Karen L. Thurman.