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115th Congress}                                         { Rept. 115-959
                      HOUSE OF REPRESENTATIVES          
   2d Session }                                         {     Part 1
_______________________________________________________________________
                                   


                       FAMILY SAVINGS ACT OF 2018

                               __________

                              R E P O R T

                                 of the

                      COMMITTEE ON WAYS AND MEANS

                        HOUSE OF REPRESENTATIVES

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 6757]
                        
      [Including cost estimate of the Congressional Budget Office]

             [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


 September 24, 2018.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed
            
            
            
                                 ________
                       
                    U.S. GOVERNMENT PUBLISHING OFFICE
                
31-586                       WASHINGTON: 2018

_____________________________________________________________________________
            
            
            
            
            
            
            
                            C O N T E N T S

                              ----------                              
                                                                   Page
  I. SUMMARY AND BACKGROUND..........................................21
            A. Purpose and Summary...............................    21
            B. Background and Need for Legislation...............    22
            C. Legislative History...............................    22
 II. EXPLANATION OF THE BILL.........................................23
     TITLE I--EXPANDING AND PRESERVING RETIREMENT SAVINGS............23
            A. Multiple Employer Plans; Pooled Employer Plans 
                (sec. 101 of the bill, sec. 413 of the Code, and 
                secs. 3, 103, and 104 of ERISA)..................    23
            B. Rules Relating to Election of Safe Harbor 401(k) 
                Status (sec. 102 of the bill and sec. 401(k) of 
                the Code)........................................    34
            C. Certain Taxable Non-Tuition Fellowship and Stipend 
                Payments Treated as Compensation For IRA Purposes 
                (sec. 103 of the bill and sec. 219 of the Code)..    38
            D. Repeal of Maximum Age for Traditional IRA 
                Contributions (sec. 104 of the bill and sec. 219 
                of the Code).....................................    39
            E. Qualified Employer Plans Prohibited From Making 
                Loans Through Credit Cards and Other Similar 
                Arrangements (sec. 105 of the bill and sec. 72(p) 
                of the Code).....................................    40
            F. Portability of Lifetime Income Investments (sec. 
                106 of the bill and secs. 401(a), 401(k), 403(b), 
                and 457(d) of the Code)..........................    41
            G. Treatment of Custodial Accounts on Termination of 
                Section 403(b) Plans (sec. 107 of the bill and 
                sec. 403(b) of the Code).........................    44
            H. Clarification of Retirement Income Account Rules 
                Relating to Church-Controlled Organizations (sec. 
                108 of the bill and sec. 403(b)(9) of the Code)..    46
            I. Exemption from Required Minimum Distribution Rules 
                for Individuals with Certain Account Balances 
                (sec. 109 of the bill and secs. 401(a)(9) and 
                6047 of the Code)................................    48
            J. Clarification of Treatment of Certain Retirement 
                Plan Contributions Picked Up by Governmental 
                Employers For New or Existing Employees (sec. 110 
                of the bill and sec. 414(h)(2) of the Code)......    51
            K. Elective Deferrals by Members of the Ready Reserve 
                of a Reserve Component of the Armed Forces (sec. 
                111 of the bill and sec. 402(g) of the Code).....    54
     TITLE II--ADMINISTRATIVE IMPROVEMENTS...........................56
            A. Plan Adopted by Filing Due Date for Year May be 
                Treated as in Effect as of Close of Year (sec. 
                201 of the bill and sec. 401(b) of the Code).....    56
            B. Modification of Nondiscrimination Rules to Protect 
                Older, Longer Service Participants (sec. 202 of 
                the bill and secs. 401(a)(4) and (a)(26) of the 
                Code)............................................    57
            C. Study of Appropriate PBGC Premiums (sec. 203 of 
                the bill)........................................    67
     TITLE III--OTHER SAVINGS PROVISIONS.............................69
            A. Universal Savings Accounts (sec. 301 of the bill 
                and new sec. 530U of the Code)...................    69
            B. Expansion of 529 Plans (sec. 302 of the bill and 
                sec. 529 of the Code)............................    73
            C. Penalty-Free Withdrawals from Retirement Plans for 
                Individuals in Case of Birth of Child or Adoption 
                (sec. 303 of the bill and secs. 72(t), 401-403, 
                408, 457, and 3405 of the Code)..................    76
III. VOTES OF THE COMMITTEE..........................................78
 IV. BUDGET EFFECTS OF THE BILL......................................79
            A. Committee Estimate of Budgetary Effects...........    79
            B. Statement Regarding New Budget Authority and Tax 
                Expenditures Budget Authority....................    82
            C. Cost Estimate Prepared by the Congressional Budget 
                Office...........................................    82
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......89
            A. Committee Oversight Findings and Recommendations..    89
            B. Statement of General Performance Goals and 
                Objectives.......................................    89
            C. Information Relating to Unfunded Mandates.........    89
            D. Applicability of House Rule XXI 5(b)..............    89
            E. Tax Complexity Analysis...........................    90
            F. Congressional Earmarks, Limited Tax Benefits, and 
                Limited Tariff Benefits..........................    98
            G. Duplication of Federal Programs...................    98
            H. Disclosure of Directed Rule Makings...............    98
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........98
            A. Changes in Existing Law Proposed by the Bill as 
                Reported.........................................    98
VII. DISSENTING VIEWS...............................................348






115th Congress }                                        { Rept. 115-959
                        HOUSE OF REPRESENTATIVES
 2d Session    }                                        {    Part 1

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

 
                      FAMILY SAVINGS ACT OF 2018

                                _______
                                

 September 24, 2018.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Brady of Texas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 6757]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 6757) to amend the Internal Revenue Code of 1986 to 
encourage retirement and family savings, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; ETC.

  (a) Short Title.--This Act may be cited as the ``Family Savings Act 
of 2018''.
  (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; etc.

          TITLE I--EXPANDING AND PRESERVING RETIREMENT SAVINGS

Sec. 101. Multiple employer plans; pooled employer plans.
Sec. 102. Rules relating to election of safe harbor 401(k) status.
Sec. 103. Certain taxable non-tuition fellowship and stipend payments 
treated as compensation for IRA purposes.
Sec. 104. Repeal of maximum age for traditional IRA contributions.
Sec. 105. Qualified employer plans prohibited from making loans through 
credit cards and other similar arrangements.
Sec. 106. Portability of lifetime income investments.
Sec. 107. Treatment of custodial accounts on termination of section 
403(b) plans.
Sec. 108. Clarification of retirement income account rules relating to 
church-controlled organizations.
Sec. 109. Exemption from required minimum distribution rules for 
individuals with certain account balances.
Sec. 110. Clarification of treatment of certain retirement plan 
contributions picked up by governmental employers for new or existing 
employees.
Sec. 111. Elective deferrals by members of the Ready Reserve of a 
reserve component of the Armed Forces.

                 TITLE II--ADMINISTRATIVE IMPROVEMENTS

Sec. 201. Plan adopted by filing due date for year may be treated as in 
effect as of close of year.
Sec. 202. Modification of nondiscrimination rules to protect older, 
longer service participants.
Sec. 203. Study of appropriate PBGC premiums.

                  TITLE III--OTHER SAVINGS PROVISIONS

Sec. 301. Universal Savings Accounts.
Sec. 302. Expansion of section 529 plans.
Sec. 303. Penalty-free withdrawals from retirement plans for 
individuals in case of birth of child or adoption.

          TITLE I--EXPANDING AND PRESERVING RETIREMENT SAVINGS

SEC. 101. MULTIPLE EMPLOYER PLANS; POOLED EMPLOYER PLANS.

  (a) Qualification Requirements.--
          (1) In general.--Section 413 of the Internal Revenue Code of 
        1986 is amended by adding at the end the following new 
        subsection:
  ``(e) Application of Qualification Requirements for Certain Multiple 
Employer Plans With Pooled Plan Providers.--
          ``(1) In general.--Except as provided in paragraph (2), if a 
        defined contribution plan to which subsection (c) applies--
                  ``(A) is maintained by employers which have a common 
                interest other than having adopted the plan, or
                  ``(B) in the case of a plan not described in 
                subparagraph (A), has a pooled plan provider,
        then the plan shall not be treated as failing to meet the 
        requirements under this title applicable to a plan described in 
        section 401(a) or to a plan that consists of individual 
        retirement accounts described in section 408 (including by 
        reason of subsection (c) thereof), whichever is applicable, 
        merely because one or more employers of employees covered by 
        the plan fail to take such actions as are required of such 
        employers for the plan to meet such requirements.
          ``(2) Limitations.--
                  ``(A) In general.--Paragraph (1) shall not apply to 
                any plan unless the terms of the plan provide that in 
                the case of any employer in the plan failing to take 
                the actions described in paragraph (1)--
                          ``(i) the assets of the plan attributable to 
                        employees of such employer (or beneficiaries of 
                        such employees) will be transferred to a plan 
                        maintained only by such employer (or its 
                        successor), to an eligible retirement plan as 
                        defined in section 402(c)(8)(B) for each 
                        individual whose account is transferred, or to 
                        any other arrangement that the Secretary 
                        determines is appropriate, unless the Secretary 
                        determines it is in the best interests of the 
                        employees of such employer (and the 
                        beneficiaries of such employees) to retain the 
                        assets in the plan, and
                          ``(ii) such employer (and not the plan with 
                        respect to which the failure occurred or any 
                        other employer in such plan) shall, except to 
                        the extent provided by the Secretary, be liable 
                        for any liabilities with respect to such plan 
                        attributable to employees of such employer (or 
                        beneficiaries of such employees).
                  ``(B) Failures by pooled plan providers.--If the 
                pooled plan provider of a plan described in paragraph 
                (1)(B) does not perform substantially all of the 
                administrative duties which are required of the 
                provider under paragraph (3)(A)(i) for any plan year, 
                the Secretary may provide that the determination as to 
                whether the plan meets the requirements under this 
                title applicable to a plan described in section 401(a) 
                or to a plan that consists of individual retirement 
                accounts described in section 408 (including by reason 
                of subsection (c) thereof), whichever is applicable, 
                shall be made in the same manner as would be made 
                without regard to paragraph (1).
          ``(3) Pooled plan provider.--
                  ``(A) In general.--For purposes of this subsection, 
                the term `pooled plan provider' means, with respect to 
                any plan, a person who--
                          ``(i) is designated by the terms of the plan 
                        as a named fiduciary (within the meaning of 
                        section 402(a)(2) of the Employee Retirement 
                        Income Security Act of 1974), as the plan 
                        administrator, and as the person responsible to 
                        perform all administrative duties (including 
                        conducting proper testing with respect to the 
                        plan and the employees of each employer in the 
                        plan) which are reasonably necessary to ensure 
                        that--
                                  ``(I) the plan meets any requirement 
                                applicable under the Employee 
                                Retirement Income Security Act of 1974 
                                or this title to a plan described in 
                                section 401(a) or to a plan that 
                                consists of individual retirement 
                                accounts described in section 408 
                                (including by reason of subsection (c) 
                                thereof), whichever is applicable, and
                                  ``(II) each employer in the plan 
                                takes such actions as the Secretary or 
                                such person determines are necessary 
                                for the plan to meet the requirements 
                                described in subclause (I), including 
                                providing to such person any 
                                disclosures or other information which 
                                the Secretary may require or which such 
                                person otherwise determines are 
                                necessary to administer the plan or to 
                                allow the plan to meet such 
                                requirements,
                          ``(ii) registers as a pooled plan provider 
                        with the Secretary, and provides such other 
                        information to the Secretary as the Secretary 
                        may require, before beginning operations as a 
                        pooled plan provider,
                          ``(iii) acknowledges in writing that such 
                        person is a named fiduciary (within the meaning 
                        of section 402(a)(2) of the Employee Retirement 
                        Income Security Act of 1974), and the plan 
                        administrator, with respect to the plan, and
                          ``(iv) is responsible for ensuring that all 
                        persons who handle assets of, or who are 
                        fiduciaries of, the plan are bonded in 
                        accordance with section 412 of the Employee 
                        Retirement Income Security Act of 1974.
                  ``(B) Audits, examinations and investigations.--The 
                Secretary may perform audits, examinations, and 
                investigations of pooled plan providers as may be 
                necessary to enforce and carry out the purposes of this 
                subsection.
                  ``(C) Aggregation rules.--For purposes of this 
                paragraph, in determining whether a person meets the 
                requirements of this paragraph to be a pooled plan 
                provider with respect to any plan, all persons who 
                perform services for the plan and who are treated as a 
                single employer under subsection (b), (c), (m), or (o) 
                of section 414 shall be treated as one person.
                  ``(D) Treatment of employers as plan sponsors.--
                Except with respect to the administrative duties of the 
                pooled plan provider described in subparagraph (A)(i), 
                each employer in a plan which has a pooled plan 
                provider shall be treated as the plan sponsor with 
                respect to the portion of the plan attributable to 
                employees of such employer (or beneficiaries of such 
                employees).
          ``(4) Guidance.--The Secretary shall issue such guidance as 
        the Secretary determines appropriate to carry out this 
        subsection, including guidance--
                  ``(A) to identify the administrative duties and other 
                actions required to be performed by a pooled plan 
                provider under this subsection,
                  ``(B) which describes the procedures to be taken to 
                terminate a plan which fails to meet the requirements 
                to be a plan described in paragraph (1), including the 
                proper treatment of, and actions needed to be taken by, 
                any employer in the plan and the assets and liabilities 
                of the plan attributable to employees of such employer 
                (or beneficiaries of such employees), and
                  ``(C) identifying appropriate cases to which the 
                rules of paragraph (2)(A) will apply to employers in 
                the plan failing to take the actions described in 
                paragraph (1).
        The Secretary shall take into account under subparagraph (C) 
        whether the failure of an employer or pooled plan provider to 
        provide any disclosures or other information, or to take any 
        other action, necessary to administer a plan or to allow a plan 
        to meet requirements applicable to the plan under section 
        401(a) or 408, whichever is applicable, has continued over a 
        period of time that demonstrates a lack of commitment to 
        compliance.
          ``(5) Model plan.--The Secretary shall publish model plan 
        language which meets the requirements of this subsection and of 
        paragraphs (43) and (44) of section 3 of the Employee 
        Retirement Income Security Act of 1974 and which may be adopted 
        in order for a plan to be treated as a plan described in 
        paragraph (1)(B).''.
          (2) Conforming amendment.--Section 413(c)(2) of such Code is 
        amended by striking ``section 401(a)'' and inserting ``sections 
        401(a) and 408(c)''.
          (3) Technical amendment.--Section 408(c) of such Code is 
        amended by inserting after paragraph (2) the following new 
        paragraph:
          ``(3) There is a separate accounting for any interest of an 
        employee or member (or spouse of an employee or member) in a 
        Roth IRA.''.
  (b) No Common Interest Required for Pooled Employer Plans.--Section 
3(2) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1002(2)) is amended by adding at the end the following:
                  ``(C) A pooled employer plan shall be treated as--
                          ``(i) a single employee pension benefit plan 
                        or single pension plan; and
                          ``(ii) a plan to which section 210(a) 
                        applies.''.
  (c) Pooled Employer Plan and Provider Defined.--
          (1) In general.--Section 3 of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1002) is amended by adding at 
        the end the following:
          ``(43) Pooled employer plan.--
                  ``(A) In general.--The term `pooled employer plan' 
                means a plan--
                          ``(i) which is an individual account plan 
                        established or maintained for the purpose of 
                        providing benefits to the employees of 2 or 
                        more employers;
                          ``(ii) which is a plan described in section 
                        401(a) of the Internal Revenue Code of 1986 
                        which includes a trust exempt from tax under 
                        section 501(a) of such Code or a plan that 
                        consists of individual retirement accounts 
                        described in section 408 of such Code 
                        (including by reason of subsection (c) 
                        thereof); and
                          ``(iii) the terms of which meet the 
                        requirements of subparagraph (B).
                Such term shall not include a plan maintained by 
                employers which have a common interest other than 
                having adopted the plan.
                  ``(B) Requirements for plan terms.--The requirements 
                of this subparagraph are met with respect to any plan 
                if the terms of the plan--
                          ``(i) designate a pooled plan provider and 
                        provide that the pooled plan provider is a 
                        named fiduciary of the plan;
                          ``(ii) designate one or more trustees meeting 
                        the requirements of section 408(a)(2) of the 
                        Internal Revenue Code of 1986 (other than an 
                        employer in the plan) to be responsible for 
                        collecting contributions to, and holding the 
                        assets of, the plan and require such trustees 
                        to implement written contribution collection 
                        procedures that are reasonable, diligent, and 
                        systematic;
                          ``(iii) provide that each employer in the 
                        plan retains fiduciary responsibility for--
                                  ``(I) the selection and monitoring in 
                                accordance with section 404(a) of the 
                                person designated as the pooled plan 
                                provider and any other person who, in 
                                addition to the pooled plan provider, 
                                is designated as a named fiduciary of 
                                the plan; and
                                  ``(II) to the extent not otherwise 
                                delegated to another fiduciary by the 
                                pooled plan provider and subject to the 
                                provisions of section 404(c), the 
                                investment and management of the 
                                portion of the plan's assets 
                                attributable to the employees of the 
                                employer (or beneficiaries of such 
                                employees);
                          ``(iv) provide that employers in the plan, 
                        and participants and beneficiaries, are not 
                        subject to unreasonable restrictions, fees, or 
                        penalties with regard to ceasing participation, 
                        receipt of distributions, or otherwise 
                        transferring assets of the plan in accordance 
                        with section 208 or paragraph (44)(C)(i)(II);
                          ``(v) require--
                                  ``(I) the pooled plan provider to 
                                provide to employers in the plan any 
                                disclosures or other information which 
                                the Secretary may require, including 
                                any disclosures or other information to 
                                facilitate the selection or any 
                                monitoring of the pooled plan provider 
                                by employers in the plan; and
                                  ``(II) each employer in the plan to 
                                take such actions as the Secretary or 
                                the pooled plan provider determines are 
                                necessary to administer the plan or for 
                                the plan to meet any requirement 
                                applicable under this Act or the 
                                Internal Revenue Code of 1986 to a plan 
                                described in section 401(a) of such 
                                Code or to a plan that consists of 
                                individual retirement accounts 
                                described in section 408 of such Code 
                                (including by reason of subsection (c) 
                                thereof), whichever is applicable, 
                                including providing any disclosures or 
                                other information which the Secretary 
                                may require or which the pooled plan 
                                provider otherwise determines are 
                                necessary to administer the plan or to 
                                allow the plan to meet such 
                                requirements; and
                          ``(vi) provide that any disclosure or other 
                        information required to be provided under 
                        clause (v) may be provided in electronic form 
                        and will be designed to ensure only reasonable 
                        costs are imposed on pooled plan providers and 
                        employers in the plan.
                  ``(C) Exceptions.--The term `pooled employer plan' 
                does not include--
                          ``(i) a multiemployer plan; or
                          ``(ii) a plan established before the date of 
                        the enactment of the Family Savings Act of 2018 
                        unless the plan administrator elects that the 
                        plan will be treated as a pooled employer plan 
                        and the plan meets the requirements of this 
                        title applicable to a pooled employer plan 
                        established on or after such date.
                  ``(D) Treatment of employers as plan sponsors.--
                Except with respect to the administrative duties of the 
                pooled plan provider described in paragraph (44)(A)(i), 
                each employer in a pooled employer plan shall be 
                treated as the plan sponsor with respect to the portion 
                of the plan attributable to employees of such employer 
                (or beneficiaries of such employees).
          ``(44) Pooled plan provider.--
                  ``(A) In general.--The term `pooled plan provider' 
                means a person who--
                          ``(i) is designated by the terms of a pooled 
                        employer plan as a named fiduciary, as the plan 
                        administrator, and as the person responsible 
                        for the performance of all administrative 
                        duties (including conducting proper testing 
                        with respect to the plan and the employees of 
                        each employer in the plan) which are reasonably 
                        necessary to ensure that--
                                  ``(I) the plan meets any requirement 
                                applicable under this Act or the 
                                Internal Revenue Code of 1986 to a plan 
                                described in section 401(a) of such 
                                Code or to a plan that consists of 
                                individual retirement accounts 
                                described in section 408 of such Code 
                                (including by reason of subsection (c) 
                                thereof), whichever is applicable; and
                                  ``(II) each employer in the plan 
                                takes such actions as the Secretary or 
                                pooled plan provider determines are 
                                necessary for the plan to meet the 
                                requirements described in subclause 
                                (I), including providing the 
                                disclosures and information described 
                                in paragraph (43)(B)(v)(II);
                          ``(ii) registers as a pooled plan provider 
                        with the Secretary, and provides to the 
                        Secretary such other information as the 
                        Secretary may require, before beginning 
                        operations as a pooled plan provider;
                          ``(iii) acknowledges in writing that such 
                        person is a named fiduciary, and the plan 
                        administrator, with respect to the pooled 
                        employer plan; and
                          ``(iv) is responsible for ensuring that all 
                        persons who handle assets of, or who are 
                        fiduciaries of, the pooled employer plan are 
                        bonded in accordance with section 412.
                  ``(B) Audits, examinations and investigations.--The 
                Secretary may perform audits, examinations, and 
                investigations of pooled plan providers as may be 
                necessary to enforce and carry out the purposes of this 
                paragraph and paragraph (43).
                  ``(C) Guidance.--The Secretary shall issue such 
                guidance as the Secretary determines appropriate to 
                carry out this paragraph and paragraph (43), including 
                guidance--
                          ``(i) to identify the administrative duties 
                        and other actions required to be performed by a 
                        pooled plan provider under either such 
                        paragraph; and
                          ``(ii) which requires in appropriate cases 
                        that if an employer in the plan fails to take 
                        the actions required under subparagraph 
                        (A)(i)(II)--
                                  ``(I) the assets of the plan 
                                attributable to employees of such 
                                employer (or beneficiaries of such 
                                employees) are transferred to a plan 
                                maintained only by such employer (or 
                                its successor), to an eligible 
                                retirement plan as defined in section 
                                402(c)(8)(B) of the Internal Revenue 
                                Code of 1986 for each individual whose 
                                account is transferred, or to any other 
                                arrangement that the Secretary 
                                determines is appropriate in such 
                                guidance; and
                                  ``(II) such employer (and not the 
                                plan with respect to which the failure 
                                occurred or any other employer in such 
                                plan) shall, except to the extent 
                                provided in such guidance, be liable 
                                for any liabilities with respect to 
                                such plan attributable to employees of 
                                such employer (or beneficiaries of such 
                                employees).
                The Secretary shall take into account under clause (ii) 
                whether the failure of an employer or pooled plan 
                provider to provide any disclosures or other 
                information, or to take any other action, necessary to 
                administer a plan or to allow a plan to meet 
                requirements described in subparagraph (A)(i)(II) has 
                continued over a period of time that demonstrates a 
                lack of commitment to compliance. The Secretary may 
                waive the requirements of subclause (ii)(I) in 
                appropriate circumstances if the Secretary determines 
                it is in the best interests of the employees of the 
                employer referred to in such clause (and the 
                beneficiaries of such employees) to retain the assets 
                in the plan with respect to which the employer's 
                failure occurred.
                  ``(D) Aggregation rules.--For purposes of this 
                paragraph, in determining whether a person meets the 
                requirements of this paragraph to be a pooled plan 
                provider with respect to any plan, all persons who 
                perform services for the plan and who are treated as a 
                single employer under subsection (b), (c), (m), or (o) 
                of section 414 of the Internal Revenue Code of 1986 
                shall be treated as one person.''.
          (2) Bonding requirements for pooled employer plans.--The last 
        sentence of section 412(a) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1112(a)) is amended by 
        inserting ``or in the case of a pooled employer plan (as 
        defined in section 3(43))'' after ``section 407(d)(1))''.
          (3) Conforming and technical amendments.--Section 3 of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1002) is amended--
                  (A) in paragraph (16)(B)--
                          (i) by striking ``or'' at the end of clause 
                        (ii); and
                          (ii) by striking the period at the end and 
                        inserting ``, or (iv) in the case of a pooled 
                        employer plan, the pooled plan provider.''; and
                  (B) by striking the second paragraph (41).
  (d) Pooled Employer and Multiple Employer Plan Reporting.--
          (1) Additional information.--Section 103 of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1023) is 
        amended--
                  (A) in subsection (a)(1)(B), by striking ``applicable 
                subsections (d), (e), and (f)'' and inserting 
                ``applicable subsections (d), (e), (f), and (g)''; and
                  (B) by amending subsection (g) to read as follows:
  ``(g) Additional Information With Respect to Pooled Employer and 
Multiple Employer Plans.--An annual report under this section for a 
plan year shall include--
          ``(1) with respect to any plan to which section 210(a) 
        applies (including a pooled employer plan), a list of employers 
        in the plan, a good faith estimate of the percentage of total 
        contributions made by such employers during the plan year, and 
        the aggregate account balances attributable to each employer in 
        the plan (determined as the sum of the account balances of the 
        employees of such employer (and the beneficiaries of such 
        employees)); and
          ``(2) with respect to a pooled employer plan, the identifying 
        information for the person designated under the terms of the 
        plan as the pooled plan provider.''.
          (2) Simplified annual reports.--Section 104(a) of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1024(a)) is amended by striking paragraph (2)(A) and inserting 
        the following:
          ``(2)(A) With respect to annual reports required to be filed 
        with the Secretary under this part, the Secretary may by 
        regulation prescribe simplified annual reports for any pension 
        plan that--
                  ``(i) covers fewer than 100 participants; or
                  ``(ii) is a plan described in section 210(a) that 
                covers fewer than 1,000 participants, but only if no 
                single employer in the plan has 100 or more 
                participants covered by the plan.''.
  (e) Effective Date.--
          (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 2019.
          (2) Rule of construction.--Nothing in the amendments made by 
        subsection (a) shall be construed as limiting the authority of 
        the Secretary of the Treasury or the Secretary's delegate 
        (determined without regard to such amendments) to provide for 
        the proper treatment of a failure to meet any requirement 
        applicable under the Internal Revenue Code of 1986 with respect 
        to one employer (and its employees) in a multiple employer 
        plan.

SEC. 102. RULES RELATING TO ELECTION OF SAFE HARBOR 401(K) STATUS.

  (a) Limitation of Annual Safe Harbor Notice to Matching Contribution 
Plans.--
          (1) In general.--Section 401(k)(12)(A) of the Internal 
        Revenue Code of 1986 is amended by striking ``if such 
        arrangement'' and all that follows and inserting ``if such 
        arrangement--
                          ``(i) meets the contribution requirements of 
                        subparagraph (B) and the notice requirements of 
                        subparagraph (D), or
                          ``(ii) meets the contribution requirements of 
                        subparagraph (C).''.
          (2) Automatic contribution arrangements.--Section 
        401(k)(13)(B) of such Code is amended by striking ``means'' and 
        all that follows and inserting ``means a cash or deferred 
        arrangement--
                          ``(i) which is described in subparagraph 
                        (D)(i)(I) and meets the applicable requirements 
                        of subparagraphs (C) through (E), or
                          ``(ii) which is described in subparagraph 
                        (D)(i)(II) and meets the applicable 
                        requirements of subparagraphs (C) and (D).''.
  (b) Nonelective Contributions.--Section 401(k)(12) of such Code is 
amended by redesignating subparagraph (F) as subparagraph (G), and by 
inserting after subparagraph (E) the following new subparagraph:
                  ``(F) Timing of plan amendment for employer making 
                nonelective contributions.--
                          ``(i) In general.--Except as provided in 
                        clause (ii), a plan may be amended after the 
                        beginning of a plan year to provide that the 
                        requirements of subparagraph (C) shall apply to 
                        the arrangement for the plan year, but only if 
                        the amendment is adopted--
                                  ``(I) at any time before the 30th day 
                                before the close of the plan year, or
                                  ``(II) at any time before the last 
                                day under paragraph (8)(A) for 
                                distributing excess contributions for 
                                the plan year.
                          ``(ii) Exception where plan provided for 
                        matching contributions.--Clause (i) shall not 
                        apply to any plan year if the plan provided at 
                        any time during the plan year that the 
                        requirements of subparagraph (B) or paragraph 
                        (13)(D)(i)(I) applied to the plan year.
                          ``(iii) 4-percent contribution requirement.--
                        Clause (i)(II) shall not apply to an 
                        arrangement unless the amount of the 
                        contributions described in subparagraph (C) 
                        which the employer is required to make under 
                        the arrangement for the plan year with respect 
                        to any employee is an amount equal to at least 
                        4 percent of the employee's compensation.''.
  (c) Automatic Contribution Arrangements.--Section 401(k)(13) of such 
Code is amended by adding at the end the following:
                  ``(F) Timing of plan amendment for employer making 
                nonelective contributions.--
                          ``(i) In general.--Except as provided in 
                        clause (ii), a plan may be amended after the 
                        beginning of a plan year to provide that the 
                        requirements of subparagraph (D)(i)(II) shall 
                        apply to the arrangement for the plan year, but 
                        only if the amendment is adopted--
                                  ``(I) at any time before the 30th day 
                                before the close of the plan year, or
                                  ``(II) at any time before the last 
                                day under paragraph (8)(A) for 
                                distributing excess contributions for 
                                the plan year.
                          ``(ii) Exception where plan provided for 
                        matching contributions.--Clause (i) shall not 
                        apply to any plan year if the plan provided at 
                        any time during the plan year that the 
                        requirements of subparagraph (D)(i)(I) or 
                        paragraph (12)(B) applied to the plan year.
                          ``(iii) 4-percent contribution requirement.--
                        Clause (i)(II) shall not apply to an 
                        arrangement unless the amount of the 
                        contributions described in subparagraph 
                        (D)(i)(II) which the employer is required to 
                        make under the arrangement for the plan year 
                        with respect to any employee is an amount equal 
                        to at least 4 percent of the employee's 
                        compensation.''.
  (d) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2018.

SEC. 103. CERTAIN TAXABLE NON-TUITION FELLOWSHIP AND STIPEND PAYMENTS 
                    TREATED AS COMPENSATION FOR IRA PURPOSES.

  (a) In General.--Section 219(f)(1) of the Internal Revenue Code of 
1986 is amended by adding at the end the following: ``The term 
`compensation' shall include any amount included in gross income and 
paid to an individual to aid the individual in the pursuit of graduate 
or postdoctoral study.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2018.

SEC. 104. REPEAL OF MAXIMUM AGE FOR TRADITIONAL IRA CONTRIBUTIONS.

  (a) In General.--Section 219(d) of the Internal Revenue Code of 1986 
is amended by striking paragraph (1).
  (b) Conforming Amendment.--Section 408A(c) of the Internal Revenue 
Code of 1986 is amended by striking paragraph (4) and by redesignating 
paragraphs (5), (6), and (7) as paragraphs (4), (5), and (6), 
respectively.
  (c) Effective Date.--The amendments made by this section shall apply 
to contributions made for taxable years beginning after December 31, 
2018.

SEC. 105. QUALIFIED EMPLOYER PLANS PROHIBITED FROM MAKING LOANS THROUGH 
                    CREDIT CARDS AND OTHER SIMILAR ARRANGEMENTS.

  (a) In General.--Section 72(p)(2) of the Internal Revenue Code of 
1986 is amended by redesignating subparagraph (D) as subparagraph (E) 
and by inserting after subparagraph (C) the following new subparagraph:
                  ``(D) Prohibition of loans through credit cards and 
                other similar arrangements.--Notwithstanding 
                subparagraph (A), paragraph (1) shall apply to any loan 
                which is made through the use of any credit card or any 
                other similar arrangement.''.
  (b) Effective Date.--The amendments made by subsection (a) shall 
apply to loans made after the date of the enactment of this Act.

SEC. 106. PORTABILITY OF LIFETIME INCOME INVESTMENTS.

  (a) In General.--Section 401(a) of the Internal Revenue Code of 1986 
is amended by inserting after paragraph (37) the following new 
paragraph:
          ``(38) Portability of lifetime income investments.--
                  ``(A) In general.--Except as may be otherwise 
                provided by regulations, a trust forming part of a 
                defined contribution plan shall not be treated as 
                failing to constitute a qualified trust under this 
                section solely by reason of allowing--
                          ``(i) qualified distributions of a lifetime 
                        income investment, or
                          ``(ii) distributions of a lifetime income 
                        investment in the form of a qualified plan 
                        distribution annuity contract,
                on or after the date that is 90 days prior to the date 
                on which such lifetime income investment is no longer 
                authorized to be held as an investment option under the 
                plan.
                  ``(B) Definitions.--For purposes of this subsection--
                          ``(i) the term `qualified distribution' means 
                        a direct trustee-to-trustee transfer described 
                        in paragraph (31)(A) to an eligible retirement 
                        plan (as defined in section 402(c)(8)(B)),
                          ``(ii) the term `lifetime income investment' 
                        means an investment option which is designed to 
                        provide an employee with election rights--
                                  ``(I) which are not uniformly 
                                available with respect to other 
                                investment options under the plan, and
                                  ``(II) which are to a lifetime income 
                                feature available through a contract or 
                                other arrangement offered under the 
                                plan (or under another eligible 
                                retirement plan (as so defined), if 
                                paid by means of a direct trustee-to-
                                trustee transfer described in paragraph 
                                (31)(A) to such other eligible 
                                retirement plan),
                          ``(iii) the term `lifetime income feature' 
                        means--
                                  ``(I) a feature which guarantees a 
                                minimum level of income annually (or 
                                more frequently) for at least the 
                                remainder of the life of the employee 
                                or the joint lives of the employee and 
                                the employee's designated beneficiary, 
                                or
                                  ``(II) an annuity payable on behalf 
                                of the employee under which payments 
                                are made in substantially equal 
                                periodic payments (not less frequently 
                                than annually) over the life of the 
                                employee or the joint lives of the 
                                employee and the employee's designated 
                                beneficiary, and
                          ``(iv) the term `qualified plan distribution 
                        annuity contract' means an annuity contract 
                        purchased for a participant and distributed to 
                        the participant by a plan or contract described 
                        in subparagraph (B) of section 402(c)(8) 
                        (without regard to clauses (i) and (ii) 
                        thereof).''.
  (b) Cash or Deferred Arrangement.--
          (1) In general.--Section 401(k)(2)(B)(i) of such Code is 
        amended by striking ``or'' at the end of subclause (IV), by 
        striking ``and'' at the end of subclause (V) and inserting 
        ``or'', and by adding at the end the following new subclause:
                                  ``(VI) except as may be otherwise 
                                provided by regulations, with respect 
                                to amounts invested in a lifetime 
                                income investment (as defined in 
                                subsection (a)(38)(B)(ii)), the date 
                                that is 90 days prior to the date that 
                                such lifetime income investment may no 
                                longer be held as an investment option 
                                under the arrangement, and''.
          (2) Distribution requirement.--Section 401(k)(2)(B) of such 
        Code, as amended by paragraph (1), is amended by striking 
        ``and'' at the end of clause (i), by striking the semicolon at 
        the end of clause (ii) and inserting ``, and'', and by adding 
        at the end the following new clause:
                          ``(iii) except as may be otherwise provided 
                        by regulations, in the case of amounts 
                        described in clause (i)(VI), will be 
                        distributed only in the form of a qualified 
                        distribution (as defined in subsection 
                        (a)(38)(B)(i)) or a qualified plan distribution 
                        annuity contract (as defined in subsection 
                        (a)(38)(B)(iv)),''.
  (c) Section 403(b) Plans.--
          (1) Annuity contracts.--Section 403(b)(11) of such Code is 
        amended by striking ``or'' at the end of subparagraph (B), by 
        striking the period at the end of subparagraph (C) and 
        inserting ``, or'', and by inserting after subparagraph (C) the 
        following new subparagraph:
                  ``(D) except as may be otherwise provided by 
                regulations, with respect to amounts invested in a 
                lifetime income investment (as defined in section 
                401(a)(38)(B)(ii))--
                          ``(i) on or after the date that is 90 days 
                        prior to the date that such lifetime income 
                        investment may no longer be held as an 
                        investment option under the contract, and
                          ``(ii) in the form of a qualified 
                        distribution (as defined in section 
                        401(a)(38)(B)(i)) or a qualified plan 
                        distribution annuity contract (as defined in 
                        section 401(a)(38)(B)(iv)).''.
          (2) Custodial accounts.--Section 403(b)(7)(A) of such Code is 
        amended by striking ``if--'' and all that follows and inserting 
        ``if the amounts are to be invested in regulated investment 
        company stock to be held in that custodial account, and under 
        the custodial account--
                          ``(i) no such amounts may be paid or made 
                        available to any distributee (unless such 
                        amount is a distribution to which section 
                        72(t)(2)(G) applies) before--
                                  ``(I) the employee dies,
                                  ``(II) the employee attains age 59\1/
                                2\,
                                  ``(III) the employee has a severance 
                                from employment,
                                  ``(IV) the employee becomes disabled 
                                (within the meaning of section 
                                72(m)(7)),
                                  ``(V) in the case of contributions 
                                made pursuant to a salary reduction 
                                agreement (within the meaning of 
                                section 3121(a)(5)(D)), the employee 
                                encounters financial hardship, or
                                  ``(VI) except as may be otherwise 
                                provided by regulations, with respect 
                                to amounts invested in a lifetime 
                                income investment (as defined in 
                                section 401(a)(38)(B)(ii)), the date 
                                that is 90 days prior to the date that 
                                such lifetime income investment may no 
                                longer be held as an investment option 
                                under the contract, and
                          ``(ii) in the case of amounts described in 
                        clause (i)(VI), such amounts will be 
                        distributed only in the form of a qualified 
                        distribution (as defined in section 
                        401(a)(38)(B)(i)) or a qualified plan 
                        distribution annuity contract (as defined in 
                        section 401(a)(38)(B)(iv)).''.
  (d) Eligible Deferred Compensation Plans.--
          (1) In general.--Section 457(d)(1)(A) of such Code is amended 
        by striking ``or'' at the end of clause (ii), by inserting 
        ``or'' at the end of clause (iii), and by adding after clause 
        (iii) the following:
                          ``(iv) except as may be otherwise provided by 
                        regulations, in the case of a plan maintained 
                        by an employer described in subsection 
                        (e)(1)(A), with respect to amounts invested in 
                        a lifetime income investment (as defined in 
                        section 401(a)(38)(B)(ii)), the date that is 90 
                        days prior to the date that such lifetime 
                        income investment may no longer be held as an 
                        investment option under the plan,''.
          (2) Distribution requirement.--Section 457(d)(1) of such Code 
        is amended by striking ``and'' at the end of subparagraph (B), 
        by striking the period at the end of subparagraph (C) and 
        inserting ``, and'', and by inserting after subparagraph (C) 
        the following new subparagraph:
                  ``(D) except as may be otherwise provided by 
                regulations, in the case of amounts described in 
                subparagraph (A)(iv), such amounts will be distributed 
                only in the form of a qualified distribution (as 
                defined in section 401(a)(38)(B)(i)) or a qualified 
                plan distribution annuity contract (as defined in 
                section 401(a)(38)(B)(iv)).''.
  (e) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2018.

SEC. 107. TREATMENT OF CUSTODIAL ACCOUNTS ON TERMINATION OF SECTION 
                    403(B) PLANS.

  (a) In General.--Section 403(b)(7) of the Internal Revenue Code of 
1986 is amended by adding at the end the following:
                  ``(D) Treatment of custodial account upon plan 
                termination.--
                          ``(i) In general.--If--
                                  ``(I) an employer terminates the plan 
                                under which amounts are contributed to 
                                a custodial account under subparagraph 
                                (A), and
                                  ``(II) the person holding the assets 
                                of the account has demonstrated to the 
                                satisfaction of the Secretary under 
                                section 408(a)(2) that the person is 
                                qualified to be a trustee of an 
                                individual retirement plan,
                        then, as of the date of the termination, the 
                        custodial account shall be deemed to be an 
                        individual retirement plan for purposes of this 
                        title.
                          ``(ii) Treatment as roth ira.--Any custodial 
                        account treated as an individual retirement 
                        plan under clause (i) shall be treated as a 
                        Roth IRA only if the custodial account was a 
                        designated Roth account.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to plan terminations occurring after December 31, 2018.

SEC. 108. CLARIFICATION OF RETIREMENT INCOME ACCOUNT RULES RELATING TO 
                    CHURCH-CONTROLLED ORGANIZATIONS.

  (a) In General.--Section 403(b)(9)(B) of the Internal Revenue Code of 
1986 is amended by inserting ``(including an employee described in 
section 414(e)(3)(B))'' after ``employee described in paragraph (1)''.
  (b) Effective Date.--The amendment made by this section shall apply 
to plan years beginning after December 31, 2008.

SEC. 109. EXEMPTION FROM REQUIRED MINIMUM DISTRIBUTION RULES FOR 
                    INDIVIDUALS WITH CERTAIN ACCOUNT BALANCES.

  (a) In General.--Section 401(a)(9) of the Internal Revenue Code of 
1986 is amended by adding at the end the following new subparagraph:
                  ``(H) Exception from required minimum distributions 
                during life of employee where assets do not exceed 
                $50,000.--
                          ``(i) In general.--If on the last day of any 
                        calendar year the aggregate value of an 
                        employee's entire interest under all applicable 
                        eligible retirement plans does not exceed 
                        $50,000, then the requirements of subparagraph 
                        (A) with respect to any distribution relating 
                        to such year shall not apply with respect to 
                        such employee.
                          ``(ii) Applicable eligible retirement plan.--
                        For purposes of this subparagraph, the term 
                        `applicable eligible retirement plan' means an 
                        eligible retirement plan (as defined in section 
                        402(c)(8)(B)) other than a defined benefit 
                        plan.
                          ``(iii) Limit on required minimum 
                        distribution.--The required minimum 
                        distribution determined under subparagraph (A) 
                        for an employee under all applicable eligible 
                        retirement plans shall not exceed an amount 
                        equal to the excess of--
                                  ``(I) the aggregate value of an 
                                employee's entire interest under such 
                                plans on the last day of the calendar 
                                year to which such distribution 
                                relates, over
                                  ``(II) the dollar amount in effect 
                                under clause (i) for such calendar 
                                year.
                        The Secretary in regulations or other guidance 
                        may provide how such amount shall be 
                        distributed in the case of an individual with 
                        more than one applicable eligible retirement 
                        plan.
                          ``(iv) Inflation adjustment.--In the case of 
                        any calendar year beginning after 2019, the 
                        $50,000 amount in clause (i) 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, determined by 
                                substituting `calendar year 2018' for 
                                `calendar year 2016' in subparagraph 
                                (A)(ii) thereof.
                        Any increase determined under this clause shall 
                        be rounded to the next lowest multiple of 
                        $5,000.
                          ``(v) Plan administrator reliance on employee 
                        certification.--An applicable eligible 
                        retirement plan described in clause (iii), 
                        (iv), (v), or (vi) of section 402(c)(8)(B) 
                        shall not be treated as failing to meet the 
                        requirements of this paragraph in the case of 
                        any failure to make a required minimum 
                        distribution for a calendar year if--
                                  ``(I) the aggregate value of an 
                                employee's entire interest under all 
                                applicable eligible retirement plans of 
                                the employer on the last day of the 
                                calendar year to which such 
                                distribution relates does not exceed 
                                the dollar amount in effect for such 
                                year under clause (i), and
                                  ``(II) the employee certifies that 
                                the aggregate value of the employee's 
                                entire interest under all applicable 
                                eligible retirement plans on the last 
                                day of the calendar year to which such 
                                distribution relates did not exceed the 
                                dollar amount in effect for such year 
                                under clause (i).
                          ``(vi) Aggregation rule.--All employers 
                        treated as a single employer under subsection 
                        (b), (c), (m), or (o) of section 414 shall be 
                        treated as a single employer for purposes of 
                        clause (v).''.
  (b) Plan Administrator Reporting.--Section 6047 of such Code is 
amended by redesignating subsection (h) as subsection (h) and by 
inserting after subsection (g) the following new subsection:
  ``(h) Account Balance for Participants Who Have Attained Age 69.--
          ``(1) In general.--Not later than January 31 of each year, 
        the plan administrator (as defined in section 414(g)) of each 
        applicable eligible retirement plan (as defined in section 
        401(a)(9)(H)) shall make a return to the Secretary with respect 
        to each participant of such plan who has attained age 69 as of 
        the end of the preceding calendar year which states--
                  ``(A) the name and plan number of the plan,
                  ``(B) the name and address of the plan administrator,
                  ``(C) the name, address, and taxpayer identification 
                number of the participant, and
                  ``(D) the account balance of such participant as of 
                the end of the preceding calendar year.
          ``(2) Statement furnished to participant.--Every person 
        required to make a return under paragraph (1) with respect to a 
        participant shall furnish a copy of such return to such 
        participant.
          ``(3) Application to individual retirement plans and 
        annuities.--In the case of an applicable eligible retirement 
        plan described in clause (i) or (ii) of section 402(c)(8)(B)--
                  ``(A) any reference in this subsection to the plan 
                administrator shall be treated as a reference to the 
                trustee or issuer, as the case may be, and
                  ``(B) any reference in this subsection to the 
                participant shall be treated as a reference to the 
                individual for whom such account or annuity is 
                maintained.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to distributions required to be made in calendar years beginning more 
than 120 days after the date of the enactment of this Act.

SEC. 110. CLARIFICATION OF TREATMENT OF CERTAIN RETIREMENT PLAN 
                    CONTRIBUTIONS PICKED UP BY GOVERNMENTAL EMPLOYERS 
                    FOR NEW OR EXISTING EMPLOYEES.

  (a) In General.--Section 414(h)(2) of the Internal Revenue Code of 
1986 is amended--
          (1) by striking ``For purposes of paragraph (1)'' and 
        inserting the following:
                  ``(A) In general.--For purposes of paragraph (1)'', 
                and
          (2) by adding at the end the following new subparagraph:
                  ``(B) Treatment of elections between alternative 
                benefit formulas.--For purposes of subparagraph (A), a 
                contribution shall not fail to be treated as picked up 
                by an employing unit merely because the employee may 
                make an irrevocable election between the application of 
                two alternative benefit formulas involving the same or 
                different levels of employee contributions.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to plan years beginning after the date of the enactment of this Act.

SEC. 111. ELECTIVE DEFERRALS BY MEMBERS OF THE READY RESERVE OF A 
                    RESERVE COMPONENT OF THE ARMED FORCES.

  (a) In General.--Section 402(g) of the Internal Revenue Code of 1986 
is amended by adding at the end the following new paragraph:
          ``(9) Elective deferrals by members of ready reserve.--
                  ``(A) In general.--In the case of a qualified ready 
                reservist for any taxable year, the limitations of 
                subparagraphs (A) and (C) of paragraph (1) shall be 
                applied separately with respect to--
                          ``(i) elective deferrals of such qualified 
                        ready reservist with respect to compensation 
                        described in subparagraph (B), and
                          ``(ii) all other elective deferrals of such 
                        qualified ready reservist.
                  ``(B) Qualified ready reservist.--For purposes of 
                this paragraph, the term `qualified ready reservist' 
                means any individual for any taxable year if such 
                individual received compensation for service as a 
                member of the Ready Reserve of a reserve component (as 
                defined in section 101 of title 37, United States Code) 
                during such taxable year.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to plan years beginning after December 31, 2018.

                 TITLE II--ADMINISTRATIVE IMPROVEMENTS

SEC. 201. PLAN ADOPTED BY FILING DUE DATE FOR YEAR MAY BE TREATED AS IN 
                    EFFECT AS OF CLOSE OF YEAR.

  (a) In General.--Section 401(b) of the Internal Revenue Code of 1986 
is amended--
          (1) by striking ``Retroactive Changes in Plan.--A stock 
        bonus'' and inserting ``Plan Amendments.--
          ``(1) Certain retroactive changes in plan.--A stock bonus'', 
        and
          (2) by adding at the end the following new paragraph:
          ``(2) Adoption of plan.--If an employer adopts a stock bonus, 
        pension, profit-sharing, or annuity plan after the close of a 
        taxable year but before the time prescribed by law for filing 
        the employer's return of tax for the taxable year (including 
        extensions thereof), the employer may elect to treat the plan 
        as having been adopted as of the last day of the taxable 
        year.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to plans adopted for taxable years beginning after December 31, 2018.

SEC. 202. MODIFICATION OF NONDISCRIMINATION RULES TO PROTECT OLDER, 
                    LONGER SERVICE PARTICIPANTS.

  (a) In General.--Section 401 of the Internal Revenue Code of 1986 is 
amended--
          (1) by redesignating subsection (o) as subsection (p), and
          (2) by inserting after subsection (n) the following new 
        subsection:
  ``(o) Special Rules for Applying Nondiscrimination Rules to Protect 
Older, Longer Service and Grandfathered Participants.--
          ``(1) Testing of defined benefit plans with closed classes of 
        participants.--
                  ``(A) Benefits, rights, or features provided to 
                closed classes.--A defined benefit plan which provides 
                benefits, rights, or features to a closed class of 
                participants shall not fail to satisfy the requirements 
                of subsection (a)(4) by reason of the composition of 
                such closed class or the benefits, rights, or features 
                provided to such closed class, if--
                          ``(i) for the plan year as of which the class 
                        closes and the 2 succeeding plan years, such 
                        benefits, rights, and features satisfy the 
                        requirements of subsection (a)(4) (without 
                        regard to this subparagraph but taking into 
                        account the rules of subparagraph (I)),
                          ``(ii) after the date as of which the class 
                        was closed, any plan amendment which modifies 
                        the closed class or the benefits, rights, and 
                        features provided to such closed class does not 
                        discriminate significantly in favor of highly 
                        compensated employees, and
                          ``(iii) the class was closed before April 5, 
                        2017, or the plan is described in subparagraph 
                        (C).
                  ``(B) Aggregate testing with defined contribution 
                plans permitted on a benefits basis.--
                          ``(i) In general.--For purposes of 
                        determining compliance with subsection (a)(4) 
                        and section 410(b), a defined benefit plan 
                        described in clause (iii) may be aggregated and 
                        tested on a benefits basis with 1 or more 
                        defined contribution plans, including with the 
                        portion of 1 or more defined contribution plans 
                        which--
                                  ``(I) provides matching contributions 
                                (as defined in subsection (m)(4)(A)),
                                  ``(II) provides annuity contracts 
                                described in section 403(b) which are 
                                purchased with matching contributions 
                                or nonelective contributions, or
                                  ``(III) consists of an employee stock 
                                ownership plan (within the meaning of 
                                section 4975(e)(7)) or a tax credit 
                                employee stock ownership plan (within 
                                the meaning of section 409(a)).
                          ``(ii) Special rules for matching 
                        contributions.--For purposes of clause (i), if 
                        a defined benefit plan is aggregated with a 
                        portion of a defined contribution plan 
                        providing matching contributions--
                                  ``(I) such defined benefit plan must 
                                also be aggregated with any portion of 
                                such defined contribution plan which 
                                provides elective deferrals described 
                                in subparagraph (A) or (C) of section 
                                402(g)(3), and
                                  ``(II) such matching contributions 
                                shall be treated in the same manner as 
                                nonelective contributions, including 
                                for purposes of applying the rules of 
                                subsection (l).
                          ``(iii) Plans described.--A defined benefit 
                        plan is described in this clause if--
                                  ``(I) the plan provides benefits to a 
                                closed class of participants,
                                  ``(II) for the plan year as of which 
                                the class closes and the 2 succeeding 
                                plan years, the plan satisfies the 
                                requirements of section 410(b) and 
                                subsection (a)(4) (without regard to 
                                this subparagraph but taking into 
                                account the rules of subparagraph (I)),
                                  ``(III) after the date as of which 
                                the class was closed, any plan 
                                amendment which modifies the closed 
                                class or the benefits provided to such 
                                closed class does not discriminate 
                                significantly in favor of highly 
                                compensated employees, and
                                  ``(IV) the class was closed before 
                                April 5, 2017, or the plan is described 
                                in subparagraph (C).
                  ``(C) Plans described.--A plan is described in this 
                subparagraph if, taking into account any predecessor 
                plan--
                          ``(i) such plan has been in effect for at 
                        least 5 years as of the date the class is 
                        closed, and
                          ``(ii) during the 5-year period preceding the 
                        date the class is closed, there has not been a 
                        substantial increase in the coverage or value 
                        of the benefits, rights, or features described 
                        in subparagraph (A) or in the coverage or 
                        benefits under the plan described in 
                        subparagraph (B)(iii) (whichever is 
                        applicable).
                  ``(D) Determination of substantial increase for 
                benefits, rights, and features.--In applying 
                subparagraph (C)(ii) for purposes of subparagraph 
                (A)(iii), a plan shall be treated as having had a 
                substantial increase in coverage or value of the 
                benefits, rights, or features described in subparagraph 
                (A) during the applicable 5-year period only if, during 
                such period--
                          ``(i) the number of participants covered by 
                        such benefits, rights, or features on the date 
                        such period ends is more than 50 percent 
                        greater than the number of such participants on 
                        the first day of the plan year in which such 
                        period began, or
                          ``(ii) such benefits, rights, and features 
                        have been modified by 1 or more plan amendments 
                        in such a way that, as of the date the class is 
                        closed, the value of such benefits, rights, and 
                        features to the closed class as a whole is 
                        substantially greater than the value as of the 
                        first day of such 5-year period, solely as a 
                        result of such amendments.
                  ``(E) Determination of substantial increase for 
                aggregate testing on benefits basis.--In applying 
                subparagraph (C)(ii) for purposes of subparagraph 
                (B)(iii)(IV), a plan shall be treated as having had a 
                substantial increase in coverage or benefits during the 
                applicable 5-year period only if, during such period--
                          ``(i) the number of participants benefitting 
                        under the plan on the date such period ends is 
                        more than 50 percent greater than the number of 
                        such participants on the first day of the plan 
                        year in which such period began, or
                          ``(ii) the average benefit provided to such 
                        participants on the date such period ends is 
                        more than 50 percent greater than the average 
                        benefit provided on the first day of the plan 
                        year in which such period began.
                  ``(F) Certain employees disregarded.--For purposes of 
                subparagraphs (D) and (E), any increase in coverage or 
                value or in coverage or benefits, whichever is 
                applicable, which is attributable to such coverage and 
                value or coverage and benefits provided to employees--
                          ``(i) who became participants as a result of 
                        a merger, acquisition, or similar event which 
                        occurred during the 7-year period preceding the 
                        date the class is closed, or
                          ``(ii) who became participants by reason of a 
                        merger of the plan with another plan which had 
                        been in effect for at least 5 years as of the 
                        date of the merger,
                shall be disregarded, except that clause (ii) shall 
                apply for purposes of subparagraph (D) only if, under 
                the merger, the benefits, rights, or features under 1 
                plan are conformed to the benefits, rights, or features 
                of the other plan prospectively.
                  ``(G) Rules relating to average benefit.--For 
                purposes of subparagraph (E)--
                          ``(i) the average benefit provided to 
                        participants under the plan will be treated as 
                        having remained the same between the 2 dates 
                        described in subparagraph (E)(ii) if the 
                        benefit formula applicable to such participants 
                        has not changed between such dates, and
                          ``(ii) if the benefit formula applicable to 1 
                        or more participants under the plan has changed 
                        between such 2 dates, then the average benefit 
                        under the plan shall be considered to have 
                        increased by more than 50 percent only if--
                                  ``(I) the total amount determined 
                                under section 430(b)(1)(A)(i) for all 
                                participants benefitting under the plan 
                                for the plan year in which the 5-year 
                                period described in subparagraph (E) 
                                ends, exceeds
                                  ``(II) the total amount determined 
                                under section 430(b)(1)(A)(i) for all 
                                such participants for such plan year, 
                                by using the benefit formula in effect 
                                for each such participant for the first 
                                plan year in such 5-year period, by 
                                more than 50 percent.
                        In the case of a CSEC plan (as defined in 
                        section 414(y)), the normal cost of the plan 
                        (as determined under section 433(j)(1)(B)) 
                        shall be used in lieu of the amount determined 
                        under section 430(b)(1)(A)(i).
                  ``(H) Treatment as single plan.--For purposes of 
                subparagraphs (E) and (G), a plan described in section 
                413(c) shall be treated as a single plan rather than as 
                separate plans maintained by each employer in the plan.
                  ``(I) Special rules.--For purposes of subparagraphs 
                (A)(i) and (B)(iii)(II), the following rules shall 
                apply:
                          ``(i) In applying section 410(b)(6)(C), the 
                        closing of the class of participants shall not 
                        be treated as a significant change in coverage 
                        under section 410(b)(6)(C)(i)(II).
                          ``(ii) 2 or more plans shall not fail to be 
                        eligible to be aggregated and treated as a 
                        single plan solely by reason of having 
                        different plan years.
                          ``(iii) Changes in the employee population 
                        shall be disregarded to the extent attributable 
                        to individuals who become employees or cease to 
                        be employees, after the date the class is 
                        closed, by reason of a merger, acquisition, 
                        divestiture, or similar event.
                          ``(iv) Aggregation and all other testing 
                        methodologies otherwise applicable under 
                        subsection (a)(4) and section 410(b) may be 
                        taken into account.
                The rule of clause (ii) shall also apply for purposes 
                of determining whether plans to which subparagraph 
                (B)(i) applies may be aggregated and treated as 1 plan 
                for purposes of determining whether such plans meet the 
                requirements of subsection (a)(4) and section 410(b).
                  ``(J) Spun-off plans.--For purposes of this 
                paragraph, if a portion of a defined benefit plan 
                described in subparagraph (A) or (B)(iii) is spun off 
                to another employer and the spun-off plan continues to 
                satisfy the requirements of--
                          ``(i) subparagraph (A)(i) or (B)(iii)(II), 
                        whichever is applicable, if the original plan 
                        was still within the 3-year period described in 
                        such subparagraph at the time of the spin off, 
                        and
                          ``(ii) subparagraph (A)(ii) or (B)(iii)(III), 
                        whichever is applicable,
                the treatment under subparagraph (A) or (B) of the 
                spun-off plan shall continue with respect to such other 
                employer.
          ``(2) Testing of defined contribution plans.--
                  ``(A) Testing on a benefits basis.--A defined 
                contribution plan shall be permitted to be tested on a 
                benefits basis if--
                          ``(i) such defined contribution plan provides 
                        make-whole contributions to a closed class of 
                        participants whose accruals under a defined 
                        benefit plan have been reduced or eliminated,
                          ``(ii) for the plan year of the defined 
                        contribution plan as of which the class 
                        eligible to receive such make-whole 
                        contributions closes and the 2 succeeding plan 
                        years, such closed class of participants 
                        satisfies the requirements of section 
                        410(b)(2)(A)(i) (determined by applying the 
                        rules of paragraph (1)(I)),
                          ``(iii) after the date as of which the class 
                        was closed, any plan amendment to the defined 
                        contribution plan which modifies the closed 
                        class or the allocations, benefits, rights, and 
                        features provided to such closed class does not 
                        discriminate significantly in favor of highly 
                        compensated employees, and
                          ``(iv) the class was closed before April 5, 
                        2017, or the defined benefit plan under clause 
                        (i) is described in paragraph (1)(C) (as 
                        applied for purposes of paragraph 
                        (1)(B)(iii)(IV)).
                  ``(B) Aggregation with plans including matching 
                contributions.--
                          ``(i) In general.--With respect to 1 or more 
                        defined contribution plans described in 
                        subparagraph (A), for purposes of determining 
                        compliance with subsection (a)(4) and section 
                        410(b), the portion of such plans which 
                        provides make-whole contributions or other 
                        nonelective contributions may be aggregated and 
                        tested on a benefits basis with the portion of 
                        1 or more other defined contribution plans 
                        which--
                                  ``(I) provides matching contributions 
                                (as defined in subsection (m)(4)(A)),
                                  ``(II) provides annuity contracts 
                                described in section 403(b) which are 
                                purchased with matching contributions 
                                or nonelective contributions, or
                                  ``(III) consists of an employee stock 
                                ownership plan (within the meaning of 
                                section 4975(e)(7)) or a tax credit 
                                employee stock ownership plan (within 
                                the meaning of section 409(a)).
                          ``(ii) Special rules for matching 
                        contributions.--Rules similar to the rules of 
                        paragraph (1)(B)(ii) shall apply for purposes 
                        of clause (i).
                  ``(C) Special rules for testing defined contribution 
                plan features providing matching contributions to 
                certain older, longer service participants.--In the 
                case of a defined contribution plan which provides 
                benefits, rights, or features to a closed class of 
                participants whose accruals under a defined benefit 
                plan have been reduced or eliminated, the plan shall 
                not fail to satisfy the requirements of subsection 
                (a)(4) solely by reason of the composition of the 
                closed class or the benefits, rights, or features 
                provided to such closed class if the defined 
                contribution plan and defined benefit plan otherwise 
                meet the requirements of subparagraph (A) but for the 
                fact that the make-whole contributions under the 
                defined contribution plan are made in whole or in part 
                through matching contributions.
                  ``(D) Spun-off plans.--For purposes of this 
                paragraph, if a portion of a defined contribution plan 
                described in subparagraph (A) or (C) is spun off to 
                another employer, the treatment under subparagraph (A) 
                or (C) of the spun-off plan shall continue with respect 
                to the other employer if such plan continues to comply 
                with the requirements of clauses (ii) (if the original 
                plan was still within the 3-year period described in 
                such clause at the time of the spin off) and (iii) of 
                subparagraph (A), as determined for purposes of 
                subparagraph (A) or (C), whichever is applicable.
          ``(3) Definitions.--For purposes of this subsection--
                  ``(A) Make-whole contributions.--Except as otherwise 
                provided in paragraph (2)(C), the term `make-whole 
                contributions' means nonelective allocations for each 
                employee in the class which are reasonably calculated, 
                in a consistent manner, to replace some or all of the 
                retirement benefits which the employee would have 
                received under the defined benefit plan and any other 
                plan or qualified cash or deferred arrangement under 
                subsection (k)(2) if no change had been made to such 
                defined benefit plan and such other plan or 
                arrangement. For purposes of the preceding sentence, 
                consistency shall not be required with respect to 
                employees who were subject to different benefit 
                formulas under the defined benefit plan.
                  ``(B) References to closed class of participants.--
                References to a closed class of participants and 
                similar references to a closed class shall include 
                arrangements under which 1 or more classes of 
                participants are closed, except that 1 or more classes 
                of participants closed on different dates shall not be 
                aggregated for purposes of determining the date any 
                such class was closed.
                  ``(C) Highly compensated employee.--The term `highly 
                compensated employee' has the meaning given such term 
                in section 414(q).''.
  (b) Participation Requirements.--Section 401(a)(26) of such Code is 
amended by adding at the end the following new subparagraph:
                  ``(I) Protected participants.--
                          ``(i) In general.--A plan shall be deemed to 
                        satisfy the requirements of subparagraph (A) 
                        if--
                                  ``(I) the plan is amended--
                                          ``(aa) to cease all benefit 
                                        accruals, or
                                          ``(bb) to provide future 
                                        benefit accruals only to a 
                                        closed class of participants,
                                  ``(II) the plan satisfies 
                                subparagraph (A) (without regard to 
                                this subparagraph) as of the effective 
                                date of the amendment, and
                                  ``(III) the amendment was adopted 
                                before April 5, 2017, or the plan is 
                                described in clause (ii).
                          ``(ii) Plans described.--A plan is described 
                        in this clause if the plan would be described 
                        in subsection (o)(1)(C), as applied for 
                        purposes of subsection (o)(1)(B)(iii)(IV) and 
                        by treating the effective date of the amendment 
                        as the date the class was closed for purposes 
                        of subsection (o)(1)(C).
                          ``(iii) Special rules.--For purposes of 
                        clause (i)(II), in applying section 
                        410(b)(6)(C), the amendments described in 
                        clause (i) shall not be treated as a 
                        significant change in coverage under section 
                        410(b)(6)(C)(i)(II).
                          ``(iv) Spun-off plans.--For purposes of this 
                        subparagraph, if a portion of a plan described 
                        in clause (i) is spun off to another employer, 
                        the treatment under clause (i) of the spun-off 
                        plan shall continue with respect to the other 
                        employer.''.
  (c) Effective Date.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall take effect on the date 
        of the enactment of this Act, without regard to whether any 
        plan modifications referred to in such amendments are adopted 
        or effective before, on, or after such date of enactment.
          (2) Special rules.--
                  (A) Election of earlier application.--At the election 
                of the plan sponsor, the amendments made by this 
                section shall apply to plan years beginning after 
                December 31, 2013.
                  (B) Closed classes of participants.--For purposes of 
                paragraphs (1)(A)(iii), (1)(B)(iii)(IV), and (2)(A)(iv) 
                of section 401(o) of the Internal Revenue Code of 1986 
                (as added by this section), a closed class of 
                participants shall be treated as being closed before 
                April 5, 2017, if the plan sponsor's intention to 
                create such closed class is reflected in formal written 
                documents and communicated to participants before such 
                date.
                  (C) Certain post-enactment plan amendments.--A plan 
                shall not be treated as failing to be eligible for the 
                application of section 401(o)(1)(A), 401(o)(1)(B)(iii), 
                or 401(a)(26) of such Code (as added by this section) 
                to such plan solely because in the case of--
                          (i) such section 401(o)(1)(A), the plan was 
                        amended before the date of the enactment of 
                        this Act to eliminate 1 or more benefits, 
                        rights, or features, and is further amended 
                        after such date of enactment to provide such 
                        previously eliminated benefits, rights, or 
                        features to a closed class of participants, or
                          (ii) such section 401(o)(1)(B)(iii) or 
                        section 401(a)(26), the plan was amended before 
                        the date of the enactment of this Act to cease 
                        all benefit accruals, and is further amended 
                        after such date of enactment to provide benefit 
                        accruals to a closed class of participants. Any 
                        such section shall only apply if the plan 
                        otherwise meets the requirements of such 
                        section and in applying such section, the date 
                        the class of participants is closed shall be 
                        the effective date of the later amendment.

SEC. 203. STUDY OF APPROPRIATE PBGC PREMIUMS.

  (a) In General.--The Pension Benefit Guaranty Corporation (hereafter 
in this section referred to as ``the Corporation'') shall enter into a 
contract with an appropriate agency or organization to conduct an 
independent study of the Corporation's Single Employer Pension 
Insurance Modeling System.
  (b) Selection of Independent Organization.--The appropriate agency or 
organization referred to in subsection (a) shall be selected by the 
Board of Directors of the Corporation. Such agency or organization 
shall be the Social Security Administration or any other agency or 
organization that such Board determines is independent from the 
Corporation and has the expertise to conduct the study described in 
this section.
  (c) Study.--The independent study referred to in subsection (a) shall 
begin not later than 6 months after the date of the enactment of this 
Act and shall--
          (1) examine the current structure and level of premiums 
        required to be paid by single employer plans (including fixed, 
        variable and termination premiums) to the Corporation to 
        evaluate whether such premiums are sufficient for the 
        Corporation to pay the benefits guaranteed by the Corporation,
          (2) evaluate whether there are alternative structures and 
        levels of premiums that would better account for the risks 
        posed by various categories of single employer plans, including 
        on the basis of--
                  (A) industry, ownership structure, or size of the 
                plan sponsor,
                  (B) plan funded status, risk or volatility of plan 
                investments, or credit worthiness of the plan sponsor, 
                or
                  (C) a combination of factors described in 
                subparagraphs (A) and (B),
          (3) evaluate whether other methods of estimating the value of 
        assets and liabilities should be used in the financial 
        statements of the Corporation (including methods described in 
        the report titled ``The Risk Exposure of the Pension Benefit 
        Guaranty Corporation'' published by the Congressional Budget 
        Office in September 2005 and methods described in the report 
        titled ``Options to Improve the Financial Condition of the 
        Pension Benefit Guaranty Corporation's Multiemployer Program'' 
        published by the Congressional Budget Office in August 2016),
          (4) evaluate whether multiple employer plans in general, and 
        multiple employer plans that are CSEC plans (as defined in 
        section 414(y) of the Internal Revenue Code of 1986) in 
        particular, have characteristics that warrant a separate 
        structure and level of premiums, and
          (5) include an explanation of the assumptions underlying each 
        analysis involved in conducting such study.

                  TITLE III--OTHER SAVINGS PROVISIONS

SEC. 301. UNIVERSAL SAVINGS ACCOUNTS.

  (a) In General.--Subchapter F of chapter 1 of the Internal Revenue 
Code of 1986 is amended by adding at the end the following new part:

                 ``PART IX--UNIVERSAL SAVINGS ACCOUNTS

``Sec. 530U. Universal Savings Accounts.

``SEC. 530U. UNIVERSAL SAVINGS ACCOUNTS.

  ``(a) General Rule.--A Universal Savings Account shall be exempt from 
taxation under this subtitle. Notwithstanding the preceding sentence, 
such account shall be subject to the taxes imposed by section 511 
(relating to imposition of tax on unrelated business income of 
charitable organizations).
  ``(b) Universal Savings Account.--For purposes of this section, the 
term `Universal Savings Account' means a trust created or organized in 
the United States by an individual for the exclusive benefit of such 
individual and which is designated (in such manner as the Secretary may 
prescribe) at the time of the establishment of the trust as a Universal 
Savings Account, but only if the written governing instrument creating 
the trust meets the following requirements:
          ``(1) Except in the case of a qualified rollover contribution 
        described in subsection (d)--
                  ``(A) no contribution will be accepted unless it is 
                in cash, and
                  ``(B) contributions will not be accepted for the 
                taxable year in excess of the contribution limit 
                specified in subsection (c)(2).
          ``(2) No distribution will be made unless it is--
                  ``(A) cash, or
                  ``(B) property that--
                          ``(i) has a readily ascertainable fair market 
                        value, and
                          ``(ii) is identified by the Secretary in 
                        regulations or other guidance as property to 
                        which this subparagraph applies.
          ``(3) The trustee is a bank (as defined in section 408(n)) or 
        another person who demonstrates to the satisfaction of the 
        Secretary that the manner in which that person will administer 
        the trust will be consistent with the requirements of this 
        section.
          ``(4) No part of the trust assets will be invested in life 
        insurance contracts or collectibles (as defined in section 
        408(m)).
          ``(5) The interest of an individual in the balance of his 
        account is nonforfeitable.
          ``(6) The assets of the trust shall not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
  ``(c) Treatment of Distributions and Contributions.--
          ``(1) Distributions.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), any distribution from a Universal Savings Account 
                shall not be includible in gross income.
                  ``(B) Net income attributable to excess 
                contributions.--Any distribution of net income 
                described in section 4973(i)(2) shall be includible in 
                the gross income of the account holder in the taxable 
                year in which the contribution to which such net income 
                relates was made.
          ``(2) Contribution limit.--
                  ``(A) In general.--The aggregate amount of 
                contributions (other than qualified rollover 
                contributions described in subsection (d)) for any 
                taxable year to all Universal Savings Accounts 
                maintained for the benefit of an individual shall not 
                exceed the lesser of--
                          ``(i) $2,500, or
                          ``(ii) an amount equal to the compensation 
                        (within the meaning of section 219) includible 
                        in such individual's gross income for such 
                        taxable year.
                  ``(B) No contributions for dependents.--In the case 
                of an individual who is a dependent of another taxpayer 
                for a taxable year beginning in the calendar year in 
                which such individual's taxable year begins, the dollar 
                amount under subparagraph (A) for such individual's 
                taxable year shall be zero.
                  ``(C) Special rule in case of joint return.--
                          ``(i) In general.--In the case of an 
                        individual to whom this clause applies, the 
                        amount determined under subparagraph (A)(ii) 
                        with respect to such individual for the taxable 
                        year shall not be less than an amount equal to 
                        the sum of--
                                  ``(I) the compensation of such 
                                individual includible in gross income 
                                for the taxable year, plus
                                  ``(II) the compensation of such 
                                individual's spouse includible in gross 
                                income for the taxable year reduced 
                                (but not below zero) by the amount 
                                contributed for the taxable year to all 
                                Universal Savings Accounts maintained 
                                for the benefit of such spouse.
                          ``(ii) Individual to whom clause (i) 
                        applies.--Clause (i) shall apply to any 
                        individual--
                                  ``(I) who files a joint return for 
                                the taxable year, and
                                  ``(II) whose compensation includible 
                                in gross income for the taxable year is 
                                less than the compensation of such 
                                individual's spouse includible in gross 
                                income for the taxable year.
                  ``(D) Cost-of-living adjustment.--In the case of any 
                taxable year beginning in a calendar year after 2019, 
                the $2,500 amount under subparagraph (A)(i) 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, determined by substituting 
                        `calendar year 2018' for `calendar year 2016' 
                        in subparagraph (A)(ii) thereof.
                If any amount after adjustment under the preceding 
                sentence is not a multiple of $100, such amount shall 
                be rounded to the next lower multiple of $100.
  ``(d) Qualified Rollover Contribution.--For purposes of this section, 
the term `qualified rollover contribution' means a contribution to a 
Universal Savings Account from another such account of the same 
individual, but only if such amount is contributed not later than the 
60th day after the distribution from such other account.
  ``(e) Treatment of Account Upon Death.--Upon death of any account 
holder of a Universal Savings Account--
          ``(1) Spouse.--In the case of the account holder's surviving 
        spouse acquiring such account holder's interest in such account 
        by reason of the death of the account holder, such account 
        shall be treated as if the spouse were the account holder.
          ``(2) Other cases.--In any other case--
                  ``(A) all amounts in such account shall be treated as 
                distributed on the date of such individual's death, and
                  ``(B) such account shall cease to be treated as a 
                Universal Savings Account.
  ``(f) Other Special Rules.--
          ``(1) Community property laws.--This section shall be applied 
        without regard to any community property laws.
          ``(2) Loss of taxation exemption of account where individual 
        engages in prohibited transaction; effect of pledging account 
        as security.--Rules similar to the rules of paragraphs (2) and 
        (4) of section 408(e) shall apply to any Universal Savings 
        Account.
  ``(g) Reports.--The trustee of a Universal Savings Account shall make 
such reports regarding such account to the Secretary and to the account 
holder with respect to contributions, distributions, and such other 
matters as the Secretary may require. Such reports shall be--
          ``(1) filed at such time and in such manner as the Secretary 
        provides, and
          ``(2) furnished to account holders--
                  ``(A) not later than January 31 of the calendar year 
                following the calendar year to which such reports 
                relate, and
                  ``(B) in such manner as the Secretary provides.''.
  (b) Tax on Excess Contributions.--
          (1) In general.--Section 4973(a) of such Code is amended by 
        striking ``or'' at the end of paragraph (5), by inserting 
        ``or'' at the end of paragraph (6), and by inserting after 
        paragraph (6) the following new paragraph:
          ``(7) a Universal Savings Account (as defined in section 
        530U),''.
          (2) Excess contribution.--Section 4973 of such Code is 
        amended by adding at the end the following new subsection:
  ``(i) Excess Contributions to Universal Savings Accounts.--For 
purposes of this section--
          ``(1) In general.--In the case of Universal Savings Accounts 
        (within the meaning of section 530U), the term `excess 
        contributions' means the sum of--
                  ``(A) the amount (if any) by which the amount 
                contributed for the taxable year to such accounts 
                (other than qualified rollover contributions (as 
                defined in section 530U(d))) exceeds the contribution 
                limit under section 530U(c)(2) for such taxable year, 
                and
                  ``(B) the amount determined under this subsection for 
                the preceding taxable year, reduced by the sum of--
                          ``(i) the distributions out of the account 
                        for the taxable year, and
                          ``(ii) the amount (if any) by which the 
                        maximum amount allowable as a contribution 
                        under section 530U(c)(2) for the taxable year 
                        exceeds the amount contributed to the accounts 
                        for the taxable year.
          ``(2) Special rule.--A contribution shall not be taken into 
        account under paragraph (1) if such contribution (together with 
        the amount of net income attributable to such contribution) is 
        distributed to the account holder on or before the due date of 
        the account holder's return of tax for such taxable year.''.
  (c) Tax on Prohibited Transactions.--Section 4975(e)(1) of such Code 
is amended by striking ``or'' at the end of subparagraph (F), by 
striking the period at the end of subparagraph (G) and inserting ``, 
or'', and by adding at the end the following new subparagraph:
                  ``(H) a Universal Savings Account (as defined in 
                section 530U).''.
  (d) Failure to Provide Reports on Universal Savings Accounts.--
Section 6693(a)(2) of such Code is amended by striking ``and'' at the 
end of subparagraph (E), by striking the period at the end of 
subparagraph (F) and inserting ``, and'', and by inserting after 
subparagraph (F) the following new subparagraph:
                  ``(G) section 530U(g) (relating to Universal Savings 
                Accounts).''.
  (e) Conforming Amendment.--The table of parts for subchapter F of 
chapter 1 of such Code is amended by adding at the end the following 
new item:

                ``Part IX. Universal Savings Accounts''.

  (f) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2018.

SEC. 302. EXPANSION OF SECTION 529 PLANS.

  (a) Distributions for Certain Expenses Associated With Registered 
Apprenticeship Programs.--Section 529(c) of the Internal Revenue Code 
of 1986 is amended by adding at the end the following new paragraph:
          ``(8) Treatment of certain expenses associated with 
        registered apprenticeship programs.--Any reference in this 
        subsection to the term `qualified higher education expense' 
        shall include a reference to expenses for fees, books, 
        supplies, and equipment required for the participation of a 
        designated beneficiary in an apprenticeship program registered 
        and certified with the Secretary of Labor under section 1 of 
        the National Apprenticeship Act (29 U.S.C. 50).''.
  (b) Distributions for Certain Homeschooling Expenses.--Section 
529(c)(7) of such Code is amended by striking ``include a reference 
to'' and all that follows and inserting ``include a reference to--
                  ``(A) expenses for tuition in connection with 
                enrollment or attendance of a designated beneficiary at 
                an elementary or secondary public, private, or 
                religious school, and
                  ``(B) expenses, with respect to a designated 
                beneficiary, for--
                          ``(i) curriculum and curricular materials,
                          ``(ii) books or other instructional 
                        materials,
                          ``(iii) online educational materials,
                          ``(iv) tuition for tutoring or educational 
                        classes outside of the home (but only if the 
                        tutor or class instructor is not related 
                        (within the meaning of section 152(d)(2)) to 
                        the student),
                          ``(v) dual enrollment in an institution of 
                        higher education, and
                          ``(vi) educational therapies for students 
                        with disabilities,
                in connection with a homeschool (whether treated as a 
                homeschool or a private school for purposes of 
                applicable State law).''.
  (c) Distributions for Qualified Education Loan Repayments.--
          (1) In general.--Section 529(c) of such Code, as amended by 
        subsection (a), is amended by adding at the end the following 
        new paragraph:
          ``(9) Treatment of qualified education loan repayments.--
                  ``(A) In general.--Any reference in this subsection 
                to the term `qualified higher education expense' shall 
                include a reference to amounts paid as principal or 
                interest on any qualified education loan (as defined in 
                section 221(d)) of the designated beneficiary or a 
                sibling of the designated beneficiary.
                  ``(B) Limitation.--The amount of distributions 
                treated as a qualified higher education expense under 
                this paragraph with respect to the loans of any 
                individual shall not exceed $10,000 (reduced by the 
                amount of distributions so treated for all prior 
                taxable years).
                  ``(C) Special rules for siblings of the designated 
                beneficiary.--
                          ``(i) Separate accounting.--For purposes of 
                        subparagraph (B) and subsection (d), amounts 
                        treated as a qualified higher education expense 
                        with respect to the loans of a sibling of the 
                        designated beneficiary shall be taken into 
                        account with respect to such sibling and not 
                        with respect to such designated beneficiary.
                          ``(ii) Sibling defined.--For purposes of this 
                        paragraph, the term `sibling' means an 
                        individual who bears a relationship to the 
                        designated beneficiary which is described in 
                        section 152(d)(2)(B).''.
          (2) Coordination with deduction for student loan interest.--
        Section 221(e)(1) of such Code is amended by adding at the end 
        the following: ``The deduction otherwise allowable under 
        subsection (a) (prior to the application of subsection (b)) to 
        the taxpayer for any taxable year shall be reduced (but not 
        below zero) by so much of the distributions treated as a 
        qualified higher education expense under section 529(c)(9) with 
        respect to loans of the taxpayer as would be includible in 
        gross income under section 529(c)(3)(A) for such taxable year 
        but for such treatment.''.
  (d) Distributions for Certain Elementary and Secondary School 
Expenses in Addition to Tuition.--Section 529(c)(7)(A), as amended by 
subsection (b), is amended to read as follows:
                  ``(A) expenses described in section 530(b)(3)(A)(i) 
                in connection with enrollment or attendance of a 
                designated beneficiary at an elementary or secondary 
                public, private, or religious school, and''.
  (e) Effective Date.--The amendments made by this section shall apply 
to distributions made after December 31, 2018.

SEC. 303. PENALTY-FREE WITHDRAWALS FROM RETIREMENT PLANS FOR 
                    INDIVIDUALS IN CASE OF BIRTH OF CHILD OR ADOPTION.

  (a) In General.--Section 72(t)(2) of the Internal Revenue Code of 
1986 is amended by adding at the end the following new subparagraph:
                  ``(H) Distributions from retirement plans in case of 
                birth of child or adoption.--
                          ``(i) In general.--Any qualified birth or 
                        adoption distribution.
                          ``(ii) Limitation.--The aggregate amount 
                        which may be treated as qualified birth or 
                        adoption distributions by any individual with 
                        respect to any birth or adoption shall not 
                        exceed $7,500.
                          ``(iii) Qualified birth or adoption 
                        distribution.--For purposes of this 
                        subparagraph--
                                  ``(I) In general.--The term 
                                `qualified birth or adoption 
                                distribution' means any distribution 
                                from an applicable eligible retirement 
                                plan to an individual if made during 
                                the 1-year period beginning on the date 
                                on which a child of the individual is 
                                born or on which the legal adoption by 
                                the individual of an eligible child is 
                                finalized.
                                  ``(II) Eligible child.--The term 
                                `eligible child' means any individual 
                                (other than a child of the taxpayer's 
                                spouse) who has not attained age 18 or 
                                is physically or mentally incapable of 
                                self-support.
                          ``(iv) Treatment of plan distributions.--
                                  ``(I) In general.--If a distribution 
                                to an individual would (without regard 
                                to clause (ii)) be a qualified birth or 
                                adoption distribution, a plan shall not 
                                be treated as failing to meet any 
                                requirement of this title merely 
                                because the plan treats the 
                                distribution as a qualified birth or 
                                adoption distribution, unless the 
                                aggregate amount of such distributions 
                                from all plans maintained by the 
                                employer (and any member of any 
                                controlled group which includes the 
                                employer) to such individual exceeds 
                                $7,500.
                                  ``(II) Controlled group.--For 
                                purposes of subclause (I), the term 
                                `controlled group' means any group 
                                treated as a single employer under 
                                subsection (b), (c), (m), or (o) of 
                                section 414.
                          ``(v) Amount distributed may be repaid.--
                                  ``(I) In general.--Any individual who 
                                receives a qualified birth or adoption 
                                distribution may make one or more 
                                contributions in an aggregate amount 
                                not to exceed the amount of such 
                                distribution to an applicable eligible 
                                retirement plan of which such 
                                individual is a beneficiary and to 
                                which a rollover contribution of such 
                                distribution could be made under 
                                section 402(c), 403(a)(4), 403(b)(8), 
                                408(d)(3), or 457(e)(16), as the case 
                                may be.
                                  ``(II) Limitation on contributions to 
                                applicable eligible retirement plans 
                                other than IRAs.--The aggregate amount 
                                of contributions made by an individual 
                                under subclause (I) to any applicable 
                                eligible retirement plan which is not 
                                an individual retirement plan shall not 
                                exceed the aggregate amount of 
                                qualified birth or adoption 
                                distributions which are made from such 
                                plan to such individual. Subclause (I) 
                                shall not apply to contributions to any 
                                applicable eligible retirement plan 
                                which is not an individual retirement 
                                plan unless the individual is eligible 
                                to make contributions (other than those 
                                described in subclause (I)) to such 
                                applicable eligible retirement plan.
                                  ``(III) Treatment of repayments of 
                                distributions from applicable eligible 
                                retirement plans other than IRAs.--If a 
                                contribution is made under subclause 
                                (I) with respect to a qualified birth 
                                or adoption distribution from an 
                                applicable eligible retirement plan 
                                other than an individual retirement 
                                plan, then the taxpayer shall, to the 
                                extent of the amount of the 
                                contribution, be treated as having 
                                received such distribution in an 
                                eligible rollover distribution (as 
                                defined in section 402(c)(4)) and as 
                                having transferred the amount to the 
                                applicable eligible retirement plan in 
                                a direct trustee to trustee transfer 
                                within 60 days of the distribution.
                                  ``(IV) Treatment of repayments for 
                                distributions from iras.--If a 
                                contribution is made under subclause 
                                (I) with respect to a qualified birth 
                                or adoption distribution from an 
                                individual retirement plan, then, to 
                                the extent of the amount of the 
                                contribution, such distribution shall 
                                be treated as a distribution described 
                                in section 408(d)(3) and as having been 
                                transferred to the applicable eligible 
                                retirement plan in a direct trustee to 
                                trustee transfer within 60 days of the 
                                distribution.
                          ``(vi) Definition and special rules.--For 
                        purposes of this subparagraph--
                                  ``(I) Applicable eligible retirement 
                                plan.--The term `applicable eligible 
                                retirement plan' means an eligible 
                                retirement plan (as defined in section 
                                402(c)(8)(B)) other than a defined 
                                benefit plan.
                                  ``(II) Exemption of distributions 
                                from trustee to trustee transfer and 
                                withholding rules.--For purposes of 
                                sections 401(a)(31), 402(f), and 3405, 
                                a qualified birth or adoption 
                                distribution shall not be treated as an 
                                eligible rollover distribution.
                                  ``(III) Taxpayer must include tin.--A 
                                distribution shall not be treated as a 
                                qualified birth or adoption 
                                distribution with respect to any child 
                                or eligible child unless the taxpayer 
                                includes the name, age, and TIN of such 
                                child or eligible child on the 
                                taxpayer's return of tax for the 
                                taxable year.
                                  ``(IV) Distributions treated as 
                                meeting plan distribution 
                                requirements.--Any qualified birth or 
                                adoption distribution shall be treated 
                                as meeting the requirements of sections 
                                401(k)(2)(B)(i), 403(b)(7)(A)(ii), 
                                403(b)(11), and 457(d)(1)(A).''.
  (b) Effective Date.--The amendments made by this section shall apply 
to distributions made after December 31, 2018.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    H.R. 6757, as reported by the Committee on Ways and Means, 
expands the ability of Americans to use a variety of savings 
vehicles. The bill includes a series of important reforms to 
make it easier for employers, especially small employers, to 
provide retirement plans to their employees. The bill also 
includes reforms that make it easier for employees to 
participate in employer-sponsored retirement plans and 
individual retirement arrangements (IRAs). In addition, the 
bill establishes universal savings accounts, which are 
individual accounts that Americans can use to save for any 
purpose, in order to encourage families to save earlier and in 
greater amounts. The bill further expands the permitted uses of 
529 education savings plans. Furthermore, the bill includes a 
provision that allows individuals to withdraw funds from their 
retirement accounts, penalty-free, at the birth of a child or 
adoption.

                 B. Background and Need for Legislation

    Private-sector employer-sponsored retirement plans and IRAs 
are valuable tools successfully used by millions of Americans 
to help save for retirement. In 2015 there were approximately 
131 million civilian workers. Of those, approximately 69 
percent had access to either or both a defined benefit or 
defined contribution retirement plan at work and approximately 
53 percent participated in one or more of these types of 
retirement plans. An estimated 50 million workers participated 
in a defined contribution plan and 31 million workers 
participated in a defined benefit plan.\1\ Total financial 
assets for private, State, and local defined benefit and 
defined contribution plans in 2015 were $13.7 trillion, 
comprised of $8.1 trillion in defined benefit plans and $5.6 
trillion in defined contribution plans.\2\
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    \1\U.S. Bureau of Labor Statistics, Bulletin 2782, DOL: National 
Compensation Survey: Employee Benefits in the United States, March 
2015, 4, 572 (September 2015).
    \2\Board of Governors of the Federal Reserve System, First Quarter 
2018: Financial Accounts of the United States--Flow of Funds, Balance 
Sheets, and Integrated Macroeconomic Accounts, 95, 98.
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    The Committee believes that it is valuable for employees to 
have access to a retirement plan at work and that these reforms 
will expand the ability of employers to offer retirement plans.

                         C. Legislative History


Background

    H.R. 6757 was introduced on September 10, 2018, and was 
referred to the Committee on Ways and Means.

Committee action

    The Committee on Ways and Means marked up H.R. 6757, the 
``Family Savings Act of 2018,'' on September 13, 2018, and 
ordered the bill, as amended, favorably reported (with a quorum 
being present).

Committee hearings

    On July 9, 2017, the Subcommittee on Tax Policy of the 
Committee on Ways and Means held a public hearing on how the 
tax code affects families, including the tax code retirement 
savings provisions. On September 30, 2015, the Subcommittee on 
Oversight of the Committee on Ways and Means held a public 
hearing on various retirement issues. On April 17, 2012, the 
Committee on Ways and Means held a public hearing on the tax 
code provisions affecting retirement savings.

                      II. EXPLANATION OF THE BILL


          TITLE I--EXPANDING AND PRESERVING RETIREMENT SAVINGS


  A. Multiple Employer Plans; Pooled Employer Plans (sec. 101 of the 
    bill, sec. 413 of the Code, and secs. 3, 103, and 104 of ERISA)


                              PRESENT LAW

Retirement savings under the Code and ERISA

            Tax-favored arrangements
    The Internal Revenue Code (``Code'') provides two general 
vehicles for tax-favored retirement savings: employer-sponsored 
plans and individual retirement arrangements (``IRAs''). Code 
provisions are generally within the jurisdiction of the 
Secretary of the Treasury (``Secretary''), through his or her 
delegate, the Internal Revenue Service (``IRS'').
    The most common type of tax-favored employer-sponsored 
retirement plan is a qualified retirement plan,\3\ which may be 
a defined contribution plan or a defined benefit plan. Under a 
defined contribution plan, separate individual accounts are 
maintained for participants, to which accumulated 
contributions, earnings, and losses are allocated, and 
participants' benefits are based on the value of their 
accounts.\4\ Defined contribution plans commonly allow 
participants to direct the investment of their accounts, 
usually by choosing among investment options offered under the 
plan. Under a defined benefit plan, benefits are determined 
under a plan formula and paid from general plan assets, rather 
than individual accounts.\5\ Besides qualified retirement 
plans, certain tax-exempt employers and public schools may 
maintain tax-deferred annuity plans.\6\
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    \3\ Sec. 401(a). A qualified annuity plan under section 403(a) is 
similar to and subject to requirements similar to those applicable to 
qualified retirement plans. Unless otherwise stated, all section 
references are to the Internal Revenue Code of 1986, as amended (the 
``Code'').
    \4\Sec. 414(i). Defined contribution plans generally provide for 
contributions by employers and may include a qualified cash or deferred 
arrangement under a section 401(k) plan, under which employees may 
elect to contribute to the plan.
    \5\Sec. 414(j).
    \6\ Sec. 403(b). Private and governmental employers that are exempt 
from tax under section 501(c)(3), including tax-exempt private schools, 
may maintain tax-deferred annuity plans. State and local governmental 
employers may maintain another type of tax-favored retirement plan, an 
eligible deferred compensation plan under section 457(b).
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    An IRA is generally established by the individual for whom 
the IRA is maintained.\7\ However, in some cases, an employer 
may establish IRAs on behalf of employees and provide 
retirement contributions to the IRAs.\8\ In addition, IRA 
treatment may apply to accounts maintained for employees under 
a trust created by an employer (or an employee association) for 
the exclusive benefit of employees or their beneficiaries, 
provided that the trust complies with the relevant IRA 
requirements and separate accounting is maintained for the 
interest of each employee or beneficiary (referred to herein as 
an ``IRA trust'').\9\ In that case, the assets of the trust may 
be held in a common fund for the account of all individuals who 
have an interest in the trust.
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    \7\Sections 219, 408 and 408A provide rules for IRAs. Under section 
408(a)(2) and (n), only certain entities are permitted to be the 
trustee of an IRA. The trustee of an IRA generally must be a bank, an 
insured credit union, or a corporation subject to supervision and 
examination by the Commissioner of Banking or other officer in charge 
of the administration of the banking laws of the State in which it is 
incorporated. Alternatively, an IRA trustee may be another person who 
demonstrates to the satisfaction of the Secretary that the manner in 
which the person will administer the IRA will be consistent with the 
IRA requirements.
    \8\Simplified employee pension (``SEP'') plans under section 408(k) 
and SIMPLE IRA plans under section 408(p) are employer-sponsored 
retirement plans funded using IRAs for employees.
    \9\Sec. 408(c).
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            ERISA
    Retirement plans of private employers, including qualified 
retirement plans and tax-deferred annuity plans, are generally 
subject to requirements under the Employee Retirement Income 
Security Act of 1974 (``ERISA'').\10\ A plan covering only 
business owners (or business owners and their spouses)--that 
is, it covers no other employees--is exempt from ERISA.\11\ 
Thus, a plan covering only self-employed individuals is exempt 
from ERISA. Tax-deferred annuity plans that provide solely for 
salary reduction contributions by employees may be exempt from 
ERISA.\12\ IRAs are generally exempt from ERISA.
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    \10\ERISA applies to employee welfare benefit plans, such as health 
plans, of private employers, as well as to employer-sponsored 
retirement (or pension) plans. Employer-sponsored welfare and pension 
plans are both referred to under ERISA as employee benefit plans. Under 
ERISA sec. 4(b)(1) and (2), governmental plans and church plans are 
generally exempt from ERISA.
    \11\29 C.F.R. 2510.3-3(b)-(c).
    \12\29 C.F.R. 2510.3-2(f).
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    The provisions of Title I of ERISA are under the 
jurisdiction of the Secretary of Labor.\13\ Many of the 
requirements under Title I of ERISA parallel Code requirements 
for qualified retirement plans. Under ERISA, in carrying out 
provisions relating to the same subject matter, the Secretary 
(of the Treasury) and the Secretary of Labor are required to 
consult with each other and develop rules, regulations, 
practices, and forms that, to the extent appropriate for 
efficient administration, are designed to reduce duplication of 
effort, duplication of reporting, conflicting or overlapping 
requirements, and the burden of compliance by plan 
administrators, employers, and participants and 
beneficiaries.\14\ In addition, interpretive jurisdiction over 
parallel Code and ERISA provisions relating to retirement plans 
is divided between the two Secretaries by Executive Order, 
referred to as the Reorganization Plan No. 4 of 1978.\15\
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    \13\The provisions of Title I of ERISA are codified at 29 U.S.C. 
1001-734. Under Title IV of ERISA, defined benefit plans of private 
employers are generally covered by the Pension Benefit Guaranty 
Corporation's pension insurance program.
    \14\ERISA sec. 3004.
    \15\43 Fed. Reg. 47713 (October 17, 1978).
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Multiple employer plans under the Code

            In general
    Qualified retirement plans, either defined contribution or 
defined benefit plans, are categorized as single-employer plans 
or multiple employer plans. A single-employer plan is a plan 
maintained by one employer. For this purpose, businesses and 
organizations that are members of a controlled group of 
corporations, a group under common control, or an affiliated 
service group are treated as one employer (referred to as 
``aggregation'').\16\
---------------------------------------------------------------------------
    \16\Secs. 414(b), (c), (m) and (o).
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    A multiple employer plan generally is a single plan 
maintained by two or more unrelated employers (that is, 
employers that are not treated as a single employer under the 
aggregation rules).\17\ Multiple employer plans are commonly 
maintained by employers in the same industry and are used also 
by professional employer organizations (``PEOs'') to provide 
qualified retirement plan benefits to employees working for PEO 
clients.\18\
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    \17\Sec. 413(c). Multiple employer status does not apply if the 
plan is a multiemployer plan. Multiemployer plans are different from 
single employer plans and multiple employer plans. A multiemployer plan 
is defined under sec. 414(f) as a plan maintained pursuant to one or 
more collective bargaining agreements with two or more unrelated 
employers and to which the employers are required to contribute under 
the collective bargaining agreement(s). Multiemployer plans are also 
known as Taft-Hartley plans.
    \18\Rev. Proc. 2003-86, 2003-2 C.B. 1211, and Rev. Proc. 2002-21, 
2002-1 C.B. 911, address the application of the multiple employer plan 
rules to qualified defined contribution plans maintained by PEOs.
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            Application of Code requirements to multiple employer plans 
                    and EPCRS
    Some requirements are applied to a multiple employer plan 
on a plan-wide basis.\19\ For example, all employees covered by 
the plan are treated as employees of all employers 
participating in the plan for purposes of the exclusive benefit 
rule. Similarly, an employee's service with all participating 
employers is taken into account in applying the minimum 
participation and vesting requirements. In applying the limits 
on contributions and benefits, compensation, contributions, and 
benefits attributable to all employers are taken into 
account.\20\ Other requirements are applied separately, 
including the minimum coverage requirements, nondiscrimination 
requirements (both the general requirements and the special 
tests for section 401(k) plans), and the top-heavy rules.\21\ 
However, the qualified status of the plan as a whole is 
determined with respect to all employers maintaining the plan, 
and the failure by one employer (or by the plan itself) to 
satisfy an applicable qualification requirement may result in 
disqualification of the plan with respect to all employers 
(sometimes referred to as the ``one bad apple'' rule).\22\
---------------------------------------------------------------------------
    \19\Sec. 413(c).
    \20\Treas. Reg. sec. 1.415(a)-1(e).
    \21\Treas. Reg. secs. 1.413-2(a)(3)(ii)-(iii) and 1.416-1, G-2.
    \22\Treas. Reg. secs. 1.413-2(a)(3)(iv) and 1.416-1, G-2.
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    Because of the complexity of the requirements for qualified 
retirement plans, errors in plan documents, as well as plan 
operation and administration, commonly occur. Under a strict 
application of these requirements, such an error would cause a 
plan to lose its tax-favored status, which would fall most 
heavily on plan participants because of the resulting current 
income inclusion of vested amounts under the plan. As a 
practical matter, therefore, the IRS rarely disqualifies a 
plan. Instead, the IRS has established the Employee Plans 
Compliance Resolution System (``EPCRS''), a formal program 
under which employers and other plan sponsors can correct 
compliance failures and continue to provide their employees 
with retirement benefits on a tax-favored basis.\23\
---------------------------------------------------------------------------
    \23\Rev. Proc. 2016-51, 2016-42 I.R.B. 465.
---------------------------------------------------------------------------
    EPCRS has three components, providing for self-correction, 
voluntary correction with IRS approval, and correction on 
audit. The Self-Correction Program (``SCP'') generally permits 
a plan sponsor that has established compliance practices and 
procedures to correct certain insignificant failures at any 
time (including during an audit), and certain significant 
failures generally within a two-year period, without payment of 
any fee or sanction. The Voluntary Correction Program (``VCP'') 
permits 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.
    Multiple employer plans are eligible for EPCRS, and certain 
special procedures apply.\24\ A VCP request with respect to a 
multiple employer plan must be submitted to the IRS by the plan 
administrator, rather than an employer maintaining the plan, 
and must be made with respect to the entire plan, rather than a 
portion of the plan affecting any particular employer. In 
addition, if a failure applies to fewer than all of the 
employers under the plan, the plan administrator may choose to 
have a VCP compliance fee or audit CAP sanction calculated 
separately for each employer based on the participants 
attributable to that employer, rather than having the 
compliance fee calculated based on the participants of the 
entire plan. For example, the plan administrator may choose 
this option when the failure is attributable to the failure of 
an employer to provide the plan administrator with full and 
complete information.
---------------------------------------------------------------------------
    \24\Section 10.11 of Rev. Proc. 2016-51.
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ERISA

            Fiduciary and bonding requirements
    Among other requirements, ERISA requires a plan to be 
established and maintained pursuant to a written instrument 
(that is, a plan document) that contains certain terms.\25\ The 
terms of the plan must provide for one or more named 
fiduciaries that jointly or severally have authority to control 
and manage the operation and administration of the plan.\26\ 
Among other required plan terms are a procedure for the 
allocation of responsibilities for the operation and 
administration of the plan and a procedure for amending the 
plan and for identifying the persons who have authority to 
amend the plan. Among other permitted terms, a plan may provide 
also that any person or group of persons may serve in more than 
one fiduciary capacity with respect to the plan (including 
service both as trustee and administrator) and that a person 
who is a named fiduciary with respect to the control or 
management of plan assets may appoint an investment manager or 
managers to manage plan assets.
---------------------------------------------------------------------------
    \25\ERISA sec. 402.
    \26\Fiduciary is defined in ERISA section 3(21), and named 
fiduciary is defined in ERISA section 402(a)(2).
---------------------------------------------------------------------------
    In general, a plan fiduciary is responsible for the 
investment of plan assets. However, ERISA section 404(c) 
provides a special rule in the case of a defined contribution 
plan that permits participants to direct the investment of 
their individual accounts.\27\ Under the special rule, if 
various requirements are met, a participant is not deemed to be 
a fiduciary by reason of directing the investment of the 
participant's account and no person who is otherwise a 
fiduciary is liable for any loss, or by reason of any breach, 
that results from the participant's investments. Defined 
contribution plans that provide for participant-directed 
investments commonly offer a set of investment options among 
which participants may choose. The selection of investment 
options to be offered under a plan is subject to ERISA 
fiduciary requirements.
---------------------------------------------------------------------------
    \27\ERISA sec. 404(c). Under ERISA, a defined contribution plans is 
also referred to as an individual account plan.
---------------------------------------------------------------------------
    Under ERISA, any plan fiduciary or person that handles plan 
assets is required to be bonded, generally for an amount not to 
exceed $500,000.\28\ In some cases, the maximum bond amount is 
$1 million, rather than $500,000.
---------------------------------------------------------------------------
    \28\ERISA sec. 412.
---------------------------------------------------------------------------
            Multiple employer plan status under ERISA
    Like the Code, ERISA contains rules for multiple employer 
retirement plans.\29\ However, a different concept of multiple 
employer plan applies under ERISA.
---------------------------------------------------------------------------
    \29\ERISA sec. 210(a).
---------------------------------------------------------------------------
    Under ERISA, an employee benefit plan (whether a pension 
plan or a welfare plan) must be sponsored by an employer, by an 
employee organization, or by both.\30\ The definition of 
employer is any person acting directly as an employer, or 
indirectly in the interest of an employer, in relation to an 
employee benefit plan, and includes a group or association of 
employers acting for an employer in such capacity.\31\
---------------------------------------------------------------------------
    \30\ERISA secs. 3(1) and (2).
    \31\ERISA sec. 3(5).
---------------------------------------------------------------------------
    These definitional provisions of ERISA are interpreted as 
permitting a multiple employer plan to be established or 
maintained by a cognizable, bona fide group or association of 
employers, acting in the interests of its employer members to 
provide benefits to their employees.\32\ This approach is based 
on the premise that the person or group that maintains the plan 
is tied to the employers and employees that participate in the 
plan by some common economic or representational interest or 
genuine organizational relationship unrelated to the provision 
of benefits. Based on the facts and circumstances, the 
employers that participate in the benefit program must, either 
directly or indirectly, exercise control over that program, 
both in form and in substance, in order to act as a bona fide 
employer group or association with respect to the program, or 
the plan is sponsored by one or more employers as defined in 
section 3(5) of ERISA.\33\ However, an employer association 
does not exist where several unrelated employers merely execute 
participation agreements or similar documents as a means to 
fund benefits, in the absence of any genuine organizational 
relationship between the employers. In that case, each 
participating employer establishes and maintains a separate 
employee benefit plan for the benefit of its own employees, 
rather than a multiple employer plan.
---------------------------------------------------------------------------
    \32\See, for example, Department of Labor Advisory Opinions 2012-
04A, 2003-17A, 2001-04A, and 1994-07A, and other authorities cited 
therein.
    \33\See, for example, Department of Labor Advisory Opinion 2017-
02AC.
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Form 5500 reporting

    Under the Code, an employer maintaining a qualified 
retirement plan generally is required to file an annual return 
containing information required under regulations with respect 
to the qualification, financial condition, and operation of the 
plan.\34\ ERISA requires the plan administrator of certain 
pension and welfare benefit plans to file annual reports 
disclosing certain information to the Department of Labor 
(``DOL'').\35\ These filing requirements are met by filing a 
completed Form 5500, Annual Return/Report of Employee Benefit 
Plan. Forms 5500 are filed with DOL, and information from Forms 
5500 is shared with the IRS.\36\ In the case of a multiple 
employer plan, the annual report must include a list of 
participating employers and a good faith estimate of the 
percentage of total contributions made by the participating 
employers during the plan year. Certain small plans, that is, 
plans covering fewer than 100 participants, are eligible for 
simplified reporting requirements, which are met by filing Form 
5500-SF, Short Form Annual Return/Report of Small Employee 
Benefit Plan.\37\
---------------------------------------------------------------------------
    \34\Sec. 6058. In addition, under section 6059, the plan 
administrator of a defined benefit plan subject to the minimum funding 
requirements is required to file an annual actuarial report. Under Code 
section 414(g) and ERISA section 3(16), plan administrator generally 
means the person specifically so designated by the terms of the plan 
document. In the absence of a designation, the plan administrator 
generally is (1) in the case of a plan maintained by a single employer, 
the employer, (2) in the case of a plan maintained by an employee 
organization, the employee organization, or (3) in the case of a plan 
maintained by two or more employers or jointly by one or more employers 
and one or more employee organizations, the association, committee, 
joint board of trustees, or other similar group of representatives of 
the parties that maintain the plan. Under ERISA, the party described in 
(1), (2), or (3) is referred to as the ``plan sponsor.''
    \35\ERISA secs. 103 and 104. Under ERISA section 4065, the plan 
administrator of certain defined benefit plans must provide information 
to the PBGC.
    \36\Information is shared also with the PBGC, as applicable. Form 
5500 filings are also publicly released in accordance with section 
6104(b) and Treas. Reg. sec. 301.6104(b)-1 and ERISA secs. 104(a)(1) 
and 106(a).
    \37\ERISA sec. 104(b).
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                           REASONS FOR CHANGE

    The Committee believes that individuals are more likely to 
save for retirement if they have access to an employer-
sponsored retirement plan. In order to facilitate the offering 
of such plans, especially by small employers, the Committee 
believes that the law should permit unrelated employers to 
offer retirement plans to their employees through a multiple 
employer plan in a cost-effective manner while preserving 
compliance and employee protections. Allowing retirement plan 
service providers to offer services through a pooled retirement 
vehicle for unrelated employers in defined contribution plans 
with individual accounts, such as 401(k) plans, will allow 
employers (and their employees) participating in such plans to 
benefit from economies of scale, which can result in improved 
investment options for employees for their retirement savings. 
Employers in such a plan should not be subject to risk that any 
inadvertent or unintentional violation of tax code requirements 
by a noncompliant employer in the plan could result in negative 
consequences for the employers in the plan that are compliant 
or for such employers' participants. Requiring the plan service 
provider to take on fiduciary responsibilities will further the 
protection of participants in such plans.
    In the case of any multiple employer plan that, in 
accordance with the Department of Labor's current 
interpretations of the definition of employer in section 3(5) 
of ERISA, is treated currently as a single plan under ERISA, 
the Committee does not intend to modify the existing definition 
and regulatory guidance thereunder, except insofar as 
specifically provided herein with respect to relief from 
disqualification (or other loss of tax-favored status) and 
simplified annual reports.

                        EXPLANATION OF PROVISION

In general

    The provision amends the Code rules relating to multiple 
employer plans to provide relief from the ``one bad apple'' 
rule for certain plans (referred to herein as ``covered 
multiple employer plans''). A covered multiple employer plan is 
a multiple employer qualified defined contribution plan\38\ or 
a plan that consists of IRAs (referred to herein as an ``IRA 
plan''), including under an IRA trust,\39\ that either (1) is 
maintained by employers which have a common interest other than 
having adopted the plan, or (2) in the case of a plan not 
described in (1), has a pooled plan provider (referred to 
herein as a ``pooled provider plan''), and which meets certain 
other requirements as described below.
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    \38\To which section 413(c) applies.
    \39\Under the provision, in applying the exclusive benefit 
requirement under section 408(c) to an IRA plan with an IRA trust 
covering employees of unrelated employers, all employees covered by the 
plan are treated as employees of all employers participating in the 
plan.
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    The provision outlines various requirements that apply to a 
pooled provider plan under the Code. It also outlines various 
requirements that apply under ERISA to a qualified defined 
contribution plan that is established or maintained for the 
purpose of providing benefits to the employees of two or more 
employers and that meets certain requirements to be a ``pooled 
employer plan,'' and provides that a pooled employer plan is 
treated for purposes of ERISA as a single plan that is a 
multiple employer plan.\40\
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    \40\With respect to plans described under proposed section 
413(e)(1)(A), other than providing relief from the ``one bad apple'' 
rule if certain requirements are met and adding certain reporting 
requirements, the provision generally does not change present law and 
related guidance applicable to such multiple employer plans under the 
Code or ERISA.
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Tax-favored status under the Code

            In general
    The provision provides relief from disqualification (or 
other loss of tax-favored status) of the entire plan merely 
because one or more participating employers fail to take 
actions required with respect to the plan (that is, relief from 
the ``one bad apple'' rule).
    Such relief under the provision does not apply to a plan 
unless the terms of the plan provide that, in the case of any 
employer in the plan failing to take required actions (referred 
to herein as a ``noncompliant employer)''--
           plan assets attributable to employees of the 
        noncompliant employer (or beneficiaries of such 
        employees) will be transferred to a plan maintained 
        only by that employer (or its successor), to a tax-
        favored retirement plan for each individual whose 
        account is transferred,\41\ or to any other arrangement 
        that the Secretary determines is appropriate, unless 
        the Secretary determines it is in the best interests of 
        the employees of the noncompliant employer (and 
        beneficiaries of such employees) to retain the assets 
        in the plan, and
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    \41\For this purpose, a tax-favored retirement plan means an 
eligible retirement plan as defined in section 402(c)(8)(B), that is, 
an IRA, a qualified retirement plan, a tax-deferred annuity plan under 
section 403(b), or an eligible deferred compensation plan of a State or 
local governmental employer under section 457(b).
---------------------------------------------------------------------------
           the noncompliant employer (and not the plan 
        with respect to which the failure occurred or any other 
        employer in the plan) is, except to the extent provided 
        by the Secretary, liable for any plan liabilities 
        attributable to employees of the noncompliant employer 
        (or beneficiaries of such employees).
    In addition, in the case of a pooled provider plan, if the 
pooled plan provider does not perform substantially all the 
administrative duties required of the provider (as described 
below) for any plan year, the Secretary may provide that the 
determination as to whether the plan meets the Code 
requirements for tax-favored treatment will be made in the same 
manner as would be made without regard to the relief under the 
provision.
            Pooled plan provider
    Under the provision, ``pooled plan provider'' with respect 
to a plan means a person that--
           is designated by the terms of the plan as a 
        named fiduciary under ERISA,\42\ as the plan 
        administrator, and as the person responsible to perform 
        all administrative duties (including conducting proper 
        testing with respect to the plan and the employees of 
        each employer in the plan) that are reasonably 
        necessary to ensure that the plan meets the Code 
        requirements for tax-favored treatment and the 
        requirements of ERISA and to ensure that each employer 
        in the plan takes actions as the Secretary or the 
        pooled plan provider determines necessary for the plan 
        to meet Code and ERISA requirements, including 
        providing to the pooled plan provider any disclosures 
        or other information that the Secretary may require or 
        that the pooled plan provider otherwise determines are 
        necessary to administer the plan or to allow the plan 
        to meet Code and ERISA requirements,
---------------------------------------------------------------------------
    \42\Within the meaning of ERISA section 402(a)(2).
---------------------------------------------------------------------------
           registers with the Secretary as a pooled 
        plan provider and provides any other information that 
        the Secretary may require, before beginning operations 
        as a pooled plan provider,
           acknowledges in writing its status as a 
        named fiduciary under ERISA and as the plan 
        administrator, and
           is responsible for ensuring that all persons 
        who handle plan assets or are plan fiduciaries are 
        bonded in accordance with ERISA requirements.
    The provision specifies that the Secretary may perform 
audits, examinations, and investigations of pooled plan 
providers as may be necessary to enforce and carry out the 
purposes of the provision.
    In addition, the provision provides that in determining 
whether a person meets the requirements to be a pooled plan 
provider with respect to any plan, all persons who perform 
services for the plan and who are treated as a single 
employer\43\ are treated as one person.
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    \43\Under subsection (b), (c), (m), or (o) of section 414.
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            Plan sponsor
    The provision also provides that, except with respect to 
the administrative duties (as a named fiduciary, as the plan 
administrator, and as the person responsible for the 
performance of all administrative duties) for which the pooled 
plan provider is responsible as described above, each employer 
in a plan which has a pooled plan provider will be treated as 
the plan sponsor with respect to the portion of the plan 
attributable to that employer's employees (or beneficiaries of 
such employees).
            Guidance
    The provision directs the Secretary to issue guidance that 
the Secretary determines appropriate to carry out the 
provision, including guidance (1) to identify the 
administrative duties and other actions required to be 
performed by a pooled plan provider, (2) that describes the 
procedures to be taken to terminate a plan that fails to meet 
the requirements to be a covered multiple employer plan, 
including the proper treatment of, and actions needed to be 
taken by, any employer in the plan and plan assets and 
liabilities attributable to employees of that employer (or 
beneficiaries of such employees), and (3) to identify 
appropriate cases in which corrective action will apply with 
respect to noncompliant employers. For purposes of (3), the 
Secretary is to take into account whether the failure of an 
employer or pooled plan provider to provide any disclosures or 
other information, or to take any other action, necessary to 
administer a plan or to allow a plan to meet the Code 
requirements for tax-favored treatment, has continued over a 
period of time that demonstrates a lack of commitment to 
compliance.
    The provision also directs the Secretary to publish model 
plan language that meets the Code and ERISA requirements under 
the provision and that may be adopted in order to be treated as 
a pooled employer plan under ERISA.

Pooled employer plans under ERISA

            In general
    As described above, under the provision, a pooled employer 
plan is treated for purposes of ERISA as a single plan that is 
a multiple employer plan. A ``pooled employer plan'' is defined 
as a plan (1) that is an individual account plan established or 
maintained for the purpose of providing benefits to the 
employees of two or more employers, (2) that is a qualified 
retirement plan or an IRA plan, and (3) the terms of which meet 
the requirements described below. A pooled employer plan does 
not include a plan maintained by employers that have a common 
interest other than having adopted the plan.
    In order for a plan to be a pooled employer plan, the plan 
terms must--
           designate a pooled plan provider and provide 
        that the pooled plan provider is a named fiduciary of 
        the plan,
           designate one or more trustees (other than 
        an employer in the plan)\44\ to be responsible for 
        collecting contributions to, and holding the assets of, 
        the plan, and require the trustees to implement written 
        contribution collection procedures that are reasonable, 
        diligent, and systematic,
---------------------------------------------------------------------------
    \44\Any trustee must meet the requirements under the Code to be an 
IRA trustee.
---------------------------------------------------------------------------
           provide that each employer in the plan 
        retains fiduciary responsibility for the selection and 
        monitoring, in accordance with ERISA fiduciary 
        requirements, of the person designated as the pooled 
        plan provider and any other person who is also 
        designated as a named fiduciary of the plan, and, to 
        the extent not otherwise delegated to another fiduciary 
        by the pooled plan provider (and subject to the ERISA 
        rules relating to self-directed investments), the 
        investment and management of the portion of the plan's 
        assets attributable to the employees of that employer 
        (or beneficiaries of such employees) in the plan,
           provide that employers in the plan, and 
        participants and beneficiaries, are not subject to 
        unreasonable restrictions, fees, or penalties with 
        regard to ceasing participation, receipt of 
        distributions, or otherwise transferring assets of the 
        plan in accordance with applicable rules for plan 
        mergers and transfers,
           require the pooled plan provider to provide 
        to employers in the plan any disclosures or other 
        information that the Secretary of Labor may require, 
        including any disclosures or other information to 
        facilitate the selection or any monitoring of the 
        pooled plan provider by employers in the plan, and 
        require each employer in the plan to take any actions 
        that the Secretary of Labor or pooled plan provider 
        determines are necessary to administer the plan or to 
        allow for the plan to meet the ERISA and Code 
        requirements applicable to the plan, including 
        providing any disclosures or other information that the 
        Secretary of Labor may require or that the pooled plan 
        provider otherwise determines are necessary to 
        administer the plan or to allow the plan to meet such 
        ERISA and Code requirements, and
           provide that any disclosure or other 
        information required to be provided as described above 
        may be provided in electronic form and will be designed 
        to ensure only reasonable costs are imposed on pooled 
        plan providers and employers in the plan.
    In the case of a fiduciary of a pooled employer plan or a 
person handling assets of a pooled employer plan, the maximum 
bond amount under ERISA is $1 million.
    The term ``pooled employer plan'' does not include a 
multiemployer plan. Such term also does not include a plan 
established before the date of enactment of the Family Savings 
Act of 2018 unless the plan administrator elects to have the 
plan treated as a pooled employer plan and the plan meets the 
ERISA requirements applicable to a pooled employer plan 
established on or after such date.
            Pooled plan provider
    The definition of pooled plan provider for ERISA purposes 
is generally similar to the definition under the Code portion 
of the provision, described above.\45\ The ERISA definition 
requires a person to register as a pooled plan provider with 
the Secretary of Labor and provide any other information that 
the Secretary of Labor may require before beginning operations 
as a pooled plan provider.
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    \45\In determining whether a person meets the requirements to be a 
pooled plan provider with respect to a plan, all persons who perform 
services for the plan and who are treated as a single employer under 
subsection (b), (c), (m), or (o) of section 414 are treated as one 
person.
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    The provision specifies that the Secretary of Labor may 
perform audits, examinations, and investigations of pooled plan 
providers as may be necessary to enforce and carry out the 
purposes of the provision.
            Plan sponsor
    The provision also provides that except with respect to the 
administrative duties (as a named fiduciary, as the plan 
administrator, and as the person responsible for the 
performance of all administrative duties) for which the pooled 
plan provider is responsible as described above, each employer 
in a pooled employer plan will be treated as the plan sponsor 
with respect to the portion of the plan attributable to that 
employer's employees (or beneficiaries of such employees).
            Guidance
    The provision directs the Secretary of Labor to issue 
guidance that such Secretary determines appropriate to carry 
out the provision, including guidance (1) to identify the 
administrative duties and other actions required to be 
performed by a pooled plan provider, and (2) that requires, in 
appropriate cases of a noncompliant employer, plan assets 
attributable to employees of the noncompliant employer (or 
beneficiaries of such employees) to be transferred to a plan 
maintained only by that employer (or its successor), to a tax-
favored retirement plan for each individual whose account is 
transferred, or to any other arrangement that the Secretary of 
Labor determines in the guidance is appropriate,\46\ and the 
noncompliant employer (and not the plan with respect to which 
the failure occurred or any other employer in the plan) to be 
liable for any plan liabilities attributable to employees of 
the noncompliant employer (or beneficiaries of such employees), 
except to the extent provided in the guidance. For purposes of 
(2), the Secretary of Labor is to take into account whether the 
failure of an employer or pooled plan provider to provide any 
disclosures or other information, or to take any other action, 
necessary to administer a plan or to allow a plan to meet the 
requirements of ERISA and the Code requirements for tax-favored 
treatment, has continued over a period of time that 
demonstrates a lack of commitment to compliance.
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    \46\The Secretary of Labor may waive the requirement to transfer 
assets to another plan or arrangement in appropriate circumstances if 
the Secretary of Labor determines it is in the best interests of the 
employees of the noncompliant employer (and the beneficiaries of such 
employees) to retain the assets in the pooled employer plan.
---------------------------------------------------------------------------

Form 5500 reporting

    Under the provision, the Form 5500 filing for a multiple 
employer plan (including a pooled employer plan) must include a 
list of the employers in the plan, a good faith estimate of the 
percentage of total contributions made by such employers during 
the plan year, and the aggregate account balances attributable 
to each employer in the plan (determined as the sum of the 
account balances of the employees of each employer (and the 
beneficiaries of such employees)); and with respect to a pooled 
employer plan, the identifying information for the person 
designated under the terms of the plan as the pooled plan 
provider. In addition, the provision adds, to the list of 
pension plans to which simplified reporting may be prescribed 
by the Secretary of Labor, a multiple employer plan that covers 
fewer than 1,000 participants, but only if no single employer 
in the plan has 100 or more participants covered by the plan.

                             EFFECTIVE DATE

    The provision applies to plan years beginning after 
December 31, 2019, including reporting for purposes of Forms 
5500 for plan years beginning after December 31, 2019.
    Nothing in the Code amendments made by the provision is to 
be construed as limiting the authority of the Secretary (or the 
Secretary's delegate) to provide for the proper treatment of a 
failure to meet any Code requirement with respect to any 
employer (and its employees) in a multiple employer plan.

B. Rules Relating to Election of Safe Harbor 401(k) Status (sec. 102 of 
                 the Bill and sec. 401(k) of the Code)


                              PRESENT LAW

Section 401(k) plans

    A qualified defined contribution plan may include a 
qualified cash or deferred arrangement, under which employees 
may elect to have contributions made to the plan (referred to 
as ``elective deferrals'') rather than receive the same amount 
as current compensation (referred to as a ``section 401(k) 
plan'').\47\ The maximum annual amount of elective deferrals 
that can be made by an employee for a year is $18,500 (for 
2018) or, if less, the employee's compensation.\48\ For an 
employee who attains age 50 by the end of the year, the dollar 
limit on elective deferrals is increased by $6,000 (for 2018) 
(called catch-up contributions).\49\ The dollar limits for 
elective deferrals, including catch-up contributions, are 
subject to indexing; after any increase, an amount that is not 
a multiple of $500 is rounded to the next lowest multiple of 
$500. An employee's elective deferrals must be fully vested 
(nonforfeitable to the employee). A section 401(k) plan may 
also provide for employer matching and nonelective 
contributions, which may be subject to vesting conditions. A 
matching contribution is conditioned on the employee making 
elective deferrals,\50\ while a nonelective contribution is not 
conditioned on whether an employee has elected to make 
contributions to the plan.
---------------------------------------------------------------------------
    \47\Elective deferrals are generally made on a pretax basis and 
distributions attributable to elective deferrals are includible in 
income. However, a section 401(k) plan is permitted to include a 
``qualified Roth 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 after-tax Roth contributions. Certain 
distributions from a designated Roth account are excluded from income 
even though they include earnings not previously taxed.
    \48\Sec. 402(g).
    \49\Sec. 414(v).
    \50\Matching contributions may also be conditioned on the employee 
making Roth contributions or after-tax contributions.
---------------------------------------------------------------------------

Automatic enrollment

    A section 401(k) plan must provide each eligible employee 
with an effective opportunity to make or change an election to 
make elective deferrals at least once each plan year.\51\ 
Whether an employee has an effective opportunity is determined 
based on all the relevant facts and circumstances, including 
the adequacy of notice of the availability of the election, the 
period of time during which an election may be made, and any 
other conditions on elections.
---------------------------------------------------------------------------
    \51\Treas. Reg. sec. 1.401(k)-1(e)(2)(ii).
---------------------------------------------------------------------------
    Section 401(k) plans are generally designed so that an 
employee will receive cash compensation unless the employee 
affirmatively elects to make elective deferrals to the section 
401(k) plan. Alternatively, a plan may provide that elective 
deferrals are made at a specified rate when an employee becomes 
eligible to participate unless the employee elects otherwise 
(that is, affirmatively elects not to make contributions or to 
make contributions at a different rate). This plan design is 
referred to as automatic enrollment.

Nondiscrimination test

            General rule and design-based safe harbors
    An annual nondiscrimination test, called the actual 
deferral percentage test (the ``ADP'' test) applies to elective 
deferrals under a section 401(k) plan.\52\ The ADP test 
generally compares the average rate of deferral for highly 
compensated employees to the average rate of deferral for 
nonhighly compensated employees and requires that the average 
deferral rate for highly compensated employees not exceed the 
average rate for nonhighly compensated employees by more than 
certain specified amounts. If a plan fails to satisfy the ADP 
test for a plan year based on the deferral elections of highly 
compensated employees, the plan is permitted to distribute 
deferrals to highly compensated employees (``excess 
deferrals'') in a sufficient amount to correct the failure. The 
distribution of the excess deferrals must be made by the close 
of the following plan year.\53\
---------------------------------------------------------------------------
    \52\Sec. 401(k)(3).
    \53\Sec. 401(k)(8).
---------------------------------------------------------------------------
    The ADP test is deemed to be satisfied if a section 401(k) 
plan includes certain minimum matching or nonelective 
contributions under either of two plan designs (``401(k) safe 
harbor plan''), described below, as well as certain required 
rights and features and satisfies a notice requirement.\54\
---------------------------------------------------------------------------
    \54\Secs. 401(k)(12) and (13). If certain additional requirements 
are met, matching contributions under 401(k) safe harbor plan may also 
satisfy a nondiscrimination test applicable under section 401(m).
---------------------------------------------------------------------------
            Safe harbor contributions
    Under one type of 401(k) safe harbor plan (``basic 401(k) 
safe harbor plan''), the plan either (1) satisfies a matching 
contribution requirement (``matching contribution basic 401(k) 
safe harbor plan'') or (2) provides for a nonelective 
contribution to a defined contribution plan of at least three 
percent of an employee's compensation on behalf of each 
nonhighly compensated employee who is eligible to participate 
in the plan (``nonelective basic 401(k) safe harbor plan''). 
The matching contribution requirement under the matching 
contribution basic 401(k) safe harbor requires a matching 
contribution equal to at least 100 percent of elective 
contributions of the employee for contributions not in excess 
of three percent of compensation, and 50 percent of elective 
contributions for contributions that exceed three percent of 
compensation but do not exceed five percent, for a total 
matching contribution of up to four percent of compensation. 
The required matching contributions and the three percent 
nonelective contribution under the basic 401(k) safe harbor 
must be immediately nonforfeitable (that is, 100 percent 
vested) when made.
    Another safe harbor applies for a section 401(k) plan that 
include automatic enrollment (``automatic enrollment 401(k) 
safe harbor''). Under an automatic enrollment 401(k) safe 
harbor, unless an employee elects otherwise, the employee is 
treated as electing to make elective deferrals equal to a 
percentage of compensation as stated in the plan, not in excess 
of 10 percent and at least (1) three percent of compensation 
for the first year the deemed election applies to the 
participant, (2) four percent during the second year, (3) five 
percent during the third year, and (4) six percent during the 
fourth year and thereafter.\55\ Under the automatic enrollment 
401(k) safe harbor, the matching contribution requirement is 
100 percent of elective contributions of the employee for 
contributions not in excess of one percent of compensation, and 
50 percent of elective contributions for contributions that 
exceed one percent of compensation but do not exceed six 
percent, for a total matching contribution of up to 3.5 percent 
of compensation (``matching contribution automatic enrollment 
401(k) safe harbor''). The rate of nonelective contribution 
under the automatic enrollment 401(k) safe harbor plan is three 
percent, as under the basic 401(k) safe harbor (``nonelective 
contribution automatic enrollment 401(k) safe harbor''). 
However, under the automatic enrollment 401(k) safe harbors, 
the matching and nonelective contributions are required to 
become 100 percent vested only after two years of service 
(rather than being required to be immediately vested when 
made).
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    \55\These automatic increases in default contribution rates are 
required for plans using the safe harbor. Rev. Rul. 2009-30, 2009-39 
I.R.B. 391, provides guidance for including automatic increases in 
other plans using automatic enrollment, including under a plan that 
includes an eligible automatic contribution arrangement.
---------------------------------------------------------------------------
            Safe harbor notice
    The notice requirement for a 401(k) safe harbor plan is 
satisfied if each employee eligible to participate is given, 
within a reasonable period before any year, written notice of 
the employee's rights and obligations under the arrangement and 
the notice meets certain content and timing requirements 
(``safe harbor notice''). To meet the content requirements, a 
safe harbor notice must be sufficiently accurate and 
comprehensive to inform an employee of the employee's rights 
and obligations under the plan, and be written in a manner 
calculated to be understood by the average employee eligible to 
participate in the plan. A safe harbor notice must provide 
certain information, including the plan's safe harbor 
contributions, any other plan contributions, the type and 
amount of compensation that may be deferred under the plan, how 
to make cash or deferred elections, the plan's withdrawal and 
vesting provisions, and specified contact information. In 
addition, a safe harbor notice for an automatic enrollment 
401(k) safe harbor must describe certain additional information 
items, including the deemed deferral elections under the plan 
if the employee does not make an affirmative election and how 
contributions will be invested.

Delay in adopting nonelective 401(k) safe harbor

    Generally the plan provisions for the requirements that 
must be satisfied to be a 401(k) safe harbor plan must be 
adopted before the first day of the plan year and remain in 
effect for an entire 12-month plan year. However, in the case 
of a nonelective 401(k) safe harbor plan (but not the matching 
contribution 401(k) safe harbor), a plan may be amended after 
the first day of the plan year but no later than 30 days before 
the end of the plan year to adopt the safe harbor plan 
provisions including providing the 3 percent of compensation 
nonelective contribution. The plan must also provide a 
contingent and follow-up notice. The contingent notice must be 
provided before the beginning of the plan year and specify that 
the plan may be amended to include the safe harbor nonelective 
contribution and, if it is so amended, a follow-up notice will 
be provided. If the plan is amended, the follow-up notice must 
be provided no later than 30 days before the end of the plan 
year stating that the safe harbor nonelective contribution will 
be provided.

                           REASONS FOR CHANGE

    The Committee believes that providing employers with a 
longer time period to decide whether to offer a nonelective 
basic 401(k) safe harbor plan to employees will provide more 
flexibility to employers, thereby reducing the costs associated 
with sponsoring a retirement plan. The Committee believes that 
this will help encourage employers to offer retirement plans, 
fostering greater retirement savings by employees.

                        EXPLANATION OF PROVISION

In general

    The provision makes certain changes to the rules for the 
nonelective contribution 401(k) safe harbor.

Elimination of notice requirement

    The provision eliminates the safe harbor notice requirement 
with respect to nonelective 401(k) safe harbor plans. However, 
the general rule under present law requiring a section 401(k) 
plan to provide each eligible employee with an effective 
opportunity to make or change an election to make elective 
deferrals at least once each plan year still applies. As 
described above, relevant factors used in determining if this 
requirement is satisfied include the adequacy of notice of the 
availability of the election and the period of time during 
which an election may be made.

Delay in adopting provisions for nonelective 401(k) safe harbor

    Under the provision, unless a plan provided at any time 
during the plan year that 401(k) safe harbor matching 
contributions applied to the plan year, a plan can be amended 
to become a nonelective 401(k) safe harbor plan for a plan year 
(that is, amended to provide the required nonelective 
contributions and thereby satisfy the safe harbor requirements) 
at any time before the 30th day before the close of the plan 
year.
    Further, unless a plan provided at any time during the plan 
year that 401(k) safe harbor matching contributions applied to 
the plan year, the provision allows a plan to be amended after 
the 30th day before the close of the plan year to become a 
nonelective contribution 401(k) safe harbor plan for the plan 
year if (1) the plan is amended to provide for a nonelective 
contribution of at least four percent of compensation (rather 
than at least three percent) for all eligible employees for 
that plan year and (2) the plan is amended no later than the 
last day for distributing excess contributions for the plan 
year, that is, by the close of following plan year.

                             EFFECTIVE DATE

    The provision applies to plan years beginning after 
December 31, 2018.

C. Certain Taxable Non-Tuition Fellowship and Stipend Payments Treated 
as Compensation for IRA Purposes (sec. 103 of the Bill and sec. 219 of 
                               the Code)


                              PRESENT LAW

    There are two general types of IRAs: traditional IRAs and 
Roth IRAs.\56\ The total amount that an individual may 
contribute to one or more IRAs for a year is generally limited 
to the lesser of: (1) a dollar amount ($5,500 for 2018); and 
(2) the amount of the individual's compensation that is 
includible in gross income for the year.\57\ In the case of an 
individual who has attained age 50 by the end of the year, the 
dollar amount is increased by $1,000. For a married couple, 
contributions can be made up to the dollar limit for each 
spouse if the combined compensation of the spouses that is 
includible in gross income is at least equal to the contributed 
amount.
---------------------------------------------------------------------------
    \56\Secs. 408 and 408A.
    \57\Sec. 219(b)(1)(A) and (5), as referenced in secs. 408(a)(1) and 
(b)(2)(B) and 408A(c)(2). Under section 4973, IRA contributions in 
excess of the applicable limit are generally subject to an excise tax 
of six percent per year until withdrawn.
---------------------------------------------------------------------------
    An individual may make contributions to a traditional IRA 
(up to the contribution limit) without regard to his or her 
adjusted gross income. An individual may deduct his or her 
contributions to a traditional IRA if neither the individual 
nor the individual's spouse is an active participant in an 
employer-sponsored retirement plan. If an individual or the 
individual's spouse is an active participant in an employer-
sponsored retirement plan, the deduction is phased out for 
taxpayers with adjusted gross income over certain levels.\58\
---------------------------------------------------------------------------
    \58\Sec. 219(g).
---------------------------------------------------------------------------
    Individuals with adjusted gross income below certain levels 
may make contributions to a Roth IRA (up to the contribution 
limit).\59\ Contributions to a Roth IRA are not deductible. As 
described above, an individual's IRA contributions cannot 
exceed the amount of his or her compensation that is includible 
in gross income. Subject to the rule for spouses, described 
above, an individual who has no compensation income generally 
is not eligible to make IRA contributions, even if the 
individual has other income that is includible in gross 
income.\60\
---------------------------------------------------------------------------
    \59\Sec. 408A(c)(3).
    \60\Under a special rule in section 219(f)(1), alimony that is 
includible in gross income under section 71 is treated as compensation 
for IRA contribution purposes.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that graduate and postdoctoral 
students who receive stipends and similar amounts that are 
included in gross income should not be at a disadvantage with 
respect to other individuals when it comes to saving for 
retirement in an IRA. The Committee believes that treating such 
amounts as compensation for IRA contribution purposes will make 
it easier for graduate and postdoctoral students to begin 
saving for retirement.

                        EXPLANATION OF PROVISION

    Under the provision, an amount that is included in gross 
income and paid to an individual to aid the individual in the 
pursuit of graduate or postdoctoral study or research is 
treated as compensation taken into account for IRA contribution 
purposes.

                             EFFECTIVE DATE

    This provision is effective for taxable years beginning 
after December 31, 2018.

D. Repeal of Maximum Age for Traditional IRA Contributions (sec. 104 of 
                   the Bill and sec. 219 of the Code)


                              PRESENT LAW

    Under present law, an individual may make deductible 
contributions to a traditional IRA up to the IRA contribution 
limit if neither the individual nor the individual's spouse is 
an active participant in an employer-sponsored retirement 
plan.\61\ If an individual (or the individual's spouse) is an 
active participant in an employer-sponsored retirement plan, 
the deduction is phased out for taxpayers with adjusted gross 
income (``AGI'') for the taxable year over certain indexed 
levels.\62\ To the extent an individual cannot or does not make 
deductible contributions to a traditional IRA, the individual 
may make nondeductible contributions to a traditional IRA 
(without regard to AGI limits). Alternatively, subject to AGI 
limits, an individual may make nondeductible contributions to a 
Roth IRA.\63\
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    \61\Sec. 219.
    \62\Sec. 219(g).
    \63\Sec. 408(o). The annual contribution limit for IRAs is 
coordinated so that the maximum amount that can be contributed to all 
of an individual's IRAs (both traditional and Roth) for a taxable year 
is the lesser of a certain dollar amount ($5,500 for 2018) or the 
individual's compensation.
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    An individual who has attained age 70\1/2\ by the close of 
a year is not permitted to make contributions to a traditional 
IRA.\64\ This restriction does not apply to contributions to a 
Roth IRA.\65\ In addition, employees over age 70\1/2\ are not 
precluded from contributing to employer-sponsored plans.
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    \64\Sec. 219(d)(1).
    \65\Sec. 408A(c)(4).
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                           REASONS FOR CHANGE

    As Americans live longer, many individuals choose to 
continue working later in life and should be permitted to 
continue making contributions to a traditional IRA past age 
70\1/2\. The Committee believes that the present law age limit 
on making contributions to an IRA is an impediment to 
retirement savings that should be eliminated.

                        EXPLANATION OF PROVISION

    The provision repeals the prohibition on contributions to a 
traditional IRA by an individual who has attained age 70\1/2\.

                             EFFECTIVE DATE

    The provision applies to contributions made for taxable 
years beginning after December 31, 2018.

E. Qualified Employer Plans Prohibited From Making Loans Through Credit 
  Cards and Other Similar Arrangements (Sec. 105 of the Bill and sec. 
                           72(p) of the Code)


                              PRESENT LAW

    Qualified employer-sponsored retirement plans may provide 
loans to participants. Unless the loan satisfies certain 
requirements in both form and operation, the amount of a 
retirement plan loan is a deemed distribution from the 
retirement plan.\66\ These requirements include the following: 
the amount of the loan must not exceed the lesser of 50 percent 
of the participant's account balance or $50,000 (generally 
taking into account outstanding balances of previous loans); 
the terms of the loan must provide for a repayment period of 
not more than five years\67\ and provide for level amortization 
of loan payments (with payments not less frequently than 
quarterly); and the terms of the loan must be legally 
enforceable. Subject to the limit on the amount of loans, which 
precludes any additional loan that would cause the limit to be 
exceeded, the rules relating to loans do not limit the number 
of loans an employee may obtain from a plan. Some arrangements 
have developed under which an employee can access plan loans 
through the use of a credit card or similar mechanism.
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    \66\Sec. 72(p). Public Law No. 115-97 extends the period during 
which a qualified plan loan offset amount may be contributed to an 
eligible retirement plan as a rollover contribution from 60 days after 
the date of the offset to the due date (including extensions) for 
filing the Federal income tax return for the taxable year in which the 
plan loan offset occurs (that is, the taxable year in which the amount 
is treated as distributed from the plan). A qualified plan loan offset 
amount is a plan loan offset amount that is treated as distributed from 
a qualified retirement plan, a section 403(b) plan, or a governmental 
section 457(b) plan solely by reason of the termination of the plan or 
the failure to meet the repayment terms of the loan because of the 
employee's severance from employment. A loan offset amount is the 
amount by which an employee's account balance under the plan is reduced 
to repay a loan from the plan.
    \67\Loans specifically for home purchases may be repaid over a 
longer period.
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                           REASONS FOR CHANGE

    The Committee believes that eliminating the ability to 
obtain a plan loan with a credit card from an individual's 
retirement account is consistent with the objective of 
facilitating and encouraging retirement savings.

                        EXPLANATION OF PROVISION

    Under the provision, a plan loan that is made through the 
use of a credit card or similar arrangement does not meet the 
requirements for loan treatment and is therefore a deemed 
distribution.

                             EFFECTIVE DATE

    The provision applies to loans made after the date of 
enactment.

F. Portability of Lifetime Income Investments (sec. 106 of the Bill and 
         secs. 401(a), 401(k), 403(b), and 457(d) of the Code)


                              PRESENT LAW

Distribution restrictions for accounts under employer-sponsored plans

            Types of plans and contributions
    Tax-favored employer-sponsored retirement plans under which 
individual accounts are maintained for employees include 
qualified defined contribution plans, tax-deferred annuity 
plans (referred to as ``section 403(b)'' plans), and eligible 
deferred compensation plans of State and local government 
employers (referred to as ``governmental section 457(b)'' 
plans).\68\
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    \68\Secs. 401(a), 403(a), 403(b), 457(b) and (e)(1)(A).
---------------------------------------------------------------------------
    Contributions to a qualified defined contribution plan or 
section 403(b) plan may include some or all of the following 
types of contributions:
           pretax elective deferrals (that is, pretax 
        contributions made at the election of an employee in 
        lieu of receiving cash compensation),
           after-tax designated Roth contributions 
        (that is, elective deferrals made on an after-tax basis 
        to a Roth account under the plan),
           after-tax employee contributions (other than 
        designated Roth contributions),
           pretax employer matching contributions (that 
        is, employer contributions made as a result of an 
        employee's elective deferrals, designated Roth 
        contributions, or after-tax contributions), and
           pretax employer nonelective contributions 
        (that is, employer contributions made without regard to 
        whether an employee makes elective deferrals, 
        designated Roth contributions, or after-tax 
        contributions).
    Contributions to a governmental section 457(b) plan 
generally consist of pretax elective deferrals and, if provided 
for under the plan, designated Roth contributions.
            Restrictions on in-service distributions
    The terms of an employer-sponsored retirement plan 
generally determine when distributions are permitted. However, 
in some cases, statutory restrictions on distributions may 
apply.
    Elective deferrals under a qualified defined contribution 
plan are subject to statutory restrictions on distribution 
before severance from employment, referred to as ``in-service'' 
distributions.\69\ In-service distributions of elective 
deferrals (and related earnings) generally are permitted only 
after attainment of age 59\1/2\ or termination of the plan. In-
service distributions of elective deferrals (but not related 
earnings) are also permitted in the case of hardship.\70\
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    \69\Sec. 401(k)(2)(B). Similar restrictions apply to certain other 
contributions, such as employer matching or nonelective contributions 
required under the nondiscrimination safe harbors under section 401(k).
    \70\The Bipartisan Budget Act of 2018, Pub. L. No. 115-123 
(``BBA''), amends certain hardship distribution rules applicable to 
401(k) plans, effective for plan years beginning after December 31, 
2018. One such amendment under BBA section 41114 permits earnings on 
elective deferrals under a section 401(k) plan, as well as qualified 
nonelective contributions and qualified matching contributions (and 
attributable earnings), to be distributed on account of hardship.
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    Other distribution restrictions may apply to contributions 
under certain types of qualified defined contribution plans. A 
profit-sharing plan generally may allow an in-service 
distribution of an amount contributed to the plan only after a 
fixed number of years (not less than two).\71\ A money purchase 
pension plan generally may not allow an in-service distribution 
before attainment of age 62 (or attainment of normal retirement 
age under the plan if earlier) or termination of the plan.\72\
---------------------------------------------------------------------------
    \71\Rev. Rul. 71-295, 1971-2 C.B. 184, and Treas. Reg. sec. 1.401-
1(b)(1)(ii). Similar rules apply to a stock bonus plan. Treas. Reg. 
sec. 1.401-1(b)(1)(iii).
    \72\Sec. 401(a)(36) and Treas. Reg. secs. 1.401-1(b)(1)(i) and 
1.401(a)-1(b).
---------------------------------------------------------------------------
    Elective deferrals under a section 403(b) plan are subject 
to in-service distribution restrictions similar to those 
applicable to elective deferrals under a qualified defined 
contribution plan, and, in some cases, other contributions to a 
section 403(b) plan are subject to similar restrictions.\73\ 
Deferrals under a governmental section 457(b) plan are subject 
to in-service distribution restrictions similar to those 
applicable to elective deferrals under a qualified defined 
contribution plan, except that in-service distributions under a 
governmental section 457(b) plan apply until age 70\1/2\ 
(rather than age 59\1/2\).\74\
---------------------------------------------------------------------------
    \73\Secs. 403(b)(7)(A)(ii) and 403(b)(11).
    \74\Sec. 457(d)(1)(A).
---------------------------------------------------------------------------

Distributions and rollovers

    A distribution from an employer-sponsored retirement plan 
is generally includible in income except for any portion 
attributable to after-tax contributions, which result in 
basis.\75\ Unless an exception applies, in the case of a 
distribution before age 59\1/2\ from a qualified retirement 
plan or a section 403(b) plan, any amount included in income is 
subject to an additional 10-percent tax, referred to as the 
``early withdrawal'' tax.\76\
---------------------------------------------------------------------------
    \75\Secs. 402(a), 403(b)(1) and 457(a)(1). Under section 402A(d), a 
qualified distribution from a designated Roth account under an 
employer-sponsored plan is not includible in income.
    \76\Sec. 72(t).
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    A distribution from an employer-sponsored retirement plan 
generally may be rolled over on a nontaxable basis to another 
such plan or to an individual retirement arrangement (``IRA''), 
either by a direct transfer to the recipient plan or IRA or by 
contributing the distribution to the recipient plan or IRA 
within 60 days of receiving the distribution.\77\ If the 
distribution from an employer-sponsored retirement plan 
consists of property, the rollover is accomplished by a 
transfer or contribution of the property to the recipient plan 
or IRA.
---------------------------------------------------------------------------
    \77\Secs. 402(c), 402A(c)(3), 403(b)(8) and 457(e)(16).
---------------------------------------------------------------------------

Investment of accounts under employer-sponsored plans

    Qualified defined contribution plans, section 403(b) plans, 
and governmental section 457(b) plans commonly allow employees 
to direct the manner in which their accounts are invested. 
Employees may be given a choice among specified lifetime 
investments, such as a choice of specified mutual funds, and, 
in some cases, may be able to direct the investment of their 
accounts in any product, instrument or investment offered in 
the market.
    The investment options under a particular employer-
sponsored retirement plan may change at times.\78\ Similarly, a 
plan that allows employees to direct the investment of their 
accounts in any product, instrument or investment offered in 
the market may be amended to limit the investments that can be 
held in the plan. In these cases, employees may be required to 
change the investments held within their accounts.
---------------------------------------------------------------------------
    \78\In the case of a plan subject to ERISA, a participant's 
exercise of control over the investment of the assets in his or her 
account by choosing among the investment options offered under the plan 
does not relieve a plan fiduciary from the duty to prudently select and 
monitor the investment options offered to participants. 29 C.F.R. sec. 
2550.404c-1(d)(2)(iv) (2010); Tibble v. Edison International, No. 13-
550, 135 S. Ct. 1823 (2015). The duty to monitor investment options may 
result in a change in the options offered.
---------------------------------------------------------------------------
    The terms of some investments impose a charge or fee when 
the investment is liquidated, particularly if the investment is 
liquidated within a particular period after acquisition. For 
example, a lifetime income product, such as an annuity 
contract, may impose a surrender charge if the investment is 
discontinued.
    If an employee has to liquidate an investment held in an 
employer-sponsored retirement plan because of a change in 
investment options or a limit on investments held in the plan, 
the employee may be subject to a charge or fee as described 
above. In addition, restrictions on in-service distributions 
may prevent the employee from preserving the investment through 
a rollover.

                           REASONS FOR CHANGE

    The Committee believes that employers should have the 
opportunity to allow employees who invest their retirement 
accounts in an annuity to maintain such investments if the plan 
investment options are changed or limited. Allowing an annuity 
investment to be maintained through a distribution and rollover 
will prevent the employee from having to incur the penalties 
that can arise when an annuity is required to be cashed out 
prematurely.

                        EXPLANATION OF PROVISION

    Under the provision, if a lifetime income investment is no 
longer authorized to be held as an investment option under a 
qualified defined contribution plan, section 403(b) plan, or 
governmental section 457(b) plan, except as otherwise provided 
in guidance, the plan does not fail to satisfy the Code 
requirements applicable to the plan solely by reason of 
allowing (1) qualified distributions of a lifetime income 
investment, or (2) distributions of a lifetime income 
investment in the form of a qualified plan distribution annuity 
contract. Such a distribution must be made within the 90-day 
period ending on the date when the lifetime income investment 
is no longer authorized to be held as an investment option 
under the plan.
    For purposes of the provision, a qualified distribution is 
a direct trustee-to-trustee transfer to another employer-
sponsored retirement plan or IRA.\79\ A lifetime income 
investment is an investment option designed to provide an 
employee with election rights (1) that are not uniformly 
available with respect to other investment options under the 
plan and (2) that are rights to a lifetime income feature 
available through a contract or other arrangement offered under 
the plan (or under another employer-sponsored retirement plan 
or IRA through a direct trustee-to-trustee transfer). A 
lifetime income feature is (1) a feature that guarantees a 
minimum level of income annually (or more frequently) for at 
least the remainder of the life of the employee or the joint 
lives of the employee and the employee's designated 
beneficiary, or (2) an annuity payable on behalf of the 
employee under which payments are made in substantially equal 
periodic payments (not less frequently than annually) over the 
life of the employee or the joint lives of the employee and the 
employee's designated beneficiary. Finally, a qualified plan 
distribution annuity contract is an annuity contract purchased 
for a participant and distributed to the participant by an 
employer-sponsored retirement plan or an employer-sponsored 
retirement plan contract.\80\
---------------------------------------------------------------------------
    \79\For this purpose, an employer-sponsored retirement plan or IRA 
means such a plan or IRA that is an eligible retirement plan under 
section 402(c)(8)(B).
    \80\For this purpose, an employer-sponsored retirement plan 
contract is an annuity contract distributed from an eligible retirement 
plan described in section 402(c)(8)(B) other than an IRA or individual 
retirement annuity.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to plan years beginning after 
December 31, 2018.

  G. Treatment of Custodial Accounts on Termination of Section 403(b) 
        Plans (sec. 107 of the Bill and sec. 403(b) of the Code)


                              PRESENT LAW

Tax-sheltered annuities (section 403(b) plans)

    Section 403(b) plans are a form of tax-favored employer-
sponsored plan that provide tax benefits similar to qualified 
retirement plans. Section 403(b) plans may be maintained only 
by (1) charitable tax-exempt organizations, and (2) educational 
institutions of State or local governments (that is, public 
schools, including colleges and universities). Many of the 
rules that apply to section 403(b) plans are similar to the 
rules applicable to qualified retirement plans, including 
section 401(k) plans. Employers may make nonelective or 
matching contributions to such plans on behalf of their 
employees, and the plan may provide for employees to make pre-
tax elective deferrals, designated Roth contributions (held in 
designated Roth accounts)\81\ or other after-tax contributions. 
Generally section 403(b) plans provide for contributions toward 
the purchase of annuity contracts or provide for contributions 
to be held in custodial accounts for each employee. In the case 
of contributions to custodial accounts under a section 403(b) 
plan, the amounts must be invested only in regulated investment 
company stock.\82\ Contributions to a custodial account are not 
permitted to be distributed before the employee dies, attains 
age 59\1/2\, has a severance from employment, or, in the case 
of elective deferrals, encounters financial hardship.
---------------------------------------------------------------------------
    \81\Sec. 402A.
    \82\Sec. 403(b)(7).
---------------------------------------------------------------------------
    A section 403(b) plan is permitted to contain provision for 
plan termination and that allow accumulated benefits to be 
distributed on termination.\83\ In order for a plan termination 
to be effectuated, however, all plan assets must be distributed 
to participants.
---------------------------------------------------------------------------
    \83\Treas. Reg. sec. 1.403(b)-10(a).
---------------------------------------------------------------------------

Rollovers

    A distribution from a section 403(b) plan that is an 
eligible rollover distribution may be rolled over to an 
eligible retirement plan (which include another 403(b) plan, a 
qualified retirement plan, and an IRA).\84\ The rollover 
generally can be achieved by direct rollover (direct payment 
from the distributing plan to the recipient plan) or by 
contributing the distribution to the eligible retirement plan 
within 60 days of receiving the distribution (``60-day 
rollover'').\85\
---------------------------------------------------------------------------
    \84\Sec. 403(b)(8). Similar rules apply to distributions from 
qualified retirement plans and governmental section 457(b) plans.
    \85\Under section 402(c)(11), any distribution to a beneficiary 
other than the participant's surviving spouse is only permitted to be 
rolled over to an IRA using a direct rollover; 60-day rollovers are not 
available to nonspouse beneficiaries.
---------------------------------------------------------------------------
    Amounts that are rolled over are usually not included in 
gross income. Generally, a distribution of any portion of the 
balance to the credit of a participant is an eligible rollover 
distribution with exceptions, for example, certain periodic 
payments, required minimum distributions, and hardship 
distributions.\86\
---------------------------------------------------------------------------
    \86\Sec. 402(c)(4). Treas. Reg. sec. 1.402(c)-1 identifies certain 
other payments that are not eligible for rollover, including, for 
example, certain corrective distributions, loans that are treated as 
deemed distributions under section 72(p), and dividends on employer 
securities as described in section 404(k).
---------------------------------------------------------------------------

Roth conversions

    Distributions from section 403(b) plans may be rolled into 
a Roth IRA.\87\ Distributions from these plans that are rolled 
over into a Roth IRA and that are not distributions from a 
designated Roth account must be included in gross income. 
Further, a section 403(b) plan that allows employees to make 
designated Roth contributions may also allow employees to elect 
to transfer amounts held in accounts that are not designated 
Roth accounts into designated Roth accounts, but the amount 
transferred must be included in income as though it were 
distributed.\88\
---------------------------------------------------------------------------
    \87\Sec. 408A(d)(3). Similar rules apply to qualified retirement 
plans and governmental section 457(b) plans.
    \88\Sec. 402A(d)(4). Similar rules apply to qualified retirement 
plans and governmental section 457(b) plans.
---------------------------------------------------------------------------

Approved nonbank trustees required for IRAs

    An IRA can be a trust, a custodial account, or an annuity 
contract. The Code requires that the trustee or custodian of an 
IRA be a bank (which is generally subject to Federal or State 
supervision) or an IRS approved nonbank trustee, that an 
annuity contract be issued by an insurance company (which is 
subject to State supervision), and that an IRA trust or 
custodial account be created and organized in the United 
States.
    In order for a trustee or custodian that is not a bank to 
be an IRA trustee or custodian, the entity must apply to the 
IRS for approval. Treasury Regulations list a number of factors 
that are taken into account in approving an applicant to be a 
nonbank trustee.\89\ The applicant must demonstrate fiduciary 
ability (ability to act within accepted rules of fiduciary 
conduct including continuity and diversity of ownership), 
capacity to account (experience and competence with other 
activities normally associated with handling of retirement 
funds), and ability to satisfy other rules of fiduciary conduct 
which includes a net worth requirement. Because it is an 
objective requirement that may be difficult for some applicants 
to satisfy, the net worth requirement is the most significant 
of the requirements for nonbank trustees.
---------------------------------------------------------------------------
    \89\Treas. Reg. sec. 1.408-2(e).
---------------------------------------------------------------------------
    To be approved, the entity must have a net worth of at 
least $250,000 at the time of the application. There is a 
maintenance rule that varies depending on whether the trustee 
is an active trustee or a passive trustee and that includes 
minimum dollar amounts and minimum amounts as a percentage of 
assets held in fiduciary accounts. A special rule is provided 
for nonbank trustees that are members of the Security Investor 
Protection Corporation (``SIPC'').

                           REASONS FOR CHANGE

    In general, assets of section 403(b) plans can be invested 
only in annuity contracts or mutual funds. Unlike most 
qualified defined contribution plans, under which assets are 
held in a trust, assets associated with section 403(b) plans 
historically have often consisted of annuity contracts issued 
in the name of the particular participant or mutual funds held 
in a custodial account in the participant's name. In many 
cases, this prevents an employer from distributing these assets 
in order to effectuate a plan termination. The Committee wishes 
to provide a mechanism under which the plan termination may 
proceed while keeping assets that cannot otherwise be 
distributed in a tax-favored retirement savings vehicle.

                        EXPLANATION OF PROVISION

    Under the provision, if an employer terminates a section 
403(b) plan under which amounts are contributed to custodial 
accounts, and the person holding the assets of the accounts is 
an IRS approved nonbank trustee, then, as of the date of the 
termination, the custodial accounts are deemed to be IRAs. Only 
a custodial account under a section 403(b) plan that is a 
designated Roth account is treated as a Roth IRA upon 
termination of the section 403(b) plan.

                             EFFECTIVE DATE

    The provision applies to plan terminations occurring after 
December 31, 2018.

H. Clarification of Retirement Income Account Rules Relating to Church-
 Controlled Organizations (sec. 108 of the Bill and sec. 403(b)(9) of 
                               the Code)


                              PRESENT LAW

    Assets of a tax-sheltered annuity plan (``section 403(b)'' 
plan), generally must be invested in annuity contracts or 
mutual funds.\90\ However, the restrictions on investments do 
not apply to a retirement income account, which is a defined 
contribution program established or maintained by a church, or 
a convention or association of churches, to provide benefits 
under the plan to employees of a religious, charitable or 
similar tax-exempt organization.\91\
---------------------------------------------------------------------------
    \90\ Sec. 403(b)(1)(A) and (7).
    \91\Sec. 403(b)(9)(B), referring to organizations exempt from tax 
under section 501(c)(3). For this purpose, a church or a convention or 
association of churches includes an organization described in section 
414(e)(3)(A), that is, an organization, the principal purpose or 
function of which is the administration or funding of a plan or program 
for the provision of retirement benefits or welfare benefits, or both, 
for the employees of a church or a convention or association of 
churches, provided that the organization is controlled by or associated 
with a church or a convention or association of churches.
---------------------------------------------------------------------------
    Certain rules prohibiting discrimination in favor of highly 
compensated employees, which apply to section 403(b) plans 
generally, do not apply to a plan maintained by a church or 
qualified church-controlled organization.\92\ For this purpose, 
church means a church, a convention or association of churches, 
or an elementary or secondary school that is controlled, 
operated, or principally supported by a church or by a 
convention or association of churches, and includes a qualified 
church-controlled organization. A qualified church-controlled 
organization is any church-controlled tax-exempt organization 
other than an organization that (1) offers goods, services, or 
facilities for sale, other than on an incidental basis, to the 
general public, other than goods, services, or facilities that 
are sold at a nominal charge substantially less than the cost 
of providing the goods, services, or facilities, and (2) 
normally receives more than 25 percent of its support from 
either governmental sources, or receipts from admissions, sales 
of merchandise, performance of services, or furnishing of 
facilities, in activities that are not unrelated trades or 
businesses, or from both. Church-controlled organizations that 
are not qualified church-controlled organizations are generally 
referred to as ``nonqualified church-controlled 
organizations.''
---------------------------------------------------------------------------
    \92\Sec. 403(b)(1)(D) and (12).
---------------------------------------------------------------------------
    In recent years, a question has arisen as to whether 
employees of nonqualified church-controlled organizations may 
be covered under a section 403(b) plan that consists of a 
retirement income account.

                           REASONS FOR CHANGE

    The Committee believes clarification is needed with respect 
to the employees who may be permitted to participate in a 
retirement income account, which is a typical vehicle in church 
retirement plans.

                        EXPLANATION OF PROVISION

    The provision clarifies that a retirement income account 
may cover a duly ordained, commissioned, or licensed minister 
of a church in the exercise of his ministry, regardless of the 
source of his compensation; an employee of an organization, 
whether a civil law corporation or otherwise, that is exempt 
from tax under section 501 and is controlled by or associated 
with a church or a convention or association of churches; and 
an employee who is included in a church plan under certain 
circumstances after separation from the service of a church, a 
convention or association of churches, or an organization 
described above.\93\
---------------------------------------------------------------------------
    \93\These individuals are described in sections 414(e)(3)(B) and 
(E).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to plan years beginning after 
December 31, 2008.

 I. Exemption From Required Minimum Distribution Rules for Individuals 
With Certain Account Balances (sec. 109 of the bill and secs. 401(a)(9) 
                         and 6047 of the Code)


                              PRESENT LAW

Required minimum distributions

    Employer-provided qualified retirement plans, traditional 
IRAs, and individual retirement annuities are subject to 
required minimum distribution rules. A qualified retirement 
plan for this purpose means a tax-qualified plan described in 
section 401(a) (such as a defined benefit pension plan or a 
section 401(k) plan), employee retirement annuities described 
in section 403(a), tax-sheltered annuities described in section 
403(b), and a plan described in section 457(b) that is 
maintained by a governmental employer.\94\ An employer-provided 
qualified retirement plan that is a defined contribution plan 
is a plan which provides (1) an individual account for each 
participant and (2) for benefits based on the amount 
contributed to the participant's account, and any income, 
expenses, gains, losses, and forfeitures of accounts of other 
participants which may be allocated to such participant's 
account.\95\
---------------------------------------------------------------------------
    \94\The required minimum distribution rules also apply to section 
457(b) plans maintained by tax-exempt employers other than governmental 
employers.
    \95\Sec. 414(i).
---------------------------------------------------------------------------
    Required minimum distributions generally must begin by 
April 1 of the calendar year following the calendar year in 
which the individual (employee or IRA owner) reaches age 70\1/
4\. However, in the case of an employer-provided qualified 
retirement plan, the required minimum distribution date for an 
individual who is not a 5-percent owner of the employer 
maintaining the plan may be delayed to April 1 of the year 
following the year in which the individual retires if the plan 
provides for this later distribution date. For all subsequent 
years, including the year in which the individual was paid the 
first required minimum distribution by April 1, the individual 
must take the required minimum distribution by December 31 of 
the year.
    For IRAs and defined contributions plans, the required 
minimum distribution for each year generally is determined by 
dividing the account balance as of the end of the prior year by 
a distribution period,\96\ generally a number in the uniform 
lifetime table.\97\ This table is based on joint life 
expectancies of the individual and a hypothetical beneficiary 
10 years younger than the individual. For an individual with a 
spouse as designated beneficiary who is more than 10 years 
younger (and thus the number of years in the couple's joint 
life expectancy is greater than the uniform life time table), 
the joint life expectancy of the couple is used. There are 
special rules in the case of annuity payments from an insurance 
contract.
---------------------------------------------------------------------------
    \96\Treas. Reg. sec. 1.401(a)(9)-5.
    \97\Treas. Reg. sec. 1.401(a)(9)-9.
---------------------------------------------------------------------------
    If an individual dies on or after the individual's required 
beginning date, the required minimum distribution is also 
determined by dividing the account balance as of the end of the 
prior year by a distribution period. The distribution period is 
equal to the remaining years of the beneficiary's life 
expectancy or, if there is no designated beneficiary, a 
distribution period equal to the remaining years of the 
deceased individual's single life expectancy, using the age of 
the deceased individual in the year of death.\98\
---------------------------------------------------------------------------
    \98\Tres. Reg. sec. 1.401(a)(9)-5, A-5(a).
---------------------------------------------------------------------------
    In the case of an individual who dies before the 
individual's required beginning date, there are two methods for 
satisfying the after death required minimum distribution rules, 
the life expectancy rule or the five year rule. Under the life 
expectancy rule, annual required minimum distributions must 
begin no later than December 31 of the calendar year 
immediately following the calendar year in which the individual 
died. This rule is only available if the designated beneficiary 
is an individual (e.g., not the individual's estate or a 
charity). If the designated beneficiary is the individual's 
spouse, commencement of distributions can be delayed until 
December 31 of the calendar year in which the deceased 
individual would have attained age 70. The required minimum 
distribution for each year is also determined by dividing the 
account balance as of the end of the prior year by a 
distribution period, which is determined by reference to the 
beneficiary's life expectancy.\99\ Under the five-year rule, 
the individual's entire account must be distributed no later 
than December 31 of the calendar year containing the fifth 
anniversary of the individual's death.\100\
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    \99\Tres. Reg. sec. 1.401(a)(9)-5, A-5(b).
    \100\Tres. Reg. sec. 1.401(a)(9)-3, Q & As 1,2.
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    A special after-death rule applies for an IRA if the 
beneficiary of the IRA is the surviving spouse. The surviving 
spouse is permitted to choose to calculate required minimum 
distributions while the spouse is alive, and after the spouse's 
death, as though the spouse is the IRA owner, rather than a 
beneficiary.
    Roth IRAs are not subject to the minimum distribution rules 
during the IRA owner's lifetime. However, Roth IRAs are subject 
to the post-death minimum distribution rules that apply to 
traditional IRAs. For Roth IRAs, the IRA owner is treated as 
having died before the individual's required beginning date. 
Thus only the life expectancy rule and the five year rule 
apply.
    Failure to make a required minimum distribution triggers a 
50-percent excise tax, payable by the individual or the 
individual's beneficiary. The tax is imposed during the taxable 
year that begins with or within the calendar year during which 
the distribution was required.\101\ The tax may be waived if 
the distribution did not occur because of reasonable error and 
reasonable steps are taken to remedy the violation.\102\
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    \101\Sec. 4974(a).
    \102\Sec. 4974(d).
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Eligible rollover distributions

    With certain exceptions, distributions from an employer-
provided qualified retirement plan are eligible to be rolled 
over tax free into another employer-provided qualified 
retirement plan or an IRA. This can be achieved by contributing 
the amount of the distribution to the other plan or IRA within 
60 days of the distribution, or by a direct payment by the plan 
to the other plan or IRA (referred to as a ``direct 
rollover''). Distributions that are not eligible for rollover 
include (i) any distribution that is one of a series of 
periodic payments generally for a period of 10 years or more 
(or, if a shorter period, certain life expectancies) and (ii) 
any distribution to the extent that the distribution is a 
required minimum distribution.\103\
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    \103\Sec. 402(c)(4).Distributions that are not eligible rollover 
distributions also include distributions made upon hardship of the 
employee and any qualified disaster relief distribution (within the 
meaning of section 72(t)(2)(G)).
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    For any distribution that is eligible for rollover, an 
employer-provided tax-qualified retirement plan must offer the 
distributee the right to have the distribution made in a direct 
rollover\104\ and, before making the distribution, the plan 
administrator must provide the distributee with a written 
explanation of the direct rollover right and related tax 
consequences.\105\ If a distributee does not choose to have the 
distribution made in a direct rollover, the distribution is 
generally subject to mandatory 20-percent income tax 
withholding.\106\
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    \104\Sec. 401(a)(31).
    \105\Sec. 402(f).
    \106\Sec. 3405(c). This mandatory withholding does not apply to a 
distributee that is a beneficiary other than a surviving spouse of an 
employee.
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                           REASONS FOR CHANGE

    The Committee believes that individuals with relatively 
modest retirement account balances should be exempt from the 
compliance burdens associated with the required minimum 
distribution rules. The Committee believes that these 
individuals should be permitted to continue to accumulate 
additional retirement savings without the disruption of a 
required distribution.

                        EXPLANATION OF PROVISION

    Under the provision, if on the last day of any calendar 
year, the aggregate value of an individual's entire interest 
under all applicable eligible retirement plans does not exceed 
an applicable dollar limit in effect for that year, then the 
required minimum distribution requirements with respect to a 
distribution relating to such year shall not apply to that 
individual. The applicable dollar limit is $50,000 and is 
subject to indexing; if the dollar amount after any increase is 
not a multiple of $5,000, it is rounded to the next lowest 
multiple of $5,000. For this purpose, an applicable eligible 
retirement plan means a tax-qualified plan described in section 
401(a) (other than a defined benefit plan), IRAs and individual 
retirement annuities under section 408, employee retirement 
annuities described in section 403(a), tax-sheltered annuities 
described in section 403(b), and a plan described in section 
457(b) that is maintained by a governmental employer.
    If the aggregate value of an individual's entire interest 
under all applicable eligible retirement plans does exceed the 
applicable dollar limit, the amount to be distributed as a 
required minimum distribution for that individual will not 
exceed an amount equal to the excess of the aggregate value of 
that individual's entire interest under such plans on the last 
day of the calendar year to which such distribution relates, 
over the applicable dollar limit in effect for that calendar 
year.
    The provision provides that in the case of an employer plan 
which is an applicable eligible retirement plan, the plan will 
not be treated as failing to meet these requirements in the 
case of any failure to make a required minimum distribution for 
a calendar year if the aggregate value of an employee's 
interest under all such plans of the employer on the last day 
of the calendar year to which the distribution relates does not 
exceed the applicable dollar limit in effect for that year, and 
the employee certifies that the aggregate value of the 
employee's interest under all applicable retirement plans on 
the last day of such calendar year held by the employee did not 
exceed the applicable dollar limit in effect for that year.
    In addition, the provision provides that not later than 
January 31 of each year, the plan administrator (or as 
applicable, the trustee of an IRA or the issuer of an 
individual retirement annuity) of each applicable eligible 
retirement plan will report to the Secretary and to each 
participant in each plan (or as applicable, each individual 
owner of an account or annuity) who has attained age 69 as of 
the end of the preceding calendar year (1) the name and plan 
number of the plan, account or annuity; (2) the name and 
address of the plan administrator, trustee, or issuer; (3) the 
name, address and taxpayer identification number of the 
participant or individual; and (4) the account balance of the 
participant or individual as of the end of the preceding 
calendar year.

                             EFFECTIVE DATE

    The provision is effective for distributions required to be 
made after the first calendar year beginning at least 120 days 
after the date of enactment.

J. Clarification of Treatment of Certain Retirement Plan Contributions 
Picked Up by Governmental Employers for New or Existing Employees (sec. 
            110 of the Bill and sec. 414(h)(2) of the Code)


                              PRESENT LAW

Taxation of contributions to qualified retirement plans

    Contributions to qualified retirement plans generally fall 
into three categories: employer contributions, employee 
contributions, and elective deferrals. Generally, the type or 
types of contributions made to a plan is determined by the 
terms of the plan.
    Employer contributions to a qualified retirement plan are 
not includible in an employee's income at the time of 
contribution and are not wages for purposes of tax under the 
Federal Insurance Contributions Act (``FICA'').\107\
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    \107\Secs. 3101-3128. FICA tax consists of two parts: (1) old age, 
survivor, and disability insurance (``OASDI'') and (2) Medicare 
hospital insurance (``HI''). The OASDI tax rate is 6.2 percent for each 
the employee and employer (for a total rate of 12.4 percent). The OASDI 
tax rate applies to employee wages up to the OASDI wage base ($128,400 
for calendar year 2018). The HI tax rate is 1.45 percent on each the 
employee and the employer (for a total rate of 2.9 percent) and applies 
to all wages. The employee portion of the HI tax (not the employer 
portion) is increased by an additional tax of 0.9 percent on wages 
received in excess of a threshold amount. The threshold amount is 
$250,000 in the case of a joint return, $125,000 in the case of a 
married individual filing a separate return, and $200,000 in any other 
case.
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    An amount contributed to a qualified retirement plan at the 
election of an employee is generally treated as an employee 
after-tax contribution and thus is includible in income. 
Employee contributions are also generally wages for FICA tax 
purposes.
    A qualified defined contribution plan may include a section 
401(k) plan, under which employees may choose to make elective 
deferrals rather than receive the same amount as current 
compensation.\108\ Elective deferrals are subject to certain 
rules. For example, elective deferrals must be fully vested and 
may not exceed an annual limit ($18,500 for 2018).\109\ 
Elective deferrals are not includible in income at the time of 
contribution; however, they are wages for FICA tax purposes.
---------------------------------------------------------------------------
    \108\Elective deferrals are generally made on a pretax basis and 
distributions attributable to elective deferrals are includible in 
income. However, a section 401(k) plan is permitted to include a 
``qualified Roth 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 after-tax Roth contributions. Certain 
distributions from a designated Roth account are excluded from income, 
even though they include earnings not previously taxed.
    \109\A State or local governmental employer may not maintain a 
401(k) plan unless it maintained a 401(k) plan before May 6, 1986. 
However, other arrangements similar to 401(k) plans are available to 
State and local governmental employers, such as eligible deferred 
compensation plans (section 457).
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    A distribution of benefits from a qualified retirement plan 
generally is includible in gross income in the year it is paid 
or distributed, except to the extent the amount distributed 
represents a return of the employee's after-tax contributions 
(i.e., basis).

Special rules for State and local governmental plans

    Some defined benefit pension plans require employee 
contributions. In many cases, governmental employees are 
required to participate in and contribute to a defined benefit 
pension plan as a condition of employment.\110\ In such cases, 
the required employee contributions are generally withheld from 
employees' salaries. In some cases, a governmental plan may 
cover employees of different governmental entities. For 
example, a plan established by a State may cover employees of 
various State agencies or employees of the State and of local 
governments within the State. In such cases, the plan may 
provide employers with the option of paying required employee 
contributions on behalf of their employees, rather than 
withholding the required contributions from employees' 
salaries.
---------------------------------------------------------------------------
    \110\A governmental plan may also allow an employee to purchase 
additional service credit (such as credit for military service) by 
making additional employee contributions.
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    Under a special rule, in the case of a plan maintained by a 
State or local government, if contributions are designated as 
employee contributions, but the State or local governmental 
employer ``picks up'' (i.e., pays) the contributions, 
contributions so picked up (``pick-up contributions'') are 
treated as employer contributions.\111\ As a result of being 
treated as employer contributions, pick-up contributions are 
not includible in employees' income at the time of 
contribution.
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    \111\Sec. 414(h)(2).
---------------------------------------------------------------------------
    Legislative history indicates that the pick-up rules were 
intended to apply to situations in which amounts are designated 
as employee contributions under a State or local governmental 
plan, but the governmental employer pays all or a part of the 
employee's contribution without withholding the amount from the 
employee's salary. In this situation, the portion of the 
contribution that is ``picked up'' by the government was viewed 
as, in substance, an employer contribution for Federal tax 
purposes, even though designated as an employee contribution 
for purposes of State law.\112\
---------------------------------------------------------------------------
    \112\See H.R. Rep. No. 93-807, at 145 (1974).
---------------------------------------------------------------------------
    Although pick-up contributions are treated as employer 
contributions for income tax purposes, pick-up contributions 
made pursuant to a salary reduction agreement are wages for 
FICA tax purposes.\113\ However, compensation of State and 
local government employees who are covered by a qualified 
retirement plan may be generally exempt from FICA tax.\114\
---------------------------------------------------------------------------
    \113\Sec. 3121(v)(1)(B). For this purpose, a salary reduction 
agreement includes any arrangement in which there is a reduction in the 
employee's salary in connection with the employer's contribution of a 
corresponding amount to a pension plan on the employee's behalf, 
regardless of whether the employee approves or chooses participation in 
the plan or whether participation is mandatory. See H.R. Rep. No. 98-
861, at 1415 (1984), and State of New Mexico v. Shalala, 153 F.3d 1160 
(10th Cir. 1998).
    \114\Sec. 3121(b)(7)(F).
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    IRS guidance has applied pick-up treatment in situations in 
which employees' salaries are reduced by the amount of the 
contribution as long as individual employees are not given the 
option of choosing to receive amounts directly instead of 
having them paid by the employer to the plan.\115\ The IRS has 
issued numerous private letter rulings to taxpayers that deal 
with the application of the pick-up rules to particular 
arrangements. Many of these rulings apply pick-up treatment to 
employee contributions to a State or local governmental pension 
plan that are required as a condition of employment and 
withheld from employees' salary. The IRS also has ruled 
favorably on arrangements that allow individual employees to 
make an irrevocable election to have contributions made to a 
plan on their behalf by payroll deduction if a State statute or 
similar provision provides that the contributions are being 
paid by the employer in lieu of contributions by the 
employee.\116\ The rulings conclude that, in these 
circumstances, the employee does not have the option of 
receiving the amounts directly and that pick-up treatment 
applies.
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    \115\See, e.g., Rev. Rul. 81-36, 1981-1 C.B. 255. (The employer 
must also specify that the contributions are being paid by the employer 
in lieu of contributions by the employee.) Compare Rev. Rul. 81-35, 
1981-1 C.B. 255, which denies pick-up treatment to contributions made 
pursuant to an individual employment agreement under which the employer 
contributes a certain percentage of the employee's salary to the 
State's pension plan on behalf of the employee. In Priv. Ltr. Rul. 
201417025 (Jan. 28, 2014), the IRS ruled that where a state retirement 
system had added a qualified defined contribution plan to its qualified 
defined benefit plan and provided employees who participated in or were 
eligible to participate in the defined benefit plan a one-time 
opportunity to move to the defined contribution plan and continue to 
have their employee contributions treated as ``picked up'' by the 
employer, and also provided employees with an additional opportunity to 
move to the defined contribution plan (1) the amounts transferred, 
either time, were not distributions, and the transfers did not result 
in currently taxable income to the participant and (2) neither election 
to transfer between plans constituted a cash or deferred arrangement 
under sec. 401(k).
    \116\See, e.g., Priv. Ltr. Rul. 200423040 (March 9, 2004) 
(employees may elect whether to participate in a defined benefit 
pension plan that requires employee contributions) and Priv. Ltr. Rul. 
200317034 (October 10, 2002) (employees may elect to have contributions 
made to a defined benefit pension plan by payroll reduction to purchase 
additional service credit). In addition, under Priv. Ltr. Rul. 
200317024 (September 30, 2002), pick-up treatment applies to 
contributions made to a defined contribution plan at the election of 
employees. This ruling suggests that the pick-up rules may be used to 
make pretax employee contributions to a defined contribution plan 
without complying with the rules applicable to elective deferrals.
---------------------------------------------------------------------------
    Rev. Rul. 2006-43\117\ provides that a contribution to a 
qualified plan established by a State government will not be 
treated as picked up by the employing unit unless the employing 
unit (1) specifies that contributions, although designated as 
employee contributions, are being paid by the employer (which 
is taken by formal action by a duly authorized person which 
must only apply prospectively and be evidenced by a 
contemporaneous written document); and (2) does not permit a 
participating employee from and after the date of the ``pick-
up'' to have a cash or deferred election right with respect to 
designated employee contributions.
---------------------------------------------------------------------------
    \117\2006-35 I.R.B. 329, August 28, 2006.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that State and local governments and 
their employees should be allowed to treat employee 
contributions as ``picked-up'' by the employer (and therefore 
not subject to income taxation when contributed) without regard 
to whether employees may choose between different benefit 
formulas within the plan. The Committee believes that allowing 
such options to employees with respect to their retirement 
benefits should not trigger unfavorable Federal income tax 
consequences.

                        EXPLANATION OF PROVISION

    Under the provision, a contribution shall not fail to be 
treated as picked up by an employing unit merely because the 
employee may make an irrevocable election between the 
applications of two alternative benefit formulas involving the 
same or different levels of employee contributions. The 
provision leads to a different result than the conclusion 
reached in Rev. Rul. 2006-43 by permitting an employee 
contribution to be treated as having been picked up by a State 
or local governmental employer (and treated as an employer 
contribution) where the employee makes an irrevocable election 
between the application of two alternative benefit formulas 
involving the same or different levels of employee 
contributions.

                             EFFECTIVE DATE

    The provision applies to plan years beginning after the 
date of enactment.

  K. Elective Deferrals by Members of the Ready Reserve of a Reserve 
Component of the Armed Forces (sec. 111 of the Bill and sec. 402(g) of 
                               the Code)


                              PRESENT LAW

Elective deferrals

    Tax-favored employer-sponsored retirement plans may allow 
an employee to make an election between cash and an employer 
contribution to the plan pursuant to a qualified cash or 
deferred arrangement or a salary reduction agreement.\118\ 
Amounts contributed pursuant to these qualified cash or 
deferred arrangements and salary reduction agreements are 
referred to as elective deferrals. The total elective deferrals 
that may be made by an individual for a year are subject to a 
dollar limit, generally $18,500 for 2018.\119\ An employee age 
50 or over may make additional elective deferrals, referred to 
as catch-up contributions, generally limited to $6,000 for 
2018.\120\ These limits apply to the total amount of elective 
deferrals that an individual may contribute for the year, 
whether to a single plan or to multiple plans, for example, 
plans of different employers for whom the individual works 
during the year.
---------------------------------------------------------------------------
    \118\See, for example, sections 401(k) and 403(b).
    \119\Sec. 402(g).
    \120\Sec. 414(v). The total of an employee's elective deferrals for 
a year, including catch-up contributions, cannot exceed the employee's 
compensation for the year.
---------------------------------------------------------------------------

Thrift Savings Plan and the Ready Reserve

    The Thrift Savings Plan (``TSP'') is a tax-favored 
retirement plan sponsored by the Federal government under which 
Federal employees may contribute elective deferrals.\121\ 
Elective deferrals made to the TSP are subject to the same 
limits as elective deferrals made to other employer-sponsored 
retirement plans, including elective deferrals made to plans of 
different employers for whom the individual works during the 
year.
---------------------------------------------------------------------------
    \121\Sec. 7701(j). The provisions of TSP are governed also by 5 
U.S.C. 8430 through 8440f.
---------------------------------------------------------------------------
    The Armed Forces of the United States include seven reserve 
components: the Army National Guard, the Army Reserve, the Navy 
Reserve, the Marine Corps Reserve, the Air National Guard, the 
Air Force Reserve, and the Coast Guard Reserve. The Ready 
Reserve consists of members of the reserve components who are 
usually called to active duty before other members. A member of 
the Ready Reserve who is in pay status may make elective 
deferrals to the TSP. In the case of a member of the Ready 
Reserve who is eligible to contribute elective deferrals to the 
TSP in that capacity and to another plan in connection with 
other employment, the general limit on elective deferrals 
applies to the total elective deferrals made to the TSP and the 
other plan. In the case of a member of the Ready Reserve who is 
also a civilian Federal employee and eligible to make elective 
deferrals to the TSP in that capacity, the general limit on 
elective deferrals applies to the total elective deferrals made 
to the TSP in both capacities.

                           REASONS FOR CHANGE

    In recent years, members of the Armed Forces have become 
eligible to receive matching contributions within their TSP 
accounts. However, active-duty members of our military who 
enter the civilian workforce and continue to serve in the Ready 
Reserve may lose out on such matching contributions because 
they may exceed the elective deferral contribution limit based 
on their participation in a civilian defined contribution plan. 
The Committee believes that considerations related to 
retirement savings should not serve as a disincentive for an 
individual to continue to serve in the Ready Reserve. Allowing 
members of the Ready Reserve to fully contribute to their TSP 
accounts while also contributing to a defined contribution plan 
related to their civilian employment enhances the Nation's 
readiness by helping to retain, on a part-time basis, our well-
trained and experienced members of the Armed Forces.

                        EXPLANATION OF PROVISION

    Under the provision, if an individual who is a member of 
the Ready Reserve makes elective deferrals to the TSP in that 
capacity, a separate limit (including a separate catch-up 
contribution limit) applies to all other elective deferrals 
that may be made by that individual. This separate limit 
applies only to one other plan or to the TSP in connection with 
other employment (that is, employment other than that as a 
member of the Ready Reserve) of that individual based on the 
individual's compensation in that other employment. 
Accordingly, if a member of the Ready Reserve makes elective 
deferrals to the TSP both as a Reservist and also as a civilian 
Federal employee, separate limits (including a separate catch-
up contribution limit) will apply to the elective deferrals 
made to the TSP by the individual as a member of the Ready 
Reserve and in the individual's capacity as a civilian Federal 
employee. If a member of the Ready Reserve makes elective 
deferrals to the TSP as a Reservist and also makes elective 
deferrals to a private sector plan as a private sector 
employee, separate limits (including a separate catch-up 
contribution limit) will apply to the elective deferrals made 
to the TSP by the individual as a member of the Ready Reserve 
and to the elective deferrals made to the private sector plan 
in the individual's capacity as a private sector employee.

                             EFFECTIVE DATE

    The provision is effective for plan years beginning after 
December 31, 2018.

                 TITLE II--ADMINISTRATIVE IMPROVEMENTS


A. Plan Adopted by Filing Due Date for Year May Be Treated as in Effect 
 as of Close of Year (sec. 201 of the Bill and sec. 401(b) of the Code)


                              PRESENT LAW

    In order for a qualified retirement plan to be treated as 
maintained for a taxable year, the plan must be adopted by the 
last day of the taxable year.\122\ However, the trust under the 
plan will not fail to be treated as in existence due to lack of 
corpus merely because it holds no assets on the last day of the 
taxable year.\123\ Contributions made by the due date (plus 
extensions) of the tax return for the employer maintaining the 
plan for a taxable year are treated as contributed on account 
of that taxable year.\124\ Thus a plan can be established on 
the last day of a taxable year even though the first 
contribution is not made until the due date of the employer's 
return of tax for the taxable year. Further, if the terms of a 
plan adopted during an employer's taxable year fail to satisfy 
the qualification requirements that apply to the plan for the 
year, the plan may also be amended retroactively by the due 
date (including extensions) of the employer's return, provided 
that the amendment is made retroactively effective.\125\ 
However, this provision does not allow a plan to be adopted 
after the end of a taxable year and made retroactively 
effective, for qualification purposes, for the taxable year 
prior to the taxable year in which the plan was adopted by the 
employer.\126\
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    \122\Rev. Rul. 76-28, 1976-1 C.B. 106.
    \123\Rev. Rul. 81-114, 1981-1 C.B. 207.
    \124\Sec. 404(a)(6).
    \125\Sec. 401(b).
    \126\Treas. Reg. sec. 1.401(b)-1(a).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that providing employers with more 
time to establish a retirement plan for their employees will 
facilitate more employers, especially small employers, 
establishing such plans, thus leading to more retirement 
savings by employees.

                        EXPLANATION OF PROVISION

    Under the provision, if an employer adopts a qualified 
retirement plan after the close of a taxable year but before 
the time prescribed by law for filing the return of tax of the 
employer for the taxable year (including extensions thereof), 
the employer may elect to treat the plan as having been adopted 
as of the last day of the taxable year.
    The provision does not override rules requiring certain 
plan provisions to be in effect during a plan year, such as the 
provision for elective deferrals under a qualified cash or 
deferral arrangement (``generally referred to as a 401(k) 
plan'').\127\
---------------------------------------------------------------------------
    \127\Treas. Reg. sec. 1.401(k)-1(e)(2)(ii).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to plans adopted for taxable years 
beginning after December 31, 2018.

  B. Modification of Nondiscrimination Rules To Protect Older, Longer 
  Service Participants (sec. 202 of the Bill and secs. 401(a)(4) and 
                          (a)(26) of the Code)


                              PRESENT LAW

In general

    Qualified retirement plans are subject to nondiscrimination 
requirements, under which the group of employees covered by a 
plan (``plan coverage'') and the contributions or benefits 
provided to employees, including benefits, rights, and features 
under the plan, must not discriminate in favor of highly 
compensated employees.\128\ The timing of plan amendments must 
also not have the effect of discriminating significantly in 
favor of highly compensated employees. In addition, in the case 
of a defined benefit plan, the plan must benefit at least the 
lesser of (1) 50 employees of the employer, or (2) the greater 
of (a) 40 percent of all employees of the employer or (b) two 
employees (or one employee if there is only one employee), 
referred to as the ``minimum participation'' requirements.\129\ 
These requirements are designed to help ensure that qualified 
retirement plans achieve the goal of retirement security for 
both lower and higher paid employees.
---------------------------------------------------------------------------
    \128\Secs. 401(a)(3)-(5) and 410(b). Detailed rules are provided in 
Treas. Reg. secs. 1.401(a)(4)-1 through -13 and secs. 1.410(b)-2 
through -10. In applying the nondiscrimination requirements, certain 
employees, such as those under age 21 or with less than a year of 
service, generally may be disregarded. In addition, employees of 
controlled groups and affiliated service groups under the aggregation 
rules of section 414(b), (c), (m) and (o) are treated as employed by a 
single employer.
    \129\Sec. 401(a)(26).
---------------------------------------------------------------------------
    For nondiscrimination purposes, an employee generally is 
treated as highly compensated if the employee (1) was a five-
percent owner of the employer at any time during the year or 
the preceding year, or (2) had compensation for the preceding 
year in excess of $120,000 (for 2018).\130\ Employees who are 
not highly compensated are referred to as nonhighly compensated 
employees.
---------------------------------------------------------------------------
    \130\Section 414(q). At the election of the employer, employees who 
are highly compensated based on the amount of their compensation may be 
limited to employees who were among the top 20 percent of employees 
based on compensation.
---------------------------------------------------------------------------

Nondiscriminatory plan coverage

    Whether plan coverage of employees is nondiscriminatory is 
determined by calculating a plan's ratio percentage, that is, 
the ratio of the percentage of nonhighly compensated employees 
covered under the plan to the percentage of highly compensated 
employees covered. For this purpose, certain portions of a 
defined contribution plan are treated as separate plans to 
which the plan coverage requirements are applied separately, 
referred to as mandatory disaggregation. Specifically, the 
following, if provided under a plan, are treated as separate 
plans: the portion of a plan consisting of employee elective 
deferrals, the portion consisting of employer matching 
contributions, the portion consisting of employer nonelective 
contributions, and the portion consisting of an employee stock 
ownership plan (``ESOP'').\131\ Subject to mandatory 
disaggregation, different qualified retirement plans may 
otherwise be aggregated and tested together as a single plan, 
provided that they use the same plan year. The plan determined 
under these rules for plan coverage purposes generally is also 
treated as the plan for purposes of applying the other 
nondiscrimination requirements.
---------------------------------------------------------------------------
    \131\Elective deferrals are contributions that an employee elects 
to have made to a defined contribution plan that includes a qualified 
cash or deferred arrangement (a section 401(k) plan) rather than 
receive the same amount as current compensation. Employer matching 
contributions are contributions made by an employer only if an employee 
makes elective deferrals or after-tax employee contributions. Employer 
nonelective contributions are contributions made by an employer 
regardless of whether an employee makes elective deferrals or after-tax 
employee contributions. Under section 4975(e)(7), an ESOP is a defined 
contribution plan, or portion of a defined contribution plan, that is 
designated as an ESOP and is designed to invest primarily in employer 
stock.
---------------------------------------------------------------------------
    A plan's coverage is nondiscriminatory if the ratio 
percentage, as determined above, is 70 percent or greater. If a 
plan's ratio percentage is less than 70 percent, a multi-part 
test applies, referred to as the average benefit test. First, 
the plan must meet a ``nondiscriminatory classification 
requirement,'' that is, it must cover a group of employees that 
is reasonable and established under objective business criteria 
and the plan's ratio percentage must be at or above a level 
specified in the regulations, which varies depending on the 
percentage of nonhighly compensated employees in the employer's 
workforce. In addition, the average benefit percentage test 
must be satisfied.
    Under the average benefit percentage test, in general, the 
average rate of employer-provided contributions or benefit 
accruals for all nonhighly compensated employees under all 
plans of the employer must be at least 70 percent of the 
average contribution or accrual rate of all highly compensated 
employees.\132\ In applying the average benefit percentage 
test, elective deferrals made by employees, as well as employer 
matching and nonelective contributions, are taken into account. 
Generally, all plans maintained by the employer are taken into 
account, including ESOPs, regardless of whether plans use the 
same plan year.
---------------------------------------------------------------------------
    \132\Contribution and benefit rates are generally determined under 
the rules for nondiscriminatory contributions or benefit accruals, 
described below. These rules are generally based on benefit accruals 
under a defined benefit plan, other than accruals attributable to 
after-tax employee contributions, and contributions allocated to 
participants' accounts under a defined contribution plan, other than 
allocations attributable to after-tax employee contributions. (Under 
these rules, contributions allocated to participants' accounts are 
referred to as ``allocations,'' with the related rates referred to as 
``allocation rates,'' but ``contribution rates'' is used herein for 
convenience.) However, as discussed below, benefit accruals can be 
converted to actuarially equivalent contributions, and contributions 
can be converted to actuarially equivalent benefit accruals.
---------------------------------------------------------------------------
    Under a transition rule applicable in the case of the 
acquisition or disposition of a business, or portion of a 
business, or a similar transaction, a plan that satisfied the 
plan coverage requirements before the transaction is deemed to 
continue to satisfy them for a period after the 
transaction,\133\ provided coverage under the plan is not 
significantly changed during that period.\134\
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    \133\It is for the period beginning on date of the transaction and 
ending on the last day of the first plan year beginning after the date 
of the transaction.
    \134\Sec. 410(b)(6)(C).
---------------------------------------------------------------------------

Nondiscriminatory contributions or benefit accruals

            In general
    There are three general approaches to testing the amount of 
benefits under qualified retirement plans: (1) design-based 
safe harbors under which the plan's contribution or benefit 
accrual formula satisfies certain uniformity standards, (2) a 
general test, described below, and (3) cross-testing of 
equivalent contributions or benefit accruals. Employee elective 
deferrals and employer matching contributions under defined 
contribution plans are subject to special testing rules and 
generally are not permitted to be taken into account in 
determining whether other contributions or benefits are 
nondiscriminatory.\135\
---------------------------------------------------------------------------
    \135\Secs. 401(k) and (m), the latter of which applies also to 
after-tax employee contributions under a defined contribution plan.
---------------------------------------------------------------------------
    The nondiscrimination rules allow contributions and benefit 
accruals to be provided to highly compensated and nonhighly 
compensated employees at the same percentage of 
compensation.\136\ Thus, the various testing approaches 
described below are generally applied to the amount of 
contributions or accruals provided as a percentage of 
compensation, referred to as a contribution rate or accrual 
rate. In addition, under the ``permitted disparity'' rules, in 
calculating an employee's contribution or accrual rate, credit 
may be given for the employer paid portion of Social Security 
taxes or benefits.\137\ The permitted disparity rules do not 
apply in testing whether elective deferrals, matching 
contributions, or ESOP contributions are nondiscriminatory.
---------------------------------------------------------------------------
    \136\For this purpose, under section 401(a)(17), annual 
compensation generally is limited to $275,000 per year (for 2018).
    \137\See sections 401(a)(5)(C) and (D) and 401(l) and Treas. Reg. 
section 1.401(a)(4)-7 and 1.401(l)-1 through -6 for rules for 
determining the amount of contributions or benefits that can be 
attributed to the employer-paid portion of Social Security taxes or 
benefits.
---------------------------------------------------------------------------
    The general test is generally satisfied by measuring the 
rate of contribution or benefit accrual for each highly 
compensated employee to determine if the group of employees 
with the same or higher rate (a ``rate'' group) is a 
nondiscriminatory group, using the nondiscriminatory plan 
coverage standards described above. For this purpose, if the 
ratio percentage of a rate group is less than 70 percent, a 
simplified standard applies, which includes disregarding the 
reasonable classification requirement, but requires 
satisfaction of the average benefit percentage test.
            Cross-testing
    Cross-testing involves the conversion of contributions 
under a defined contribution plan or benefit accruals under a 
defined benefit plan to actuarially equivalent accruals or 
contributions, with the resulting equivalencies tested under 
the general test. However, employee elective deferrals and 
employer matching contributions under defined contribution 
plans are not permitted to be taken into account for this 
purpose, and cross-testing of contributions under a defined 
contribution plan, or cross-testing of a defined contribution 
plan aggregated with a defined benefit plan, is permitted only 
if certain threshold requirements are satisfied.
    In order for a defined contribution plan to be tested on an 
equivalent benefit accrual basis, one of the following three 
threshold conditions must be met:
    The plan has broadly available allocation rates, that is, 
each allocation rate under the plan is available to a 
nondiscriminatory group of employees (disregarding certain 
permitted additional contributions provided to employees as a 
replacement for benefits under a frozen defined benefit plan, 
as discussed below);
    The plan provides allocations that meet prescribed designs 
under which allocations gradually increase with age or service 
or are expected to provide a target level of annuity benefit; 
or
    The plan satisfies a minimum allocation gateway, under 
which each nonhighly compensated employee has an allocation 
rate of (a) at least one-third of the highest rate for any 
highly compensated employee, or (b) if less, at least five 
percent.
    In order for an aggregated defined contribution and defined 
benefit plan to be tested on an aggregate equivalent benefit 
accrual basis, one of the following three threshold conditions 
must be met:
    The plan must be primarily defined benefit in character, 
that is, for more than fifty percent of the nonhighly 
compensated employees under the plan, their accrual rate under 
the defined benefit plan exceeds their equivalent accrual rate 
under the defined contribution plan;
    The plan consists of broadly available separate defined 
benefit and defined contribution plans, that is, the defined 
benefit plan and the defined contribution plan would separately 
satisfy simplified versions of the minimum coverage and 
nondiscriminatory amount requirements; or
    The plan satisfies a minimum aggregate allocation gateway, 
under which each nonhighly compensated employee has an 
aggregate allocation rate (consisting of allocations under the 
defined contribution plan and equivalent allocations under the 
defined benefit plan) of (a) at least one-third of the highest 
aggregate allocation rate for any nonhighly compensated 
employee, or (b) if less, at least five percent in the case of 
a highest nonhighly compensated employee's rate up to 25 
percent, increased by one percentage point for each five-
percentage-point increment (or portion thereof) above 25 
percent, subject to a maximum of 7.5 percent.
            Benefits, rights, and features
    Each benefit, right, or feature offered under the plan 
generally must be available to a group of employees that has a 
ratio percentage that satisfies the minimum coverage 
requirements, including the reasonable classification 
requirement if applicable, except that the average benefit 
percentage test does not have to be met, even if the ratio 
percentage is less than 70 percent.

Multiple employer and section 403(b) plans

    A multiple employer plan generally is a single plan 
maintained by two or more unrelated employers, that is, 
employers that are not treated as a single employer under the 
aggregation rules for related entities.\138\ The plan coverage 
and other nondiscrimination requirements are applied separately 
to the portions of a multiple employer plan covering employees 
of different employers.\139\
---------------------------------------------------------------------------
    \138\Sec. 413(c). Multiple employer status does not apply if the 
plan is a multiemployer plan, defined under sec. 414(f) as a plan 
maintained pursuant to one or more collective bargaining agreements 
with two or more unrelated employers and to which the employers are 
required to contribute under the collective bargaining agreement(s). 
Multiemployer plans are also known as Taft-Hartley plans.
    \139\Treas. Reg. sec. 1.413-2(a)(3)(ii)-(iii).
---------------------------------------------------------------------------
    Certain tax-exempt charitable organizations may offer their 
employees a tax-deferred annuity plan (``section 403(b) 
plan'').\140\ The nondiscrimination requirements, other than 
the requirements applicable to elective deferrals, generally 
apply to section 403(b) plans of private tax-exempt 
organizations. For purposes of applying the nondiscrimination 
requirements to a section 403(b) plan, subject to mandatory 
disaggregation, a qualified retirement plan may be combined 
with the section 403(b) plan and treated as a single plan.\141\ 
However, a section 403(b) plan and qualified retirement plan 
may not be treated as a single plan for purposes of applying 
the nondiscrimination requirements to the qualified retirement 
plan.
---------------------------------------------------------------------------
    \140\Sec. 403(b). These plans are available to employers that are 
tax-exempt under section 501(c)(3), as well as to employers that are 
educational institutions of State or local governments.
    \141\Treas. Reg. sec. 1.410(b)-7(f).
---------------------------------------------------------------------------

Closed and frozen defined benefit plans

    A defined benefit plan may be amended to limit 
participation in the plan to individuals who are employees as 
of a certain date. That is, employees hired after that date are 
not eligible to participate in the plan. Such a plan is 
sometimes referred to as a ``closed'' defined benefit plan 
(that is, closed to new entrants). In such a case, it is common 
for the employer also to maintain a defined contribution plan 
and to provide employer matching or nonelective contributions 
only to employees not covered by the defined benefit plan or at 
a higher rate to such employees.
    Over time, the group of employees continuing to accrue 
benefits under the defined benefit plan may come to consist 
more heavily of highly compensated employees, for example, 
because of greater turnover among nonhighly compensated 
employees or because increasing compensation causes nonhighly 
compensated employees to become highly compensated. In that 
case, the defined benefit plan may have to be combined with the 
defined contribution plan and tested on a benefit accrual 
basis. However, under the regulations, if none of the threshold 
conditions is met, testing on a benefits basis may not be 
available. Notwithstanding the regulations, recent IRS guidance 
provides relief for a limited period, allowing certain closed 
defined benefit plans to be aggregated with a defined 
contribution plan and tested on an aggregate equivalent 
benefits basis without meeting any of the threshold 
conditions.\142\ When the group of employees continuing to 
accrue benefits under a closed defined benefit plan consists 
more heavily of highly compensated employees, the benefits, 
rights, and features provided under the plan may also fail the 
tests under the existing nondiscrimination rules.
---------------------------------------------------------------------------
    \142\Notice 2014-5, 2014-2 I.R.B. 276, December 13, 2013 extended 
by Notice 2015-28, 2015-14 I.R.B. 848, March 19, 2015, Notice 2016-57, 
2016-40 I.R.B. 432, September 19, 2016, and most recently by Notice 
2017-45, 2017-38 I.R.B. 232, August 31, 2017. Proposed regulations 
revising the nondiscrimination requirements for closed plans were also 
issued in 2016, subject to various conditions. 81 Fed. Reg. 4976 
(January 29, 2016).
---------------------------------------------------------------------------
    In some cases, if a defined benefit plan is amended to 
cease future accruals for all participants, referred to as a 
``frozen'' defined benefit plan, additional contributions to a 
defined contribution plan may be provided for participants, in 
particular for older participants, in order to make up in part 
for the loss of the benefits they expected to earn under the 
defined benefit plan (``make-whole'' contributions). As a 
practical matter, testing on a benefit accrual basis may be 
required in that case, but may not be available because the 
defined contribution plan does not meet any of the threshold 
conditions.

                           REASONS FOR CHANGE

    Some employers that sponsor defined benefit plans have 
closed their plans to new employees and offer new employees 
alternative retirement savings plans. Employees in such closed 
defined benefit plans continue to earn benefits under the 
defined benefit plan, consistent with their expectations as to 
their retirement income. This is particularly important for 
employees who are close to retirement. However, without greater 
flexibility in the nondiscrimination rules, employers may be 
forced to freeze these defined benefit plans, thus preventing 
employees who remain in the plan from earning their expected 
benefits. When a defined benefit plan is frozen, make-whole 
contributions can offset some of the resulting benefit loss for 
employees. In that case too, however, greater flexibility in 
the nondiscrimination rules is needed. The Committee believes 
it is appropriate to provide such flexibility in order to 
protect employee benefits for older, longer-service employees.

                        EXPLANATION OF PROVISION

Closed or frozen defined benefit plans

            In general
    The provision provides nondiscrimination relief with 
respect to benefits, rights, and features for a closed class of 
participants (``closed class''),\143\ and with respect to 
benefit accruals for a closed class, under a defined benefit 
plan that meets the requirements described below (referred to 
herein as an ``applicable'' defined benefit plan). In addition, 
the provision treats a closed or frozen applicable defined 
benefit plan as meeting the minimum participation requirements 
if the plan met the requirements as of the effective date of 
the plan amendment by which the plan was closed or frozen.
---------------------------------------------------------------------------
    \143\References under the provision to a closed class of 
participants and similar references to a closed class include 
arrangements under which one or more classes of participants are 
closed, except that one or more classes of participants closed on 
different dates are not aggregated for purposes of determining the date 
any such class was closed.
---------------------------------------------------------------------------
    If a portion of an applicable defined benefit plan eligible 
for relief under the provision is spun off to another employer, 
and if the spun-off plan continues to satisfy any ongoing 
requirements applicable for the relevant relief as described 
below, the relevant relief for the spun-off plan will continue 
with respect to the other employer.
            Benefits, rights, or features for a closed class
    Under the provision, an applicable defined benefit plan 
that provides benefits, rights, or features to a closed class 
does not fail the nondiscrimination requirements by reason of 
the composition of the closed class, or the benefits, rights, 
or features provided to the closed class, if (1) for the plan 
year as of which the class closes and the two succeeding plan 
years, the benefits, rights, and features satisfy the 
nondiscrimination requirements without regard to the relief 
under the provision, but taking into account the special 
testing rules described below,\144\ and (2) after the date as 
of which the class was closed, any plan amendment modifying the 
closed class or the benefits, rights, and features provided to 
the closed class does not discriminate significantly in favor 
of highly compensated employees.
---------------------------------------------------------------------------
    \144\Other testing options available under present law are also 
available for this purpose.
---------------------------------------------------------------------------
    For purposes of requirement (1) above, the following 
special testing rules apply:
           In applying the plan coverage transition 
        rule for business acquisitions, dispositions, and 
        similar transactions, the closing of the class of 
        participants is not treated as a significant change in 
        coverage;
           Two or more plans do not fail to be eligible 
        to be a treated as a single plan solely by reason of 
        having different plan years;\145\ and
---------------------------------------------------------------------------
    \145\This rule applies also for purposes of applying the plan 
coverage and other nondiscrimination requirements to an applicable 
defined benefit plan and one or more defined contributions that, under 
the provision, may be treated as a single plan as described below.
---------------------------------------------------------------------------
           Changes in employee population are 
        disregarded to the extent attributable to individuals 
        who become employees or cease to be employees, after 
        the date the class is closed, by reason of a merger, 
        acquisition, divestiture, or similar event.
            Benefit accruals for a closed class
    Under the provision, an applicable defined benefit plan 
that provides benefits to a closed class may be aggregated, 
that is, treated as a single plan, and tested on a benefit 
accrual basis with one or more defined contribution plans 
(without having to satisfy the threshold conditions under 
present law) if (1) for the plan year as of which the class 
closes and the two succeeding plan years, the plan satisfies 
the plan coverage and nondiscrimination requirements without 
regard to the relief under the provision, but taking into 
account the special testing rules described above,\146\ and (2) 
after the date as of which the class was closed, any plan 
amendment modifying the closed class or the benefits provided 
to the closed class does not discriminate significantly in 
favor of highly compensated employees.
---------------------------------------------------------------------------
    \146\Other testing options available under present law are also 
available for this purpose.
---------------------------------------------------------------------------
    Under the provision, defined contribution plans that may be 
aggregated with an applicable defined benefit plan and treated 
as a single plan include the portion of one or more defined 
contribution plans consisting of matching contributions, an 
ESOP, or matching or nonelective contributions under a section 
403(b) plan. If an applicable defined benefit plan is 
aggregated with the portion of a defined contribution plan 
consisting of matching contributions, any portion of the 
defined contribution plan consisting of elective deferrals must 
also be aggregated. In addition, the matching contributions are 
treated in the same manner as nonelective contributions, 
including for purposes of permitted disparity.
            Applicable defined benefit plan
    An applicable defined benefit plan to which relief under 
the provision applies is a defined benefit plan under which the 
class was closed (or the plan frozen) before April 5, 2017, or 
that meets the following alternative conditions: (1) taking 
into account any predecessor plan, the plan has been in effect 
for at least five years as of the date the class is closed (or 
the plan is frozen) and (2) under the plan, during the five-
year period preceding that date, (a) for purposes of the relief 
provided with respect to benefits, rights, and features for a 
closed class, there has not been a substantial increase in the 
coverage or value of the benefits, rights, or features, or (b) 
for purposes of the relief provided with respect to benefit 
accruals for a closed class or the minimum participation 
requirements, there has not been a substantial increase in the 
coverage or benefits under the plan.
    For purposes of (2)(a) above, a plan is treated as having a 
substantial increase in coverage or value of benefits, rights, 
or features only if, during the applicable five-year period, 
either the number of participants covered by the benefits, 
rights, or features on the date the period ends is more than 50 
percent greater than the number on the first day of the plan 
year in which the period began, or the benefits, rights, and 
features have been modified by one or more plan amendments in 
such a way that, as of the date the class is closed, the value 
of the benefits, rights, and features to the closed class as a 
whole is substantially greater than the value as of the first 
day of the five-year period, solely as a result of the 
amendments.
    For purposes of (2)(b) above, a plan is treated as having 
had a substantial increase in coverage or benefits only if, 
during the applicable five-year period, either the number of 
participants benefiting under the plan on the date the period 
ends is more than 50 percent greater than the number of 
participants on the first day of the plan year in which the 
period began, or the average benefit provided to participants 
on the date the period ends is more than 50 percent greater 
than the average benefit provided on the first day of the plan 
year in which the period began. In applying this requirement, 
the average benefit provided to participants under the plan is 
treated as having remained the same between the two relevant 
dates if the benefit formula applicable to the participants has 
not changed between the dates and, if the benefit formula has 
changed, the average benefit under the plan is considered to 
have increased by more than 50 percent only if the target 
normal cost for all participants benefiting under the plan for 
the plan year in which the five-year period ends exceeds the 
target normal cost for all such participants for that plan year 
if determined using the benefit formula in effect for the 
participants for the first plan year in the five-year period by 
more than 50 percent.\147\ In applying these rules, a multiple 
employer plan is treated as a single plan, rather than as 
separate plans separately covering the employees of each 
participating employer.
---------------------------------------------------------------------------
    \147\Under the funding requirements applicable to defined benefit 
plans, target normal cost for a plan year (defined in section 
430(b)(1)(A)(i)) is generally the sum of the present value of the 
benefits expected to be earned under the plan during the plan year plus 
the amount of plan-related expenses to be paid from plan assets during 
the plan year. Under the provision, in applying this average benefit 
rule to certain defined benefit plans maintained by cooperative 
organizations and charities, referred to as CSEC plans (defined in 
section 414(y)), which are subject to different funding requirements, 
the CSEC plan's normal cost under section 433(j)(1)(B) is used instead 
of target normal cost.
---------------------------------------------------------------------------
    In applying these standards, any increase in coverage or 
value, or in coverage or benefits, whichever is applicable, is 
generally disregarded if it is attributable to coverage and 
value, or coverage and benefits, provided to employees who (1) 
became participants as a result of a merger, acquisition, or 
similar event that occurred during the 7-year period preceding 
the date the class was closed, or (2) became participants by 
reason of a merger of the plan with another plan that had been 
in effect for at least five years as of the date of the merger 
and, in the case of benefits, rights, or features for a closed 
class, under the merger, the benefits, rights, or features 
under one plan were conformed to the benefits, rights, or 
features under the other plan prospectively.

Make-whole contributions under a defined contribution plan

    Under the provision, a defined contribution plan is 
permitted to be tested on an equivalent benefit accrual basis 
(without having to satisfy the threshold conditions under 
present law) if the following requirements are met:
           The plan provides make-whole contributions 
        to a closed class of participants whose accruals under 
        a defined benefit plan have been reduced or ended 
        (``make-whole class'');
           For the plan year of the defined 
        contribution plan as of which the make-whole class 
        closes and the two succeeding plan years, the make-
        whole class satisfies the nondiscriminatory 
        classification requirement under the plan coverage 
        rules, taking into account the special testing rules 
        described above;
           After the date as of which the class was 
        closed, any amendment to the defined contribution plan 
        modifying the make-whole class or the allocations, 
        benefits, rights, and features provided to the make-
        whole class does not discriminate significantly in 
        favor of highly compensated employees; and
           Either the class was closed before April 5, 
        2017, or the defined benefit plan is an applicable 
        defined benefit plan under the alternative conditions 
        applicable for purposes of the relief provided with 
        respect to benefit accruals for a closed class.
    With respect to one or more defined contribution plans 
meeting the requirements above, in applying the plan coverage 
and nondiscrimination requirements, the portion of the plan 
providing make-whole or other nonelective contributions may 
also be aggregated and tested on an equivalent benefit accrual 
basis with the portion of one or more other defined 
contribution plans consisting of matching contributions, an 
ESOP, or matching or nonelective contributions under a section 
403(b) plan. If the plan is aggregated with the portion of a 
defined contribution plan consisting of matching contributions, 
any portion of the defined contribution plan consisting of 
elective deferrals must also be aggregated. In addition, the 
matching contributions are treated in the same manner as 
nonelective contributions, including for purposes of permitted 
disparity.
    Under the provision, ``make-whole contributions'' generally 
means nonelective contributions for each employee in the make-
whole class that are reasonably calculated, in a consistent 
manner, to replace some or all of the retirement benefits that 
the employee would have received under the defined benefit plan 
and any other plan or qualified cash or deferred arrangement 
under a section 401(k) plan if no change had been made to the 
defined benefit plan and other plan or arrangement.\148\ 
However, under a special rule, in the case of a defined 
contribution plan that provides benefits, rights, or features 
to a closed class of participants whose accruals under a 
defined benefit plan have been reduced or eliminated, the plan 
will not fail to satisfy the nondiscrimination requirements 
solely by reason of the composition of the closed class, or the 
benefits, rights, or features provided to the closed class, if 
the defined contribution plan and defined benefit plan 
otherwise meet the requirements described above but for the 
fact that the make-whole contributions under the defined 
contribution plan are made in whole or in part through matching 
contributions.
---------------------------------------------------------------------------
    \148\For this purpose, consistency is not required with respect to 
employees who were subject to different benefit formulas under the 
defined benefit plan.
---------------------------------------------------------------------------
    If a portion of a defined contribution plan eligible for 
relief under the provision is spun off to another employer, and 
if the spun-off plan continues to satisfy any ongoing 
requirements applicable for the relevant relief as described 
above, the relevant relief for the spun-off plan will continue 
with respect to the other employer.

                             EFFECTIVE DATE

    The provision is generally effective on the date of 
enactment, without regard to whether any plan modifications 
referred to in the provision are adopted or effective before, 
on, or after the date of enactment.
    However, at the election of a plan sponsor, the provision 
will apply to plan years beginning after December 31, 2013. For 
purposes of the provision, a closed class of participants under 
a defined benefit plan is treated as being closed before April 
5, 2017, if the plan sponsor's intention to create the closed 
class is reflected in formal written documents and communicated 
to participants before that date. In addition, a plan does not 
fail to be eligible for the relief under the provision solely 
because (1) in the case of benefits, rights, or features for a 
closed class under a defined benefit plan, the plan was amended 
before the date of enactment to eliminate one or more benefits, 
rights, or features and is further amended after the date of 
enactment to provide the previously eliminated benefits, 
rights, or features to a closed class of participants, or (2) 
in the case of benefit accruals for a closed class under a 
defined benefit plan or application of the minimum benefit 
requirements to a closed or frozen defined benefit plan, the 
plan was amended before the date of the enactment to cease all 
benefit accruals and is further amended after the date of 
enactment to provide benefit accruals to a closed class of 
participants. In either case, the relevant relief applies only 
if the plan otherwise meets the requirements for the relief, 
and, in applying the relevant relief, the date the class of 
participants is closed is the effective date of the later 
amendment.

      C. Study of Appropriate PBGC Premiums (sec. 203 of the Bill)


                              PRESENT LAW

Minimum funding rules

    The Code and ERISA apply minimum funding requirements to 
defined benefit retirement plans maintained by private-sector 
employers for their employees (referred to as ``single-
employer'' plans), for purposes of which employers that are 
members of a controlled group are considered a single employer. 
For purposes of minimum funding requirements, generally each 
participating employer in a multiple employer plan is treated 
as maintaining a separate single plan,\149\ and a CSEC 
plan\150\ is treated as if all participants in the plan are 
employed by a single employer.\151\
---------------------------------------------------------------------------
    \149\Sec. 413(c)(4)(A).
    \150\As defined in section 414(y). See footnote 145, supra.
    \151\Sec. 413(d)(1).
---------------------------------------------------------------------------
    The amount of contributions required for a plan year under 
the minimum funding rules is generally the amount needed to 
fund benefits earned during that year plus that year's portion 
of other liabilities that are amortized over a period of years, 
such as benefits resulting from a grant of past service credit. 
A minimum contribution is required for a plan year if the value 
of the plan's assets is less than the plan's ``funding 
target,'' that is, the present value, determined actuarially, 
of all benefits earned as of the beginning of the year. If the 
value of plan assets is less than the plan's funding target, 
such that the plan has a funding shortfall, the shortfall is 
generally required to be funded by contributions, with 
interest, over seven years, taking into account the remaining 
installments attributable to shortfalls from preceding years. 
If participants earn additional benefits for the year, the 
required contribution must include the amount of the plan's 
``target normal cost,'' that is, the present value, determined 
actuarially, of benefits expected to be earned for the year. In 
the case of a plan funded below a certain level, referred to as 
an ``at-risk'' plan, specified assumptions must be used in 
determining the plan's funding target and target normal cost.

The PBGC

    Even if a defined benefit plan is fully funded based on the 
minimum funding requirements of the Code and ERISA, the assets 
may not be sufficient to purchase annuities on a market basis. 
Thus, it is possible that a plan may be terminated at a time 
when plan assets are not sufficient to provide all benefits 
accrued by employees under the plan. In order to protect plan 
participants from losing retirement benefits in such 
circumstances, the Pension Benefit Guaranty Corporation 
(``PBGC''), a corporation within the Department of Labor, was 
created in 1974 under ERISA to provide an insurance program for 
benefits under most defined benefit plans maintained by private 
employers.

PBGC premiums

            In general
    Under ERISA, the PBGC is funded solely by assets in 
terminated plans, amounts recovered from employers who 
terminate underfunded plans, premiums paid with respect to 
covered plans, and investment earnings. All covered single 
employer (including multiple employer) plans are required to 
pay a flat per-participant premium; underfunded plans are 
subject to an additional rate variable premium based on the 
level of underfunding. The amount of both the flat rate premium 
and the variable rate premium are set by statute.
    Under ERISA and PBGC's regulations, a termination premium 
must be paid to the PBGC annually for three years after plan 
termination for certain distress and involuntary pension plan 
terminations. The amount of the termination premium is $1,250 
per participant except for certain airline-related plans.
            Flat rate premiums
    In 2018, the annual flat rate per participant premium is 
$74 per participant. By statute, the 2019 flat rate premium 
will go up by $6 to $80.\152\ In addition, with the exception 
of the single employer flat rate premium for 2019, all rates 
and caps are indexed to inflation based on the National Average 
Wage Index.\153\
---------------------------------------------------------------------------
    \152\ERISA sec. 4006, 29 U.S.C. 1306.
    \153\Sec. 209(k)(1) of the Social Security Act (42 U.S.C. 
409(k)(1)).
---------------------------------------------------------------------------
            Variable rate premiums
    In 2018, the variable rate premium is equal to $38 per 
$1,000 of unfunded vested benefits, and is indexed to inflation 
based on the National Average Wage Index. By statute, the 2019 
variable rate premium will go up by $4 to $42 per $1,000 of 
unfunded vested benefits.\154\ The term ``unfunded vested 
benefits'' means the amount which would be the unfunded current 
liability (as defined under the minimum funding rules) if only 
vested (nonforfeitable) benefits were taken into account and if 
benefits were valued at the variable premium interest rate. No 
variable rate premium is imposed for a year if contributions to 
the plan for the prior year were at least equal to the full 
funding limit for that year.
---------------------------------------------------------------------------
    \154\ERISA sec. 4006, 29 U.S.C. 1306.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Under present law, the PBGC is funded by assets in 
terminated plans, amounts recovered from employers who 
terminate underfunded plans, premiums paid with respect to 
covered plans, and investment earnings. Different sets of 
funding rules, most recently set in legislation in 2014 and 
2015, apply for three types of pension plans: single-employer, 
multiemployer, and CSEC plans. The Committee believes that CSEC 
plans have special characteristics that should be recognized in 
the PBGC premium rates for such plans. In this regard, the 
Committee believes that this category of plans should not be 
subject to premium levels higher than is appropriate for their 
risk profile. The study is intended to provide information 
relevant for setting the appropriate premium rates for CSEC 
plans.

                        EXPLANATION OF PROVISION

    Under the provision, the PBGC is required to contract with 
an appropriate agency or organization (to be selected by the 
PBGC's Board of Directors) to conduct an independent study of 
the PBGC's Single-Employer Pension Insurance Modeling System 
(PIMS).
    The study, which is required to begin no later than six 
months after the date of enactment, will:
           examine the current structure and level of 
        PBGC premiums required to be paid by single employer 
        plans (including fixed, variable and termination 
        premiums) to evaluate whether such premiums are 
        sufficient to pay PBGC guaranteed benefits;
           evaluate whether alternative structures and 
        levels of premiums would better account for the risks 
        posed by various categories of single employer plans, 
        including on the basis of (A) industry, ownership 
        structure, or size of the plan sponsor, (B) plan funded 
        status, risk or volatility of plan investments, or the 
        credit worthiness of the plan sponsor, or (C) a 
        combination of the factors described in (A) and (B);
           evaluate whether other methods of estimating 
        the value of assets and liabilities should be used in 
        the PBGC's financial statements such as those described 
        by the CBO in its September 2005 report, ``The Risk 
        Exposure of the Pension Benefit Guaranty Corporation,'' 
        and in its August 2016 report, ``Options to Improve the 
        Financial Condition of the Pension Benefit Guaranty 
        Corporation's Multiemployer Program;''
           evaluate whether multiple employer plans 
        (including CSEC plans) have characteristics that 
        warrant a separate structure and level of PBGC 
        premiums; and
           include an explanation of the assumptions 
        underlying each analysis involved in conducting such 
        study.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                  TITLE III--OTHER SAVINGS PROVISIONS


 A. Universal Savings Accounts (sec. 301 of the Bill and new sec. 530U 
                              of the Code)


                              PRESENT LAW

Savings plans and accounts under the Code

            Tax-favored retirement arrangements
    The Code provides two general vehicles for tax-favored 
retirement savings: employer-sponsored plans and IRAs. Code 
provisions are generally within the jurisdiction of the 
Secretary of the Treasury.\155\
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    \155\Retirement plans of private employers, including qualified 
retirement plans and tax-deferred annuity plans, are generally subject 
to requirements under ERISA, and are generally within the jurisdiction 
of the Secretary of Labor.
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    The most common type of tax-favored employer-sponsored 
retirement plan is a qualified retirement plan,\156\ which may 
be a defined contribution plan or a defined benefit plan. Under 
a defined contribution plan, separate individual accounts are 
maintained for participants, to which accumulated 
contributions, earnings and losses are allocated, and 
participants' benefits are based on the value of their 
accounts.\157\ Defined contribution plans commonly allow 
participants to direct the investment of their accounts, 
usually by choosing among investment options offered under the 
plan. Under a defined benefit plan, benefits are determined 
under a plan formula and paid from general plan assets, rather 
than individual accounts.\158\ Besides qualified retirement 
plans, certain tax-exempt employers and public schools may 
maintain tax-deferred annuity plans.\159\
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    \156\Sec. 401(a). A qualified annuity plan under section 403(a) is 
similar to and subject to requirements similar to those applicable to 
qualified retirement plans.
    \157\Sec. 414(i). Defined contribution plans generally provide for 
contributions by employers and may include a qualified cash or deferred 
arrangement under a section 401(k) plan, under which employees may 
elect to contribute to the plan.
    \158\Sec. 414(j).
    \159\Sec. 403(b). Private and governmental employers that are 
exempt from tax under section 501(c)(3), including tax-exempt private 
schools, may maintain tax-deferred annuity plans. State and local 
governmental employers may maintain another type of tax-favored 
retirement plan, an eligible deferred compensation plan under section 
457(b).
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    An IRA is generally established by the individual for whom 
the IRA is maintained.\160\ However, in some cases, an employer 
may establish IRAs on behalf of employees and provide 
retirement contributions to the IRAs.\161\ An individual 
retirement account (``IRA'') is a tax-exempt trust or account 
established for the exclusive benefit of an individual and his 
or her beneficiaries.\162\ There are two general types of IRAs: 
traditional IRAs, to which both deductible and nondeductible 
contributions may be made, and Roth IRAs, contributions to 
which are not deductible. In general, amounts held in a 
traditional IRA are includible in income when withdrawn (except 
to the extent the withdrawal is a return of nondeductible 
contributions). Amounts held in a Roth IRA that are withdrawn 
as a qualified distribution are not includible in income; 
distributions from a Roth IRA that are not qualified 
distributions are includible in income to the extent 
attributable to earnings. A qualified distribution is a 
distribution that is made (1) after the five-taxable year 
period beginning with the first taxable year for which the 
individual made a contribution to a Roth IRA, and (2) after 
attainment of age 59\1/2\, on account of death or disability, 
or for first-time homebuyer expenses of up to $10,000.
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    \160\Sections 219, 408 and 408A provide rules for IRAs. Under 
section 408(a)(2) and (n), only certain entities are permitted to be 
the trustee of an IRA. The trustee of an IRA generally must be a bank, 
an insured credit union, or a corporation subject to supervision and 
examination by the Commissioner of Banking or other officer in charge 
of the administration of the banking laws of the State in which it is 
incorporated. Alternatively, an IRA trustee may be another person who 
demonstrates to the satisfaction of the Secretary that the manner in 
which the person will administer the IRA will be consistent with the 
IRA requirements.
    \161\SEP plans under section 408(k) and SIMPLE IRA plans under 
section 408(p) are employer-sponsored retirement plans funded using 
IRAs for employees. In addition, IRA treatment may apply to accounts 
maintained for employees under a trust created by an employer (or an 
employee association) for the exclusive benefit of employees or their 
beneficiaries, provided that the trust complies with the relevant IRA 
requirements and separate accounting is maintained for the interest of 
each employee or beneficiary. Sec. 408(c). In that case, the assets of 
the trust may be held in a common fund for the account of all 
individuals who have an interest in the trust.
    \162\Secs. 408 and 408A.
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            Other tax-favored savings arrangements
    The Code provides for certain other tax-advantaged savings 
arrangements, allowing taxpayers to save both for education and 
for expenses associated with a disability.
    A qualified tuition program (known as a ``529 plan'') is a 
program established and maintained by a State or agency or 
instrumentality thereof, under which a person may make 
contributions to an account that is established for the purpose 
of satisfying the qualified higher education expenses of the 
designated beneficiary of the account.\163\ Similarly, 
Coverdell education savings accounts are trusts or custodial 
accounts established on behalf of a designated beneficiary for 
the purpose of saving for the education expenses of the 
designated beneficiary.\164\ For both of these accounts, 
contributions are not tax deductible for Federal income tax 
purposes, but qualified distributions (generally distributions 
made for the purpose of meeting the designated beneficiary's 
education expenses) are not subject to tax.
---------------------------------------------------------------------------
    \163\Sec. 529.
    \164\Sec. 530.
---------------------------------------------------------------------------
    A qualified ABLE program is a program established and 
maintained by a State or agency or instrumentality thereof, 
under which individuals may open accounts (an ``ABLE account'') 
for the purpose of meeting the account owner's qualified 
disability expenses.\165\ Limitations apply on eligibility to 
establish an ABLE account, the number of ABLE accounts any 
individual may own, and to the maximum annual contributions an 
ABLE account may receive in a given year. Amounts contributed 
to an ABLE account are not deductible for Federal income tax 
purposes, but qualified distributions (generally distributions 
made for the purpose of meeting the designated beneficiary's 
qualified disability expenses) are not subject to tax.
---------------------------------------------------------------------------
    \165\Sec. 529A.
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                           REASONS FOR CHANGE

    The Code currently provides for various savings vehicles 
that can be used for a variety of specified purposes, such as 
health care, education, and retirement. Specific rules apply 
for each such savings vehicle with respect to when 
distributions may be made in a tax-favored manner, as well as 
the types of individuals who may contribute on a tax-favored 
basis. Individuals may contribute to a savings vehicle for a 
specific purpose, only to experience a change in circumstances 
with the result that they need to access the savings for 
another purpose. The Committee believes that it is important to 
encourage individuals and families to save and invest for the 
future by providing the flexibility to use a savings vehicle 
for whatever need may arise in the future. The Committee 
believes that it will be valuable to establish a fully-flexible 
tax-favored savings vehicle that does not limit when, or for 
what purposes, a saver can withdraw his or her money. The 
Committee believes that Universal Savings Accounts will be 
particularly powerful for low-income and young Americans who 
are interested in saving for the future but might need to 
access their savings for life events prior to retirement.

                        EXPLANATION OF PROVISION

    The provision permits a universal savings account to be 
established by an individual for whom the account is 
maintained, through a trust arrangement subject to 
substantially all of the same requirements that apply to trust 
arrangements under IRAs. For each taxable year, an individual 
may contribute cash in an amount up to $2,500, not to exceed 
the individual's compensation\166\ includible in the 
individual's gross income for the taxable year. The 
individual's account balance is nonforfeitable. Contributions 
are not permitted for dependents; thus, if an individual is a 
dependent of another taxpayer, the dollar limit for 
contributions for such individual is zero. The dollar limit is 
subject to indexing; if the dollar amount after any increase is 
applied is not a multiple of $100, it is rounded to the next 
lower multiple of $100.
---------------------------------------------------------------------------
    \166\Within the meaning of section 219.
---------------------------------------------------------------------------
    In the case of taxpayers who file a joint income tax 
return, if an individual's compensation includible in gross 
income for the taxable year is less than such compensation of 
the individual's spouse, the compensation on which the 
contribution limit is based for that individual may include the 
spouse's compensation includible in gross income for the 
taxable year reduced (but not below zero) by the amount the 
spouse contributed for the taxable year to universal savings 
accounts of the spouse. For example, if the joint income tax 
return for the individual and the spouse results in $4,000 of 
compensation includible in gross income for the taxable year 
(all of which was earned by the spouse), and the spouse 
contributed $2,500 for the taxable year to the spouse's 
universal savings accounts, then the individual may contribute 
a maximum of $1,500 for the taxable year to the individual's 
universal savings accounts.
    Distributions from universal savings accounts are generally 
not includible in gross income. Distributions may be made in 
cash or in other property that has a readily ascertainable fair 
market value as identified by the Secretary. Excess 
contributions (along with any attributable net income) must be 
corrected by the due date of the tax return for the taxable 
year, in order to avoid being subject to the excess 
contribution excise tax of 6 percent. Any related net income on 
such excess contributions is includible in gross income for 
such taxable year.
    Rollovers are not permitted into or from a universal 
savings account, other than qualified rollovers. For this 
purpose, a qualified rollover is a contribution to a universal 
savings account from another universal savings account of the 
same individual, if such amount is contributed not later than 
60 days after the distribution from the other universal savings 
account. Qualified rollovers are not taken into account with 
respect to the contribution limit applicable to universal 
savings accounts.
    If an individual acquires a spouse's universal savings 
account by reason of the spouse's death, the individual is 
treated as the account holder of the deceased spouse's 
universal savings account. In any other case, when an account 
holder of a universal savings account dies, the account ceases 
to be treated as a universal savings account and all amounts in 
the account are treated as distributed on the date of death of 
the account holder.
    Prohibited transaction rules apply to universal savings 
accounts. In addition, the trustee of a universal savings 
account is required to make a report with respect to the 
account to the account holder not later than January 31 of the 
calendar year following the calendar year to which the report 
relates and to the IRS as specified by the Secretary, in a 
manner similar to IRA reporting.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2018.

  B. Expansion of 529 Plans (sec. 302 of the Bill and sec. 529 of the 
                                 Code)


                              PRESENT LAW

            In general
    A qualified tuition program (often referred to as a ``529 
plan'') is a program established and maintained by a State or 
agency or instrumentality thereof, or by one or more eligible 
educational institutions, which satisfies certain requirements 
and under which a person may purchase tuition credits or 
certificates on behalf of a designated beneficiary that entitle 
the beneficiary to the waiver or payment of qualified higher 
education expenses of the beneficiary (a ``prepaid tuition 
program''). Section 529 provides specified income tax and 
transfer tax rules for the treatment of accounts and contracts 
established under qualified tuition programs.\167\ In the case 
of a program established and maintained by a State or agency or 
instrumentality thereof, a qualified tuition program also 
includes a program under which a person may make contributions 
to an account that is established for the purpose of satisfying 
the qualified higher education expenses of the designated 
beneficiary of the account, provided it satisfies certain 
specified requirements (a ``savings account program''). Under 
both types of qualified tuition programs, a contributor 
establishes an account for the benefit of a particular 
designated beneficiary to provide for that beneficiary's higher 
education expenses.
---------------------------------------------------------------------------
    \167\For purposes of this description, the term ``account'' is used 
interchangeably to refer to a prepaid tuition benefit contract or a 
tuition savings account established pursuant to a qualified tuition 
program.
---------------------------------------------------------------------------
    In general, prepaid tuition contracts and tuition savings 
accounts established under a qualified tuition program involve 
prepayments or contributions made by one or more individuals 
for the benefit of a designated beneficiary. Decisions with 
respect to the contract or account are typically made by an 
individual who is not the designated beneficiary. Qualified 
tuition accounts or contracts generally require the designation 
of a person (generally referred to as an ``account 
owner'')\168\ whom the program administrator (oftentimes a 
third-party administrator retained by the State or by the 
educational institution that established the program) may look 
to for decisions, recordkeeping, and reporting with respect to 
the account established for a designated beneficiary. The 
person or persons who make the contributions to the account 
need not be the same person who is regarded as the account 
owner for purposes of administering the account. Under many 
qualified tuition programs, the account owner generally has 
control over the account or contract, including the ability to 
change designated beneficiaries and to withdraw funds at any 
time and for any purpose. Thus, in practice, qualified tuition 
accounts or contracts generally involve a contributor, a 
designated beneficiary, an account owner (who oftentimes is not 
the contributor or the designated beneficiary), and an 
administrator of the account or contract.
---------------------------------------------------------------------------
    \168\Section 529 refers to contributors and designated 
beneficiaries, but does not define or otherwise refer to the term 
``account owner,'' which is a commonly used term among qualified 
tuition programs.
---------------------------------------------------------------------------
            Qualified higher education expenses
    Distributions for the purpose of meeting the designated 
beneficiary's higher education expenses are generally not 
subject to tax. For purposes of receiving a distribution from a 
qualified tuition program that qualifies for this favorable tax 
treatment, the term qualified higher education expenses means 
tuition, fees, books, supplies, and equipment required for the 
enrollment or attendance of a designated beneficiary at an 
eligible educational institution, and expenses for special 
needs services in the case of a special needs beneficiary that 
are incurred in connection with such enrollment or attendance. 
Qualified higher education expenses generally also include room 
and board for students who are enrolled at least half-time. 
Qualified higher education expenses include the purchase of any 
computer technology or equipment, or Internet access or related 
services, if such technology or services are to be used 
primarily by the beneficiary during any of the years a 
beneficiary is enrolled at an eligible institution.
    For distributions made after December 31, 2017, a 
designated beneficiary may, on an annual basis, receive up to 
$10,000 in aggregate 529 distributions to be used in connection 
with expenses for tuition in connection with enrollment or 
attendance at an elementary or secondary public, private, or 
religious school. To the extent such distributions do not 
exceed $10,000, they are treated in the same manner as 
distributions for qualified higher education expenses.
            Contributions to qualified tuition programs
    Contributions to a qualified tuition program must be made 
in cash. Section 529 does not impose a specific dollar limit on 
the amount of contributions, account balances, or prepaid 
tuition benefits relating to a qualified tuition account; 
however, the program is required to have adequate safeguards to 
prevent contributions in excess of amounts necessary to provide 
for the beneficiary's qualified higher education expenses. 
Contributions generally are treated as a completed gift 
eligible for the gift tax annual exclusion. Contributions are 
not tax deductible for Federal income tax purposes, although 
they may be deductible for State income tax purposes. Amounts 
in the account accumulate on a tax-free basis (i.e., income on 
accounts in the plan is not subject to current income tax).
    A qualified tuition program may not permit any contributor 
to, or designated beneficiary under, the program to direct 
(directly or indirectly) the investment of any contributions 
(or earnings thereon) more than two times in any calendar year, 
and must provide separate accounting for each designated 
beneficiary. A qualified tuition program may not allow any 
interest in an account or contract (or any portion thereof) to 
be used as security for a loan.

                           REASONS FOR CHANGE

    The Committee believes that funds in 529 plans should be 
available to help pay costs associated with homeschooling as 
well as costs associated with traditional primary and secondary 
education. Similarly, the Committee believes that funds in 529 
plans should be available to help pay costs associated with 
apprenticeship programs as well as costs associated with higher 
education. Finally, the Committee believes that when a family 
finds itself in a position of one child's 529 plan having more 
funds than that child uses while attending school, it is 
appropriate to allow some use of such funds to help with 
payments on student-loan debt that may be carried by that child 
and child's siblings.

                        EXPLANATION OF PROVISION

    The provision makes four modifications to section 529 
plans.
    First, the provision allows tax-free treatment applicable 
to distributions for higher education expenses to apply to 
expenses for books, supplies, equipment and fees required for 
the participation of a designated beneficiary in an 
apprenticeship program. The apprenticeship program must be 
registered and certified with the Secretary of Labor under 
section 1 of the National Apprenticeship Act.\169\
---------------------------------------------------------------------------
    \169\29 U.S.C. 50.
---------------------------------------------------------------------------
    Second, the provision allows tax-free treatment to apply to 
distributions made for expenses in connection with a 
homeschool. Under the provision, distributions for certain 
homeschool expenses are treated in the same manner as 
distributions for qualified higher education expenses, and like 
distributions for elementary and secondary school tuition, are 
also subject to an annual limit of $10,000 in aggregate 529 
distributions, per beneficiary.\170\ For these purposes, 
qualifying homeschool expenses are those expenses, with respect 
to a beneficiary, which are incurred in connection with a 
homeschool and are for: (i) curriculum and curricular 
materials; (ii) books or other instructional materials; (iii) 
online educational materials; (iv) tuition for tutoring or 
educational classes outside of the home; (v) dual enrollment in 
an institution of higher education; and (vi) educational 
therapies for students with disabilities.
---------------------------------------------------------------------------
    \170\The $10,000 per beneficiary limit applies to the combined 
distributions used for either (i) elementary and secondary school 
tuition or (ii) homeschool expenses.
---------------------------------------------------------------------------
    Third, the provision adds additional qualifying expenses 
for distributions made on behalf of designated beneficiaries 
attending elementary or secondary school. Under the provision, 
in addition to tuition, a distribution may be made for expenses 
for fees, academic tutoring, special needs services, books, 
supplies, and other equipment, incurred in connection with 
enrollment or attendance at such elementary or secondary 
school.
    Fourth, the provision treats as a qualified distribution 
certain amounts used to make payments on principal or interest 
of a qualified education loan. No individual may receive more 
than $10,000 of such distributions, in aggregate, over the 
course of the individual's lifetime.\171\ To the extent that an 
individual receives in excess of $10,000 of such distributions, 
they are subject to the usual tax treatment of 529 
distributions (i.e., the earnings are included in income and 
subject to a 10-percent penalty). The provision contains a 
special rule allowing such amounts to be distributed to a 
sibling of a designated beneficiary (i.e., a brother, sister, 
stepbrother, or stepsister). This rule allows a 529 account 
holder to make a student loan distribution to a sibling of the 
designated beneficiary without changing the designated 
beneficiary of the account. For purposes of the $10,000 
lifetime limit on student loan distributions, a distribution to 
a sibling of a designated beneficiary is applied towards the 
sibling's lifetime limit, and not the designated beneficiary's 
lifetime limit.
---------------------------------------------------------------------------
    \171\This limitation applies to such distributions from all 529 
accounts. Thus, an individual may not avoid the limitation by receiving 
separate $10,000 distributions from multiple 529 accounts.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to distributions made after December 
31, 2018.

 C. Penalty-Free Withdrawals Ffrom Retirement Plans for Individuals in 
  Case of Birth of Child or Adoption (sec. 303 of the Bill and secs. 
            72(t), 401-403, 408, 457, and 3405 of the Code)


                              PRESENT LAW

Distributions from tax-favored retirement plans

    A distribution from a qualified retirement plan, a tax-
sheltered annuity plan (a ``section 403(b) plan''), an eligible 
deferred compensation plan of a State or local government 
employer (a ``governmental section 457(b) plan''), or an IRA 
generally is included in income for the year distributed.\172\ 
These plans are referred to collectively as ``eligible 
retirement plans.'' In addition, unless an exception applies, a 
distribution from a qualified retirement plan, a section 403(b) 
plan, or an IRA received before age 59\1/2\ is subject to a 10-
percent additional tax (referred to as the ``early withdrawal 
tax'') on the amount includible in income.\173\
---------------------------------------------------------------------------
    \172\Secs. 401(a), 403(a), 403(b), 457(b) and 408. Under section 
3405, distributions from these plans are generally subject to income 
tax withholding unless the recipient elects otherwise. In addition, 
certain distributions from a qualified retirement plan, a section 
403(b) plan, or a governmental section 457(b) plan are subject to 
mandatory income tax withholding at a 20-percent rate unless the 
distribution is rolled over.
    \173\Sec. 72(t). Under present law, the 10-percent early withdrawal 
tax does not apply to distributions from a governmental section 457(b) 
plan.
---------------------------------------------------------------------------
    In general, a distribution from an eligible retirement plan 
may be rolled over to another eligible retirement plan within 
60 days, in which case the amount rolled over generally is not 
includible in income. The IRS has the authority to waive the 
60-day requirement if failure to waive the requirement would be 
against equity or good conscience, including cases of casualty, 
disaster or other events beyond the reasonable control of the 
individual.
    The terms of a qualified retirement plan, section 403(b) 
plan, or governmental section 457(b) plan generally determine 
when distributions are permitted. However, in some cases, 
restrictions may apply to distributions before an employee's 
termination of employment, referred to as ``in-service'' 
distributions. Despite such restrictions, an in-service 
distribution may be permitted in the case of financial hardship 
or an unforeseeable emergency.

                           REASONS FOR CHANGE

    Births and adoptions are important life events that can 
come with significant financial costs for a family. The 
Committee believes that, in these situations, individuals 
should have access to some of their retirement savings to help 
pay for these costs. The ability to access retirement savings 
on a penalty-free basis at the time of the birth of a child or 
adoption will provide such flexibility. As a result, the 
Committees believes this will encourage younger workers to 
begin to save earlier for their retirement, whether through 
participation in an employer-sponsored plan or an IRA.

                        EXPLANATION OF PROVISION

In general

    Under the provision, an exception to the 10-percent early 
withdrawal tax applies in the case of a qualified birth or 
adoption distribution from an applicable eligible retirement 
plan (as defined). In addition, qualified birth or adoption 
distributions may be recontributed to an individual's 
applicable eligible retirement plans, subject to certain 
requirements.

Distributions from applicable eligible retirement plans

    A qualified birth or adoption distribution is a permissible 
distribution from an applicable eligible retirement plan which, 
for this purpose, encompasses eligible retirement plans other 
than defined benefit plans, including qualified retirement 
plans, section 403(b) plans, governmental section 457(b) plans, 
and IRAs.\174\
---------------------------------------------------------------------------
    \174\A qualified birth or adoption distribution is subject to 
income tax withholding unless the recipient elects otherwise. Mandatory 
20-percent withholding does not apply.
---------------------------------------------------------------------------
    A qualified birth or adoption distribution is a 
distribution from an applicable eligible retirement plan to an 
individual if made during the one-year period beginning on the 
date on which a child of the individual is born or on which the 
legal adoption by the individual of an eligible child is 
finalized. An eligible child means any individual (other than a 
child of the taxpayer's spouse) who has not attained age 18 or 
is physically or mentally incapable of self-support. The 
provision requires the name, age, and taxpayer identification 
number of the child or eligible child to which any qualified 
birth or adoption distribution relates to be provided on the 
tax return of the individual taxpayer for the taxable year.
    The maximum aggregate amount which may be treated as 
qualified birth or adoption distributions by any individual 
with respect to a birth or adoption is $7,500. The maximum 
aggregate amount applies on an individual basis. Therefore, 
each spouse separately may receive a maximum aggregate amount 
of $7,500 of qualified birth or adoption distributions (with 
respect to a birth or adoption) from applicable eligible 
retirement plans in which each spouse participates or holds 
accounts.
    An employer plan is not treated as violating any Code 
requirement merely because it treats a distribution (that would 
otherwise be a qualified birth or adoption distribution) to an 
individual as a qualified birth or adoption distribution, 
provided that the aggregate amount of such distributions to 
that individual from plans maintained by the employer and 
members of the employer's controlled group\175\ does not exceed 
$7,500. Thus, under such circumstances an employer plan is not 
treated as violating any Code requirement merely because an 
individual might receive total distributions in excess of 
$7,500 as a result of distributions from plans of other 
employers or IRAs.
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    \175\The term ``controlled group'' means any group treated as a 
single employer under subsection (b), (c), (m), or (o) of section 414.
---------------------------------------------------------------------------

Recontributions to applicable eligible retirement plans

    Generally, any portion of a qualified birth or adoption 
distribution may, at any time after the date on which the 
distribution was received, be recontributed to an applicable 
eligible retirement plan to which a rollover can be made. Such 
a recontribution is treated as a rollover and thus is not 
includible in income. If an employer adds the ability for plan 
participants to receive qualified birth or adoption 
distributions from a plan, the plan must permit an employee who 
has received qualified birth or adoption distributions from 
that plan to recontribute only up to the amount that was 
distributed from that plan to that employee, provided the 
employee otherwise is eligible to make contributions (other 
than recontributions of qualified birth or adoption 
distributions) to that plan. Any portion of a qualified birth 
or adoption distribution from an individual's applicable 
eligible retirement plans (whether employer plans or IRAs) may 
be recontributed to an IRA held by such an individual which is 
an applicable eligible retirement plan to which a rollover can 
be made.

                             EFFECTIVE DATE

    The provision applies to distributions made after December 
31, 2018.

                      III. VOTES OF THE COMMITTEE

    In compliance with the Rules of the House of 
Representatives, the following statement is made concerning the 
vote of the Committee on Ways and Means during the markup 
consideration of H.R. 6757, ``Family Savings Act of 2018'' on 
September 13, 2018.
    The vote on the amendment offered by Mr. Kind to the 
amendment in the nature of a substitute to H.R. 6757, which 
would reduce PBGC premiums for Cooperative and Small Employer 
Charity pension plans and require distributions from pension 
plans, was not agreed to by a roll call vote of 14 yeas to 21 
nays (with a quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
          Representative             Yea      Nay     Present      Representative      Yea      Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Brady........................  .......       X   .........  Mr. Neal...........       X   .......  .........
Mr. Johnson......................  .......       X   .........  Mr. Levin..........       X   .......  .........
Mr. Nunes........................  .......       X   .........  Mr. Lewis..........       X   .......  .........
Mr. Reichert.....................  .......       X   .........  Mr. Doggett........       X   .......  .........
Mr. Roskam.......................  .......       X   .........  Mr. Thompson.......       X   .......  .........
Mr. Buchanan.....................  .......       X   .........  Mr. Larson.........       X   .......  .........
Mr. Smith (NE)...................  .......       X   .........  Mr. Blumenauer.....       X   .......  .........
Ms. Jenkins......................  .......       X   .........  Mr. Kind...........       X   .......  .........
Mr. Paulsen......................  .......       X   .........  Mr. Pascrell.......       X   .......  .........
Mr. Marchant.....................  .......       X   .........  Mr. Crowley........       X   .......  .........
Ms. Black........................  .......       X   .........  Mr. Davis..........       X   .......  .........
Mr. Reed.........................  .......       X   .........  Ms. Sanchez........  .......  .......  .........
Mr. Kelly........................  .......       X   .........  Mr. Higgins........       X   .......  .........
Mr. Renacci......................  .......  .......  .........  Ms. Sewell.........  .......  .......  .........
Ms. Noem.........................  .......       X   .........  Ms. DelBene........       X   .......  .........
Mr. Holding......................  .......  .......  .........  Ms. Chu............       X   .......  .........
Mr. Smith (MO)...................  .......       X   .........
Mr. Rice.........................  .......  .......  .........
Mr. Schweikert...................  .......       X   .........
Ms. Walorski.....................  .......       X   .........
Mr. Curbelo......................  .......       X   .........
Mr. Bishop.......................  .......       X   .........
Mr. LaHood.......................  .......       X   .........
Mr. Wenstrup.....................  .......       X   .........
----------------------------------------------------------------------------------------------------------------

    In compliance with the Rules of the House of 
Representatives, the following statement is made concerning the 
vote of the Committee on Ways and Means during the markup 
consideration of H.R. 6757, ``Family Savings Act of 2018'' on 
September 13, 2018.
    H.R. 6757 was ordered favorably reported to the House of 
Representatives as amended by an amendment in the nature of a 
substitute offered by Chairman Brady by a roll call vote of 21 
yeas to 14 nays (with a quorum being present). The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
          Representative             Yea      Nay     Present      Representative      Yea      Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Brady........................       X   .......  .........  Mr. Neal...........  .......       X   .........
Mr. Johnson......................       X   .......  .........  Mr. Levin..........  .......       X   .........
Mr. Nunes........................       X   .......  .........  Mr. Lewis..........  .......       X   .........
Mr. Reichert.....................       X   .......  .........  Mr. Doggett........  .......       X   .........
Mr. Roskam.......................       X   .......  .........  Mr. Thompson.......  .......       X   .........
Mr. Buchanan.....................       X   .......  .........  Mr. Larson.........  .......       X   .........
Mr. Smith (NE)...................       X   .......  .........  Mr. Blumenauer.....  .......       X   .........
Ms. Jenkins......................       X   .......  .........  Mr. Kind...........  .......       X   .........
Mr. Paulsen......................       X   .......  .........  Mr. Pascrell.......  .......       X   .........
Mr. Marchant.....................       X   .......  .........  Mr. Crowley........  .......       X   .........
Ms. Black........................       X   .......  .........  Mr. Davis..........  .......       X   .........
Mr. Reed.........................       X   .......  .........  Ms. Sanchez........  .......  .......  .........
Mr. Kelly........................       X   .......  .........  Mr. Higgins........  .......       X   .........
Mr. Renacci......................  .......  .......  .........  Ms. Sewell.........  .......       X   .........
Ms. Noem.........................       X   .......  .........  Ms. DelBene........  .......  .......  .........
Mr. Holding......................  .......  .......  .........  Ms. Chu............  .......       X   .........
Mr. Smith (MO)...................       X   .......  .........
Mr. Rice.........................  .......  .......  .........
Mr. Schweikert...................       X   .......  .........
Ms. Walorski.....................       X   .......  .........
Mr. Curbelo......................       X   .......  .........
Mr. Bishop.......................       X   .......  .........
Mr. LaHood.......................       X   .......  .........
Mr. Wenstrup.....................       X   .......  .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 6757, as 
reported.
    The bill, as reported, is estimated to have the following 
effect on Federal fiscal year budget receipts for the period 
2019-2028:


    Pursuant to clause 8 of rule XIII of the Rules of the House 
of Representatives, the following statement is made by the 
Joint Committee on Taxation with respect to the provisions of 
the bill amending the Internal Revenue Code of 1986: The gross 
budgetary effect (before incorporating macroeconomic effects) 
in any fiscal year is less than 0.25 percent of the current 
projected gross domestic product of the United States for that 
fiscal year; therefore, the bill is not ``major legislation'' 
for purposes of requiring that the estimate include the 
budgetary effects of changes in economic output, employment, 
capital stock and other macroeconomic variables.

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. The 
Committee further states that the revenue provisions involve 
new tax expenditures.

      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 CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 21, 2018.
Hon. Kevin Brady,
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. 6757, the Family 
Savings Act of 2018. It contains estimates of tax provisions 
prepared by the staff of the Joint Committee on Taxation.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Kathleen 
Burke.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 6757--Family Savings Act of 2018

    Summary: H.R. 6757, the Family Savings Act of 2018, would 
amend the tax code to modify requirements for tax-favored 
savings accounts and employer-provided retirement plans. The 
largest provisions include changes to the rules governing 
multiple and pooled employer retirement plans, the creation of 
new tax-preferred ``Universal Savings Accounts,'' to which an 
individual would be able to contribute up to $2,500 each year, 
and an exemption from required minimum distribution rules for 
individuals with account balances below certain amounts.
    The staff of the Joint Committee on Taxation (JCT) 
estimates that enacting the bill would reduce revenues by $21.0 
billion over the 2019-2028 period. The change in revenues 
includes a reduction of about $0.3 billion over the 2019-2028 
period that would result from changes in off-budget revenues 
(from Social Security payroll taxes). CBO estimates that 
enacting H.R. 6757 would increase direct spending by $2 million 
over the 2019-2020 period for a study for the Pension Benefit 
Guarantee Corporation (PBGC). Pay-as-you-go procedures apply 
because enacting the legislation would affect revenues and 
direct spending.
    CBO and JCT estimate that enacting H.R. 6757 would increase 
on-budget deficits by more than $5 billion in at least one of 
the four 10-year periods beginning in 2029. CBO and JCT 
estimate that enacting the bill would not increase net direct 
spending in any of the four consecutive 10-year periods 
beginning in 2029.
    CBO and JCT have determined that H.R. 6757 contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act (UMRA).
    Estimated cost to the Federal Government: The estimated 
budgetary effect of H.R. 6757 is shown in the following table. 
The costs of the legislation fall within budget function 600 
(income security).

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        By fiscal year, in millions of dollars--
                                                       -----------------------------------------------------------------------------------------------------------------------------------------
                                                          2018     2019     2020      2021       2022       2023       2024       2025       2026       2027       2028    2019-2023   2019-2028
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             INCREASES OR DECREASES (-) IN REVENUES
 
Title I. Expanding and Preserving Retirement Savings..        0      -28     -433       -590       -745       -962     -1,100     -1,238     -1,591     -1,675     -1,733     -2,758     -10,099
Title II. Administrative Improvements.................        0        *       -9        -10        -10        -11        -12        -13        -14        -15        -16        -40        -111
Title III. Other Savings Provisions...................        0       13     -185       -605       -822     -1,073     -1,319     -1,583     -1,646     -1,723     -1,816     -2,673     -10,760
        Total Estimated Changes in Revenues...........        0      -15     -627     -1,205     -1,577     -2,046     -2,431     -2,834     -3,251     -3,413     -3,565     -5,471     -20,970
            On-Budget.................................        0      -13     -624     -1,195     -1,557     -2,015     -2,390     -2,782     -3,189     -3,351     -3,502     -5,405     -20,624
            Off-Budgeta...............................        0       -2       -3        -10        -20        -31        -41        -52        -62        -62        -63        -66        -346
 
                                                                                  INCREASES IN DIRECT SPENDING
 
Estimated Budget Authority............................        0        2        0          0          0          0          0          0          0          0          0          2           2
Estimated Outlays.....................................        0        1        1          0          0          0          0          0          0          0          0          2           2
 
                                                            NET INCREASE IN THE DEFICIT FROM CHANGES IN DIRECT SPENDING AND REVENUES
 
Effect on Deficit.....................................        0       16      628      1,205      1,577      2,046      2,431      2,834      3,251      3,413      3,565      5,473      20,972
    On-Budget Deficit.................................        0       14      625      1,195      1,557      2,015      2,390      2,782      3,189      3,351      3,502      5,407      20,626
    Off-Budget Deficit................................        0        2        3         10         20         31         41         52         62         62         63         66         346
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation and CBO.
Components may not add to totals due to rounding; * = between -$500,000 and $500,000.
aOff-budget revenues result from changes in Social Security payroll tax receipts.

    Basis of estimate: The Congressional Budget Act of 1974, as 
amended, stipulates that revenue estimates provided by the 
staff of the Joint Committee on Taxation will be the official 
estimates for all tax legislation considered by the Congress. 
As such, CBO incorporates those estimates into its cost 
estimates of the effects of legislation. Nearly all of the 
estimates for the provisions of H.R. 6757 were provided by 
JCT.\1\ The date of enactment is generally assumed to be 
October 1, 2018.
---------------------------------------------------------------------------
    \1\For JCT's description of the bill and estimates of the 
provisions, which include detail beyond the summary presented below, 
see Joint Committee on Taxation, Description Of H.R. 6757, 
the ``Family Savings Act Of 2018,'' JCX-73-18, https://www.jct.gov/
publications.
html?func=startdown&id=5138, and Estimated Revenue Effects of H.R. 
6757, the ``Family 
Savings Act Of 2018,'' JCX-75-18, https://www.jct.gov/
publications.html?func=startdown&id=
5141.
---------------------------------------------------------------------------

Revenues

    Expanding and Preserving Retirement Savings. H.R. 6757 
would make a number of changes to tax law relating to the 
treatment of retirement plans. JCT estimates that those changes 
would reduce revenues by $10.1 billion over the 2019 to 2028 
period. One of the provisions in this section would affect off-
budget revenues, reducing them by $0.3 billion, JCT estimates. 
The largest provisions in this section are the following, which 
would take effect in 2019 unless otherwise noted:
           Exempt Individuals with Certain Account 
        Balances from Required Minimum Distribution Rules. 
        After reaching 70 years and 6 months, individuals with 
        employer-provided qualified retirement plans, 
        traditional individual retirement accounts (IRAs), or 
        individual retirement annuities must begin withdrawing 
        a given amount each year--the required minimum 
        distribution. H.R. 6757 would exempt individuals with 
        less than $50,000 across all eligible retirement plans 
        (other than defined benefit plans) from required 
        minimum distribution rules. This would apply to 
        required distributions made during the calendar year 
        beginning at least 120 days after enactment. JCT 
        estimates that the changes in this provision would 
        reduce revenues by $6.2 billion from 2019 to 2028.
           Modify Requirements for Multiple Employer 
        Plans and Pooled Employer Plans. Under current law, 
        employers may join together to maintain a qualified 
        retirement plan if they share a nexus (e.g. a common 
        industry) outside of the retirement benefit they 
        jointly provide. Additionally, if one participating 
        employer in a multiple employer plan violates a 
        requirement, the entire plan can be disqualified (the 
        ``bad apple rule''). H.R. 6757 would allow multiple 
        employers without a nexus to jointly maintain a 
        qualified retirement plan, called a ``pooled provider 
        plan,'' and allow both multiple employer plans and 
        pooled provider plans to maintain their qualified 
        status as a whole if one employer in the group fails to 
        satisfy qualification requirements. This provision 
        would take effect in 2020, and JCT estimates that the 
        changes in this provision would reduce revenues by $3.7 
        billion from 2019 to 2028.
           Repeal Maximum Age for Traditional IRA 
        Contributions. H.R. 6757 would repeal the maximum age 
        for contributions to a traditional IRA, which is 
        currently 70 years and 6 months. JCT estimates that 
        this change would reduce revenues by $0.1 billion from 
        2019 to 2028.
           Allow a Separate Limit Elective Deferrals by 
        Members of the Ready Reserve of a Reserve Component of 
        the Armed Forces. Under current law, an employer-
        provided retirement plan may allow an employee to 
        choose between receiving cash compensation or an 
        employer contribution to their retirement plan, called 
        an elective deferral. An individual is subject to an 
        overall limit on elective deferrals, across all of 
        their eligible employer retirement plans. H.R. 6757 
        would allow members of the Ready Reserve a separate 
        limit on deferrals to the Thrift Savings Plan 
        associated with their reserve service, rather than 
        apply the aggregate limit on deferrals to all their 
        qualified retirement plans. JCT estimates that this 
        provision would reduce revenues by $0.1 billion from 
        2019 to 2028.
    Administrative Improvements. H.R. 6757 would make several 
administrative changes, including permitting businesses that 
adopt a retirement plan before the due date of their tax return 
to treat the plan as adopted as of the last day of the tax 
year. JCT estimates that this provision would reduce revenues 
by $0.1 billion over the 2019 to 2028 period.
    Other Savings Provisions. H.R. 6757 includes other savings 
provisions, which JCT estimates would reduce revenues by $10.8 
billion over the 2019 to 2028 period. One of the provisions in 
this section would affect off-budget revenues, reducing them by 
$0.1 billion, JCT estimates. The provisions in this section, 
which would all take effect in 2019, are the following:
           Create Universal Savings Accounts. H.R. 6757 
        would allow the creation of ``Universal Savings 
        Accounts,'' to which an individual could contribute 
        $2,500 after-tax each year, and withdraw from tax-free 
        for any purpose. JCT estimates that this provision 
        would reduce revenues by $8.6 billion from 2019 to 
        2028.
           Expand Allowable Uses of Section 529 Plans. 
        Under current law, income earned on amounts in college 
        savings plans authorized under section 529 of the 
        Internal Revenue Code accumulates on a tax-free basis, 
        and the distribution of such income is not included in 
        the taxable income of the recipient if used to pay for 
        certain higher education expenses. H.R. 6757 would 
        allow tax-free distributions from 529 plans to also 
        cover expenses from apprenticeship programs, 
        homeschooling, elementary or secondary school tutoring 
        or supplies, or payments on a qualified education loan. 
        JCT estimates that the changes in this provision would 
        reduce revenues by $0.3 billion from 2019 to 2028.
           Allow Penalty-Free Retirement Distributions 
        for New Births and Adoptions. Distributions from 
        qualified retirement plans before the age of 59 years 
        and 6 months generally face a 10-percent early 
        withdrawal tax. H.R. 6757 would exempt distributions of 
        up to $7,500 from the 10% penalty in the case of a 
        birth or adoption. JCT estimates that the changes in 
        this provision would reduce revenues by $1.9 billion 
        from 2019 to 2028.

Direct spending

    The bill would require PBGC to contract with an appropriate 
agency or organization to conduct an independent study related 
to PBGC's single-employer pension program. Based on the cost of 
similar studies, CBO estimates that implementing that provision 
would increase direct spending by $2 million over the 2019-2028 
period.
    Pay-As-You-Go Considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in outlays and revenues that are 
subject to those pay-as-you-go procedures are shown in the 
following table. Only on-budget changes to outlays or revenues 
are subject to pay-as-you-go procedures. Enacting the bill also 
would reduce off-budget revenues by $346 million over the 2019-
2028 period.

                             CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 6757, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON SEPTEMBER 13, 2018
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         By fiscal year, in millions of dollars--
                                                        ----------------------------------------------------------------------------------------------------------------------------------------
                                                           2018     2019     2020      2021       2022       2023       2024       2025       2026       2027       2028    2019-2023  2019-2028
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              NET INCREASE IN THE ON-BUDGET DEFICIT
 
Statutory Pay-As-You-Go Effects........................        0       14      625      1,195      1,557      2,015      2,390      2,782      3,189      3,351      3,502      5,407     20,626
Memorandum:a
    Changes in Outlays.................................        0        1        1          0          0          0          0          0          0          0          0          2          2
    Change in On-Budget Revenues.......................        0      -13     -624     -1,195     -1,557     -2,015     -2,390     -2,782     -3,189     -3,351     -3,502     -5,405    -20,624
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation and CBO.
Components do not add to totals due to rounding
aA positive sign for outlays indicates an increase in outlays. A negative sign for revenues indicates a reduction in revenues.

    Increase in long-term direct spending and deficits: CBO and 
JCT estimate that enacting H.R. 6757 would increase on-budget 
deficits by more than $5 billion in at least one of the four 
10-year periods beginning in 2029. CBO and JCT estimate that 
enacting the bill would not increase net direct spending in any 
of the four consecutive 10-year periods beginning in 2029.
    Mandates: CBO and JCT have determined that H.R. 6757 
contains no private-sector or intergovernmental mandates as 
defined by UMRA.
    Estimate prepared by: Revenues: Staff of the Joint 
Committee on Taxation and Kathleen Burke; Federal Costs: Noah 
Meyerson; Mandates: Staff of the Joint Committee on Taxation 
and Andrew Laughlin.
    Estimate reviewed by: Joshua Shakin, Chief, Revenue 
Estimating Unit; John McClelland, Assistant Director for Tax 
Analysis; Sheila Dacey, Chief, Income Security and Education 
Cost Estimates Unit; H. Samuel Papenfuss, Deputy Assistant 
Director for Budget Analysis.

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


          A. Committee Oversight Findings and Recommendations

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee advises that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated into 
the description portions of this report.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                D. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the bill and states that the bill does not 
involve any Federal income tax rate increases within the 
meaning of the rule.

                       E. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 (``IRS Reform Act'') 
requires the staff of the Joint Committee on Taxation (in 
consultation with the Internal Revenue Service and the Treasury 
Department) to provide a tax complexity analysis. The 
complexity analysis is required for all legislation reported by 
the Senate Committee on Finance, the House Committee on Ways 
and Means, or any committee of conference if the legislation 
includes a provision that directly or indirectly amends the 
Internal Revenue Code of 1986 and has widespread applicability 
to individuals or small businesses.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, for each such provision identified by 
the staff of the Joint Committee on Taxation, a summary 
description of the provision is provided below along with an 
estimate of the number and type of affected taxpayers, and a 
discussion regarding the relevant complexity and administrative 
issues.
    Following the analysis of the staff of the Joint Committee 
on Taxation are the comments of the IRS and Treasury regarding 
each provision included in the complexity analysis.

Universal Savings Accounts (sec. 301 of the bill)

            Summary description of the provision
    The provision permits a universal savings account to be 
established by an individual for whom the account is 
maintained, through a trust arrangement subject to 
substantially all of the same requirements that apply to trust 
arrangements under IRAs. For each taxable year, an individual 
may contribute cash in an amount up to $2,500, indexed for 
inflation, not to exceed the individual's compensation 
includible in gross income for the taxable year. Contributions 
by an individual are not permitted with respect to the 
individual's dependents. In the case of joint filers, 
contributions may be made to an individual's universal savings 
accounts with respect to compensation includible in gross 
income of the spouse (to the extent such individual's 
compensation includible in gross income is less than the 
spouse's), but the compensation on which the contribution limit 
for such individual is based must be reduced (not below zero) 
by the amount the spouse contributed for the taxable year to 
universal savings accounts of the spouse.
    Distributions from the accounts are not includible in gross 
income. Distributions may be made in cash or in other property 
that has a readily ascertainable value as identified by the 
Secretary. Rollovers are not permitted into or from a universal 
savings account from the types of retirement and savings 
accounts typically eligible for rollovers (such as IRAs and 
employer plans). Universal savings accounts cease to be treated 
as such upon the death of the account holder unless an 
individual acquires a spouse's universal savings account, in 
which case the spouse is then treated as the account holder.
    Excess contributions (along with any attributable net 
income) must be corrected by the due date of the tax return for 
the taxable year, in order to avoid being subject to an excess 
contribution excise tax of 6 percent. Any related net income on 
such excess contributions is includible in gross income for 
such taxable year. Prohibited transaction rules apply to the 
accounts. In addition, the trustee of a universal savings 
account is required to make a report with respect to the 
account to the account holder not later than January 31 of the 
calendar year following the calendar year to which the report 
relates and to the IRS as specified by the Secretary, in a 
manner similar to IRA reporting.
            Number of affected taxpayers
    It is estimated that the provision will affect 
approximately 34 percent of (individual) taxpayers annually, 
beginning in 2019.
            Discussion
    The provision will require the IRS to create new forms and 
publications regarding universal savings accounts. 
Additionally, both taxpayers and the IRS will need to monitor 
contributions to these accounts, so as to ensure that taxpayer 
contributions do not exceed the $2,500 maximum contribution 
amount. Disputes between taxpayers and the IRS may increase in 
the case of discrepancies between these records.
    The provision may contribute to tax complexity by adding an 
additional tax-advantaged savings option for taxpayers. 
Taxpayers may be unsure whether contributing to a universal 
savings account, as opposed to a traditional or Roth IRA, a 
qualified tuition program, a Coverdell ESA, or an ABLE account, 
is the appropriate savings vehicle. Similarly, taxpayers who 
have more than one such savings account may face uncertainty 
over which account from which to withdraw funds, for any given 
expense. This complexity may cause taxpayers to seek 
professional tax advice, potentially raising the cost of tax 
compliance to individual taxpayers.

Penalty-free withdrawals from retirement plans for individuals in case 
        of birth of child or adoption (sec. 303 of the bill)

            Summary description of the provision

Distributions from applicable eligible retirement plans

    A qualified birth or adoption distribution is a permissible 
distribution from an applicable eligible retirement plan which, 
for this purpose, encompasses eligible retirement plans other 
than defined benefit plans, including qualified retirement 
plans, section 403(b) plans, governmental section 457(b) plans, 
and IRAs.
    A qualified birth or adoption distribution is a 
distribution from an applicable eligible retirement plan to an 
individual if made during the one-year period beginning on the 
date on which a child of the individual is born or on which the 
legal adoption by the individual of an eligible child is 
finalized. An eligible child means any individual (other than a 
child of the taxpayer's spouse) who has not attained age 18 or 
is physically or mentally incapable of self-support. The 
proposal requires the name, age, and taxpayer identification 
number of the child or eligible child to which any qualified 
birth or adoption distribution relates to be provided on the 
tax return of the individual taxpayer for the taxable year.
    The maximum aggregate amount that may be treated as 
qualified birth or adoption distributions by any individual 
with respect to a birth or adoption is $7,500 (not indexed for 
inflation). The maximum aggregate amount applies on an 
individual basis. Therefore, each spouse separately may receive 
a maximum aggregate amount of $7,500 of qualified birth or 
adoption distributions (with respect to a birth or adoption) 
from applicable eligible retirement plans in which each spouse 
participates or holds accounts.
    An employer plan is not treated as violating any Code 
requirement merely because it treats a distribution (that would 
otherwise be a qualified birth or adoption distribution) to an 
individual as a qualified birth or adoption distribution, 
provided the aggregate amount of such distributions to that 
individual from plans maintained by the employer and members of 
the employer's controlled group does not exceed $7,500.

Recontributions to applicable eligible retirement plans

    Generally, any portion of a qualified birth or adoption 
distribution may, at any time after the date on which the 
distribution was received, be recontributed to an applicable 
eligible retirement plan to which a rollover can be made. Such 
a recontribution is treated as a rollover and thus is not 
includible in income. If an employer adds the ability for plan 
participants to receive qualified birth or adoption 
distributions from a plan, the plan must permit an employee who 
has received qualified birth or adoption distributions from 
that plan to recontribute only up to the amount that was 
distributed from that plan to that employee, provided the 
employee otherwise is eligible to make contributions (other 
than recontributions of qualified birth or adoption 
distributions) to that plan. Any portion of a qualified birth 
or adoption distribution from an individual's applicable 
eligible retirement plans (whether employer plans or IRAs) may 
be recontributed to an IRA held by such an individual that is 
an applicable eligible retirement plan to which a rollover can 
be made.
            Number of affected taxpayers
    It is estimated that the provision will affect over 10 
percent of taxpayers during the budget window and will continue 
to increase over time.
            Discussion
    The provision creates complexity for IRAs and employer 
plans that choose to allow qualified birth or adoption 
distributions. Specifically, plan administrators and IRA 
trustees will be required to monitor eligibility for qualified 
birth or adoption distributions, and employers will be required 
to obtain certifications and track such distributions and 
recontributions under the special rules that apply to employer 
plans. The ability to recontribute with no time limit over the 
lifetime of an individual, and not necessarily to the plan or 
IRA from which the related distribution was made, will require 
tracking of recontributions to ensure amounts so denominated do 
not exceed the aggregate lifetime qualified birth or adoption 
distributions from all plans of an individual. Tracking these 
amounts will require that plan administrators and IRA trustees, 
plan participants and IRA owners, and the IRS, keep accurate 
and detailed records of distributions and recontributions for 
an indefinite number of years.
    The provision will require the IRS to create or update its 
forms and publications to address qualified birth and adoption 
distributions.


  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with Sec. 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program, (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139, or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to section 6104 of 
title 31, United States Code.

                 H. Disclosure of Directed Rule Makings

    In compliance with Sec. 3(i) of H. Res. 5 (115th Congress), 
the following statement is made concerning directed rule 
makings: The Committee advises that Sec. 101 of the bill 
directs the Secretary of the Treasury to provide guidance that 
identifies the administrative duties and other actions required 
to be performed by a pooled plan provider, describes the 
procedures to be taken to terminate a plan, and identifies 
appropriate cases to which certain rules of this section will 
apply to employers in the plan failing to take certain actions. 
Sec. 101 of the bill also directs the Secretary of the Treasury 
to publish model plan language necessary for complying with 
this section.

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


      A. Changes in Existing Law Proposed 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 proposed 
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):

         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, and 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 B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

           *       *       *       *       *       *       *


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

  (a) General rules for annuities.--
          (1) Income inclusion.--Except as otherwise provided 
        in this chapter, gross income includes any amount 
        received as an annuity (whether for a period certain or 
        during one or more lives) under an annuity, endowment, 
        or life insurance contract.
          (2) Partial annuitization.--If any amount is received 
        as an annuity for a period of 10 years or more or 
        during one or more lives under any portion of an 
        annuity, endowment, or life insurance contract--
                  (A) such portion shall be treated as a 
                separate contract for purposes of this section,
                  (B) for purposes of applying subsections (b), 
                (c), and (e), the investment in the contract 
                shall be allocated pro rata between each 
                portion of the contract from which amounts are 
                received as an annuity and the portion of the 
                contract from which amounts are not received as 
                an annuity, and
                  (C) a separate annuity starting date under 
                subsection (c)(4) shall be determined with 
                respect to each portion of the contract from 
                which amounts are received as an annuity.
  (b) Exclusion ratio.--
          (1) In general.--Gross income does not include that 
        part of any amount received as an annuity under an 
        annuity, endowment, or life insurance contract which 
        bears the same ratio to such amount as the investment 
        in the contract (as of the annuity starting date) bears 
        to the expected return under the contract (as of such 
        date).
          (2) Exclusion limited to investment.--The portion of 
        any amount received as an annuity which is excluded 
        from gross income under paragraph (1) shall not exceed 
        the unrecovered investment in the contract immediately 
        before the receipt of such amount.
          (3) Deduction where annuity payments cease before 
        entire investment recovered.--
                  (A) In general.--If--
                          (i) after the annuity starting date, 
                        payments as an annuity under the 
                        contract cease by reason of the death 
                        of an annuitant, and
                          (ii) as of the date of such 
                        cessation, there is unrecovered 
                        investment in the contract,
                the amount of such unrecovered investment (in 
                excess of any amount specified in subsection 
                (e)(5) which was not included in gross income) 
                shall be allowed as a deduction to the 
                annuitant for his last taxable year.
                  (B) Payments to other persons.--In the case 
                of any contract which provides for payments 
                meeting the requirements of subparagraphs (B) 
                and (C) of subsection (c)(2), the deduction 
                under subparagraph (A) shall be allowed to the 
                person entitled to such payments for the 
                taxable year in which such payments are 
                received.
                  (C) Net operating loss deductions provided.--
                For purposes of section 172, a deduction 
                allowed under this paragraph shall be treated 
                as if it were attributable to a trade or 
                business of the taxpayer.
          (4) Unrecovered investment.--For purposes of this 
        subsection, the unrecovered investment in the contract 
        as of any date is--
                  (A) the investment in the contract 
                (determined without regard to subsection 
                (c)(2)) as of the annuity starting date, 
                reduced by
                  (B) the aggregate amount received under the 
                contract on or after such annuity starting date 
                and before the date as of which the 
                determination is being made, to the extent such 
                amount was excludable from gross income under 
                this subtitle.
  (c) Definitions.--
          (1) Investment in the contract.--For purposes of 
        subsection (b), the investment in the contract as of 
        the annuity starting date is--
                  (A) the aggregate amount of premiums or other 
                consideration paid for the contract, minus
                  (B) the aggregate amount received under the 
                contract before such date, to the extent that 
                such amount was excludable from gross income 
                under this subtitle or prior income tax laws.
          (2) Adjustment in investment where there is refund 
        feature.--If--
                  (A) the expected return under the contract 
                depends in whole or in part on the life 
                expectancy of one or more individuals;
                  (B) the contract provides for payments to be 
                made to a beneficiary (or to the estate of an 
                annuitant) on or after the death of the 
                annuitant or annuitants; and
                  (C) such payments are in the nature of a 
                refund of the consideration paid,
        then the value (computed without discount for interest) 
        of such payments on the annuity starting date shall be 
        subtracted from the amount determined under paragraph 
        (1). Such value shall be computed in accordance with 
        actuarial tables prescribed by the Secretary. For 
        purposes of this paragraph and of subsection (e)(2)(A), 
        the term ``refund of the consideration paid'' includes 
        amounts payable after the death of an annuitant by 
        reason of a provision in the contract for a life 
        annuity with minimum period of payments certain, but 
        (if part of the consideration was contributed by an 
        employer) does not include that part of any payment to 
        a beneficiary (or to the estate of the annuitant) which 
        is not attributable to the consideration paid by the 
        employee for the contract as determined under paragraph 
        (1)(A).
          (3) Expected return.--For purposes of subsection (b), 
        the expected return under the contract shall be 
        determined as follows:
                  (A) Life expectancy.--If the expected return 
                under the contract, for the period on and after 
                the annuity starting date, depends in whole or 
                in part on the life expectancy of one or more 
                individuals, the expected return shall be 
                computed with reference to actuarial tables 
                prescribed by the Secretary.
                  (B) Installment payments.--If subparagraph 
                (A) does not apply, the expected return is the 
                aggregate of the amounts receivable under the 
                contract as an annuity.
          (4) Annuity starting date.--For purposes of this 
        section, the annuity starting date in the case of any 
        contract is the first day of the first period for which 
        an amount is received as an annuity under the contract.
  (d) Special rules for qualified employer retirement plans.--
          (1) Simplified method of taxing annuity payments.--
                  (A) In general.--In the case of any amount 
                received as an annuity under a qualified 
                employer retirement plan--
                          (i) subsection (b) shall not apply, 
                        and
                          (ii) the investment in the contract 
                        shall be recovered as provided in this 
                        paragraph.
                  (B) Method of recovering investment in 
                contract.--
                          (i) In general.--Gross income shall 
                        not include so much of any monthly 
                        annuity payment under a qualified 
                        employer retirement plan as does not 
                        exceed the amount obtained by 
                        dividing--
                                  (I) the investment in the 
                                contract (as of the annuity 
                                starting date), by
                                  (II) the number of 
                                anticipated payments determined 
                                under the table contained in 
                                clause (iii) (or, in the case 
                                of a contract to which 
                                subsection (c)(3)(B) applies, 
                                the number of monthly annuity 
                                payments under such contract).
                          (ii) Certain rules made applicable.--
                        Rules similar to the rules of 
                        paragraphs (2) and (3) of subsection 
                        (b) shall apply for purposes of this 
                        paragraph.
                          (iii) Number of anticipated 
                        payments.--If the annuity is payable 
                        over the life of a single individual, 
                        the number of anticipated payments 
                        shall be determined as follows:


 
------------------------------------------------------------------------
If the age of the annuitant on the   The number of anticipated payments
     annuity starting date is:                       is:
------------------------------------------------------------------------
Not more than 55...............     360
More than 55 but not more than 60   310
More than 60 but not more than 65   260
More than 65 but not more than 70   210
More than 70...................     160.
------------------------------------------------------------------------

                          (iv) Number of anticipated payments 
                        where more than one life.--If the 
                        annuity is payable over the lives of 
                        more than 1 individual, the number of 
                        anticipated payments shall be 
                        determined as follows:


 
------------------------------------------------------------------------
  If the combined ages of annuitants
                 are:                            The number is:
------------------------------------------------------------------------
Not more than 110                      410
 ................................
More than 110 but not more than 120    360
 ..............
More than 120 but not more than 130    310
 ..............
More than 130 but not more than 140    260
 ..............
More than 140                          210.
 ....................................
------------------------------------------------------------------------

                  (C) Adjustment for refund feature not 
                applicable.--For purposes of this paragraph, 
                investment in the contract shall be determined 
                under subsection (c)(1) without regard to 
                subsection (c)(2).
                  (D) Special rule where lump sum paid in 
                connection with commencement of annuity 
                payments.--If, in connection with the 
                commencement of annuity payments under any 
                qualified employer retirement plan, the 
                taxpayer receives a lump-sum payment--
                          (i) such payment shall be taxable 
                        under subsection (e) as if received 
                        before the annuity starting date, and
                          (ii) the investment in the contract 
                        for purposes of this paragraph shall be 
                        determined as if such payment had been 
                        so received.
                  (E) Exception.--This paragraph shall not 
                apply in any case where the primary annuitant 
                has attained age 75 on the annuity starting 
                date unless there are fewer than 5 years of 
                guaranteed payments under the annuity.
                  (F) Adjustment where annuity payments not on 
                monthly basis.--In any case where the annuity 
                payments are not made on a monthly basis, 
                appropriate adjustments in the application of 
                this paragraph shall be made to take into 
                account the period on the basis of which such 
                payments are made.
                  (G) Qualified employer retirement plan.--For 
                purposes of this paragraph, the term 
                ``qualified employer retirement plan'' means 
                any plan or contract described in paragraph 
                (1), (2), or (3) of section 4974(c).
          (2) Treatment of employee contributions under defined 
        contribution plans.--For purposes of this section, 
        employee contributions (and any income allocable 
        thereto) under a defined contribution plan may be 
        treated as a separate contract.
  (e) Amounts not received as annuities.--
          (1) Application of subsection.--
                  (A) In general.--This subsection shall apply 
                to any amount which--
                          (i) is received under an annuity, 
                        endowment, or life insurance contract, 
                        and
                          (ii) is not received as an annuity, 
                        if no provision of this subtitle (other 
                        than this subsection) applies with 
                        respect to such amount.
                  (B) Dividends.--For purposes of this section, 
                any amount received which is in the nature of a 
                dividend or similar distribution shall be 
                treated as an amount not received as an 
                annuity.
          (2) General rule.--Any amount to which this 
        subsection applies--
                  (A) if received on or after the annuity 
                starting date, shall be included in gross 
                income, or
                  (B) if received before the annuity starting 
                date--
                          (i) shall be included in gross income 
                        to the extent allocable to income on 
                        the contract, and
                          (ii) shall not be included in gross 
                        income to the extent allocable to the 
                        investment in the contract.
          (3) Allocation of amounts to income and investment.--
        For purposes of paragraph (2)(B)--
                  (A) Allocation to income.--Any amount to 
                which this subsection applies shall be treated 
                as allocable to income on the contract to the 
                extent that such amount does not exceed the 
                excess (if any) of--
                          (i) the cash value of the contract 
                        (determined without regard to any 
                        surrender charge) immediately before 
                        the amount is received, over
                          (ii) the investment in the contract 
                        at such time.
                  (B) Allocation to investment.--Any amount to 
                which this subsection applies shall be treated 
                as allocable to investment in the contract to 
                the extent that such amount is not allocated to 
                income under subparagraph (A).
          (4) Special rules for application of paragraph 
        (2)(B).--For purposes of paragraph (2)(B)--
                  (A) Loans treated as distributions.--If, 
                during any taxable year, an individual--
                          (i) receives (directly or indirectly) 
                        any amount as a loan under any contract 
                        to which this subsection applies, or
                          (ii) assigns or pledges (or agrees to 
                        assign or pledge) any portion of the 
                        value of any such contract,
                such amount or portion shall be treated as 
                received under the contract as an amount not 
                received as an annuity. The preceding sentence 
                shall not apply for purposes of determining 
                investment in the contract, except that the 
                investment in the contract shall be increased 
                by any amount included in gross income by 
                reason of the amount treated as received under 
                the preceding sentence.
                  (B) Treatment of policyholder dividends.--Any 
                amount described in paragraph (1)(B) shall not 
                be included in gross income under paragraph 
                (2)(B)(i) to the extent such amount is retained 
                by the insurer as a premium or other 
                consideration paid for the contract.
                  (C) Treatment of transfers without adequate 
                consideration.--
                          (i) In general.--If an individual who 
                        holds an annuity contract transfers it 
                        without full and adequate 
                        consideration, such individual shall be 
                        treated as receiving an amount equal to 
                        the excess of--
                                  (I) the cash surrender value 
                                of such contract at the time of 
                                transfer, over
                                  (II) the investment in such 
                                contract at such time,
                        under the contract as an amount not 
                        received as an annuity.
                          (ii) Exception for certain transfers 
                        between spouses or former spouses.--
                        Clause (i) shall not apply to any 
                        transfer to which section 1041(a) 
                        (relating to transfers of property 
                        between spouses or incident to divorce) 
                        applies.
                          (iii) Adjustment to investment in 
                        contract of transferee.--If under 
                        clause (i) an amount is included in the 
                        gross income of the transferor of an 
                        annuity contract, the investment in the 
                        contract of the transferee in such 
                        contract shall be increased by the 
                        amount so included.
          (5) Retention of existing rules in certain cases.--
                  (A) In general.--In any case to which this 
                paragraph applies--
                          (i) paragraphs (2)(B) and (4)(A) 
                        shall not apply, and
                          (ii) if paragraph (2)(A) does not 
                        apply, the amount shall be included in 
                        gross income, but only to the extent it 
                        exceeds the investment in the contract.
                  (B) Existing contracts.--This paragraph shall 
                apply to contracts entered into before August 
                14, 1982. Any amount allocable to investment in 
                the contract after August 13, 1982, shall be 
                treated as from a contract entered into after 
                such date.
                  (C) Certain life insurance and endowment 
                contracts.--Except as provided in paragraph 
                (10) and except to the extent prescribed by the 
                Secretary by regulations, this paragraph shall 
                apply to any amount not received as an annuity 
                which is received under a life insurance or 
                endowment contract.
                  (D) Contracts under qualified plans.--Except 
                as provided in paragraph (8), this paragraph 
                shall apply to any amount received--
                          (i) from a trust described in section 
                        401(a)which is exempt from tax under 
                        section 501(a),
                          (ii) from a contract--
                                  (I) purchased by a trust 
                                described in clause (i),
                                  (II) purchased as part of a 
                                plan described in section 
                                403(a),
                                  (III) described in section 
                                403(b), or
                                  (IV) provided for employees 
                                of a life insurance company 
                                under a plan described in 
                                section 818(a)(3), or
                          (iii) from an individual retirement 
                        account or an individual retirement 
                        annuity.
                Any dividend described in section 404(k) which 
                is received by a participant or beneficiary 
                shall, for purposes of this subparagraph, be 
                treated as paid under a separate contract to 
                which clause (ii)(I) applies.
                  (E) Full refunds, surrenders, redemptions, 
                and maturities.--This paragraph shall apply 
                to--
                          (i) any amount received, whether in a 
                        single sum or otherwise, under a 
                        contract in full discharge of the 
                        obligation under the contract which is 
                        in the nature of a refund of the 
                        consideration paid for the contract, 
                        and
                          (ii) any amount received under a 
                        contract on its complete surrender, 
                        redemption, or maturity.
                In the case of any amount to which the 
                preceding sentence applies, the rule of 
                paragraph (2)(A) shall not apply.
          (6) Investment in the contract.--For purposes of this 
        subsection, the investment in the contract as of any 
        date is--
                  (A) the aggregate amount of premiums or other 
                consideration paid for the contract before such 
                date, minus
                  (B) the aggregate amount received under the 
                contract before such date, to the extent that 
                such amount was excludable from gross income 
                under this subtitle or prior income tax laws.
          (8) Extension of paragraph (2)(b) to qualified plans
                  (A) In general.--Notwithstanding any other 
                provision of this subsection, in the case of 
                any amount received before the annuity starting 
                date from a trust or contract described in 
                paragraph (5)(D), paragraph (2)(B) shall apply 
                to such amounts.
                  (B) Allocation of amount received.--For 
                purposes of paragraph (2)(B), the amount 
                allocated to the investment in the contract 
                shall be the portion of the amount described in 
                subparagraph (A) which bears the same ratio to 
                such amount as the investment in the contract 
                bears to the account balance. The determination 
                under the preceding sentence shall be made as 
                of the time of the distribution or at such 
                other time as the Secretary may prescribe.
                  (C) Treatment of forfeitable rights.--If an 
                employee does not have a nonforfeitable right 
                to any amount under any trust or contract to 
                which subparagraph (A) applies, such amount 
                shall not be treated as part of the account 
                balance.
                  (D) Investment in the contract before 1987.--
                In the case of a plan which on May 5, 1986, 
                permitted withdrawal of any employee 
                contributions before separation from service, 
                subparagraph (A) shall apply only to the extent 
                that amounts received before the annuity 
                starting date (when increased by amounts 
                previously received under the contract after 
                December 31, 1986) exceed the investment in the 
                contract as of December 31, 1986.
          (9) Extension of paragraph (2)(b) to qualified 
        tuition programs and Coverdell education savings 
        accounts.--Notwithstanding any other provision of this 
        subsection, paragraph (2)(B) shall apply to amounts 
        received under a qualified tuition program (as defined 
        in section 529(b)) or under a Coverdell education 
        savings account (as defined in section 530(b)). The 
        rule of paragraph (8)(B) shall apply for purposes of 
        this paragraph.
          (10) Treatment of modified endowment contracts.--
                  (A) In general.--Notwithstanding paragraph 
                (5)(C), in the case of any modified endowment 
                contract (as defined in section 7702A)--
                          (i) paragraphs (2)(B) and (4)(A) 
                        shall apply, and
                          (ii) in applying paragraph (4)(A), 
                        ``any person'' shall be substituted for 
                        ``an individual''.
                  (B) Treatment of certain burial contracts.--
                Notwithstanding subparagraph (A), paragraph 
                (4)(A) shall not apply to any assignment (or 
                pledge) of a modified endowment contract if 
                such assignment (or pledge) is solely to cover 
                the payment of expenses referred to in section 
                7702(e)(2)(C)(iii) and if the maximum death 
                benefit under such contract does not exceed 
                $25,000.
          (11) Special rules for certain combination contracts 
        providing long-term care insurance.--Notwithstanding 
        paragraphs (2), (5)(C), and (10), in the case of any 
        charge against the cash value of an annuity contract or 
        the cash surrender value of a life insurance contract 
        made as payment for coverage under a qualified long-
        term care insurance contract which is part of or a 
        rider on such annuity or life insurance contract--
                  (A) the investment in the contract shall be 
                reduced (but not below zero) by such charge, 
                and
                  (B) such charge shall not be includible in 
                gross income.
          (12) Anti-abuse rules.--
                  (A) In general.--For purposes of determining 
                the amount includible in gross income under 
                this subsection--
                          (i) all modified endowment contracts 
                        issued by the same company to the same 
                        policyholder during any calendar year 
                        shall be treated as 1 modified 
                        endowment contract, and
                          (ii) all annuity contracts issued by 
                        the same company to the same 
                        policyholder during any calendar year 
                        shall be treated as 1 annuity contract.
                The preceding sentence shall not apply to any 
                contract described in paragraph (5)(D).
                  (B) Regulatory authority.--The Secretary may 
                by regulations prescribe such additional rules 
                as may be necessary or appropriate to prevent 
                avoidance of the purposes of this subsection 
                through serial purchases of contracts or 
                otherwise.
  (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) such amounts were includible in the gross income 
        of the employee under this subtitle or prior income tax 
        laws; or
          (2) if such amounts had been paid directly to the 
        employee at the time they were contributed, they would 
        not have been includible in the gross income of the 
        employee under the law applicable at the time of such 
        contribution.
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), as in effect before the enactment of 
the Economic Growth and Tax Relief Reconciliation Act of 2001).
  (g) Rules for transferee where transfer was for value.--Where 
any contract (or any interest therein) is transferred (by 
assignment or otherwise) for a valuable consideration, to the 
extent that the contract (or interest therein) does not, in the 
hands of the transferee, have a basis which is determined by 
reference to the basis in the hands of the transferor, then--
          (1) for purposes of this section, only the actual 
        value of such consideration, plus the amount of the 
        premiums and other consideration paid by the transferee 
        after the transfer, shall be taken into account in 
        computing the aggregate amount of the premiums or other 
        consideration paid for the contract;
          (2) for purposes of subsection (c)(1)(B), there shall 
        be taken into account only the aggregate amount 
        received under the contract by the transferee before 
        the annuity starting date, to the extent that such 
        amount was excludable from gross income under this 
        subtitle or prior income tax laws; and
          (3) the annuity starting date is the first day of the 
        first period for which the transferee received an 
        amount under the contract as an annuity.
For purposes of this subsection, the term ``transferee'' 
includes a beneficiary of, or the estate of, the transferee.
  (h) Option to receive annuity in lieu of lump sum.--If--
          (1) a contract provides for payment of a lump sum in 
        full discharge of an obligation under the contract, 
        subject to an option to receive an annuity in lieu of 
        such lump sum;
          (2) the option is exercised within 60 days after the 
        day on which such lump sum first became payable; and
          (3) part or all of such lump sum would (but for this 
        subsection) be includible in gross income by reason of 
        subsection (e)(1), then, for purposes of this subtitle, 
        no part of such lump sum shall be considered as 
        includible in gross income at the time such lump sum 
        first became payable.
  (j) Interest.--Notwithstanding any other provision of this 
section, if any amount is held under an agreement to pay 
interest thereon, the interest payments shall be included in 
gross income.
  (l) Face-amount certificates.--For purposes of this section, 
the term ``endowment contract'' includes a face-amount 
certificate, as defined in section 2(a)(15) of the Investment 
Company Act of 1940 (15 U.S.C., sec. 80a-2), issued after 
December 31, 1954.
  (m) Special rules applicable to employee annuities and 
distributions under employee plans.--
          (2) Computation of consideration paid by the 
        employee.--In computing--
                  (A) the aggregate amount of premiums or other 
                consideration paid for the contract for 
                purposes of subsection (c)(1)(A) (relating to 
                the investment in the contract), and
                  (B) the aggregate premiums or other 
                consideration paid for purposes of subsection 
                (e)(6) (relating to certain amounts not 
                received as an annuity),
        any amount allowed as a deduction with respect to the 
        contract under section 404 which was paid while the 
        employee was an employee within the meaning of section 
        401(c)(1) shall be treated as consideration contributed 
        by the employer, and there shall not be taken into 
        account any portion of the premiums or other 
        consideration for the contract paid while the employee 
        was an owner-employee which is properly allocable (as 
        determined under regulations prescribed by the 
        Secretary) to the cost of life, accident, health, or 
        other insurance.
          (3) Life insurance contracts.--
                  (A) This paragraph shall apply to any life 
                insurance contract--
                          (i) purchased as a part of a plan 
                        described in section 403(a), or
                          (ii) purchased by a trust described 
                        in section 401(a) which is exempt from 
                        tax under section 501(a) if the 
                        proceeds of such contract are payable 
                        directly or indirectly to a participant 
                        in such trust or to a beneficiary of 
                        such participant.
                  (B) Any contribution to a plan described in 
                subparagraph (A)(i) or a trust described in 
                subparagraph (A)(ii) which is allowed as a 
                deduction under section 404, and any income of 
                a trust described in subparagraph (A)(ii), 
                which is determined in accordance with 
                regulations prescribed by the Secretary to have 
                been applied to purchase the life insurance 
                protection under a contract described in 
                subparagraph (A), is includible in the gross 
                income of the participant for the taxable year 
                when so applied.
                  (C) In the case of the death of an individual 
                insured under a contract described in 
                subparagraph (A), an amount equal to the cash 
                surrender value of the contract immediately 
                before the death of the insured shall be 
                treated as a payment under such plan or a 
                distribution by such trust, and the excess of 
                the amount payable by reason of the death of 
                the insured over such cash surrender value 
                shall not be includible in gross income under 
                this section and shall be treated as provided 
                in section 101.
          (5) Penalties applicable to certain amounts received 
        by 5-percent owners (A) This paragraph applies to 
        amounts which are received from a qualified trust 
        described in section 401(a) or under a plan described 
        in section 403(a) at any time by an individual who is, 
        or has been, a 5-percent owner, or by a successor of 
        such an individual, but only to the extent such amounts 
        are determined, under regulations prescribed by the 
        Secretary, to exceed the benefits provided for such 
        individual under the plan formula.
                  (B) If a person receives an amount to which 
                this paragraph applies, his tax under this 
                chapter for the taxable year in which such 
                amount is received shall be increased by an 
                amount equal to 10 percent of the portion of 
                the amount so received which is includible in 
                his gross income for such taxable year.
                  (C) For purposes of this paragraph, the term 
                ``5-percent owner'' means any individual who, 
                at any time during the 5 plan years preceding 
                the plan year ending in the taxable year in 
                which the amount is received, is a 5-percent 
                owner (as defined in section 416(i)(1)(B)).
          (6) Owner-employee defined.--For purposes of this 
        subsection, the term ``owner-employee'' has the meaning 
        assigned to it by section 401(c)(3) and includes an 
        individual for whose benefit an individual retirement 
        account or annuity described in section 408(a) or (b) 
        is maintained. For purposes of the preceding sentence, 
        the term ``owner-employee'' shall include an employee 
        within the meaning of section 401(c)(1).
          (7) Meaning of disabled.--For purposes of this 
        section, an individual shall be considered to be 
        disabled if he is unable to engage in any substantial 
        gainful activity by reason of any medically 
        determinable physical or mental impairment which can be 
        expected to result in death or to be of long-continued 
        and indefinite duration. An individual shall not be 
        considered to be disabled unless he furnishes proof of 
        the existence thereof in such form and manner as the 
        Secretary may require.
          (10) Determination of investment in the contract in 
        the case of qualified domestic relations orders.--Under 
        regulations prescribed by the Secretary, in the case of 
        a distribution or payment made to an alternate payee 
        who is the spouse or former spouse of the participant 
        pursuant to a qualified domestic relations order (as 
        defined in section 414(p)), the investment in the 
        contract as of the date prescribed in such regulations 
        shall be allocated on a pro rata basis between the 
        present value of such distribution or payment and the 
        present value of all other benefits payable with 
        respect to the participant to which such order relates.
  (n) Annuities under retired serviceman's family protection 
plan or survivor benefit plan.--Subsection (b) shall not apply 
in the case of amounts received after December 31, 1965, as an 
annuity under chapter 73 of title 10 of the United States Code, 
but all such amounts shall be excluded from gross income until 
there has been so excluded (under section 122(b)(1) or this 
section, including amounts excluded before January 1, 1966) an 
amount equal to the consideration for the contract (as defined 
by section 122(b)(2)), plus any amount treated pursuant to 
section 101 (b)(2)(D) (as in effect on the day before the date 
of the enactment of the Small Business Job Protection Act of 
1996) as additional consideration paid by the employee. 
Thereafter all amounts so received shall be included in gross 
income.
  (o) Special rules for distributions from qualified plans to 
which employee made deductible contributions.--
          (1) Treatment of contributions.--For purposes of this 
        section and sections 402 and 403, notwithstanding 
        section 414(h), any deductible employee contribution 
        made to a qualified employer plan or government plan 
        shall be treated as an amount contributed by the 
        employer which is not includible in the gross income of 
        the employee.
          (3) Amounts constructively received.--
                  (A) In general.--For purposes of this 
                subsection, rules similar to the rules provided 
                by subsection (p) (other than the exception 
                contained in paragraph (2) thereof) shall 
                apply.
                  (B) Purchase of life insurance.--To the 
                extent any amount of accumulated deductible 
                employee contributions of an employee are 
                applied to the purchase of life insurance 
                contracts, such amount shall be treated as 
                distributed to the employee in the year so 
                applied.
          (4) Special rule for treatment of rollover amounts.--
        For purposes of sections 402(c), 403(a)(4), 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.
          (5) Definitions and special rules.--For purposes of 
        this subsection--
                  (A) Deductible employee contributions.--The 
                term ``deductible employee contributions'' 
                means any qualified voluntary employee 
                contribution (as defined in section 219(e)(2)) 
                made after December 31, 1981, in a taxable year 
                beginning after such date and made for a 
                taxable year beginning before January 1, 1987, 
                and allowable as a deduction under section 
                219(a) for such taxable year.
                  (B) Accumulated deductible employee 
                contributions.--The term ``accumulated 
                deductible employee contributions'' means the 
                deductible employee contributions--
                          (i) increased by the amount of income 
                        and gain allocable to such 
                        contributions, and
                          (ii) reduced by the sum of the amount 
                        of loss and expense allocable to such 
                        contributions and the amounts 
                        distributed with respect to the 
                        employee which are attributable to such 
                        contributions (or income or gain 
                        allocable to such contributions).
                  (C) Qualified employer plan.--The term 
                ``qualified employer plan'' has the meaning 
                given to such term by subsection (p)(3)(A)(i).
                  (D) Government plan.--The term ``government 
                plan'' has the meaning given such term by 
                subsection (p)(3)(B).
          (6) Ordering rules.--Unless the plan specifies 
        otherwise, any distribution from such plan shall not be 
        treated as being made from the accumulated deductible 
        employee contributions, until all other amounts to the 
        credit of the employee have been distributed.
  (p) Loans treated as distributions.--For purposes of this 
section--
          (1) Treatment as distributions.--
                  (A) Loans.--If during any taxable year a 
                participant or beneficiary receives (directly 
                or indirectly) any amount as a loan from a 
                qualified employer plan, such amount shall be 
                treated as having been received by such 
                individual as a distribution under such plan.
                  (B) Assignments or pledges.--If during any 
                taxable year a participant or beneficiary 
                assigns (or agrees to assign) or pledges (or 
                agrees to pledge) any portion of his interest 
                in a qualified employer plan, such portion 
                shall be treated as having been received by 
                such individual as a loan from such plan.
          (2) Exception for certain loans.--
                  (A) General rule.--Paragraph (1) shall not 
                apply to any loan to the extent that such loan 
                (when added to the outstanding balance of all 
                other loans from such plan whether made on, 
                before, or after August 13, 1982), does not 
                exceed the lesser of--
                          (i) $50,000, reduced by the excess 
                        (if any) of--
                                  (I) the highest outstanding 
                                balance of loans from the plan 
                                during the 1-year period ending 
                                on the day before the date on 
                                which such loan was made, over
                                  (II) the outstanding balance 
                                of loans from the plan on the 
                                date on which such loan was 
                                made, or
                          (ii) the greater of (I) one-half of 
                        the present value of the nonforfeitable 
                        accrued benefit of the employee under 
                        the plan, or (II) $10,000.
                For purposes of clause (ii), the present value 
                of the nonforfeitable accrued benefit shall be 
                determined without regard to any accumulated 
                deductible employee contributions (as defined 
                in subsection (o)(5)(B)).
                  (B) Requirement that loan be repayable within 
                5 years.--
                          (i) In general.--Subparagraph (A) 
                        shall not apply to any loan unless such 
                        loan, by its terms, is required to be 
                        repaid within 5 years.
                          (ii) Exception for home loans.--
                        Clause (i) shall not apply to any loan 
                        used to acquire any dwelling unit which 
                        within a reasonable time is to be used 
                        (determined at the time the loan is 
                        made) as the principal residence of the 
                        participant.
                  (C) Requirement of level amortization.--
                Except as provided in regulations, this 
                paragraph shall not apply to any loan unless 
                substantially level amortization of such loan 
                (with payments not less frequently than 
                quarterly) is required over the term of the 
                loan.
                  (D) Prohibition of loans through credit cards 
                and other similar arrangements.--
                Notwithstanding subparagraph (A), paragraph (1) 
                shall apply to any loan which is made through 
                the use of any credit card or any other similar 
                arrangement.
                  [(D)] (E) Related employers and related 
                plans.--For purposes of this paragraph--
                          (i) the rules of subsections (b), 
                        (c), and (m) of section 414 shall 
                        apply, and
                          (ii) all plans of an employer 
                        (determined after the application of 
                        such subsections) shall be treated as 1 
                        plan.
          (3) Denial of interest deductions in certain cases.--
                  (A) In general.--No deduction otherwise 
                allowable under this chapter shall be allowed 
                under this chapter for any interest paid or 
                accrued on any loan to which paragraph (1) does 
                not apply by reason of paragraph (2) during the 
                period described in subparagraph (B).
                  (B) Period to which subparagraph (A) 
                applies.--For purposes of subparagraph (A), the 
                period described in this subparagraph is the 
                period--
                          (i) on or after the 1st day on which 
                        the individual to whom the loan is made 
                        is a key employee (as defined in 
                        section 416(i)), or
                          (ii) such loan is secured by amounts 
                        attributable to elective deferrals 
                        described in subparagraph (A) or (C) of 
                        section 402(g)(3).
          (4) Qualified employer plan, etc..--For purposes of 
        this subsection--
                  (A) Qualified employer plan.--
                          (i) In general.--The term ``qualified 
                        employer plan'' means--
                                  (I) a plan described in 
                                section 401(a) which includes a 
                                trust exempt from tax under 
                                section 501(a),
                                  (II) an annuity plan 
                                described in section 403(a), 
                                and
                                  (III) a plan under which 
                                amounts are contributed by an 
                                individual's employer for an 
                                annuity contract described in 
                                section 403(b).
                          (ii) Special rule.--The term 
                        ``qualified employer plan'' shall 
                        include any plan which was (or was 
                        determined to be) a qualified employer 
                        plan or a government plan.
                  (B) Government plan.--The term ``government 
                plan'' means any plan, whether or not 
                qualified, established and maintained for its 
                employees by the United States, by a State or 
                political subdivision thereof, or by an agency 
                or instrumentality of any of the foregoing.
          (5) Special rules for loans, etc., from certain 
        contracts.--For purposes of this subsection, any amount 
        received as a loan under a contract purchased under a 
        qualified employer plan (and any assignment or pledge 
        with respect to such a contract) shall be treated as a 
        loan under such employer plan.
  (q) 10-percent penalty for premature distributions from 
annuity contracts.--
          (1) Imposition of penalty.--If any taxpayer receives 
        any amount under an annuity contract, the taxpayer's 
        tax under this chapter for the taxable year in which 
        such amount is received shall be increased by an amount 
        equal to 10 percent of the portion of such amount which 
        is includible in gross income.
          (2) Subsection not to apply to certain 
        distributions.--Paragraph 1 shall not apply to any 
        distribution--
                  (A) made on or after the date on which the 
                taxpayer attains age 59 1/2,
                  (B) made on or after the death of the holder 
                (or, where the holder is not an individual, the 
                death of the primary annuitant (as defined in 
                subsection (s)(6)(B))),
                  (C) attributable to the taxpayer's becoming 
                disabled within the meaning of subsection 
                (m)(7),
                  (D) which is a part of a series of 
                substantially equal periodic payments (not less 
                frequently than annually) made for the life (or 
                life expectancy) of the taxpayer or the joint 
                lives (or joint life expectancies) of such 
                taxpayer and his designated beneficiary,
                  (E) from a plan, contract, account, trust, or 
                annuity described in subsection (e)(5)(D),
                  (F) allocable to investment in the contract 
                before August 14, 1982, or
                  (G) under a qualified funding asset (within 
                the meaning of section 130(d), but without 
                regard to whether there is a qualified 
                assignment),
                  (H) to which subsection (t) applies (without 
                regard to paragraph (2) thereof),
                  (I) under an immediate annuity contract 
                (within the meaning of section 72(u)(4)), or
                  (J) which is purchased by an employer upon 
                the termination of a plan described in section 
                401(a) or 403(a) and which is held by the 
                employer until such time as the employee 
                separates from service.
          (3) Change in substantially equal payments.--If--
                  (A) paragraph (1) does not apply to a 
                distribution by reason of paragraph (2)(D), and
                  (B) the series of payments under such 
                paragraph are subsequently modified (other than 
                by reason of death or disability)--
                          (i) before the close of the 5-year 
                        period beginning on the date of the 
                        first payment and after the taxpayer 
                        attains age 59 1/2, or
                          (ii) before the taxpayer attains age 
                        59 1/2, the taxpayer's tax for the 1st 
                        taxable year in which such modification 
                        occurs shall be increased by an amount, 
                        determined under regulations, equal to 
                        the tax which (but for paragraph 
                        (2)(D)) would have been imposed, plus 
                        interest for the deferral period 
                        (within the meaning of subsection 
                        (t)(4)(B)).
  (r) Certain railroad retirement benefits treated as received 
under employer plans.--
          (1) In general.--Notwithstanding any other provision 
        of law, any benefit provided under the Railroad 
        Retirement Act of 1974 (other than a tier 1 railroad 
        retirement benefit) shall be treated for purposes of 
        this title as a benefit provided under an employer plan 
        which meets the requirements of section 401(a).
          (2) Tier 2 taxes treated as contributions.--
                  (A) In general.--For purposes of paragraph 
                (1)--
                          (i) the tier 2 portion of the tax 
                        imposed by section 3201 (relating to 
                        tax on employees) shall be treated as 
                        an employee contribution,
                          (ii) the tier 2 portion of the tax 
                        imposed by section 3211 (relating to 
                        tax on employee representatives) shall 
                        be treated as an employee contribution, 
                        and
                          (iii) the tier 2 portion of the tax 
                        imposed by section 3221 (relating to 
                        tax on employers) shall be treated as 
                        an employer contribution.
                  (B) Tier 2 portion.--For purposes of 
                subparagraph (A)--
                          (i) After 1984.--With respect to 
                        compensation paid after 1984, the tier 
                        2 portion shall be the taxes imposed by 
                        sections 3201(b), 3211(b), and 3221(b).
                          (ii) After September 30, 1981, and 
                        before 1985.--With respect to 
                        compensation paid before 1985 for 
                        services rendered after September 30, 
                        1981, the tier 2 portion shall be--
                                  (I) so much of the tax 
                                imposed by section 3201 as is 
                                determined at the 2 percent 
                                rate, and
                                  (II) so much of the taxes 
                                imposed by sections 3211 and 
                                3221 as is determined at the 
                                11.75 percent rate.
                With respect to compensation paid for services 
                rendered after December 31, 1983, and before 
                1985, subclause (I) shall be applied by 
                substituting ``2.75 percent'' for ``2 
                percent'', and subclause (II) shall be applied 
                by substituting ``12.75 percent'' for ``11.75 
                percent''.
                          (iii) Before October 1, 1981.--With 
                        respect to compensation paid for 
                        services rendered during any period 
                        before October 1, 1981, the tier 2 
                        portion shall be the excess (if any) 
                        of--
                                  (I) the tax imposed for such 
                                period by section 3201, 3211, 
                                or 3221, as the case may be 
                                (other than any tax imposed 
                                with respect to man-hours), 
                                over
                                  (II) the tax which would have 
                                been imposed by such section 
                                for such period had the rates 
                                of the comparable taxes imposed 
                                by chapter 21 for such period 
                                applied under such section.
                  (C) Contributions not allocable to 
                supplemental annuity or windfall benefits.--For 
                purposes of paragraph (1), no amount treated as 
                an employee contribution under this paragraph 
                shall be allocated to--
                          (i) any supplemental annuity paid 
                        under section 2(b) of the Railroad 
                        Retirement Act of 1974, or
                          (ii) any benefit paid under section 
                        3(h), 4(e), or 4(h) of such Act.
          (3) Tier 1 railroad retirement benefit.--For purposes 
        of paragraph (1), the term ``tier 1 railroad retirement 
        benefit'' has the meaning given such term by section 
        86(d)(4).
  (s) Required distributions where holder dies before entire 
interest is distributed.--
          (1) In general.--A contract shall not be treated as 
        an annuity contract for purposes of this title unless 
        it provides that--
                  (A) if any holder of such contract dies on or 
                after the annuity starting date and before the 
                entire interest in such contract has been 
                distributed, the remaining portion of such 
                interest will be distributed at least as 
                rapidly as under the method of distributions 
                being used as of the date of his death, and
                  (B) if any holder of such contract dies 
                before the annuity starting date, the entire 
                interest in such contract will be distributed 
                within 5 years after the death of such holder.
          (2) Exception for certain amounts payable over life 
        of beneficiary.--If--
                  (A) any portion of the holder's interest is 
                payable to (or for the benefit of) a designated 
                beneficiary,
                  (B) 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
                  (C) such distributions begin not later than 1 
                year after the date of the holder's death or 
                such later date as the Secretary may by 
                regulations prescribe,
        then for purposes of paragraph (1), the portion 
        referred to in subparagraph (A) shall be treated as 
        distributed on the day on which such distributions 
        begin.
          (3) Special rule where surviving spouse 
        beneficiary.--If the designated beneficiary referred to 
        in paragraph (2)(A) is the surviving spouse of the 
        holder of the contract, paragraphs (1) and (2) shall be 
        applied by treating such spouse as the holder of such 
        contract.
          (4) Designated beneficiary.--For purposes of this 
        subsection, the term ``designated beneficiary'' means 
        any individual designated a beneficiary by the holder 
        of the contract.
          (5) Exception for certain annuity contracts.--This 
        subsection shall not apply to any annuity contract--
                  (A) which is provided--
                          (i) under a plan described in section 
                        401(a) which includes a trust exempt 
                        from tax under section 501, or
                          (ii) under a plan described in 
                        section 403(a),
                  (B) which is described in section 403(b),
                  (C) which is an individual retirement annuity 
                or provided under an individual retirement 
                account or annuity, or
                  (D) which is a qualified funding asset (as 
                defined in section 130(d), but without regard 
                to whether there is a qualified assignment).
          (6) Special rule where holder is corporation or other 
        non-individual.--
                  (A) In general.--For purposes of this 
                subsection, if the holder of the contract is 
                not an individual, the primary annuitant shall 
                be treated as the holder of the contract.
                  (B) Primary annuitant.--For purposes of 
                subparagraph (A), the term ``primary 
                annuitant'' means the individual, the events in 
                the life of whom are of primary importance in 
                affecting the timing or amount of the payout 
                under the contract.
          (7) Treatment of changes in primary annuitant where 
        holder of contract is not an individual.--For purposes 
        of this subsection, in the case of a holder of an 
        annuity contract which is not an individual, if there 
        is a change in a primary annuitant (as defined in 
        paragraph (6)(B)), such change shall be treated as the 
        death of the holder.
  (t) 10-percent additional tax on early distributions from 
qualified retirement plans.--
          (1) Imposition of additional tax.--If any taxpayer 
        receives any amount from a qualified retirement plan 
        (as defined in section 4974(c)), the taxpayer's tax 
        under this chapter for the taxable year in which such 
        amount is received shall be increased by an amount 
        equal to 10 percent of the portion of such amount which 
        is includible in gross income.
          (2) Subsection not to apply to certain 
        distributions.--Except as provided in paragraphs (3) 
        and (4), paragraph (1) shall not apply to any of the 
        following distributions:
                  (A) In general.--Distributions which are--
                          (i) made on or after the date on 
                        which the employee attains age 59 1/2,
                          (ii) made to a beneficiary (or to the 
                        estate of the employee) on or after the 
                        death of the employee,
                          (iii) attributable to the employee's 
                        being disabled within the meaning of 
                        subsection (m)(7),
                          (iv) part of a series of 
                        substantially equal periodic payments 
                        (not less frequently than annually) 
                        made for the life (or life expectancy) 
                        of the employee or the joint lives (or 
                        joint life expectancies) of such 
                        employee and his designated 
                        beneficiary,
                          (v) made to an employee after 
                        separation from service after 
                        attainment of age 55,
                          (vi) dividends paid with respect to 
                        stock of a corporation which are 
                        described in section 404(k),
                          (vii) made on account of a levy under 
                        section 6331 on the qualified 
                        retirement plan, or
                          (viii) payments under a phased 
                        retirement annuity under section 
                        8366a(a)(5) or 8412a(a)(5) of title 5, 
                        United States Code, or a composite 
                        retirement annuity under section 
                        8366a(a)(1) or 8412a(a)(1) of such 
                        title.
                  (B) Medical expenses.--Distributions made to 
                the employee (other than distributions 
                described in subparagraph (A), (C), or (D)) to 
                the extent such distributions do not exceed the 
                amount allowable as a deduction under section 
                213 to the employee for amounts paid during the 
                taxable year for medical care (determined 
                without regard to whether the employee itemizes 
                deductions for such taxable year).
                  (C) Payments to alternate payees pursuant to 
                qualified domestic relations orders.--Any 
                distribution to an alternate payee pursuant to 
                a qualified domestic relations order (within 
                the meaning of section 414(p)(1)).
                  (D) Distributions to unemployed individuals 
                for health insurance premiums.--
                          (i) In general.--Distributions from 
                        an individual retirement plan to an 
                        individual after separation from 
                        employment--
                                  (I) if such individual has 
                                received unemployment 
                                compensation for 12 consecutive 
                                weeks under any Federal or 
                                State unemployment compensation 
                                law by reason of such 
                                separation,
                                  (II) if such distributions 
                                are made during any taxable 
                                year during which such 
                                unemployment compensation is 
                                paid or the succeeding taxable 
                                year, and
                                  (III) to the extent such 
                                distributions do not exceed the 
                                amount paid during the taxable 
                                year for insurance described in 
                                section 213(d)(1)(D) with 
                                respect to the individual and 
                                the individual's spouse and 
                                dependents (as defined in 
                                section 152, determined without 
                                regard to subsections (b)(1), 
                                (b)(2), and (d)(1)(B) thereof).
                          (ii) Distributions after 
                        reemployment.--Clause (i) shall not 
                        apply to any distribution made after 
                        the individual has been employed for at 
                        least 60 days after the separation from 
                        employment to which clause (i) applies.
                          (iii) Self-employed individuals.--To 
                        the extent provided in regulations, a 
                        self-employed individual shall be 
                        treated as meeting the requirements of 
                        clause (i)(I) if, under Federal or 
                        State law, the individual would have 
                        received unemployment compensation but 
                        for the fact the individual was self- 
                        employed.
                  (E) Distributions from individual retirement 
                plans for higher education expenses.--
                Distributions to an individual from an 
                individual retirement plan to the extent such 
                distributions do not exceed the qualified 
                higher education expenses (as defined in 
                paragraph (7)) of the taxpayer for the taxable 
                year. Distributions shall not be taken into 
                account under the preceding sentence if such 
                distributions are described in subparagraph 
                (A), (C), or (D) or to the extent paragraph (1) 
                does not apply to such distributions by reason 
                of subparagraph (B).
                  (F) Distributions from certain plans for 
                first home purchases.--Distributions to an 
                individual from an individual retirement plan 
                which are qualified first-time homebuyer 
                distributions (as defined in paragraph (8)). 
                Distributions shall not be taken into account 
                under the preceding sentence if such 
                distributions are described in subparagraph 
                (A), (C), (D), or (E) or to the extent 
                paragraph (1) does not apply to such 
                distributions by reason of subparagraph (B).
                  (G) Distributions from retirement plans to 
                individuals called to active duty.--
                          (i) In general.--Any qualified 
                        reservist distribution.
                          (ii) Amount distributed may be 
                        repaid.--Any individual who receives a 
                        qualified reservist distribution may, 
                        at any time during the 2-year period 
                        beginning on the day after the end of 
                        the active duty period, make one or 
                        more contributions to an individual 
                        retirement plan of such individual in 
                        an aggregate amount not to exceed the 
                        amount of such distribution. The dollar 
                        limitations otherwise applicable to 
                        contributions to individual retirement 
                        plans shall not apply to any 
                        contribution made pursuant to the 
                        preceding sentence. No deduction shall 
                        be allowed for any contribution 
                        pursuant to this clause.
                          (iii) Qualified reservist 
                        distribution.--For purposes of this 
                        subparagraph, the term ``qualified 
                        reservist distribution'' means any 
                        distribution to an individual if--
                                  (I) such distribution is from 
                                an individual retirement plan, 
                                or from amounts attributable to 
                                employer contributions made 
                                pursuant to elective deferrals 
                                described in subparagraph (A) 
                                or (C) of section 402(g)(3) or 
                                section 501(c)(18)(D)(iii),
                                  (II) such individual was (by 
                                reason of being a member of a 
                                reserve component (as defined 
                                in section 101 of title 37, 
                                United States Code)) ordered or 
                                called to active duty for a 
                                period in excess of 179 days or 
                                for an indefinite period, and
                                  (III) such distribution is 
                                made during the period 
                                beginning on the date of such 
                                order or call and ending at the 
                                close of the active duty 
                                period.
                          (iv) Application of subparagraph.--
                        This subparagraph applies to 
                        individuals ordered or called to active 
                        duty after September 11, 2001. In no 
                        event shall the 2-year period referred 
                        to in clause (ii) end before the date 
                        which is 2 years after the date of the 
                        enactment of this subparagraph.
                  (H) Distributions from retirement plans in 
                case of birth of child or adoption.--
                          (i) In general.--Any qualified birth 
                        or adoption distribution.
                          (ii) Limitation.--The aggregate 
                        amount which may be treated as 
                        qualified birth or adoption 
                        distributions by any individual with 
                        respect to any birth or adoption shall 
                        not exceed $7,500.
                          (iii) Qualified birth or adoption 
                        distribution.--For purposes of this 
                        subparagraph--
                                  (I) In general.--The term 
                                ``qualified birth or adoption 
                                distribution'' means any 
                                distribution from an applicable 
                                eligible retirement plan to an 
                                individual if made during the 
                                1-year period beginning on the 
                                date on which a child of the 
                                individual is born or on which 
                                the legal adoption by the 
                                individual of an eligible child 
                                is finalized.
                                  (II) Eligible child.--The 
                                term ``eligible child'' means 
                                any individual (other than a 
                                child of the taxpayer's spouse) 
                                who has not attained age 18 or 
                                is physically or mentally 
                                incapable of self-support.
                          (iv) Treatment of plan 
                        distributions.--
                                  (I) In general.--If a 
                                distribution to an individual 
                                would (without regard to clause 
                                (ii)) be a qualified birth or 
                                adoption distribution, a plan 
                                shall not be treated as failing 
                                to meet any requirement of this 
                                title merely because the plan 
                                treats the distribution as a 
                                qualified birth or adoption 
                                distribution, unless the 
                                aggregate amount of such 
                                distributions from all plans 
                                maintained by the employer (and 
                                any member of any controlled 
                                group which includes the 
                                employer) to such individual 
                                exceeds $7,500.
                                  (II) Controlled group.--For 
                                purposes of subclause (I), the 
                                term ``controlled group'' means 
                                any group treated as a single 
                                employer under subsection (b), 
                                (c), (m), or (o) of section 
                                414.
                          (v) Amount distributed may be 
                        repaid.--
                                  (I) In general.--Any 
                                individual who receives a 
                                qualified birth or adoption 
                                distribution may make one or 
                                more contributions in an 
                                aggregate amount not to exceed 
                                the amount of such distribution 
                                to an applicable eligible 
                                retirement plan of which such 
                                individual is a beneficiary and 
                                to which a rollover 
                                contribution of such 
                                distribution could be made 
                                under section 402(c), 
                                403(a)(4), 403(b)(8), 
                                408(d)(3), or 457(e)(16), as 
                                the case may be.
                                  (II) Limitation on 
                                contributions to applicable 
                                eligible retirement plans other 
                                than IRAs.--The aggregate 
                                amount of contributions made by 
                                an individual under subclause 
                                (I) to any applicable eligible 
                                retirement plan which is not an 
                                individual retirement plan 
                                shall not exceed the aggregate 
                                amount of qualified birth or 
                                adoption distributions which 
                                are made from such plan to such 
                                individual. Subclause (I) shall 
                                not apply to contributions to 
                                any applicable eligible 
                                retirement plan which is not an 
                                individual retirement plan 
                                unless the individual is 
                                eligible to make contributions 
                                (other than those described in 
                                subclause (I)) to such 
                                applicable eligible retirement 
                                plan.
                                  (III) Treatment of repayments 
                                of distributions from 
                                applicable eligible retirement 
                                plans other than IRAs.--If a 
                                contribution is made under 
                                subclause (I) with respect to a 
                                qualified birth or adoption 
                                distribution from an applicable 
                                eligible retirement plan other 
                                than an individual retirement 
                                plan, then the taxpayer shall, 
                                to the extent of the amount of 
                                the contribution, be treated as 
                                having received such 
                                distribution in an eligible 
                                rollover distribution (as 
                                defined in section 402(c)(4)) 
                                and as having transferred the 
                                amount to the applicable 
                                eligible retirement plan in a 
                                direct trustee to trustee 
                                transfer within 60 days of the 
                                distribution.
                                  (IV) Treatment of repayments 
                                for distributions from iras.--
                                If a contribution is made under 
                                subclause (I) with respect to a 
                                qualified birth or adoption 
                                distribution from an individual 
                                retirement plan, then, to the 
                                extent of the amount of the 
                                contribution, such distribution 
                                shall be treated as a 
                                distribution described in 
                                section 408(d)(3) and as having 
                                been transferred to the 
                                applicable eligible retirement 
                                plan in a direct trustee to 
                                trustee transfer within 60 days 
                                of the distribution.
                          (vi) Definition and special rules.--
                        For purposes of this subparagraph--
                                  (I) Applicable eligible 
                                retirement plan.--The term 
                                ``applicable eligible 
                                retirement plan'' means an 
                                eligible retirement plan (as 
                                defined in section 
                                402(c)(8)(B)) other than a 
                                defined benefit plan.
                                  (II) Exemption of 
                                distributions from trustee to 
                                trustee transfer and 
                                withholding rules.--For 
                                purposes of sections 
                                401(a)(31), 402(f), and 3405, a 
                                qualified birth or adoption 
                                distribution shall not be 
                                treated as an eligible rollover 
                                distribution.
                                  (III) Taxpayer must include 
                                tin.--A distribution shall not 
                                be treated as a qualified birth 
                                or adoption distribution with 
                                respect to any child or 
                                eligible child unless the 
                                taxpayer includes the name, 
                                age, and TIN of such child or 
                                eligible child on the 
                                taxpayer's return of tax for 
                                the taxable year.
                                  (IV) Distributions treated as 
                                meeting plan distribution 
                                requirements.--Any qualified 
                                birth or adoption distribution 
                                shall be treated as meeting the 
                                requirements of sections 
                                401(k)(2)(B)(i), 
                                403(b)(7)(A)(ii), 403(b)(11), 
                                and 457(d)(1)(A).
          (3) Limitations.--
                  (A) Certain exceptions not to apply to 
                individual retirement plans.--Subparagraphs 
                (A)(v) and (C) of paragraph (2) shall not apply 
                to distributions from an individual retirement 
                plan.
                  (B) Periodic payments under qualified plans 
                must begin after separation.--Paragraph 
                (2)(A)(iv) shall not apply to any amount paid 
                from a trust described in section 401(a) which 
                is exempt from tax under section 501(a) or from 
                a contract described in section 72(e)(5)(D)(ii) 
                unless the series of payments begins after the 
                employee separates from service.
          (4) Change in substantially equal payments.--
                  (A) In general.--If--
                          (i) paragraph (1) does not apply to a 
                        distribution by reason of paragraph 
                        (2)(A)(iv), and
                          (ii) the series of payments under 
                        such paragraph are subsequently 
                        modified (other than by reason of death 
                        or disability or a distribution to 
                        which paragraph (10) applies)--
                                  (I) before the close of the 
                                5-year period beginning with 
                                the date of the first payment 
                                and after the employee attains 
                                age 59 1/2, or
                                  (II) before the employee 
                                attains age 59 1/2, the 
                                taxpayer's tax for the 1st 
                                taxable year in which such 
                                modification occurs shall be 
                                increased by an amount, 
                                determined under regulations, 
                                equal to the tax which (but for 
                                paragraph (2)(A)(iv)) would 
                                have been imposed, plus 
                                interest for the deferral 
                                period.
                  (B) Deferral period.--For purposes of this 
                paragraph, the term ``deferral period'' means 
                the period beginning with the taxable year in 
                which (without regard to paragraph (2)(A)(iv)) 
                the distribution would have been includible in 
                gross income and ending with the taxable year 
                in which the modification described in 
                subparagraph (A) occurs.
          (5) Employee.--For purposes of this subsection, the 
        term ``employee'' includes any participant, and in the 
        case of an individual retirement plan, the individual 
        for whose benefit such plan was established.
          (6) Special rules for simple retirement accounts.--In 
        the case of any amount received from a simple 
        retirement account (within the meaning of section 
        408(p)) during the 2-year period beginning on the date 
        such individual first participated in any qualified 
        salary reduction arrangement maintained by the 
        individual's employer under section 408(p)(2), 
        paragraph (1) shall be applied by substituting ``25 
        percent'' for ``10 percent''.
          (7) Qualified higher education expenses.--For 
        purposes of paragraph (2)(E)--
                  (A) In general.--The term ``qualified higher 
                education expenses'' means qualified higher 
                education expenses (as defined in section 
                529(e)(3)) for education furnished to--
                          (i) the taxpayer,
                          (ii) the taxpayer's spouse, or
                          (iii) any child (as defined in 
                        section 152(f)(1)) or grandchild of the 
                        taxpayer or the taxpayer's spouse,
                at an eligible educational institution (as 
                defined in section 529(e)(5)).
                  (B) Coordination with other benefits.--The 
                amount of qualified higher education expenses 
                for any taxable year shall be reduced as 
                provided in section 25A(g)(2).
          (8) Qualified first-time homebuyer distributions.--
        For purposes of paragraph (2)(F)--
                  (A) In general.--The term ``qualified first-
                time homebuyer distribution'' means any payment 
                or distribution received by an individual to 
                the extent such payment or distribution is used 
                by the individual before the close of the 120th 
                day after the day on which such payment or 
                distribution is received to pay qualified 
                acquisition costs with respect to a principal 
                residence of a first-time homebuyer who is such 
                individual, the spouse of such individual, or 
                any child, grandchild, or ancestor of such 
                individual or the individual's spouse.
                  (B) Lifetime dollar limitation.--The 
                aggregate amount of payments or distributions 
                received by an individual which may be treated 
                as qualified first-time homebuyer distributions 
                for any taxable year shall not exceed the 
                excess (if any) of--
                          (i) $10,000, over
                          (ii) the aggregate amounts treated as 
                        qualified first-time homebuyer 
                        distributions with respect to such 
                        individual for all prior taxable years.
                  (C) Qualified acquisition costs.--For 
                purposes of this paragraph, the term 
                ``qualified acquisition costs'' means the costs 
                of acquiring, constructing, or reconstructing a 
                residence. Such term includes any usual or 
                reasonable settlement, financing, or other 
                closing costs.
                  (D) First-time homebuyer; other 
                definitions.--For purposes of this paragraph--
                          (i) First-time homebuyer.--The term 
                        ``first-time homebuyer'' means any 
                        individual if--
                                  (I) such individual (and if 
                                married, such individual's 
                                spouse) had no present 
                                ownership interest in a 
                                principal residence during the 
                                2-year period ending on the 
                                date of acquisition of the 
                                principal residence to which 
                                this paragraph applies, and
                                  (II) subsection (h) or (k) of 
                                section 1034 (as in effect on 
                                the day before the date of the 
                                enactment of this paragraph) 
                                did not suspend the running of 
                                any period of time specified in 
                                section 1034 (as so in effect) 
                                with respect to such individual 
                                on the day before the date the 
                                distribution is applied 
                                pursuant to subparagraph (A).
                          (ii) Principal residence.--The term 
                        ``principal residence'' has the same 
                        meaning as when used in section 121.
                          (iii) Date of acquisition.--The term 
                        ``date of acquisition'' means the 
                        date--
                                  (I) on which a binding 
                                contract to acquire the 
                                principal residence to which 
                                subparagraph (A) applies is 
                                entered into, or
                                  (II) on which construction or 
                                reconstruction of such a 
                                principal residence is 
                                commenced.
                  (E) Special rule where delay in 
                acquisition.--If any distribution from any 
                individual retirement plan fails to meet the 
                requirements of subparagraph (A) solely by 
                reason of a delay or cancellation of the 
                purchase or construction of the residence, the 
                amount of the distribution may be contributed 
                to an individual retirement plan as provided in 
                section 408(d)(3)(A)(i) (determined by 
                substituting ``120th day'' for ``60th day'' in 
                such section), except that--
                          (i) section 408(d)(3)(B) shall not be 
                        applied to such contribution, and
                          (ii) such amount shall not be taken 
                        into account in determining whether 
                        section 408(d)(3)(B) applies to any 
                        other amount.
          (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 eligible 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)).
          (10) Distributions to qualified public safety 
        employees in governmental plans.--
                  (A) In general.--In the case of a 
                distribution to a qualified public safety 
                employee from a governmental plan (within the 
                meaning of section 414(d)), paragraph (2)(A)(v) 
                shall be applied by substituting ``age 50'' for 
                ``age 55''.
                  (B) Qualified public safety employee.--For 
                purposes of this paragraph, the term 
                ``qualified public safety employee'' means--
                          (i) any employee of a State or 
                        political subdivision of a State who 
                        provides police protection, 
                        firefighting services, or emergency 
                        medical services for any area within 
                        the jurisdiction of such State or 
                        political subdivision, or
                          (ii) any Federal law enforcement 
                        officer described in section 8331(20) 
                        or 8401(17) of title 5, United States 
                        Code, any Federal customs and border 
                        protection officer described in section 
                        8331(31) or 8401(36) of such title, any 
                        Federal firefighter described in 
                        section 8331(21) or 8401(14) of such 
                        title, any air traffic controller 
                        described in 8331(30) or 8401(35) of 
                        such title, any nuclear materials 
                        courier described in section 8331(27) 
                        or 8401(33) of such title, any member 
                        of the United States Capitol Police, 
                        any member of the Supreme Court Police, 
                        or any diplomatic security special 
                        agent of the Department of State.
  (u) Treatment of annuity contracts not held by natural 
persons.--
          (1) In general.--If any annuity contract is held by a 
        person who is not a natural person--
                  (A) such contract shall not be treated as an 
                annuity contract for purposes of this subtitle 
                (other than subchapter L), and
                  (B) the income on the contract for any 
                taxable year of the policyholder shall be 
                treated as ordinary income received or accrued 
                by the owner during such taxable year.
        For purposes of this paragraph, holding by a trust or 
        other entity as an agent for a natural person shall not 
        be taken into account.
          (2) Income on the contract.--
                  (A) In general.--For purposes of paragraph 
                (1), the term ``income on the contract'' means, 
                with respect to any taxable year of the 
                policyholder, the excess of--
                          (i) the sum of the net surrender 
                        value of the contract as of the close 
                        of the taxable year plus all 
                        distributions under the contract 
                        received during the taxable year or any 
                        prior taxable year, reduced by
                          (ii) the sum of the amount of net 
                        premiums under the contract for the 
                        taxable year and prior taxable years 
                        and amounts includible in gross income 
                        for prior taxable years with respect to 
                        such contract under this subsection.
                Where necessary to prevent the avoidance of 
                this subsection, the Secretary may substitute 
                ``fair market value of the contract'' for ``net 
                surrender value of the contract'' each place it 
                appears in the preceding sentence.
                  (B) Net premiums.--For purposes of this 
                paragraph, the term ``net premiums'' means the 
                amount of premiums paid under the contract 
                reduced by any policyholder dividends.
          (3) Exceptions.--This subsection shall not apply to 
        any annuity contract which--
                  (A) is acquired by the estate of a decedent 
                by reason of the death of the decedent,
                  (B) is held under a plan described in section 
                401(a) or 403(a), under a program described in 
                section 403(b), or under an individual 
                retirement plan,
                  (C) is a qualified funding asset (as defined 
                in section 130(d), but without regard to 
                whether there is a qualified assignment),
                  (D) is purchased by an employer upon the 
                termination of a plan described in section 
                401(a) or 403(a) and is held by the employer 
                until all amounts under such contract are 
                distributed to the employee for whom such 
                contract was purchased or the employee's 
                beneficiary, or
                  (E) is an immediate annuity.
          (4) Immediate annuity.--For purposes of this 
        subsection, the term ``immediate annuity'' means an 
        annuity--
                  (A) which is purchased with a single premium 
                or annuity consideration,
                  (B) the annuity starting date (as defined in 
                subsection (c)(4)) of which commences no later 
                than 1 year from the date of the purchase of 
                the annuity, and
                  (C) which provides for a series of 
                substantially equal periodic payments (to be 
                made not less frequently than annually) during 
                the annuity period.
  (v) 10-percent additional tax for taxable distributions from 
modified endowment contracts.--
          (1) Imposition of additional tax.--If any taxpayer 
        receives any amount under a modified endowment contract 
        (as defined in section 7702A), the taxpayer's tax under 
        this chapter for the taxable year in which such amount 
        is received shall be increased by an amount equal to 10 
        percent of the portion of such amount which is 
        includible in gross income.
          (2) Subsection not to apply to certain 
        distributions.--Paragraph (1) shall not apply to any 
        distribution--
                  (A) made on or after the date on which the 
                taxpayer attains age 59 1/2,
                  (B) which is attributable to the taxpayer's 
                becoming disabled (within the meaning of 
                subsection (m)(7)), or
                  (C) which is part of a series of 
                substantially equal periodic payments (not less 
                frequently than annually) made for the life (or 
                life expectancy) of the taxpayer or the joint 
                lives (or joint life expectancies) of such 
                taxpayer and his beneficiary.
  (w) Application of basis rules to nonresident aliens.--
          (1) In general.--Notwithstanding any other provision 
        of this section, for purposes of determining the 
        portion of any distribution which is includible in 
        gross income of a distributee who is a citizen or 
        resident of the United States, the investment in the 
        contract shall not include any applicable nontaxable 
        contributions or applicable nontaxable earnings.
          (2) Applicable nontaxable contribution.--For purposes 
        of this subsection, the term ``applicable nontaxable 
        contribution'' means any employer or employee 
        contribution--
                  (A) which was made with respect to 
                compensation--
                          (i) for labor or personal services 
                        performed by an employee who, at the 
                        time the labor or services were 
                        performed, was a nonresident alien for 
                        purposes of the laws of the United 
                        States in effect at such time, and
                          (ii) which is treated as from sources 
                        without the United States, and
                  (B) which was not subject to income tax (and 
                would have been subject to income tax if paid 
                as cash compensation when the services were 
                rendered) under the laws of the United States 
                or any foreign country.
          (3) Applicable nontaxable earnings.--For purposes of 
        this subsection, the term ``applicable nontaxable 
        earnings'' means earnings--
                  (A) which are paid or accrued with respect to 
                any employer or employee contribution which was 
                made with respect to compensation for labor or 
                personal services performed by an employee,
                  (B) with respect to which the employee was at 
                the time the earnings were paid or accrued a 
                nonresident alien for purposes of the laws of 
                the United States, and
                  (C) which were not subject to income tax 
                under the laws of the United States or any 
                foreign country.
          (4) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the 
        provisions of this subsection, including regulations 
        treating contributions and earnings as not subject to 
        tax under the laws of any foreign country where 
        appropriate to carry out the purposes of this 
        subsection.
  (x) Cross reference.--For limitation on adjustments to basis 
of annuity contracts sold, see section 1021.

           *       *       *       *       *       *       *


PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

           *       *       *       *       *       *       *


SEC. 219. RETIREMENT SAVINGS.

  (a) Allowance of deduction.--In the case of an individual, 
there shall be allowed as a deduction an amount equal to the 
qualified retirement contributions of the individual for the 
taxable year.
  (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) the deductible amount, or
                  (B) an amount equal to the compensation 
                includible in the individual's gross income for 
                such taxable year.
          (2) Special rule for employer contributions under 
        simplified employee pensions.--This section shall not 
        apply with respect to an employer contribution to a 
        simplified employee pension.
          (3) Plans under section 501(c)(18).--Notwithstanding 
        paragraph (1), the amount allowable as a deduction 
        under subsection (a) with respect to any contributions 
        on behalf of an employee to a plan described in section 
        501(c)(18) shall not exceed the lesser of--
                  (A) $7,000, or
                  (B) an amount equal to 25 percent of the 
                compensation (as defined in section 415(c)(3)) 
                includible in the individual's gross income for 
                such taxable year.
          (4) Special rule for simple retirement accounts.--
        This section shall not apply with respect to any amount 
        contributed to a simple retirement account established 
        under section 408(p).
          (5) Deductible amount.--For purposes of paragraph 
        (1)(A)--
                  (A) In general.--The deductible amount is 
                $5,000.
                  (B) Catch-up contributions for individuals 50 
                or older.--
                          (i) In general.--In the case of an 
                        individual who has attained the age of 
                        50 before the close of the taxable 
                        year, the deductible amount for such 
                        taxable year shall be increased by the 
                        applicable amount.
                          (ii) Applicable amount.--For purposes 
                        of clause (i), the applicable amount is 
                        $1,000.
                  (C) Cost-of-living adjustment.--
                          (i) In general.--In the case of any 
                        taxable year beginning in a calendar 
                        year after 2008, 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 
                                2007'' for ``calendar year 
                                2016'' in subparagraph (A)(ii) 
                                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.
  (c) Kay Bailey Hutchison Spousal IRA.--
          (1) In general.--In the case of an individual to whom 
        this paragraph applies for the taxable year, the 
        limitation of paragraph (1) of subsection (b) shall be 
        equal to the lesser of--
                  (A) the dollar amount in effect under 
                subsection (b)(1)(A) for the taxable year, or
                  (B) the sum of--
                          (i) the compensation includible in 
                        such individual's gross income for the 
                        taxable year, plus
                          (ii) the compensation includible in 
                        the gross income of such individual's 
                        spouse for the taxable year reduced 
                        by--
                                  (I) the amount allowed as a 
                                deduction under subsection (a) 
                                to such spouse for such taxable 
                                year,
                                  (II) the amount of any 
                                designated nondeductible 
                                contribution (as defined in 
                                section 408(o)) on behalf of 
                                such spouse for such taxable 
                                year, and
                                  (III) the amount of any 
                                contribution on behalf of such 
                                spouse to a Roth IRA under 
                                section 408A for such taxable 
                                year.
          (2) Individuals to whom paragraph (1) applies.--
        Paragraph (1) shall apply to any individual if--
                  (A) such individual files a joint return for 
                the taxable year, and
                  (B) the amount of compensation (if any) 
                includible in such individual's gross income 
                for the taxable year is less than the 
                compensation includible in the gross income of 
                such individual's spouse for the taxable year.
  (d) Other limitations and restrictions.--
          [(1) Beneficiary must be under age 70 1/2.--No 
        deduction shall be allowed under this section with 
        respect to any qualified retirement contribution for 
        the benefit of an individual if such individual has 
        attained age 70 1/2 before the close of such 
        individual's taxable year for which the contribution 
        was made.]
          (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), 408(d)(3), or 457(e)(16).
          (3) Amounts contributed under endowment contract.--In 
        the case of an endowment contract described in section 
        408(b), no deduction shall be allowed under this 
        section for that portion of the amounts paid under the 
        contract for the taxable year which is properly 
        allocable, under regulations prescribed by the 
        Secretary, to the cost of life insurance.
          (4) Denial of deduction for amount contributed to 
        inherited annuities or accounts.--No deduction shall be 
        allowed under this section with respect to any amount 
        paid to an inherited individual retirement account or 
        individual retirement annuity (within the meaning of 
        section 408(d)(3)(C)(ii)).
  (e) Qualified retirement contribution.--For purposes of this 
section, the term ``qualified retirement contribution'' means--
          (1) any amount paid in cash for the taxable year by 
        or on behalf of an individual to an individual 
        retirement plan for such individual's benefit, and
          (2) any amount contributed on behalf of any 
        individual to a plan described in section 501(c)(18).
  (f) Other definitions and special rules.--
          (1) Compensation.--For purposes of this section, the 
        term ``compensation'' includes earned income (as 
        defined in section 401(c)(2)). The term 
        ``compensation'' does not include any amount received 
        as a pension or annuity and does not include any amount 
        received as deferred compensation. For purposes of this 
        paragraph, section 401(c)(2) shall be applied as if the 
        term trade or business for purposes of section 1402 
        included service described in subsection (c)(6). The 
        term ``compensation'' includes any differential wage 
        payment (as defined in section 3401(h)(2)). The term 
        ``compensation'' shall include any amount included in 
        gross income and paid to an individual to aid the 
        individual in the pursuit of graduate or postdoctoral 
        study.
          (2) Married individuals.--The maximum deduction under 
        subsection (b) shall be computed separately for each 
        individual, and this section shall be applied without 
        regard to any community property laws.
          (3) Time when contributions deemed made.--For 
        purposes of this section, a taxpayer shall be deemed to 
        have made a contribution to an individual retirement 
        plan on the last day of the preceding taxable year if 
        the contribution is made on account of such taxable 
        year and is made not later than the time prescribed by 
        law for filing the return for such taxable year (not 
        including extensions thereof).
          (5) Employer payments.--For purposes of this title, 
        any amount paid by an employer to an individual 
        retirement plan shall be treated as payment of 
        compensation to the employee (other than a self-
        employed individual who is an employee within the 
        meaning of section 401(c)(1)) includible in his gross 
        income in the taxable year for which the amount was 
        contributed, whether or not a deduction for such 
        payment is allowable under this section to the 
        employee.
          (6) Excess contributions treated as contribution made 
        during subsequent year for which there is an unused 
        limitation.--
                  (A) In general.--If for the taxable year the 
                maximum amount allowable as a deduction under 
                this section for contributions to an individual 
                retirement plan exceeds the amount contributed, 
                then the taxpayer shall be treated as having 
                made an additional contribution for the taxable 
                year in an amount equal to the lesser of--
                          (i) the amount of such excess, or
                          (ii) the amount of the excess 
                        contributions for such taxable year 
                        (determined under section 4973(b)(2) 
                        without regard to subparagraph (C) 
                        thereof).
                  (B) Amount contributed.--For purposes of this 
                paragraph, the amount contributed--
                          (i) shall be determined without 
                        regard to this paragraph, and
                          (ii) shall not include any rollover 
                        contribution.
                  (C) Special rule where excess deduction was 
                allowed for closed year.--Proper reduction 
                shall be made in the amount allowable as a 
                deduction by reason of this paragraph for any 
                amount allowed as a deduction under this 
                section for a prior taxable year for which the 
                period for assessing deficiency has expired if 
                the amount so allowed exceeds the amount which 
                should have been allowed for such prior taxable 
                year.
          (7) Special rule for compensation earned by members 
        of the armed forces for service in a combat zone.--For 
        purposes of subsections (b)(1)(B) and (c), the amount 
        of compensation includible in an individual's gross 
        income shall be determined without regard to section 
        112.
          (8) Election not to deduct contributions.--For 
        election not to deduct contributions to individual 
        retirement plans, see section 408(o)(2)(B)(ii).
  (g) Limitation on deduction for active participants in 
certain pension plans.--
          (1) In general.--If (for any part of any plan year 
        ending with or within a taxable year) an individual or 
        the individual's spouse is an active participant, each 
        of the dollar limitations contained in subsections 
        (b)(1)(A) and (c)(1)(A) for such taxable year shall be 
        reduced (but not below zero) by the amount determined 
        under paragraph (2).
          (2) Amount of reduction.--
                  (A) In general.--The amount determined under 
                this paragraph with respect to any dollar 
                limitation shall be the amount which bears the 
                same ratio to such limitation as--
                          (i) the excess of--
                                  (I) the taxpayer's adjusted 
                                gross income for such taxable 
                                year, over
                                  (II) the applicable dollar 
                                amount, bears to (ii) $10,000 
                                ($20,000 in the case of a joint 
                                return).
                  (B) No reduction below $200 until complete 
                phase-out.--No dollar limitation shall be 
                reduced below $200 under paragraph (1) unless 
                (without regard to this subparagraph) such 
                limitation is reduced to zero.
                  (C) Rounding.--Any amount determined under 
                this paragraph which is not a multiple of $10 
                shall be rounded to the next lowest $10.
          (3) Adjusted gross income; applicable dollar 
        amount.--For purposes of this subsection--
                  (A) Adjusted gross income.--Adjusted gross 
                income of any taxpayer shall be determined--
                          (i) after application of sections 86 
                        and 469, and
                          (ii) without regard to sections 135, 
                        137, 221, 222, and 911 or the deduction 
                        allowable under this section.
                  (B) Applicable dollar amount.--The term 
                ``applicable dollar amount'' means the 
                following:
                          (i) In the case of a taxpayer filing 
                        a joint return, $80,000.
                          (ii) In the case of any other 
                        taxpayer (other than a married 
                        individual filing a separate return), 
                        $50,000.
                          (iii) In the case of a married 
                        individual filing a separate return, 
                        zero.
          (4) Special rule for married individuals filing 
        separately and living apart.--A husband and wife who--
                  (A) file separate returns for any taxable 
                year, and
                  (B) live apart at all times during such 
                taxable year, shall not be treated as married 
                individuals for purposes of this subsection.
          (5) Active participant.--For purposes of this 
        subsection, the term ``active participant'' means, with 
        respect to any plan year, an individual--
                  (A) who is an active participant in--
                          (i) a plan described in section 
                        401(a) which includes a trust exempt 
                        from tax under section 501(a),
                          (ii) an annuity plan described in 
                        section 403(a),
                          (iii) a plan established for its 
                        employees by the United States, by a 
                        State or political subdivision thereof, 
                        or by an agency or instrumentality of 
                        any of the foregoing,
                          (iv) an annuity contract described in 
                        section 403(b),
                          (v) a simplified employee pension 
                        (within the meaning of section 408(k)), 
                        or
                          (vi) any simple retirement account 
                        (within the meaning of section 408(p)), 
                        or
                  (B) who makes deductible contributions to a 
                trust described in section 501(c)(18).
        The determination of whether an individual is an active 
        participant shall be made without regard to whether or 
        not such individual's rights under a plan, trust, or 
        contract are nonforfeitable. An eligible deferred 
        compensation plan (within the meaning of section 
        457(b)) shall not be treated as a plan described in 
        subparagraph (A)(iii).
          (6) Certain individuals not treated as active 
        participants.--For purposes of this subsection, any 
        individual described in any of the following 
        subparagraphs shall not be treated as an active 
        participant for any taxable year solely because of any 
        participation so described:
                  (A) Members of reserve components.--
                Participation in a plan described in 
                subparagraph (A)(iii) of paragraph (5) by 
                reason of service as a member of a reserve 
                component of the Armed Forces (as defined in 
                section 10101 of title 10), unless such 
                individual has served in excess of 90 days on 
                active duty (other than active duty for 
                training) during the year.
                  (B) Volunteer firefighters.--A volunteer 
                firefighter--
                          (i) who is a participant in a plan 
                        described in subparagraph (A)(iii) of 
                        paragraph (5) based on his activity as 
                        a volunteer firefighter, and
                          (ii) whose accrued benefit as of the 
                        beginning of the taxable year is not 
                        more than an annual benefit of $1,800 
                        (when expressed as a single life 
                        annuity commencing at age 65).
          (7) Special rule for spouses who are not active 
        participants.--If this subsection applies to an 
        individual for any taxable year solely because their 
        spouse is an active participant, then, in applying this 
        subsection to the individual (but not their spouse)--
                  (A) the applicable dollar amount under 
                paragraph (3)(B)(i) shall be $150,000; and
                  (B) the amount applicable under paragraph 
                (2)(A)(ii) shall be $10,000.
          (8) Inflation adjustment.--In the case of any taxable 
        year beginning in a calendar year after 2006, the 
        dollar amount in the last row of the table contained in 
        paragraph (3)(B)(i), each of the dollar amounts in 
        paragraphs (3)(B)(i), (3)(B)(ii), and (7)(A) shall be 
        increased by an amount equal to--
                  (A) such dollar amount, multiplied by
                  (B) 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 2005'' for 
                ``calendar year 2016'' in subparagraph (A)(ii) 
                thereof.
        Any increase determined under the preceding sentence 
        shall be rounded to the nearest multiple of $1,000.

           *       *       *       *       *       *       *


SEC. 221. INTEREST ON EDUCATION LOANS.

  (a) Allowance of deduction.--In the case of an individual, 
there shall be allowed as a deduction for the taxable year an 
amount equal to the interest paid by the taxpayer during the 
taxable year on any qualified education loan.
  (b) Maximum deduction.--
          (1) In general.--Except as provided in paragraph (2), 
        the deduction allowed by subsection (a) for the taxable 
        year shall not exceed $2,500.
          (2) Limitation based on modified adjusted gross 
        income.--
                  (A) In general.--The amount which would (but 
                for this paragraph) be allowable as a deduction 
                under this section shall be reduced (but not 
                below zero) by the amount determined under 
                subparagraph (B).
                  (B) Amount of reduction.--The amount 
                determined under this subparagraph is the 
                amount which bears the same ratio to the amount 
                which would be so taken into account as--
                          (i) the excess of--
                                  (I) the taxpayer's modified 
                                adjusted gross income for such 
                                taxable year, over
                                  (II) $50,000 ($100,000 in the 
                                case of a joint return), bears 
                                to (ii) $15,000 ($30,000 in the 
                                case of a joint return).
                  (C) Modified adjusted gross income.--The term 
                ``modified adjusted gross income'' means 
                adjusted gross income determined--
                          (i) without regard to this section 
                        and sections 222, 911, 931, and 933, 
                        and
                          (ii) after application of sections 
                        86, 135, 137, 219, and 469 (c) 
                        Dependents not eligible for 
                        deduction.--No deduction shall be 
                        allowed by this section to an 
                        individual for the taxable year if a 
                        deduction under section 151 with 
                        respect to such individual is allowed 
                        to another taxpayer for the taxable 
                        year beginning in the calendar year in 
                        which such individual's taxable year 
                        begins.
  (d) Definitions.--For purposes of this section--
          (1) Qualified education loan.--The term ``qualified 
        education loan'' means any indebtedness incurred by the 
        taxpayer solely to pay qualified higher education 
        expenses--
                  (A) which are incurred on behalf of the 
                taxpayer, the taxpayer's spouse, or any 
                dependent of the taxpayer as of the time the 
                indebtedness was incurred,
                  (B) which are paid or incurred within a 
                reasonable period of time before or after the 
                indebtedness is incurred, and
                  (C) which are attributable to education 
                furnished during a period during which the 
                recipient was an eligible student.
        Such term includes indebtedness used to refinance 
        indebtedness which qualifies as a qualified education 
        loan. The term ``qualified education loan'' shall not 
        include any indebtedness owed to a person who is 
        related (within the meaning of section 267(b) or 
        707(b)(1)) to the taxpayer or to any person by reason 
        of a loan under any qualified employer plan (as defined 
        in section 72(p)(4)) or under any contract referred to 
        in section 72(p)(5).
          (2) Qualified higher education expenses.--The term 
        ``qualified higher education expenses'' means the cost 
        of attendance (as defined in section 472 of the Higher 
        Education Act of 1965, 20 U.S.C. 1087ll, as in effect 
        on the day before the date of the enactment of the 
        Taxpayer Relief Act of 1997) at an eligible educational 
        institution, reduced by the sum of--
                  (A) the amount excluded from gross income 
                under section 127, 135, 529, or 530 by reason 
                of such expenses, and
                  (B) the amount of any scholarship, allowance, 
                or payment described in section 25A(g)(2).
        For purposes of the preceding sentence, the term 
        ``eligible educational institution'' has the same 
        meaning given such term by section 25A(f)(2), except 
        that such term shall also include an institution 
        conducting an internship or residency program leading 
        to a degree or certificate awarded by an institution of 
        higher education, a hospital, or a health care facility 
        which offers postgraduate training.
          (3) Eligible student.--The term ``eligible student'' 
        has the meaning given such term by section 25A(b)(3).
          (4) Dependent.--The term ``dependent'' has the 
        meaning given such term by section 152 (determined 
        without regard to subsections (b)(1), (b)(2), and 
        (d)(1)(B) thereof).
  (e) Special rules.--
          (1) Denial of double benefit.--No deduction shall be 
        allowed under this section for any amount for which a 
        deduction is allowable under any other provision of 
        this chapter. The deduction otherwise allowable under 
        subsection (a) (prior to the application of subsection 
        (b)) to the taxpayer for any taxable year shall be 
        reduced (but not below zero) by so much of the 
        distributions treated as a qualified higher education 
        expense under section 529(c)(9) with respect to loans 
        of the taxpayer as would be includible in gross income 
        under section 529(c)(3)(A) for such taxable year but 
        for such treatment.
          (2) Married couples must file joint return.--If the 
        taxpayer is married at the close of the taxable year, 
        the deduction shall be allowed under subsection (a) 
        only if the taxpayer and the taxpayer's spouse file a 
        joint return for the taxable year.
          (3) Marital status.--Marital status shall be 
        determined in accordance with section 7703.
  (f) Inflation adjustments.--
          (1) In general.--In the case of a taxable year 
        beginning after 2002, the $50,000 and $100,000 amounts 
        in subsection (b)(2) shall each be increased by an 
        amount equal to--
                  (A) such dollar amount, multiplied by
                  (B) 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 2001'' for 
                ``calendar year 2016'' in subparagraph (A)(ii) 
                thereof.
          (2) Rounding.--If any amount as adjusted under 
        paragraph (1) is not a multiple of $5,000, such amount 
        shall be rounded to the next lowest multiple of $5,000.

           *       *       *       *       *       *       *


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.

  (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) if contributions are made to the trust by such 
        employer, or employees, or both, or by another employer 
        who is entitled to deduct his contributions under 
        section 404(a)(3)(B) (relating to deduction for 
        contributions to profit-sharing and stock bonus plans), 
        or by a charitable remainder trust pursuant to a 
        qualified gratuitous transfer (as defined in section 
        664(g)(1)), for the purpose of distributing to such 
        employees or their beneficiaries the corpus and income 
        of the fund accumulated by the trust in accordance with 
        such plan;
          (2) if under the trust instrument it is impossible, 
        at any time prior to the satisfaction of all 
        liabilities with respect to employees and their 
        beneficiaries under the trust, for any part of the 
        corpus or income to be (within the taxable year or 
        thereafter) used for, or diverted to, purposes other 
        than for the exclusive benefit of his employees or 
        their beneficiaries (but this paragraph shall not be 
        construed, in the case of a multiemployer plan, to 
        prohibit the return of a contribution within 6 months 
        after the plan administrator determines that the 
        contribution was made by a mistake of fact or law 
        (other than a mistake relating to whether the plan is 
        described in section 401(a) or the trust which is part 
        of such plan is exempt from taxation under section 
        501(a), or the return of any withdrawal liability 
        payment determined to be an overpayment within 6 months 
        of such determination));
          (3) if the plan of which such trust is a part 
        satisfies the requirements of section 410 (relating to 
        minimum participation standards); and
          (4) if the contributions or benefits provided under 
        the plan do not discriminate in favor of highly 
        compensated employees (within the meaning of section 
        414(q)). For purposes of this paragraph, there shall be 
        excluded from consideration employees described in 
        section 410(b)(3)(A) and (C).
          (5) Special rules relating to nondiscrimination 
        requirements.--
                  (A) Salaried or clerical employees.--A 
                classification shall not be considered 
                discriminatory within the meaning of paragraph 
                (4) or section 410(b)(2)(A)(i) merely because 
                it is limited to salaried or clerical 
                employees.
                  (B) Contributions and benefits may bear 
                uniform relationship to compensation.--A plan 
                shall not be considered discriminatory within 
                the meaning of paragraph (4) merely because the 
                contributions or benefits of, or on behalf of, 
                the employees under the plan bear a uniform 
                relationship to the compensation (within the 
                meaning of section 414(s)) of such employees.
                  (C) Certain disparity permitted.--A plan 
                shall not be considered discriminatory within 
                the meaning of paragraph (4) merely because the 
                contributions or benefits of, or on behalf of, 
                the employees under the plan favor highly 
                compensated employees (as defined in section 
                414(q)) in the manner permitted under 
                subsection (l).
                  (D) Integrated defined benefit plan.--
                          (i) In general.--A defined benefit 
                        plan shall not be considered 
                        discriminatory within the meaning of 
                        paragraph (4) merely because the plan 
                        provides that the employer-derived 
                        accrued retirement benefit for any 
                        participant under the plan may not 
                        exceed the excess (if any) of--
                                  (I) the participant's final 
                                pay with the employer, over
                                  (II) the employer-derived 
                                retirement benefit created 
                                under Federal law attributable 
                                to service by the participant 
                                with the employer.
                        For purposes of this clause, the 
                        employer-derived retirement benefit 
                        created under Federal law shall be 
                        treated as accruing ratably over 35 
                        years.
                          (ii) Final pay.--For purposes of this 
                        subparagraph, the participant's final 
                        pay is the compensation (as defined in 
                        section 414(q)(4)) paid to the 
                        participant by the employer for any 
                        year--
                                  (I) which ends during the 5-
                                year period ending with the 
                                year in which the participant 
                                separated from service for the 
                                employer, and
                                  (II) for which the 
                                participant's total 
                                compensation from the employer 
                                was highest.
                  (E) 2 or more plans treated as single plan.--
                For purposes of determining whether 2 or more 
                plans of an employer satisfy the requirements 
                of paragraph (4) when considered as a single 
                plan--
                          (i) Contributions.--If the amount of 
                        contributions on behalf of the 
                        employees allowed as a deduction under 
                        section 404 for the taxable year with 
                        respect to such plans, taken together, 
                        bears a uniform relationship to the 
                        compensation (within the meaning of 
                        section 414(s)) of such employees, the 
                        plans shall not be considered 
                        discriminatory merely because the 
                        rights of employees to, or derived 
                        from, the employer contributions under 
                        the separate plans do not become 
                        nonforfeitable at the same rate.
                          (ii) Benefits.--If the employees' 
                        rights to benefits under the separate 
                        plans do not become nonforfeitable at 
                        the same rate, but the levels of 
                        benefits provided by the separate plans 
                        satisfy the requirements of regulations 
                        prescribed by the Secretary to take 
                        account of the differences in such 
                        rates, the plans shall not be 
                        considered discriminatory merely 
                        because of the difference in such 
                        rates.
                  (F) Social security retirement age.--For 
                purposes of testing for discrimination under 
                paragraph (4)--
                          (i) the social security retirement 
                        age (as defined in section 415(b)(8)) 
                        shall be treated as a uniform 
                        retirement age, and
                          (ii) subsidized early retirement 
                        benefits and joint and survivor 
                        annuities shall not be treated as being 
                        unavailable to employees on the same 
                        terms merely because such benefits or 
                        annuities are based in whole or in part 
                        on an employee's social security 
                        retirement age (as so defined).
                  (G) Governmental plans.--Paragraphs (3) and 
                (4) shall not apply to a governmental plan 
                (within the meaning of section 414(d)).
          (6) A plan shall be considered as meeting the 
        requirements of paragraph (3) during the whole of any 
        taxable year of the plan if on one day in each quarter 
        it satisfied such requirements.
          (7) A trust shall not constitute a qualified trust 
        under this section unless the plan of which such trust 
        is a part satisfies the requirements of section 411 
        (relating to minimum vesting standards).
          (8) A trust forming part of a defined benefit plan 
        shall not constitute a qualified trust under this 
        section unless the plan provides that forfeitures must 
        not be applied to increase the benefits any employee 
        would otherwise receive under the plan.
          (9) Required distributions.--
                  (A) In general.--A trust shall not constitute 
                a qualified trust under this subsection unless 
                the plan provides that the entire interest of 
                each employee--
                          (i) will be distributed to such 
                        employee not later than the required 
                        beginning date, or
                          (ii) will be distributed, beginning 
                        not later than the required beginning 
                        date, in accordance with regulations, 
                        over the life of such employee or over 
                        the lives of such employee and a 
                        designated beneficiary (or over a 
                        period not extending beyond the life 
                        expectancy of such employee or the life 
                        expectancy of such employee and a 
                        designated beneficiary).
                  (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) 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), 
                        the entire interest of the employee 
                        will be distributed within 5 years 
                        after the death of such employee.
                          (iii) 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), the 
                        portion referred to in subclause (I) 
                        shall be treated as distributed on the 
                        date on which such distributions begin.
                          (iv) Special rule for surviving 
                        spouse of employee.--If the designated 
                        beneficiary referred to in clause 
                        (iii)(I) is the surviving spouse of the 
                        employee--
                                  (I) the date on which the 
                                distributions are required to 
                                begin under clause (iii)(III) 
                                shall not be earlier than the 
                                date on which the employee 
                                would have attained age 70 1/2, 
                                and
                                  (II) if the surviving spouse 
                                dies before the distributions 
                                to such spouse begin, this 
                                subparagraph shall be applied 
                                as if the surviving spouse were 
                                the employee.
                  (C) Required beginning date.--For purposes of 
                this paragraph--
                          (i) In general.--The term ``required 
                        beginning date'' means April 1 of the 
                        calendar year following the later of--
                                  (I) the calendar year in 
                                which the employee attains age 
                                70 1/2, or
                                  (II) the calendar year in 
                                which the employee retires.
                          (ii) Exception.--Subclause (II) of 
                        clause (i) shall not apply--
                                  (I) except as provided in 
                                section 409(d), in the case of 
                                an employee who is a 5-percent 
                                owner (as defined in section 
                                416) with respect to the plan 
                                year ending in the calendar 
                                year in which the employee 
                                attains age 70 1/2, or
                                  (II) for purposes of section 
                                408(a)(6) or (b)(3).
                          (iii) Actuarial adjustment.--In the 
                        case of an employee to whom clause 
                        (i)(II) applies who retires in a 
                        calendar year after the calendar year 
                        in which the employee attains age 70 1/
                        2, the employee's accrued benefit shall 
                        be actuarially increased to take into 
                        account the period after age 70 1/2 in 
                        which the employee was not receiving 
                        any benefits under the plan.
                          (iv) Exception for governmental and 
                        church plans.--Clauses (ii) and (iii) 
                        shall not apply in the case of a 
                        governmental plan or church plan. For 
                        purposes of this clause, the term 
                        ``church plan'' means a plan maintained 
                        by a church for church employees, and 
                        the term ``church'' means any church 
                        (as defined in section 3121(w)(3)(A)) 
                        or qualified church-controlled 
                        organization (as defined in section 
                        3121(w)(3)(B)).
                  (D) Life expectancy.--For purposes of this 
                paragraph, the life expectancy of an employee 
                and the employee's spouse (other than in the 
                case of a life annuity) may be redetermined but 
                not more frequently than annually.
                  (E) Designated beneficiary.--For purposes of 
                this paragraph, the term ``designated 
                beneficiary'' means any individual designated 
                as a beneficiary by the employee.
                  (F) Treatment of payments to children.--Under 
                regulations prescribed by the Secretary, for 
                purposes of this paragraph, any amount paid to 
                a child shall be treated as if it had been paid 
                to the surviving spouse if such amount will 
                become payable to the surviving spouse upon 
                such child reaching majority (or other 
                designated event permitted under regulations).
                  (G) Treatment of incidental death benefit 
                distributions.--For purposes of this title, any 
                distribution required under the incidental 
                death benefit requirements of this subsection 
                shall be treated as a distribution required 
                under this paragraph.
                  (H) Exception from required minimum 
                distributions during life of employee where 
                assets do not exceed $50,000.--
                          (i) In general.--If on the last day 
                        of any calendar year the aggregate 
                        value of an employee's entire interest 
                        under all applicable eligible 
                        retirement plans does not exceed 
                        $50,000, then the requirements of 
                        subparagraph (A) with respect to any 
                        distribution relating to such year 
                        shall not apply with respect to such 
                        employee.
                          (ii) Applicable eligible retirement 
                        plan.--For purposes of this 
                        subparagraph, the term ``applicable 
                        eligible retirement plan'' means an 
                        eligible retirement plan (as defined in 
                        section 402(c)(8)(B)) other than a 
                        defined benefit plan.
                          (iii) Limit on required minimum 
                        distribution.--The required minimum 
                        distribution determined under 
                        subparagraph (A) for an employee under 
                        all applicable eligible retirement 
                        plans shall not exceed an amount equal 
                        to the excess of--
                                  (I) the aggregate value of an 
                                employee's entire interest 
                                under such plans on the last 
                                day of the calendar year to 
                                which such distribution 
                                relates, over
                                  (II) the dollar amount in 
                                effect under clause (i) for 
                                such calendar year.
                        The Secretary in regulations or other 
                        guidance may provide how such amount 
                        shall be distributed in the case of an 
                        individual with more than one 
                        applicable eligible retirement plan.
                          (iv) Inflation adjustment.--In the 
                        case of any calendar year beginning 
                        after 2019, the $50,000 amount in 
                        clause (i) 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, determined by 
                                substituting ``calendar year 
                                2018'' for ``calendar year 
                                2016'' in subparagraph (A)(ii) 
                                thereof.
                        Any increase determined under this 
                        clause shall be rounded to the next 
                        lowest multiple of $5,000.
                          (v) Plan administrator reliance on 
                        employee certification.--An applicable 
                        eligible retirement plan described in 
                        clause (iii), (iv), (v), or (vi) of 
                        section 402(c)(8)(B) shall not be 
                        treated as failing to meet the 
                        requirements of this paragraph in the 
                        case of any failure to make a required 
                        minimum distribution for a calendar 
                        year if--
                                  (I) the aggregate value of an 
                                employee's entire interest 
                                under all applicable eligible 
                                retirement plans of the 
                                employer on the last day of the 
                                calendar year to which such 
                                distribution relates does not 
                                exceed the dollar amount in 
                                effect for such year under 
                                clause (i), and
                                  (II) the employee certifies 
                                that the aggregate value of the 
                                employee's entire interest 
                                under all applicable eligible 
                                retirement plans on the last 
                                day of the calendar year to 
                                which such distribution relates 
                                did not exceed the dollar 
                                amount in effect for such year 
                                under clause (i).
                          (vi) Aggregation rule.--All employers 
                        treated as a single employer under 
                        subsection (b), (c), (m), or (o) of 
                        section 414 shall be treated as a 
                        single employer for purposes of clause 
                        (v).
          (10) Other requirements.--
                  (A) Plans benefiting owner-employees.--In the 
                case of any plan which provides contributions 
                or benefits for employees some or all of whom 
                are owner-employees (as defined in subsection 
                (c)(3)), a trust forming part of such plan 
                shall constitute a qualified trust under this 
                section only if the requirements of subsection 
                (d) are also met.
                  (B) Top-heavy plans.--
                          (i) In general.--In the case of any 
                        top-heavy plan, a trust forming part of 
                        such plan shall constitute a qualified 
                        trust under this section only if the 
                        requirements of section 416 are met.
                          (ii) Plans which may become top-
                        heavy.--Except to the extent provided 
                        in regulations, a trust forming part of 
                        a plan (whether or not a top-heavy 
                        plan) shall constitute a qualified 
                        trust under this section only if such 
                        plan contains provisions--
                                  (I) which will take effect if 
                                such plan becomes a top-heavy 
                                plan, and
                                  (II) which meet the 
                                requirements of section 416.
                          (iii) Exemption for governmental 
                        plans.--This subparagraph shall not 
                        apply to any governmental plan.
          (11) Requirement of joint and survivor annuity and 
        preretirement survivor annuity.--
                  (A) In general.--In the case of any plan to 
                which this paragraph applies, except as 
                provided in section 417, a trust forming part 
                of such plan shall not constitute a qualified 
                trust under this section unless--
                          (i) in the case of a vested 
                        participant who does not die before the 
                        annuity starting date, the accrued 
                        benefit payable to such participant is 
                        provided in the form of a qualified 
                        joint and survivor annuity, and
                          (ii) in the case of a vested 
                        participant who dies before the annuity 
                        starting date and who has a surviving 
                        spouse, a qualified preretirement 
                        survivor annuity is provided to the 
                        surviving spouse of such participant.
                  (B) Plans to which paragraph applies.--This 
                paragraph shall apply to--
                          (i) any defined benefit plan,
                          (ii) any defined contribution plan 
                        which is subject to the funding 
                        standards of section 412, and
                          (iii) any participant under any other 
                        defined contribution plan unless--
                                  (I) such plan provides that 
                                the participant's 
                                nonforfeitable accrued benefit 
                                (reduced by any security 
                                interest held by the plan by 
                                reason of a loan outstanding to 
                                such participant) is payable in 
                                full, on the death of the 
                                participant, to the 
                                participant's surviving spouse 
                                (or, if there is no surviving 
                                spouse or the surviving spouse 
                                consents in the manner required 
                                under section 417(a)(2), to a 
                                designated beneficiary),
                                  (II) such participant does 
                                not elect a payment of benefits 
                                in the form of a life annuity, 
                                and
                                  (III) with respect to such 
                                participant, such plan is not a 
                                direct or indirect transferee 
                                (in a transfer after December 
                                31, 1984) of a plan which is 
                                described in clause (i) or (ii) 
                                or to which this clause applied 
                                with respect to the 
                                participant.
                Clause (iii)(III) shall apply only with respect 
                to the transferred assets (and income 
                therefrom) if the plan separately accounts for 
                such assets and any income therefrom.
                  (C) Exception for certain ESOP benefits.--
                          (i) In general.--In the case of--
                                  (I) a tax credit employee 
                                stock ownership plan (as 
                                defined in section 409(a)), or
                                  (II) an employee stock 
                                ownership plan (as defined in 
                                section 4975(e)(7)),
                        subparagraph (A) shall not apply to 
                        that portion of the employee's accrued 
                        benefit to which the requirements of 
                        section 409(h) apply.
                          (ii) Nonforfeitable benefit must be 
                        paid in full, etc.--In the case of any 
                        participant, clause (i) shall apply 
                        only if the requirements of subclauses 
                        (I), (II), and (III) of subparagraph 
                        (B)(iii) are met with respect to such 
                        participant.
                  (D) Special rule where participant and spouse 
                married less than 1 year.--A plan shall not be 
                treated as failing to meet the requirements of 
                subparagraphs (B)(iii) or (C) merely because 
                the plan provides that benefits will not be 
                payable to the surviving spouse of the 
                participant unless the participant and such 
                spouse had been married throughout the 1-year 
                period ending on the earlier of the 
                participant's annuity starting date or the date 
                of the participant's death.
                  (E) Exception for plans described in section 
                404(c).--This paragraph shall not apply to a 
                plan which the Secretary has determined is a 
                plan described in section 404(c) (or a 
                continuation thereof) in which participation is 
                substantially limited to individuals who, 
                before January 1, 1976, ceased employment 
                covered by the plan.
                  (F) Cross reference.--For--
                          (i) provisions under which 
                        participants may elect to waive the 
                        requirements of this paragraph, and
                          (ii) other definitions and special 
                        rules for purposes of this paragraph,
                see section 417.
          (12) A trust shall not constitute a qualified trust 
        under this section unless the plan of which such trust 
        is a part provides that in the case of any merger or 
        consolidation with, or transfer of assets or 
        liabilities to, any other plan after September 2, 1974, 
        each participant in the plan would (if the plan then 
        terminated) receive a benefit immediately after the 
        merger, consolidation, or transfer which is equal to or 
        greater than the benefit he would have been entitled to 
        receive immediately before the merger, consolidation, 
        or transfer (if the plan had then terminated). The 
        preceding sentence does not apply to any multiemployer 
        plan with respect to any transaction to the extent that 
        participants either before or after the transaction are 
        covered under a multiemployer plan to which title IV of 
        the Employee Retirement Income Security Act of 1974 
        applies.
          (13) Assignment and alienation.--
                  (A) In general.--A trust shall not constitute 
                a qualified trust under this section unless the 
                plan of which such trust is a part provides 
                that benefits provided under the plan may not 
                be assigned or alienated. For purposes of the 
                preceding sentence, there shall not be taken 
                into account any voluntary and revocable 
                assignment of not to exceed 10 percent of any 
                benefit payment made by any participant who is 
                receiving benefits under the plan unless the 
                assignment or alienation is made for purposes 
                of defraying plan administration costs. For 
                purposes of this paragraph a loan made to a 
                participant or beneficiary shall not be treated 
                as an assignment or alienation if such loan is 
                secured by the participant's accrued 
                nonforfeitable benefit and is exempt from the 
                tax imposed by section 4975 (relating to tax on 
                prohibited transactions) by reason of section 
                4975(d)(1). This paragraph shall take effect on 
                January 1, 1976 and shall not apply to 
                assignments which were irrevocable on September 
                2, 1974.
                  (B) Special rules for domestic relations 
                orders.--Subparagraph (A) shall apply to the 
                creation, assignment, or recognition of a right 
                to any benefit payable with respect to a 
                participant pursuant to a domestic relations 
                order, except that subparagraph (A) shall not 
                apply if the order is determined to be a 
                qualified domestic relations order.
                  (C) Special rule for certain judgments and 
                settlements.--Subparagraph (A) shall not apply 
                to any offset of a participant's benefits 
                provided under a plan against an amount that 
                the participant is ordered or required to pay 
                to the plan if--
                          (i) the order or requirement to pay 
                        arises--
                                  (I) under a judgment of 
                                conviction for a crime 
                                involving such plan,
                                  (II) under a civil judgment 
                                (including a consent order or 
                                decree) entered by a court in 
                                an action brought in connection 
                                with a violation (or alleged 
                                violation) of part 4 of 
                                subtitle B of title I of the 
                                Employee Retirement Income 
                                Security Act of 1974, or
                                  (III) pursuant to a 
                                settlement agreement between 
                                the Secretary of Labor and the 
                                participant, or a settlement 
                                agreement between the Pension 
                                Benefit Guaranty Corporation 
                                and the participant, in 
                                connection with a violation (or 
                                alleged violation) of part 4 of 
                                such subtitle by a fiduciary or 
                                any other person,
                          (ii) the judgment, order, decree, or 
                        settlement agreement expressly provides 
                        for the offset of all or part of the 
                        amount ordered or required to be paid 
                        to the plan against the participant's 
                        benefits provided under the plan, and
                          (iii) in a case in which the survivor 
                        annuity requirements of section 
                        401(a)(11) apply with respect to 
                        distributions from the plan to the 
                        participant, if the participant has a 
                        spouse at the time at which the offset 
                        is to be made--
                                  (I) either such spouse has 
                                consented in writing to such 
                                offset and such consent is 
                                witnessed by a notary public or 
                                representative of the plan (or 
                                it is established to the 
                                satisfaction of a plan 
                                representative that such 
                                consent may not be obtained by 
                                reason of circumstances 
                                described in section 
                                417(a)(2)(B)), or an election 
                                to waive the right of the 
                                spouse to either a qualified 
                                joint and survivor annuity or a 
                                qualified preretirement 
                                survivor annuity is in effect 
                                in accordance with the 
                                requirements of section 417(a),
                                  (II) such spouse is ordered 
                                or required in such judgment, 
                                order, decree, or settlement to 
                                pay an amount to the plan in 
                                connection with a violation of 
                                part 4 of such subtitle, or
                                  (III) in such judgment, 
                                order, decree, or settlement, 
                                such spouse retains the right 
                                to receive the survivor annuity 
                                under a qualified joint and 
                                survivor annuity provided 
                                pursuant to section 
                                401(a)(11)(A)(i) and under a 
                                qualified preretirement 
                                survivor annuity provided 
                                pursuant to section 
                                401(a)(11)(A)(ii), determined 
                                in accordance with subparagraph 
                                (D).
                        A plan shall not be treated as failing 
                        to meet the requirements of this 
                        subsection, subsection (k), section 
                        403(b), or section 409(d) solely by 
                        reason of an offset described in this 
                        subparagraph.
                  (D) Survivor annuity.--
                          (i) In general.--The survivor annuity 
                        described in subparagraph (C)(iii)(III) 
                        shall be determined as if--
                                  (I) the participant 
                                terminated employment on the 
                                date of the offset,
                                  (II) there was no offset,
                                  (III) the plan permitted 
                                commencement of benefits only 
                                on or after normal retirement 
                                age,
                                  (IV) the plan provided only 
                                the minimum-required qualified 
                                joint and survivor annuity, and
                                  (V) the amount of the 
                                qualified preretirement 
                                survivor annuity under the plan 
                                is equal to the amount of the 
                                survivor annuity payable under 
                                the minimum-required qualified 
                                joint and survivor annuity.
                          (ii) Definition.--For purposes of 
                        this subparagraph, the term ``minimum- 
                        required qualified joint and survivor 
                        annuity'' means the qualified joint and 
                        survivor annuity which is the actuarial 
                        equivalent of the participant's accrued 
                        benefit (within the meaning of section 
                        411(a)(7)) and under which the survivor 
                        annuity is 50 percent of the amount of 
                        the annuity which is payable during the 
                        joint lives of the participant and the 
                        spouse.
          (14) A trust shall not constitute a qualified trust 
        under this section unless the plan of which such trust 
        is a part provides that, unless the participant 
        otherwise elects, the payment of benefits under the 
        plan to the participant will begin not later than the 
        60th day after the latest of the close of the plan year 
        in which--
                  (A) the date on which the participant attains 
                the earlier of age 65 or the normal retirement 
                age specified under the plan,
                  (B) occurs the 10th anniversary of the year 
                in which the participant commenced 
                participation in the plan, or
                  (C) the participant terminates his service 
                with the employer.
        In the case of a plan which provides for the payment of 
        an early retirement benefit, a trust forming a part of 
        such plan shall not constitute a qualified trust under 
        this section unless a participant who satisfied the 
        service requirements for such early retirement benefit, 
        but separated from the service (with any nonforfeitable 
        right to an accrued benefit) before satisfying the age 
        requirement for such early retirement benefit, is 
        entitled upon satisfaction of such age requirement to 
        receive a benefit not less than the benefit to which he 
        would be entitled at the normal retirement age, 
        actuarially, reduced under regulations prescribed by 
        the Secretary.
          (15) A trust shall not constitute a qualified trust 
        under this section unless under the plan of which such 
        trust is a part--
                  (A) in the case of a participant or 
                beneficiary who is receiving benefits under 
                such plan, or
                  (B) in the case of a participant who is 
                separated from the service and who has 
                nonforfeitable rights to benefits,
        such benefits are not decreased by reason of any 
        increase in the benefit levels payable under title II 
        of the Social Security Act or any increase in the wage 
        base under such title II, if such increase takes place 
        after September 2, 1974, or (if later) the earlier of 
        the date of first receipt of such benefits or the date 
        of such separation, as the case may be.
          (16) A trust shall not constitute a qualified trust 
        under this section if the plan of which such trust is a 
        part provides for benefits or contributions which 
        exceed the limitations of section 415.
          (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 $200,000.
                  (B) Cost-of-living adjustment.--The Secretary 
                shall adjust annually the $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 July 1, 2001, and any 
                increase which is not a multiple of $5,000 
                shall be rounded to the next lowest multiple of 
                $5,000.
          (19) A trust shall not constitute a qualified trust 
        under this section if under the plan of which such 
        trust is a part any part of a participant's accrued 
        benefit derived from employer contributions (whether or 
        not otherwise nonforfeitable), is forfeitable solely 
        because of withdrawal by such participant of any amount 
        attributable to the benefit derived from contributions 
        made by such participant. The preceding sentence shall 
        not apply to the accrued benefit of any participant 
        unless, at the time of such withdrawal, such 
        participant has a nonforfeitable right to at least 50 
        percent of such accrued benefit (as determined under 
        section 411). The first sentence of this paragraph 
        shall not apply to the extent that an accrued benefit 
        is permitted to be forfeited in accordance with section 
        411(a)(3)(D)(iii) (relating to proportional forfeitures 
        of benefits accrued before September 2, 1974, in the 
        event of withdrawal of certain mandatory 
        contributions).
          (20) A trust forming part of a pension plan shall not 
        be treated as failing to constitute a qualified trust 
        under this section merely because the pension plan of 
        which such trust is a part makes 1 or more 
        distributions within 1 taxable year to a distributee on 
        account of a termination of the plan of which the trust 
        is a part, or in the case of a profit-sharing or stock 
        bonus plan, a complete discontinuance of contributions 
        under such plan. This paragraph shall not apply to a 
        defined benefit plan unless the employer maintaining 
        such plan files a notice with the Pension Benefit 
        Guaranty Corporation (at the time and in the manner 
        prescribed by the Pension Benefit Guaranty Corporation) 
        notifying the Corporation of such payment or 
        distribution and the Corporation has approved such 
        payment or distribution or, within 90 days after the 
        date on which such notice was filed, has failed to 
        disapprove such payment or distribution. For purposes 
        of this paragraph, rules similar to the rules of 
        section 402(a)(6)(B) (as in effect before its repeal by 
        section 521 of the Unemployment Compensation Amendments 
        of 1992) shall apply.
          (22) If a defined contribution plan (other than a 
        profit-sharing plan)--
                  (A) is established by an employer whose stock 
                is not readily tradable on an established 
                market, and
                  (B) after acquiring securities of the 
                employer, more than 10 percent of the total 
                assets of the plan are securities of the 
                employer,
        any trust forming part of such plan shall not 
        constitute a qualified trust under this section unless 
        the plan meets the requirements of subsection (e) of 
        section 409. The requirements of subsection (e) of 
        section 409 shall not apply to any employees of an 
        employer who are participants in any defined 
        contribution plan established and maintained by such 
        employer if the stock of such employer is not readily 
        tradable on an established market and the trade or 
        business of such employer consists of publishing on a 
        regular basis a newspaper for general circulation. For 
        purposes of the preceding sentence, subsections (b), 
        (c), (m), and (o) of section 414 shall not apply except 
        for determining whether stock of the employer is not 
        readily tradable on an established market.
          (23) A stock bonus plan shall not be treated as 
        meeting the requirements of this section unless such 
        plan meets the requirements of subsections (h) and (o) 
        of section 409, except that in applying section 409(h) 
        for purposes of this paragraph, the term ``employer 
        securities'' shall include any securities of the 
        employer held by the plan.
          (24) Any group trust which otherwise meets the 
        requirements of this section shall not be treated as 
        not meeting such requirements on account of the 
        participation or inclusion in such trust of the moneys 
        of any plan or governmental unit described in section 
        818(a)(6).
          (25) Requirement that actuarial assumptions be 
        specified.--A defined benefit plan shall not be treated 
        as providing definitely determinable benefits unless, 
        whenever the amount of any benefit is to be determined 
        on the basis of actuarial assumptions, such assumptions 
        are specified in the plan in a way which precludes 
        employer discretion.
          (26) Additional participation requirements.--
                  (A) In general.--In the case of a trust which 
                is a part of a defined benefit plan, such trust 
                shall not constitute a qualified trust under 
                this subsection unless on each day of the plan 
                year such trust benefits at least the lesser 
                of--
                          (i) 50 employees of the employer, or
                          (ii) the greater of--
                                  (I) 40 percent of all 
                                employees of the employer, or
                                  (II) 2 employees (or if there 
                                is only 1 employee, such 
                                employee).
                  (B) Treatment of excludable employees.--
                          (i) In general.--A plan may exclude 
                        from consideration under this paragraph 
                        employees described in paragraphs (3) 
                        and (4)(A) of section 410(b).
                          (ii) Separate application for certain 
                        excludable employees.--If employees 
                        described in section 410(b)(4)(B) are 
                        covered under a plan which meets the 
                        requirements of subparagraph (A) 
                        separately with respect to such 
                        employees, such employees may be 
                        excluded from consideration in 
                        determining whether any plan of the 
                        employer meets such requirements if--
                                  (I) the benefits for such 
                                employees are provided under 
                                the same plan as benefits for 
                                other employees,
                                  (II) the benefits provided to 
                                such employees are not greater 
                                than comparable benefits 
                                provided to other employees 
                                under the plan, and
                                  (III) no highly compensated 
                                employee (within the meaning of 
                                section 414(q)) is included in 
                                the group of such employees for 
                                more than 1 year.
                  (C) Special rule for collective bargaining 
                units.--Except to the extent provided in 
                regulations, a plan covering only employees 
                described in section 410(b)(3)(A) may exclude 
                from consideration any employees who are not 
                included in the unit or units in which the 
                covered employees are included.
                  (D) Paragraph not to apply to multiemployer 
                plans.--Except to the extent provided in 
                regulations, this paragraph shall not apply to 
                employees in a multiemployer plan (within the 
                meaning of section 414(f)) who are covered by 
                collective bargaining agreements.
                  (E) Special rule for certain dispositions or 
                acquisitions.--Rules similar to the rules of 
                section 410(b)(6)(C) shall apply for purposes 
                of this paragraph.
                  (F) Separate lines of business.--At the 
                election of the employer and with the consent 
                of the Secretary, this paragraph may be applied 
                separately with respect to each separate line 
                of business of the employer. For purposes of 
                this paragraph, the term ``separate line of 
                business'' has the meaning given such term by 
                section 414(r) (without regard to paragraph 
                (2)(A) or (7) thereof).
                  (G) Exception for governmental plans.--This 
                paragraph shall not apply to a governmental 
                plan (within the meaning of section 414(d)).
                  (H) Regulations.--The Secretary may by 
                regulation provide that any separate benefit 
                structure, any separate trust, or any other 
                separate arrangement is to be treated as a 
                separate plan for purposes of applying this 
                paragraph.
                  (I) Protected participants.--
                          (i) In general.--A plan shall be 
                        deemed to satisfy the requirements of 
                        subparagraph (A) if--
                                  (I) the plan is amended--
                                          (aa) to cease all 
                                        benefit accruals, or
                                          (bb) to provide 
                                        future benefit accruals 
                                        only to a closed class 
                                        of participants,
                                  (II) the plan satisfies 
                                subparagraph (A) (without 
                                regard to this subparagraph) as 
                                of the effective date of the 
                                amendment, and
                                  (III) the amendment was 
                                adopted before April 5, 2017, 
                                or the plan is described in 
                                clause (ii).
                          (ii) Plans described.--A plan is 
                        described in this clause if the plan 
                        would be described in subsection 
                        (o)(1)(C), as applied for purposes of 
                        subsection (o)(1)(B)(iii)(IV) and by 
                        treating the effective date of the 
                        amendment as the date the class was 
                        closed for purposes of subsection 
                        (o)(1)(C).
                          (iii) Special rules.--For purposes of 
                        clause (i)(II), in applying section 
                        410(b)(6)(C), the amendments described 
                        in clause (i) shall not be treated as a 
                        significant change in coverage under 
                        section 410(b)(6)(C)(i)(II).
                          (iv) Spun-off plans.--For purposes of 
                        this subparagraph, if a portion of a 
                        plan described in clause (i) is spun 
                        off to another employer, the treatment 
                        under clause (i) of the spun-off plan 
                        shall continue with respect to the 
                        other employer.
          (27) Determinations as to profit-sharing plans.--
                  (A) Contributions need not be based on 
                profits.--The determination of whether the plan 
                under which any contributions are made is a 
                profit-sharing plan shall be made without 
                regard to current or accumulated profits of the 
                employer and without regard to whether the 
                employer is a tax- exempt organization.
                  (B) Plan must designate type.--In the case of 
                a plan which is intended to be a money purchase 
                pension plan or a profit-sharing plan, a trust 
                forming part of such plan shall not constitute 
                a qualified trust under this subsection unless 
                the plan designates such intent at such time 
                and in such manner as the Secretary may 
                prescribe.
          (28) Additional requirements relating to employee 
        stock ownership plans.--
                  (A) In general.--In the case of a trust which 
                is part of an employee stock ownership plan 
                (within the meaning of section 4975(e)(7)) or a 
                plan which meets the requirements of section 
                409(a), such trust shall not constitute a 
                qualified trust under this section unless such 
                plan meets the requirements of subparagraphs 
                (B) and (C).
                  (B) Diversification of investments.--
                          (i) In general.--A plan meets the 
                        requirements of this subparagraph if 
                        each qualified participant in the plan 
                        may elect within 90 days after the 
                        close of each plan year in the 
                        qualified election period to direct the 
                        plan as to the investment of at least 
                        25 percent of the participant's account 
                        in the plan (to the extent such portion 
                        exceeds the amount to which a prior 
                        election under this subparagraph 
                        applies). In the case of the election 
                        year in which the participant can make 
                        his last election, the preceding 
                        sentence shall be applied by 
                        substituting ``50 percent'' for ``25 
                        percent''.
                          (ii) Method of meeting 
                        requirements.--A plan shall be treated 
                        as meeting the requirements of clause 
                        (i) if--
                                  (I) the portion of the 
                                participant's account covered 
                                by the election under clause 
                                (i) is distributed within 90 
                                days after the period during 
                                which the election may be made, 
                                or
                                  (II) the plan offers at least 
                                3 investment options (not 
                                inconsistent with regulations 
                                prescribed by the Secretary) to 
                                each participant making an 
                                election under clause (i) and 
                                within 90 days after the period 
                                during which the election may 
                                be made, the plan invests the 
                                portion of the participant's 
                                account covered by the election 
                                in accordance with such 
                                election.
                          (iii) Qualified participant.--For 
                        purposes of this subparagraph, the term 
                        ``qualified participant'' means any 
                        employee who has completed at least 10 
                        years of participation under the plan 
                        and has attained age 55.
                          (iv) Qualified election period.--For 
                        purposes of this subparagraph, the term 
                        ``qualified election period'' means the 
                        6-plan-year period beginning with the 
                        later of--
                                  (I) the 1st plan year in 
                                which the individual first 
                                became a qualified participant, 
                                or
                                  (II) the 1st plan year 
                                beginning after December 31, 
                                1986.
                        For purposes of the preceding sentence, 
                        an employer may elect to treat an 
                        individual first becoming a qualified 
                        participant in the 1st plan year 
                        beginning in 1987 as having become a 
                        participant in the 1st plan year 
                        beginning in 1988.
                          (v) Exception.--This subparagraph 
                        shall not apply to an applicable 
                        defined contribution plan (as defined 
                        in paragraph (35)(E)).
                  (C) Use of independent appraiser.--A plan 
                meets the requirements of this subparagraph if 
                all valuations of employer securities which are 
                not readily tradable on an established 
                securities market with respect to activities 
                carried on by the plan are by an independent 
                appraiser. For purposes of the preceding 
                sentence, the term ``independent appraiser'' 
                means any appraiser meeting requirements 
                similar to the requirements of the regulations 
                prescribed under section 170(a)(1).
          (29) Benefit limitations.--In the case of a defined 
        benefit plan (other than a multiemployer plan or a CSEC 
        plan) to which the requirements of section 412 apply, 
        the trust of which the plan is a part shall not 
        constitute a qualified trust under this subsection 
        unless the plan meets the requirements of section 436.
          (30) Limitations on elective deferrals.--In the case 
        of a trust which is part of a plan under which elective 
        deferrals (within the meaning of section 402(g)(3)) may 
        be made with respect to any individual during a 
        calendar year, such trust shall not constitute a 
        qualified trust under this subsection unless the plan 
        provides that the amount of such deferrals under such 
        plan and all other plans, contracts, or arrangements of 
        an employer maintaining such plan may not exceed the 
        amount of the limitation in effect under section 
        402(g)(1)(A) for taxable years beginning in such 
        calendar year.
          (31) Direct transfer of eligible rollover 
        distributions.--
                  (A) In general.--A trust shall not constitute 
                a qualified trust under this section unless the 
                plan of which such trust is a part provides 
                that if the distributee of any eligible 
                rollover distribution--
                          (i) elects to have such distribution 
                        paid directly to an eligible retirement 
                        plan, and
                          (ii) specifies the eligible 
                        retirement plan to which such 
                        distribution is to be paid (in such 
                        form and at such time as the plan 
                        administrator may prescribe),
                such distribution shall be made in the form of 
                a direct trustee-to-trustee transfer to the 
                eligible retirement plan so specified.
                  (B) Certain mandatory distributions.--
                          (i) In general.--In case of a trust 
                        which is part of an eligible plan, such 
                        trust shall not constitute a qualified 
                        trust under this section unless the 
                        plan of which such trust is a part 
                        provides that if--
                                  (I) a distribution described 
                                in clause (ii) in excess of 
                                $1,000 is made, and
                                  (II) the distributee does not 
                                make an election under 
                                subparagraph (A) and does not 
                                elect to receive the 
                                distribution directly,
                        the plan administrator shall make such 
                        transfer to an individual retirement 
                        plan of a designated trustee or issuer 
                        and shall notify the distributee in 
                        writing (either separately or as part 
                        of the notice under section 402(f)) 
                        that the distribution may be 
                        transferred to another individual 
                        retirement plan.
                          (ii) Eligible plan.--For purposes of 
                        clause (i), the term ``eligible plan'' 
                        means a plan which provides that any 
                        nonforfeitable accrued benefit for 
                        which the present value (as determined 
                        under section 411(a)(11)) does not 
                        exceed $5,000 shall be immediately 
                        distributed to the participant.
                  (C) Limitation.--Subparagraphs (A) and (B) 
                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), 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) is a qualified trust which is 
                        part of a plan which is a defined 
                        contribution plan and 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).
                  (D) Eligible rollover distribution.--For 
                purposes of this paragraph, the term ``eligible 
                rollover distribution'' has the meaning given 
                such term by section 402(f)(2)(A).
                  (E) Eligible retirement plan.--For purposes 
                of this paragraph, the term ``eligible 
                retirement plan'' has the meaning given such 
                term by section 402(c)(8)(B), except that a 
                qualified trust shall be considered an eligible 
                retirement plan only if it is a defined 
                contribution plan, the terms of which permit 
                the acceptance of rollover distributions.
          (32) Treatment of failure to make certain payments if 
        plan has liquidity shortfall.--
                  (A) In general.--A trust forming part of a 
                pension plan to which section 430(j)(4) or 
                433(f)(5) applies shall not be treated as 
                failing to constitute a qualified trust under 
                this section merely because such plan ceases to 
                make any payment described in subparagraph (B) 
                during any period that such plan has a 
                liquidity shortfall (as defined in section 
                430(j)(4) or 433(f)(5)).
                  (B) Payments described.--A payment is 
                described in this subparagraph if such payment 
                is--
                          (i) any payment, in excess of the 
                        monthly amount paid under a single life 
                        annuity (plus any social security 
                        supplements described in the last 
                        sentence of section 411(a)(9)), to a 
                        participant or beneficiary whose 
                        annuity starting date (as defined in 
                        section 417(f)(2)) occurs during the 
                        period referred to in subparagraph (A),
                          (ii) any payment for the purchase of 
                        an irrevocable commitment from an 
                        insurer to pay benefits, and
                          (iii) any other payment specified by 
                        the Secretary by regulations.
                  (C) Period of shortfall.--For purposes of 
                this paragraph, a plan has a liquidity 
                shortfall during the period that there is an 
                underpayment of an installment under section 
                430(j)(3) or 433(f) by reason of section 
                430(j)(4)(A) or 433(f)(5), respectively.
          (33) Prohibition on benefit increases while sponsor 
        is in bankruptcy.--
                  (A) In general.--A trust which is part of a 
                plan to which this paragraph applies shall not 
                constitute a qualified trust under this section 
                if an amendment to such plan is adopted while 
                the employer is a debtor in a case under title 
                11, United States Code, or similar Federal or 
                State law, if such amendment increases 
                liabilities of the plan by reason of
                          (i) any increase in benefits,
                          (ii) any change in the accrual of 
                        benefits, or
                          (iii) any change in the rate at which 
                        benefits become nonforfeitable under 
                        the plan,
                with respect to employees of the debtor, and 
                such amendment is effective prior to the 
                effective date of such employer's plan of 
                reorganization.
                  (B) Exceptions.--This paragraph shall not 
                apply to any plan amendment if--
                          (i) the plan, were such amendment to 
                        take effect, would have a funding 
                        target attainment percentage (as 
                        defined in section 430(d)(2)) of 100 
                        percent or more,
                          (ii) the Secretary determines that 
                        such amendment is reasonable and 
                        provides for only de minimis increases 
                        in the liabilities of the plan with 
                        respect to employees of the debtor,
                          (iii) such amendment only repeals an 
                        amendment described in section 
                        412(d)(2), or
                          (iv) such amendment is required as a 
                        condition of qualification under this 
                        part.
                  (C) Plans to which this paragraph applies.--
                This paragraph shall apply only to plans (other 
                than multiemployer plans or CSEC plans) covered 
                under section 4021 of the Employee Retirement 
                Income Security Act of 1974.
                  (D) Employer.--For purposes of this 
                paragraph, the term ``employer'' means the 
                employer referred to in section 412(b)(1), 
                without regard to section 412(b)(2).
          (34) Benefits of missing participants on plan 
        termination.--In the case of a plan covered by title IV 
        of the Employee Retirement Income Security Act of 1974, 
        a trust forming part of such plan shall not be treated 
        as failing to constitute a qualified trust under this 
        section merely because the pension plan of which such 
        trust is a part, upon its termination, transfers 
        benefits of missing participants to the Pension Benefit 
        Guaranty Corporation in accordance with section 4050 of 
        such Act.
          (35) Diversification requirements for certain defined 
        contribution plans.--
                  (A) In general.--A trust which is part of an 
                applicable defined contribution plan shall not 
                be treated as a qualified trust unless the plan 
                meets the diversification requirements of 
                subparagraphs (B), (C), and (D).
                  (B) Employee contributions and elective 
                deferrals invested in employer securities.--In 
                the case of the portion of an applicable 
                individual's account attributable to employee 
                contributions and elective deferrals which is 
                invested in employer securities, a plan meets 
                the requirements of this subparagraph if the 
                applicable individual may elect to direct the 
                plan to divest any such securities and to 
                reinvest an equivalent amount in other 
                investment options meeting the requirements of 
                subparagraph (D).
                  (C) Employer contributions invested in 
                employer securities.--In the case of the 
                portion of the account attributable to employer 
                contributions other than elective deferrals 
                which is invested in employer securities, a 
                plan meets the requirements of this 
                subparagraph if each applicable individual 
                who--
                          (i) is a participant who has 
                        completed at least 3 years of service, 
                        or
                          (ii) is a beneficiary of a 
                        participant described in clause (i) or 
                        of a deceased participant,
                may elect to direct the plan to divest any such 
                securities and to reinvest an equivalent amount 
                in other investment options meeting the 
                requirements of subparagraph (D).
                  (D) Investment options.--
                          (i) In general.--The requirements of 
                        this subparagraph are met if the plan 
                        offers not less than 3 investment 
                        options, other than employer 
                        securities, to which an applicable 
                        individual may direct the proceeds from 
                        the divestment of employer securities 
                        pursuant to this paragraph, each of 
                        which is diversified and has materially 
                        different risk and return 
                        characteristics.
                          (ii) Treatment of certain 
                        restrictions and conditions.--
                                  (I) Time for making 
                                investment choices.--A plan 
                                shall not be treated as failing 
                                to meet the requirements of 
                                this subparagraph merely 
                                because the plan limits the 
                                time for divestment and 
                                reinvestment to periodic, 
                                reasonable opportunities 
                                occurring no less frequently 
                                than quarterly.
                                  (II) Certain restrictions and 
                                conditions not allowed.--Except 
                                as provided in regulations, a 
                                plan shall not meet the 
                                requirements of this 
                                subparagraph if the plan 
                                imposes restrictions or 
                                conditions with respect to the 
                                investment of employer 
                                securities which are not 
                                imposed on the investment of 
                                other assets of the plan. This 
                                subclause shall not apply to 
                                any restrictions or conditions 
                                imposed by reason of the 
                                application of securities laws.
                  (E) Applicable defined contribution plan.--
                For purposes of this paragraph--
                          (i) In general.--The term 
                        ``applicable defined contribution 
                        plan'' means any defined contribution 
                        plan which holds any publicly traded 
                        employer securities.
                          (ii) Exception for certain ESOPS.--
                        Such term does not include an employee 
                        stock ownership plan if--
                                  (I) there are no 
                                contributions to such plan (or 
                                earnings thereunder) which are 
                                held within such plan and are 
                                subject to subsection (k) or 
                                (m), and
                                  (II) such plan is a separate 
                                plan for purposes of section 
                                414(l) with respect to any 
                                other defined benefit plan or 
                                defined contribution plan 
                                maintained by the same employer 
                                or employers.
                          (iii) Exception for one participant 
                        plans.--Such term does not include a 
                        one-participant retirement plan.
                          (iv) One-participant retirement 
                        plan.--For purposes of clause (iii), 
                        the term ``one-participant retirement 
                        plan'' means a retirement plan that on 
                        the first day of the plan year--
                                  (I) covered only one 
                                individual (or the individual 
                                and the individual's spouse) 
                                and the individual (or the 
                                individual and the individual's 
                                spouse) owned 100 percent of 
                                the plan sponsor (whether or 
                                not incorporated), or
                                  (II) covered only one or more 
                                partners (or partners and their 
                                spouses) in the plan sponsor.
                  (F) Certain plans treated as holding publicly 
                traded employer securities.--
                          (i) In general.--Except as provided 
                        in regulations or in clause (ii), a 
                        plan holding employer securities which 
                        are not publicly traded employer 
                        securities shall be treated as holding 
                        publicly traded employer securities if 
                        any employer corporation, or any member 
                        of a controlled group of corporations 
                        which includes such employer 
                        corporation, has issued a class of 
                        stock which is a publicly traded 
                        employer security.
                          (ii) Exception for certain controlled 
                        groups with publicly traded 
                        securities.--Clause (i) shall not apply 
                        to a plan if--
                                  (I) no employer corporation, 
                                or parent corporation of an 
                                employer corporation, has 
                                issued any publicly traded 
                                employer security, and
                                  (II) no employer corporation, 
                                or parent corporation of an 
                                employer corporation, has 
                                issued any special class of 
                                stock which grants particular 
                                rights to, or bears particular 
                                risks for, the holder or issuer 
                                with respect to any corporation 
                                described in clause (i) which 
                                has issued any publicly traded 
                                employer security.
                          (iii) Definitions.--For purposes of 
                        this subparagraph, the term--
                                  (I) ``controlled group of 
                                corporations'' has the meaning 
                                given such term by section 
                                1563(a), except that ``50 
                                percent'' shall be substituted 
                                for ``80 percent'' each place 
                                it appears,
                                  (II) ``employer corporation'' 
                                means a corporation which is an 
                                employer maintaining the plan, 
                                and
                                  (III) ``parent corporation'' 
                                has the meaning given such term 
                                by section 424(e).
                  (G) Other definitions.--For purposes of this 
                paragraph--
                          (i) Applicable individual.--The term 
                        ``applicable individual'' means--
                                  (I) any participant in the 
                                plan, and
                                  (II) any beneficiary who has 
                                an account under the plan with 
                                respect to which the 
                                beneficiary is entitled to 
                                exercise the rights of a 
                                participant.
                          (ii) Elective deferral.--The term 
                        ``elective deferral'' means an employer 
                        contribution described in section 
                        402(g)(3)(A).
                          (iii) Employer security.--The term 
                        ``employer security'' has the meaning 
                        given such term by section 407(d)(1) of 
                        the Employee Retirement Income Security 
                        Act of 1974.
                          (iv) Employee stock ownership plan.--
                        The term ``employee stock ownership 
                        plan'' has the meaning given such term 
                        by section 4975(e)(7).
                          (v) Publicly traded employer 
                        securities.--The term ``publicly traded 
                        employer securities'' means employer 
                        securities which are readily tradable 
                        on an established securities market.
                          (vi) Year of service.--The term 
                        ``year of service'' has the meaning 
                        given such term by section 411(a)(5).
                  (H) Transition rule for securities 
                attributable to employer contributions.--
                          (i) Rules phased in over 3 years.--
                                  (I) In general.--In the case 
                                of the portion of an account to 
                                which subparagraph (C) applies 
                                and which consists of employer 
                                securities acquired in a plan 
                                year beginning before January 
                                1, 2007, subparagraph (C) shall 
                                only apply to the applicable 
                                percentage of such securities. 
                                This subparagraph shall be 
                                applied separately with respect 
                                to each class of securities.
                                  (II) Exception for certain 
                                participants aged 55 or over.--
                                Subclause (I) shall not apply 
                                to an applicable individual who 
                                is a participant who has 
                                attained age 55 and completed 
                                at least 3 years of service 
                                before the first plan year 
                                beginning after December 31, 
                                2005.
                          (ii) Applicable percentage.--For 
                        purposes of clause (i), the applicable 
                        percentage shall be determined as 
                        follows:


 
------------------------------------------------------------------------
 Plan year to which subparagraph (C)
              applies:                   The applicable percentage is:
------------------------------------------------------------------------
1st....................               33
2d.....................               66
3d and following.......               100.
------------------------------------------------------------------------

          (36) Distributions during working retirement.--A 
        trust forming part of a pension plan shall not be 
        treated as failing to constitute a qualified trust 
        under this section solely because the plan provides 
        that a distribution may be made from such trust to an 
        employee who has attained age 62 and who is not 
        separated from employment at the time of such 
        distribution.
          (37) Death benefits under USERRA-qualified active 
        military service.--A trust shall not constitute a 
        qualified trust unless the plan provides that, in the 
        case of a participant who dies while performing 
        qualified military service (as defined in section 
        414(u)), the survivors of the participant are entitled 
        to any additional benefits (other than benefit accruals 
        relating to the period of qualified military service) 
        provided under the plan had the participant resumed and 
        then terminated employment on account of death.
          (38) Portability of lifetime income investments.--
                  (A) In general.--Except as may be otherwise 
                provided by regulations, a trust forming part 
                of a defined contribution plan shall not be 
                treated as failing to constitute a qualified 
                trust under this section solely by reason of 
                allowing--
                          (i) qualified distributions of a 
                        lifetime income investment, or
                          (ii) distributions of a lifetime 
                        income investment in the form of a 
                        qualified plan distribution annuity 
                        contract,
                on or after the date that is 90 days prior to 
                the date on which such lifetime income 
                investment is no longer authorized to be held 
                as an investment option under the plan.
                  (B) Definitions.--For purposes of this 
                subsection--
                          (i) the term ``qualified 
                        distribution'' means a direct trustee-
                        to-trustee transfer described in 
                        paragraph (31)(A) to an eligible 
                        retirement plan (as defined in section 
                        402(c)(8)(B)),
                          (ii) the term ``lifetime income 
                        investment'' means an investment option 
                        which is designed to provide an 
                        employee with election rights--
                                  (I) which are not uniformly 
                                available with respect to other 
                                investment options under the 
                                plan, and
                                  (II) which are to a lifetime 
                                income feature available 
                                through a contract or other 
                                arrangement offered under the 
                                plan (or under another eligible 
                                retirement plan (as so 
                                defined), if paid by means of a 
                                direct trustee-to-trustee 
                                transfer described in paragraph 
                                (31)(A) to such other eligible 
                                retirement plan),
                          (iii) the term ``lifetime income 
                        feature'' means--
                                  (I) a feature which 
                                guarantees a minimum level of 
                                income annually (or more 
                                frequently) for at least the 
                                remainder of the life of the 
                                employee or the joint lives of 
                                the employee and the employee's 
                                designated beneficiary, or
                                  (II) an annuity payable on 
                                behalf of the employee under 
                                which payments are made in 
                                substantially equal periodic 
                                payments (not less frequently 
                                than annually) over the life of 
                                the employee or the joint lives 
                                of the employee and the 
                                employee's designated 
                                beneficiary, and
                          (iv) the term ``qualified plan 
                        distribution annuity contract'' means 
                        an annuity contract purchased for a 
                        participant and distributed to the 
                        participant by a plan or contract 
                        described in subparagraph (B) of 
                        section 402(c)(8) (without regard to 
                        clauses (i) and (ii) thereof).
Paragraphs (11), (12), (13), (14), (15), (19), and (20) shall 
apply only in the case of a plan to which section 411 (relating 
to minimum vesting standards) applies without regard to 
subsection (e)(2) of such section.
  (b) Certain [Retroactive Changes in Plan] Plan Amendments.--
          (1) Certain retroactive changes in plan.--A stock 
        bonus, pension, profit-sharing, or annuity plan shall 
        be considered as satisfying the requirements of 
        subsection (a) for the period beginning with the date 
        on which it was put into effect, or for the period 
        beginning with the earlier of the date on which there 
        was adopted or put into effect any amendment which 
        caused the plan to fail to satisfy such requirements, 
        and ending with the time prescribed by law for filing 
        the return of the employer for his taxable year in 
        which such plan or amendment was adopted (including 
        extensions thereof) or such later time as the Secretary 
        may designate, if all provisions of the plan which are 
        necessary to satisfy such requirements are in effect by 
        the end of such period and have been made effective for 
        all purposes for the whole of such period.
          (2) Adoption of plan.--If an employer adopts a stock 
        bonus, pension, profit-sharing, or annuity plan after 
        the close of a taxable year but before the time 
        prescribed by law for filing the employer's return of 
        tax for the taxable year (including extensions 
        thereof), the employer may elect to treat the plan as 
        having been adopted as of the last day of the taxable 
        year.
  (c) Definitions and rules relating to self-employed 
individuals and owner-employees.--For purposes of this 
section--
          (1) Self-employed individual treated as employee.--
                  (A) In general.--The term ``employee'' 
                includes, for any taxable year, an individual 
                who is a self-employed individual for such 
                taxable year.
                  (B) Self-employed individual.--The term 
                ``self-employed individual'' means, with 
                respect to any taxable year, an individual who 
                has earned income (as defined in paragraph (2)) 
                for such taxable year. To the extent provided 
                in regulations prescribed by the Secretary, 
                such term also includes, for any taxable year--
                          (i) an individual who would be a 
                        self-employed individual within the 
                        meaning of the preceding sentence but 
                        for the fact that the trade or business 
                        carried on by such individual did not 
                        have net profits for the taxable year, 
                        and
                          (ii) an individual who has been a 
                        self-employed individual within the 
                        meaning of the preceding sentence for 
                        any prior taxable year.
          (2) Earned income.--
                  (A) In general.--The term ``earned income'' 
                means the net earnings from self-employment (as 
                defined in section 1402(a)), but such net 
                earnings shall be determined--
                          (i) only with respect to a trade or 
                        business in which personal services of 
                        the taxpayer are a material income-
                        producing factor,
                          (ii) without regard to paragraphs (4) 
                        and (5) of section 1402(c),
                          (iii) in the case of any individual 
                        who is treated as an employee under 
                        subparagraph (A), (C), or (D) of 
                        section 3121(d)(3), without regard to 
                        section 1402(c)(2)
                          (iv) without regard to items which 
                        are not included in gross income for 
                        purposes of this chapter, and the 
                        deductions properly allocable to or 
                        chargeable against such items,
                          (v) with regard to the deductions 
                        allowed by section 404 to the taxpayer, 
                        and
                          (vi) with regard to the deduction 
                        allowed to the taxpayer by section 
                        164(f).
                For purposes of this subparagraph, section 
                1402, as in effect for a taxable year ending on 
                December 31, 1962, shall be treated as having 
                been in effect for all taxable years ending 
                before such date. For purposes of this part 
                only (other than sections 419 and 419A), this 
                subparagraph shall be applied as if the term 
                ``trade or business'' for purposes of section 
                1402 included service described in section 
                1402(c)(6).
                  (C) Income from disposition of certain 
                property.--For purposes of this section, the 
                term ``earned income'' includes gains (other 
                than any gain which is treated under any 
                provision of this chapter as gain from the sale 
                or exchange of a capital asset) and net 
                earnings derived from the sale or other 
                disposition of, the transfer of any interest 
                in, or the licensing of the use of property 
                (other than good will) by an individual whose 
                personal efforts created such property.
          (3) Owner-employee.--The term ``owner-employee'' 
        means an employee who--
                  (A) owns the entire interest in an 
                unincorporated trade or business, or
                  (B) in the case of a partnership, is a 
                partner who owns more than 10 percent of either 
                the capital interest or the profits interest in 
                such partnership.
        To the extent provided in regulations prescribed by the 
        Secretary, such term also means an individual who has 
        been an owner-employee within the meaning of the 
        preceding sentence.
          (4) Employer.--An individual who owns the entire 
        interest in an unincorporated trade or business shall 
        be treated as his own employer. A partnership shall be 
        treated as the employer of each partner who is an 
        employee within the meaning of paragraph (1).
          (5) Contributions on behalf of owner-employees.--The 
        term ``contribution on behalf of an owner-employee'' 
        includes, except as the context otherwise requires, a 
        contribution under a plan--
                  (A) by the employer for an owner-employee, 
                and
                  (B) by an owner-employee as an employee.
          (6) Special rule for certain fishermen.--For purposes 
        of this subsection, the term ``self-employed 
        individual'' includes an individual described in 
        section 3121(b)(20) (relating to certain fishermen).
  (d) Contribution limit on owner-employees.--A trust forming 
part of a pension or profit-sharing plan which provides 
contributions or benefits for employees some or all of whom are 
owner-employees shall constitute a qualified trust under this 
section only if, in addition to meeting the requirements of 
subsection (a), the plan provides that contributions on behalf 
of any owner-employee may be made only with respect to the 
earned income of such owner-employee which is derived from the 
trade or business with respect to which such plan is 
established.
  (f) Certain custodial accounts and contracts.--For purposes 
of this title, a custodial account, an annuity contract, or a 
contract (other than a life, health or accident, property, 
casualty, or liability insurance contract) issued by an 
insurance company qualified to do business in a State shall be 
treated as a qualified trust under this section if--
          (1) the custodial account or contract would, except 
        for the fact that it is not a trust, constitute a 
        qualified trust under this section, and
          (2) in the case of a custodial account the assets 
        thereof are held by a bank (as defined in section 
        408(n)) or another person who demonstrates, to the 
        satisfaction of the Secretary, that the manner in which 
        he will hold the assets will be consistent with the 
        requirements of this section.
For purposes of this title, in the case of a custodial account 
or contract treated as a qualified trust under this section by 
reason of this subsection, the person holding the assets of 
such account or holding such contract shall be treated as the 
trustee thereof.
  (g) Annuity defined.--For purposes of this section and 
sections 402, 403, and 404, the term ``annuity'' includes a 
face-amount certificate, as defined in section 2(a)(15) of the 
Investment Company Act of 1940 (15 U.S.C., sec. 80a-2); but 
does not include any contract or certificate issued after 
December 31, 1962, which is transferable, if any person other 
than the trustee of a trust described in section 401(a) which 
is exempt from tax under section 501(a) is the owner of such 
contract or certificate.
  (h) Medical, etc., benefits for retired employees and their 
spouses and dependents.--Under regulations prescribed by the 
Secretary, and subject to the provisions of section 420, a 
pension or annuity plan may provide for the payment of benefits 
for sickness, accident, hospitalization, and medical expenses 
of retired employees, their spouses and their dependents, but 
only if--
          (1) such benefits are subordinate to the retirement 
        benefits provided by the plan,
          (2) a separate account is established and maintained 
        for such benefits,
          (3) the employer's contributions to such separate 
        account are reasonable and ascertainable,
          (4) it is impossible, at any time prior to the 
        satisfaction of all liabilities under the plan to 
        provide such benefits, for any part of the corpus or 
        income of such separate account to be (within the 
        taxable year or thereafter) used for, or diverted to, 
        any purpose other than the providing of such benefits,
          (5) notwithstanding the provisions of subsection 
        (a)(2), upon the satisfaction of all liabilities under 
        the plan to provide such benefits, any amount remaining 
        in such separate account must, under the terms of the 
        plan, be returned to the employer, and
          (6) in the case of an employee who is a key employee, 
        a separate account is established and maintained for 
        such benefits payable to such employee (and his spouse 
        and dependents) and such benefits (to the extent 
        attributable to plan years beginning after March 31, 
        1984, for which the employee is a key employee) are 
        only payable to such employee (and his spouse and 
        dependents) from such separate account.
For purposes of paragraph (6), the term ``key employee'' means 
any employee, who at any time during the plan year or any 
preceding plan year during which contributions were made on 
behalf of such employee, is or was a key employee as defined in 
section 416(i). In no event shall the requirements of paragraph 
(1) be treated as met if the aggregate actual contributions for 
medical benefits, when added to actual contributions for life 
insurance protection under the plan, exceed 25 percent of the 
total actual contributions to the plan (other than 
contributions to fund past service credits) after the date on 
which the account is established. For purposes of this 
subsection, the term ``dependent'' shall include any individual 
who is a child (as defined in section 152(f)(1)) of a retired 
employee who as of the end of the calendar year has not 
attained age 27.
  (i) Certain union-negotiated pension plans.--In the case of a 
trust forming part of a pension plan which has been determined 
by the Secretary to constitute a qualified trust under 
subsection (a) and to be exempt from taxation under section 
501(a) for a period beginning after contributions were first 
made to or for such trust, if it is shown to the satisfaction 
of the Secretary that--
          (1) such trust was created pursuant to a collective 
        bargaining agreement between employee representatives 
        and one or more employers,
          (2) any disbursements of contributions, made to or 
        for such trust before the time as of which the 
        Secretary or his delegate determined that the trust 
        constituted a qualified trust, substantially complied 
        with the terms of the trust, and the plan of which the 
        trust is a part, as subsequently qualified, and
          (3) before the time as of which the Secretary 
        determined that the trust constitutes a qualified 
        trust, the contributions to or for such trust were not 
        used in a manner which would jeopardize the interests 
        of its beneficiaries,
then such trust shall be considered as having constituted a 
qualified trust under subsection (a) and as having been exempt 
from taxation under section 501(a) for the period beginning on 
the date on which contributions were first made to or for such 
trust and ending on the date such trust first constituted 
(without regard to this subsection) a qualified trust under 
subsection (a).
  (k) Cash or deferred arrangements.--
          (1) General rule.--A profit-sharing or stock bonus 
        plan, a pre-ERISA money purchase plan, or a rural 
        cooperative plan shall not be considered as not 
        satisfying the requirements of subsection (a) merely 
        because the plan includes a qualified cash or deferred 
        arrangement.
          (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) severance from 
                                employment, death, or 
                                disability,
                                  (II) an event described in 
                                paragraph (10),
                                  (III) in the case of a 
                                profit-sharing or stock bonus 
                                plan, the attainment of age 59 
                                1/2,
                                  (IV) subject to the 
                                provisions of paragraph (14), 
                                upon hardship of the employee, 
                                [or]
                                  (V) in the case of a 
                                qualified reservist 
                                distribution (as defined in 
                                section 72(t)(2)(G)(iii)), the 
                                date on which a period referred 
                                to in subclause (III) of such 
                                section begins, [and] or
                                  (VI) except as may be 
                                otherwise provided by 
                                regulations, with respect to 
                                amounts invested in a lifetime 
                                income investment (as defined 
                                in subsection (a)(38)(B)(ii)), 
                                the date that is 90 days prior 
                                to the date that such lifetime 
                                income investment may no longer 
                                be held as an investment option 
                                under the arrangement,
                          (ii) will not be distributable merely 
                        by reason of the completion of a stated 
                        period of participation or the lapse of 
                        a fixed number of years[;], and
                          (iii) except as may be otherwise 
                        provided by regulations, in the case of 
                        amounts described in clause (i)(VI), 
                        will be distributed only in the form of 
                        a qualified distribution (as defined in 
                        subsection (a)(38)(B)(i)) or a 
                        qualified plan distribution annuity 
                        contract (as defined in subsection 
                        (a)(38)(B)(iv)),
                  (C) which provides that an employee's right 
                to his accrued benefit derived from employer 
                contributions made to the trust pursuant to his 
                election is nonforfeitable, and
                  (D) which does not require, as a condition of 
                participation in the arrangement, that an 
                employee complete a period of service with the 
                employer (or employers) maintaining the plan 
                extending beyond the period permitted under 
                section 410(a)(1) (determined without regard to 
                subparagraph (B)(i) thereof).
          (3) Application of participation and discrimination 
        standards.--
                  (A) A cash or deferred arrangement shall not 
                be treated as a qualified cash or deferred 
                arrangement unless--
                          (i) those employees eligible to 
                        benefit under the arrangement satisfy 
                        the provisions of section 410(b)(1), 
                        and
                          (ii) the actual deferral percentage 
                        for eligible highly compensated 
                        employees (as defined in paragraph (5)) 
                        for the plan year bears a relationship 
                        to the actual deferral percentage for 
                        all other eligible employees for the 
                        preceding plan year which meets either 
                        of the following tests:
                                  (I) The actual deferral 
                                percentage for the group of 
                                eligible highly compensated 
                                employees is not more than the 
                                actual deferral percentage of 
                                all other eligible employees 
                                multiplied by 1.25.
                                  (II) The excess of the actual 
                                deferral percentage for the 
                                group of eligible highly 
                                compensated employees over that 
                                of all other eligible employees 
                                is not more than 2 percentage 
                                points, and the actual deferral 
                                percentage for the group of 
                                eligible highly compensated 
                                employees is not more than the 
                                actual deferral percentage of 
                                all other eligible employees 
                                multiplied by 2.
                        If 2 or more plans which include cash 
                        or deferred arrangements are considered 
                        as 1 plan for purposes of section 
                        401(a)(4) or 410(b), the cash or 
                        deferred arrangements included in such 
                        plans shall be treated as 1 arrangement 
                        for purposes of this subparagraph.
                If any highly compensated employee is a 
                participant under 2 or more cash or deferred 
                arrangements of the employer, for purposes of 
                determining the deferral percentage with 
                respect to such employee, all such cash or 
                deferred arrangements shall be treated as 1 
                cash or deferred arrangement. An arrangement 
                may apply clause (ii) by using the plan year 
                rather than the preceding plan year if the 
                employer so elects, except that if such an 
                election is made, it may not be changed except 
                as provided by the Secretary.
                  (B) For purposes of subparagraph (A), the 
                actual deferral percentage for a specified 
                group of employees for a plan year shall be the 
                average of the ratios (calculated separately 
                for each employee in such group) of--
                          (i) the amount of employer 
                        contributions actually paid over to the 
                        trust on behalf of each such employee 
                        for such plan year, to
                          (ii) the employee's compensation for 
                        such plan year.
                  (C) A cash or deferred arrangement shall be 
                treated as meeting the requirements of 
                subsection (a)(4) with respect to contributions 
                if the requirements of subparagraph (A)(ii) are 
                met.
                  (D) For purposes of subparagraph (B), the 
                employer contributions on behalf of any 
                employee--
                          (i) shall include any employer 
                        contributions made pursuant to the 
                        employee's election under paragraph 
                        (2), and
                          (ii) under such rules as the 
                        Secretary may prescribe, may, at the 
                        election of the employer, include--
                                  (I) matching contributions 
                                (as defined in 401(m)(4)(A)) 
                                which meet the requirements of 
                                paragraph (2)(B) and (C), and
                                  (II) qualified nonelective 
                                contributions (within the 
                                meaning of section 
                                401(m)(4)(C)).
                  (E) For purposes of this paragraph, in the 
                case of the first plan year of any plan (other 
                than a successor plan), the amount taken into 
                account as the actual deferral percentage of 
                nonhighly compensated employees for the 
                preceding plan year shall be--
                          (i) 3 percent, or
                          (ii) if the employer makes an 
                        election under this subclause, the 
                        actual deferral percentage of nonhighly 
                        compensated employees determined for 
                        such first plan year.
                  (F) Special rule for early participation.--If 
                an employer elects to apply section 
                410(b)(4)(B) in determining whether a cash or 
                deferred arrangement meets the requirements of 
                subparagraph (A)(i), the employer may, in 
                determining whether the arrangement meets the 
                requirements of subparagraph (A)(ii), exclude 
                from consideration all eligible employees 
                (other than highly compensated employees) who 
                have not met the minimum age and service 
                requirements of section 410(a)(1)(A).
                  (G) Governmental plan.--A governmental plan 
                (within the meaning of section 414(d)) shall be 
                treated as meeting the requirements of this 
                paragraph.
          (4) Other requirements.--
                  (A) Benefits (other than matching 
                contributions) must not be contingent on 
                election to defer.--A cash or deferred 
                arrangement of any employer shall not be 
                treated as a qualified cash or deferred 
                arrangement if any other benefit is conditioned 
                (directly or indirectly) on the employee 
                electing to have the employer make or not make 
                contributions under the arrangement in lieu of 
                receiving cash. The preceding sentence shall 
                not apply to any matching contribution (as 
                defined in section 401(m)) made by reason of 
                such an election.
                  (B) Eligibility of state and local 
                governments and tax-exempt organizations.--
                          (i) Tax-exempts eligible.--Except as 
                        provided in clause (ii), any 
                        organization exempt from tax under this 
                        subtitle may include a qualified cash 
                        or deferred arrangement as part of a 
                        plan maintained by it.
                          (ii) Governments ineligible.--A cash 
                        or deferred arrangement shall not be 
                        treated as a qualified cash or deferred 
                        arrangement if it is part of a plan 
                        maintained by a State or local 
                        government or political subdivision 
                        thereof, or any agency or 
                        instrumentality thereof. This clause 
                        shall not apply to a rural cooperative 
                        plan or to a plan of an employer 
                        described in clause (iii).
                          (iii) Treatment of Indian tribal 
                        governments.--An employer which is an 
                        Indian tribal government (as defined in 
                        section 7701(a)(40)), a subdivision of 
                        an Indian tribal government (determined 
                        in accordance with section 7871(d)), an 
                        agency or instrumentality of an Indian 
                        tribal government or subdivision 
                        thereof, or a corporation chartered 
                        under Federal, State, or tribal law 
                        which is owned in whole or in part by 
                        any of the foregoing may include a 
                        qualified cash or deferred arrangement 
                        as part of a plan maintained by the 
                        employer.
                  (C) Coordination with other plans.--Except as 
                provided in section 401(m), any employer 
                contribution made pursuant to an employee's 
                election under a qualified cash or deferred 
                arrangement shall not be taken into account for 
                purposes of determining whether any other plan 
                meets the requirements of section 401(a) or 
                410(b). This subparagraph shall not apply for 
                purposes of determining whether a plan meets 
                the average benefit requirement of section 
                410(b)(2)(A)(ii).
          (5) Highly compensated employee.--For purposes of 
        this subsection, the term ``highly compensated 
        employee'' has the meaning given such term by section 
        414(q).
          (6) Pre-ERISA money purchase plan.--For purposes of 
        this subsection, the term ``pre-ERISA money purchase 
        plan'' means a pension plan--
                  (A) which is a defined contribution plan (as 
                defined in section 414(i)),
                  (B) which was in existence on June 27, 1974, 
                and which, on such date, included a salary 
                reduction arrangement, and
                  (C) under which neither the employee 
                contributions nor the employer contributions 
                may exceed the levels provided for by the 
                contribution formula in effect under the plan 
                on such date.
          (7) Rural cooperative plan.--For purposes of this 
        subsection--
                  (A) In general.--The term ``rural cooperative 
                plan'' means any pension plan--
                          (i) which is a defined contribution 
                        plan (as defined in section 414(i)), 
                        and
                          (ii) which is established and 
                        maintained by a rural cooperative.
                  (B) Rural cooperative defined.--For purposes 
                of subparagraph (A), the term ``rural 
                cooperative'' means--
                          (i) any organization which--
                                  (I) is engaged primarily in 
                                providing electric service on a 
                                mutual or cooperative basis, or
                                  (II) is engaged primarily in 
                                providing electric service to 
                                the public in its area of 
                                service and which is exempt 
                                from tax under this subtitle or 
                                which is a State or local 
                                government (or an agency or 
                                instrumentality thereof), other 
                                than a municipality (or an 
                                agency or instrumentality 
                                thereof),
                          (ii) any organization described in 
                        paragraph (4) or (6) of section 501(c) 
                        and at least 80 percent of the members 
                        of which are organizations described in 
                        clause (i),
                          (iii) a cooperative telephone company 
                        described in section 501(c)(12),
                          (iv) any organization which--
                                  (I) is a mutual irrigation or 
                                ditch company described in 
                                section 501(c)(12) (without 
                                regard to the 85 percent 
                                requirement thereof), or
                                  (II) is a district organized 
                                under the laws of a State as a 
                                municipal corporation for the 
                                purpose of irrigation, water 
                                conservation, or drainage, and
                          (v) an organization which is a 
                        national association of organizations 
                        described in clause (i), (ii),, (iii), 
                        or (iv).
                  (C) Special rule for certain distributions.--
                A rural cooperative plan which includes a 
                qualified cash or deferred arrangement shall 
                not be treated as violating the requirements of 
                section 401(a) or of paragraph (2) merely by 
                reason of a hardship distribution or a 
                distribution to a participant after attainment 
                of age 59 1/2. For purposes of this section, 
                the term ``hardship distribution'' means a 
                distribution described in paragraph 
                (2)(B)(i)(IV) (without regard to the limitation 
                of its application to profit-sharing or stock 
                bonus plans).
          (8) Arrangement not disqualified if excess 
        contributions distributed.--
                  (A) In general.--A cash or deferred 
                arrangement shall not be treated as failing to 
                meet the requirements of clause (ii) of 
                paragraph (3)(A) for any plan year if, before 
                the close of the following plan year--
                          (i) the amount of the excess 
                        contributions for such plan year (and 
                        any income allocable to such 
                        contributions through the end of such 
                        year) is distributed, or
                          (ii) to the extent provided in 
                        regulations, the employee elects to 
                        treat the amount of the excess 
                        contributions as an amount distributed 
                        to the employee and then contributed by 
                        the employee to the plan.
                Any distribution of excess contributions (and 
                income) may be made without regard to any other 
                provision of law.
                  (B) Excess contributions.--For purposes of 
                subparagraph (A), the term ``excess 
                contributions'' means, with respect to any plan 
                year, the excess of--
                          (i) the aggregate amount of employer 
                        contributions actually paid over to the 
                        trust on behalf of highly compensated 
                        employees for such plan year, over
                          (ii) the maximum amount of such 
                        contributions permitted under the 
                        limitations of clause (ii) of paragraph 
                        (3)(A) (determined by reducing 
                        contributions made on behalf of highly 
                        compensated employees in order of the 
                        actual deferral percentages beginning 
                        with the highest of such percentages).
                  (C) Method of distributing excess 
                contributions.--Any distribution of the excess 
                contributions for any plan year shall be made 
                to highly compensated employees on the basis of 
                the amount of contributions by, or on behalf 
                of, each of such employees.
                  (D) Additional tax under section 72(t) not to 
                apply.--No tax shall be imposed under section 
                72(t) on any amount required to be distributed 
                under this paragraph.
                  (E) Treatment of matching contributions 
                forfeited by reason of excess deferral or 
                contribution or permissible withdrawal.--For 
                purposes of paragraph (2)(C), a matching 
                contribution (within the meaning of subsection 
                (m)) shall not be treated as forfeitable merely 
                because such contribution is forfeitable if the 
                contribution to which the matching contribution 
                relates is treated as an excess contribution 
                under subparagraph (B), an excess deferral 
                under section 402(g)(2)(A), a permissible 
                withdrawal under section 414(w), or an excess 
                aggregate contribution under section 
                401(m)(6)(B).
                  (F) Cross reference.--For excise tax on 
                certain excess contributions, see section 4979.
          (9) Compensation.--For purposes of this subsection, 
        the term ``compensation'' has the meaning given such 
        term by section 414(s).
          (10) Distributions upon termination of plan.--
                  (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.--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 
                        termination.
                          (ii) Lump-sum distribution.--For 
                        purposes of this subparagraph, the term 
                        ``lump-sum distribution'' has the 
                        meaning given such term by section 
                        402(e)(4)(D) (without regard to 
                        subclauses (I), (II), (III), and (IV) 
                        of clause (i) thereof). Such term 
                        includes a distribution of an annuity 
                        contract from--
                                  (I) a trust which forms a 
                                part of a plan described in 
                                section 401(a) and which is 
                                exempt from tax under section 
                                501(a), or
                                  (II) an annuity plan 
                                described in section 403(a).
          (11) Adoption of simple plan to meet 
        nondiscrimination tests.--
                  (A) In general.--A cash or deferred 
                arrangement maintained by an eligible employer 
                shall be treated as meeting the requirements of 
                paragraph (3)(A)(ii) if such arrangement 
                meets--
                          (i) the contribution requirements of 
                        subparagraph (B),
                          (ii) the exclusive plan requirements 
                        of subparagraph (C), and
                          (iii) the vesting requirements of 
                        section 408(p)(3).
                  (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 the amount in 
                                effect under section 
                                408(p)(2)(A)(ii),
                                  (II) the employer is required 
                                to make a matching contribution 
                                to the trust for the year in an 
                                amount equal to so much of the 
                                amount the employee elects 
                                under subclause (I) as does not 
                                exceed 3 percent of 
                                compensation for the year, and
                                  (III) no other contributions 
                                may be made other than 
                                contributions described in 
                                subclause (I) or (II).
                          (ii) Employer may elect 2-percent 
                        nonelective contribution.--An employer 
                        shall be treated as meeting the 
                        requirements of clause (i)(II) for any 
                        year if, in lieu of the contributions 
                        described in such clause, the employer 
                        elects (pursuant to the terms of the 
                        arrangement) to make nonelective 
                        contributions of 2 percent of 
                        compensation for each employee who is 
                        eligible to participate in the 
                        arrangement and who has at least $5,000 
                        of compensation from the employer for 
                        the year. If an employer makes an 
                        election under this subparagraph for 
                        any year, the employer shall notify 
                        employees of such election within a 
                        reasonable period of time before the 
                        60th day before the beginning of such 
                        year.
                          (iii) Administrative requirements.--
                                  (I) In general.--Rules 
                                similar to the rules of 
                                subparagraphs (B) and (C) of 
                                section 408(p)(5) shall apply 
                                for purposes of this 
                                subparagraph.
                                  (II) Notice of election 
                                period.--The requirements of 
                                this subparagraph shall not be 
                                treated as met with respect to 
                                any year unless the employer 
                                notifies each employee eligible 
                                to participate, within a 
                                reasonable period of time 
                                before the 60th day before the 
                                beginning of such year (and, 
                                for the first year the employee 
                                is so eligible, the 60th day 
                                before the first day such 
                                employee is so eligible), of 
                                the rules similar to the rules 
                                of section 408(p)(5)(C) which 
                                apply by reason of subclause 
                                (I).
                  (C) Exclusive plan requirement.--The 
                requirements of this subparagraph are met for 
                any year to which this paragraph applies if no 
                contributions were made, or benefits were 
                accrued, for services during such year under 
                any qualified plan of the employer on behalf of 
                any employee eligible to participate in the 
                cash or deferred arrangement, other than 
                contributions described in subparagraph (B).
                  (D) Definitions and special rule.--
                          (i) Definitions.--For purposes of 
                        this paragraph, any term used in this 
                        paragraph which is also used in section 
                        408(p) shall have the meaning given 
                        such term by such section.
                          (ii) Coordination with top-heavy 
                        rules.--A plan meeting the requirements 
                        of this paragraph for any year shall 
                        not be treated as a top-heavy plan 
                        under section 416 for such year if such 
                        plan allows only contributions required 
                        under this paragraph.
          (12) Alternative methods of meeting nondiscrimination 
        requirements.--
                  (A) In general.--A cash or deferred 
                arrangement shall be treated as meeting the 
                requirements of paragraph (3)(A)(ii) [if such 
                arrangement--
                          [(i) meets the contribution 
                        requirements of subparagraph (B) or 
                        (C), and
                          [(ii) meets the notice requirements 
                        of subparagraph (D).] if such 
                        arrangement--
                          (i) meets the contribution 
                        requirements of subparagraph (B) and 
                        the notice requirements of subparagraph 
                        (D), or 
                          (ii) meets the contribution 
                        requirements of subparagraph (C). 
                  (B) Matching contributions.--
                          (i) In general.--The requirements of 
                        this subparagraph are met if, under the 
                        arrangement, the employer makes 
                        matching contributions on behalf of 
                        each employee who is not a highly 
                        compensated employee in an amount equal 
                        to--
                                  (I) 100 percent of the 
                                elective contributions of the 
                                employee to the extent such 
                                elective contributions do not 
                                exceed 3 percent of the 
                                employee's compensation, and
                                  (II) 50 percent of the 
                                elective contributions of the 
                                employee to the extent that 
                                such elective contributions 
                                exceed 3 percent but do not 
                                exceed 5 percent of the 
                                employee's compensation.
                          (ii) Rate for highly compensated 
                        employees.--The requirements of this 
                        subparagraph are not met if, under the 
                        arrangement, the rate of matching 
                        contribution with respect to any 
                        elective contribution of a highly 
                        compensated employee at any rate of 
                        elective contribution is greater than 
                        that with respect to an employee who is 
                        not a highly compensated employee.
                          (iii) Alternative plan designs.--If 
                        the rate of any matching contribution 
                        with respect to any rate of elective 
                        contribution is not equal to the 
                        percentage required under clause (i), 
                        an arrangement shall not be treated as 
                        failing to meet the requirements of 
                        clause (i) if--
                                  (I) the rate of an employer's 
                                matching contribution does not 
                                increase as an employee's rate 
                                of elective contributions 
                                increase, and
                                  (II) the aggregate amount of 
                                matching contributions at such 
                                rate of elective contribution 
                                is at least equal to the 
                                aggregate amount of matching 
                                contributions which would be 
                                made if matching contributions 
                                were made on the basis of the 
                                percentages described in clause 
                                (i).
                  (C) Nonelective contributions.--The 
                requirements of this subparagraph are met if, 
                under the arrangement, the employer is 
                required, without regard to whether the 
                employee makes an elective contribution or 
                employee contribution, to make a contribution 
                to a defined contribution plan on behalf of 
                each employee who is not a highly compensated 
                employee and who is eligible to participate in 
                the arrangement in an amount equal to at least 
                3 percent of the employee's compensation.
                  (D) Notice requirement.--An arrangement meets 
                the requirements of this paragraph if, under 
                the arrangement, each employee eligible to 
                participate is, within a reasonable period 
                before any year, given written notice of the 
                employee's rights and obligations under the 
                arrangement which--
                          (i) is sufficiently accurate and 
                        comprehensive to apprise the employee 
                        of such rights and obligations, and
                          (ii) is written in a manner 
                        calculated to be understood by the 
                        average employee eligible to 
                        participate.
                  (E) Other requirements.--
                          (i) Withdrawal and vesting 
                        restrictions.--An arrangement shall not 
                        be treated as meeting the requirements 
                        of subparagraph (B) or (C) of this 
                        paragraph unless the requirements of 
                        subparagraphs (B) and (C) of paragraph 
                        (2) are met with respect to all 
                        employer contributions (including 
                        matching contributions) taken into 
                        account in determining whether the 
                        requirements of subparagraphs (B) and 
                        (C) of this paragraph are met.
                          (ii) Social security and similar 
                        contributions not taken into account.--
                        An arrangement shall not be treated as 
                        meeting the requirements of 
                        subparagraph (B) or (C) unless such 
                        requirements are met without regard to 
                        subsection (l), and, for purposes of 
                        subsection (l), employer contributions 
                        under subparagraph (B) or (C) shall not 
                        be taken into account.
                  (F) Timing of plan amendment for employer 
                making nonelective contributions.--
                          (i) In general.--Except as provided 
                        in clause (ii), a plan may be amended 
                        after the beginning of a plan year to 
                        provide that the requirements of 
                        subparagraph (C) shall apply to the 
                        arrangement for the plan year, but only 
                        if the amendment is adopted--
                                  (I) at any time before the 
                                30th day before the close of 
                                the plan year, or
                                  (II) at any time before the 
                                last day under paragraph (8)(A) 
                                for distributing excess 
                                contributions for the plan 
                                year.
                          (ii) Exception where plan provided 
                        for matching contributions.--Clause (i) 
                        shall not apply to any plan year if the 
                        plan provided at any time during the 
                        plan year that the requirements of 
                        subparagraph (B) or paragraph 
                        (13)(D)(i)(I) applied to the plan year.
                          (iii) 4-percent contribution 
                        requirement.--Clause (i)(II) shall not 
                        apply to an arrangement unless the 
                        amount of the contributions described 
                        in subparagraph (C) which the employer 
                        is required to make under the 
                        arrangement for the plan year with 
                        respect to any employee is an amount 
                        equal to at least 4 percent of the 
                        employee's compensation.
                  [(F)] (G) Other plans.--An arrangement shall 
                be treated as meeting the requirements under 
                subparagraph (A)(i) if any other plan 
                maintained by the employer meets such 
                requirements with respect to employees eligible 
                under the arrangement.
          (13) Alternative method for automatic contribution 
        arrangements to meet nondiscrimination requirements.--
                  (A) In general.--A qualified automatic 
                contribution arrangement shall be treated as 
                meeting the requirements of paragraph 
                (3)(A)(ii).
                  (B) Qualified automatic contribution 
                arrangement.--For purposes of this paragraph, 
                the term ``qualified automatic contribution 
                arrangement'' [means any cash or deferred 
                arrangement which meets the requirements of 
                subparagraphs (C) through (E).] means a cash or 
                deferred arrangement--
                          (i) which is described in 
                        subparagraph (D)(i)(I) and meets the 
                        applicable requirements of 
                        subparagraphs (C) through (E), or 
                          (ii) which is described in 
                        subparagraph (D)(i)(II) and meets the 
                        applicable requirements of 
                        subparagraphs (C) and (D). 
                  (C) Automatic deferral.--
                          (i) In general.--The requirements of 
                        this subparagraph are met if, under the 
                        arrangement, each employee eligible to 
                        participate in the arrangement is 
                        treated as having elected to have the 
                        employer make elective contributions in 
                        an amount equal to a qualified 
                        percentage of compensation.
                          (ii) Election out.--The election 
                        treated as having been made under 
                        clause (i) shall cease to apply with 
                        respect to any employee if such 
                        employee makes an affirmative 
                        election--
                                  (I) to not have such 
                                contributions made, or
                                  (II) to make elective 
                                contributions at a level 
                                specified in such affirmative 
                                election.
                          (iii) Qualified percentage.--For 
                        purposes of this subparagraph, the term 
                        ``qualified percentage'' means, with 
                        respect to any employee, any percentage 
                        determined under the arrangement if 
                        such percentage is applied uniformly, 
                        does not exceed 10 percent, and is at 
                        least--
                                  (I) 3 percent during the 
                                period ending on the last day 
                                of the first plan year which 
                                begins after the date on which 
                                the first elective contribution 
                                described in clause (i) is made 
                                with respect to such employee,
                                  (II) 4 percent during the 
                                first plan year following the 
                                plan year described in 
                                subclause (I),
                                  (III) 5 percent during the 
                                second plan year following the 
                                plan year described in 
                                subclause (I), and
                                  (IV) 6 percent during any 
                                subsequent plan year.
                          (iv) Automatic deferral for current 
                        employees not required.--Clause (i) may 
                        be applied without taking into account 
                        any employee who--
                                  (I) was eligible to 
                                participate in the arrangement 
                                (or a predecessor arrangement) 
                                immediately before the date on 
                                which such arrangement becomes 
                                a qualified automatic 
                                contribution arrangement 
                                (determined after application 
                                of this clause), and
                                  (II) had an election in 
                                effect on such date either to 
                                participate in the arrangement 
                                or to not participate in the 
                                arrangement.
                  (D) Matching or nonelective contributions.--
                          (i) In general.--The requirements of 
                        this subparagraph are met if, under the 
                        arrangement, the employer--
                                  (I) makes matching 
                                contributions on behalf of each 
                                employee who is not a highly 
                                compensated employee in an 
                                amount equal to the sum of 100 
                                percent of the elective 
                                contributions of the employee 
                                to the extent that such 
                                contributions do not exceed 1 
                                percent of compensation plus 50 
                                percent of so much of such 
                                contributions as exceed 1 
                                percent but do not exceed 6 
                                percent of compensation, or
                                  (II) is required, without 
                                regard to whether the employee 
                                makes an elective contribution 
                                or employee contribution, to 
                                make a contribution to a 
                                defined contribution plan on 
                                behalf of each employee who is 
                                not a highly compensated 
                                employee and who is eligible to 
                                participate in the arrangement 
                                in an amount equal to at least 
                                3 percent of the employee's 
                                compensation.
                          (ii) Application of rules for 
                        matching contributions.--The rules of 
                        clauses (ii) and (iii) of paragraph 
                        (12)(B) shall apply for purposes of 
                        clause (i)(I).
                          (iii) Withdrawal and vesting 
                        restrictions.--An arrangement shall not 
                        be treated as meeting the requirements 
                        of clause (i) unless, with respect to 
                        employer contributions (including 
                        matching contributions) taken into 
                        account in determining whether the 
                        requirements of clause (i) are met--
                                  (I) any employee who has 
                                completed at least 2 years of 
                                service (within the meaning of 
                                section 411(a)) has a 
                                nonforfeitable right to 100 
                                percent of the employee's 
                                accrued benefit derived from 
                                such employer contributions, 
                                and
                                  (II) the requirements of 
                                subparagraph (B) of paragraph 
                                (2) are met with respect to all 
                                such employer contributions.
                          (iv) Application of certain other 
                        rules.--The rules of subparagraphs 
                        (E)(ii) and (F) of paragraph (12) shall 
                        apply for purposes of subclauses (I) 
                        and (II) of clause (i).
                  (E) Notice requirements.--
                          (i) In general.--The requirements of 
                        this subparagraph are met if, within a 
                        reasonable period before each plan 
                        year, each employee eligible to 
                        participate in the arrangement for such 
                        year receives written notice of the 
                        employee's rights and obligations under 
                        the arrangement which--
                                  (I) is sufficiently accurate 
                                and comprehensive to apprise 
                                the employee of such rights and 
                                obligations, and
                                  (II) is written in a manner 
                                calculated to be understood by 
                                the average employee to whom 
                                the arrangement applies.
                          (ii) Timing and content 
                        requirements.--A notice shall not be 
                        treated as meeting the requirements of 
                        clause (i) with respect to an employee 
                        unless--
                                  (I) the notice explains the 
                                employee's right under the 
                                arrangement to elect not to 
                                have elective contributions 
                                made on the employee's behalf 
                                (or to elect to have such 
                                contributions made at a 
                                different percentage),
                                  (II) in the case of an 
                                arrangement under which the 
                                employee may elect among 2 or 
                                more investment options, the 
                                notice explains how 
                                contributions made under the 
                                arrangement will be invested in 
                                the absence of any investment 
                                election by the employee, and
                                  (III) the employee has a 
                                reasonable period of time after 
                                receipt of the notice described 
                                in subclauses (I) and (II) and 
                                before the first elective 
                                contribution is made to make 
                                either such election.
                  (F) Timing of plan amendment for employer 
                making nonelective contributions.--
                          (i) In general.--Except as provided 
                        in clause (ii), a plan may be amended 
                        after the beginning of a plan year to 
                        provide that the requirements of 
                        subparagraph (D)(i)(II) shall apply to 
                        the arrangement for the plan year, but 
                        only if the amendment is adopted--
                                  (I) at any time before the 
                                30th day before the close of 
                                the plan year, or
                                  (II) at any time before the 
                                last day under paragraph (8)(A) 
                                for distributing excess 
                                contributions for the plan 
                                year.
                          (ii) Exception where plan provided 
                        for matching contributions.--Clause (i) 
                        shall not apply to any plan year if the 
                        plan provided at any time during the 
                        plan year that the requirements of 
                        subparagraph (D)(i)(I) or paragraph 
                        (12)(B) applied to the plan year.
                          (iii) 4-percent contribution 
                        requirement.--Clause (i)(II) shall not 
                        apply to an arrangement unless the 
                        amount of the contributions described 
                        in subparagraph (D)(i)(II) which the 
                        employer is required to make under the 
                        arrangement for the plan year with 
                        respect to any employee is an amount 
                        equal to at least 4 percent of the 
                        employee's compensation.
          (14) Special rules relating to hardship 
        withdrawals.--For purposes of paragraph (2)(B)(i)(IV)--
                  (A) Amounts which may be withdrawn.--The 
                following amounts may be distributed upon 
                hardship of the employee:
                          (i) Contributions to a profit-sharing 
                        or stock bonus plan to which section 
                        402(e)(3) applies.
                          (ii) Qualified nonelective 
                        contributions (as defined in subsection 
                        (m)(4)(C)).
                          (iii) Qualified matching 
                        contributions described in paragraph 
                        (3)(D)(ii)(I).
                          (iv) Earnings on any contributions 
                        described in clause (i), (ii), or 
                        (iii).
                  (B) No requirement to take available loan.--A 
                distribution shall not be treated as failing to 
                be made upon the hardship of an employee solely 
                because the employee does not take any 
                available loan under the plan.
  (l) Permitted disparity in plan contributions or benefits.--
          (1) In general.--The requirements of this subsection 
        are met with respect to a plan if--
                  (A) in the case of a defined contribution 
                plan, the requirements of paragraph (2) are 
                met, and
                  (B) in the case of a defined benefit plan, 
                the requirements of paragraph (3) are met.
          (2) Defined contribution plan.--
                  (A) In general.--A defined contribution plan 
                meets the requirements of this paragraph if the 
                excess contribution percentage does not exceed 
                the base contribution percentage by more than 
                the lesser of--
                          (i) the base contribution percentage, 
                        or
                          (ii) the greater of--
                                  (I) 5.7 percentage points, or
                                  (II) the percentage equal to 
                                the portion of the rate of tax 
                                under section 3111(a) (in 
                                effect as of the beginning of 
                                the year) which is attributable 
                                to old-age insurance.
                  (B) Contribution percentages.--For purposes 
                of this paragraph--
                          (i) Excess contribution percentage.--
                        The term ``excess contribution 
                        percentage'' means the percentage of 
                        compensation which is contributed by 
                        the employer under the plan with 
                        respect to that portion of each 
                        participant's compensation in excess of 
                        the integration level.
                          (ii) Base contribution percentage.--
                        The term ``base contribution 
                        percentage'' means the percentage of 
                        compensation contributed by the 
                        employer under the plan with respect to 
                        that portion of each participant's 
                        compensation not in excess of the 
                        integration level.
          (3) Defined benefit plan.--A defined benefit plan 
        meets the requirements of this paragraph if--
                  (A) Excess plans.--
                          (i) In general.--In the case of a 
                        plan other than an offset plan--
                                  (I) the excess benefit 
                                percentage does not exceed the 
                                base benefit percentage by more 
                                than the maximum excess 
                                allowance,
                                  (II) any optional form of 
                                benefit, preretirement benefit, 
                                actuarial factor, or other 
                                benefit or feature provided 
                                with respect to compensation in 
                                excess of the integration level 
                                is provided with respect to 
                                compensation not in excess of 
                                such level, and
                                  (III) benefits are based on 
                                average annual compensation.
                          (ii) Benefit percentages.--For 
                        purposes of this subparagraph, the 
                        excess and base benefit percentages 
                        shall be computed in the same manner as 
                        the excess and base contribution 
                        percentages under paragraph (2)(B), 
                        except that such determination shall be 
                        made on the basis of benefits 
                        attributable to employer contributions 
                        rather than contributions.
                  (B) Offset plans.--In the case of an offset 
                plan, the plan provides that--
                          (i) a participant's accrued benefit 
                        attributable to employer contributions 
                        (within the meaning of section 
                        411(c)(1)) may not be reduced (by 
                        reason of the offset) by more than the 
                        maximum offset allowance, and
                          (ii) benefits are based on average 
                        annual compensation.
          (4) Definitions relating to paragraph (3).--For 
        purposes of paragraph (3)--
                  (A) Maximum excess allowance.--The maximum 
                excess allowance is equal to--
                          (i) in the case of benefits 
                        attributable to any year of service 
                        with the employer taken into account 
                        under the plan, 3/4 of a percentage 
                        point, and
                          (ii) in the case of total benefits, 
                        3/4 of a percentage point, multiplied 
                        by the participant's years of service 
                        (not in excess of 35) with the employer 
                        taken into account under the plan.
                In no event shall the maximum excess allowance 
                exceed the base benefit percentage.
                  (B) Maximum offset allowance.--The maximum 
                offset allowance is equal to--
                          (i) in the case of benefits 
                        attributable to any year of service 
                        with the employer taken into account 
                        under the plan, 3/4 percent of the 
                        participant's final average 
                        compensation, and
                          (ii) in the case of total benefits, 
                        3/4 percent of the participant's final 
                        average compensation, multiplied by the 
                        participant's years of service (not in 
                        excess of 35) with the employer taken 
                        into account under the plan.
                In no event shall the maximum offset allowance 
                exceed 50 percent of the benefit which would 
                have accrued without regard to the offset 
                reduction.
                  (C) Reductions.--
                          (i) In general.--The Secretary shall 
                        prescribe regulations requiring the 
                        reduction of the 3/4 percentage factor 
                        under subparagraph (A) or (B)--
                                  (I) in the case of a plan 
                                other than an offset plan which 
                                has an integration level in 
                                excess of covered compensation, 
                                or
                                  (II) with respect to any 
                                participant in an offset plan 
                                who has final average 
                                compensation in excess of 
                                covered compensation.
                          (ii) Basis of reductions.--Any 
                        reductions under clause (i) shall be 
                        based on the percentages of 
                        compensation replaced by the employer-
                        derived portions of primary insurance 
                        amounts under the Social Security Act 
                        for participants with compensation in 
                        excess of covered compensation.
                  (D) Offset plan.--The term ``offset plan'' 
                means any plan with respect to which the 
                benefit attributable to employer contributions 
                for each participant is reduced by an amount 
                specified in the plan.
          (5) Other definitions and special rules.--For 
        purposes of this subsection--
                  (A) Integration level.--
                          (i) In general.--The term 
                        ``integration level'' means the amount 
                        of compensation specified under the 
                        plan (by dollar amount or formula) at 
                        or below which the rate at which 
                        contributions or benefits are provided 
                        (expressed as a percentage) is less 
                        than such rate above such amount.
                          (ii) Limitation.--The integration 
                        level for any year may not exceed the 
                        contribution and benefit base in effect 
                        under section 230 of the Social 
                        Security Act for such year.
                          (iii) Level to apply to all 
                        participants.--A plan's integration 
                        level shall apply with respect to all 
                        participants in the plan.
                          (iv) Multiple integration levels.--
                        Under rules prescribed by the 
                        Secretary, a defined benefit plan may 
                        specify multiple integration levels.
                  (B) Compensation.--The term ``compensation'' 
                has the meaning given such term by section 
                414(s).
                  (C) Average annual compensation.--The term 
                ``average annual compensation'' means the 
                participant's highest average annual 
                compensation for--
                          (i) any period of at least 3 
                        consecutive years, or
                          (ii) if shorter, the participant's 
                        full period of service.
                  (D) Final average compensation.--
                          (i) In general.--The term ``final 
                        average compensation'' means the 
                        participant's average annual 
                        compensation for--
                                  (I) the 3-consecutive year 
                                period ending with the current 
                                year, or
                                  (II) if shorter, the 
                                participant's full period of 
                                service.
                          (ii) Limitation.--A participant's 
                        final average compensation shall be 
                        determined by not taking into account 
                        in any year compensation in excess of 
                        the contribution and benefit base in 
                        effect under section 230 of the Social 
                        Security Act for such year.
                  (E) Covered compensation.--
                          (i) In general.--The term ``covered 
                        compensation'' means, with respect to 
                        an employee, the average of the 
                        contribution and benefit bases in 
                        effect under section 230 of the Social 
                        Security Act for each year in the 35-
                        year period ending with the year in 
                        which the employee attains the social 
                        security retirement age.
                          (ii) Computation for any year.--For 
                        purposes of clause (i), the 
                        determination for any year preceding 
                        the year in which the employee attains 
                        the social security retirement age 
                        shall be made by assuming that there is 
                        no increase in the bases described in 
                        clause (i) after the determination year 
                        and before the employee attains the 
                        social security retirement age.
                          (iii) Social security retirement 
                        age.--For purposes of this 
                        subparagraph, the term ``social 
                        security retirement age'' has the 
                        meaning given such term by section 
                        415(b)(8).
                  (F) Regulations.--The Secretary shall 
                prescribe such regulations as are necessary or 
                appropriate to carry out the purposes of this 
                subsection, including--
                          (i) in the case of a defined benefit 
                        plan which provides for unreduced 
                        benefits commencing before the social 
                        security retirement age (as defined in 
                        section 415(b)(8)), rules providing for 
                        the reduction of the maximum excess 
                        allowance and the maximum offset 
                        allowance, and
                          (ii) in the case of an employee 
                        covered by 2 or more plans of the 
                        employer which fail to meet the 
                        requirements of subsection (a)(4) 
                        (without regard to this subsection), 
                        rules preventing the multiple use of 
                        the disparity permitted under this 
                        subsection with respect to any 
                        employee.
                For purposes of clause (i), unreduced benefits 
                shall not include benefits for disability 
                (within the meaning of section 223(d) of the 
                Social Security Act).
          (6) Special rule for plan maintained by railroads.--
        In determining whether a plan which includes employees 
        of a railroad employer who are entitled to benefits 
        under the Railroad Retirement Act of 1974 meets the 
        requirements of this subsection, rules similar to the 
        rules set forth in this subsection shall apply. Such 
        rules shall take into account the employer-derived 
        portion of the employees' tier 2 railroad retirement 
        benefits and any supplemental annuity under the 
        Railroad Retirement Act of 1974.
  (m) Nondiscrimination test for matching contributions and 
employee contributions.--
          (1) In general.--A defined contribution plan shall be 
        treated as meeting the requirements of subsection 
        (a)(4) with respect to the amount of any matching 
        contribution or employee contribution for any plan year 
        only if the contribution percentage requirement of 
        paragraph (2) of this subsection is met for such plan 
        year.
          (2) Requirements.--
                  (A) Contribution percentage requirement.--A 
                plan meets the contribution percentage 
                requirement of this paragraph for any plan year 
                only if the contribution percentage for 
                eligible highly compensated employees for such 
                plan year does not exceed the greater of--
                          (i) 125 percent of such percentage 
                        for all other eligible employees for 
                        the preceding plan year, or
                          (ii) the lesser of 200 percent of 
                        such percentage for all other eligible 
                        employees for the preceding plan year, 
                        or such percentage for all other 
                        eligible employees for the preceding 
                        plan year plus 2 percentage points.
                This subparagraph may be applied by using the 
                plan year rather than the preceding plan year 
                if the employer so elects, except that if such 
                an election is made, it may not be changed 
                except as provided by the Secretary.
                  (B) Multiple plans treated as a single 
                plan.--If two or more plans of an employer to 
                which matching contributions, employee 
                contributions, or elective deferrals are made 
                are treated as one plan for purposes of section 
                410(b), such plans shall be treated as one plan 
                for purposes of this subsection. If a highly 
                compensated employee participates in two or 
                more plans of an employer to which 
                contributions to which this subsection applies 
                are made, all such contributions shall be 
                aggregated for purposes of this subsection.
          (3) Contribution percentage.--For purposes of 
        paragraph (2), the contribution percentage for a 
        specified group of employees for a plan year shall be 
        the average of the ratios (calculated separately for 
        each employee in such group) of--
                  (A) the sum of the matching contributions and 
                employee contributions paid under the plan on 
                behalf of each such employee for such plan 
                year, to
                  (B) the employee's compensation (within the 
                meaning of section 414(s)) for such plan year.
        Under regulations, an employer may elect to take into 
        account (in computing the contribution percentage) 
        elective deferrals and qualified nonelective 
        contributions under the plan or any other plan of the 
        employer. If matching contributions are taken into 
        account for purposes of subsection (k)(3)(A)(ii) for 
        any plan year, such contributions shall not be taken 
        into account under subparagraph (A) for such year. 
        Rules similar to the rules of subsection (k)(3)(E) 
        shall apply for purposes of this subsection.
          (4) Definitions.--For purposes of this subsection--
                  (A) Matching contribution.--The term 
                ``matching contribution'' means--
                          (i) any employer contribution made to 
                        a defined contribution plan on behalf 
                        of an employee on account of an 
                        employee contribution made by such 
                        employee, and
                          (ii) any employer contribution made 
                        to a defined contribution plan on 
                        behalf of an employee on account of an 
                        employee's elective deferral.
                  (B) Elective deferral.--The term ``elective 
                deferral'' means any employer contribution 
                described in section 402(g)(3).
                  (C) Qualified nonelective contributions.--The 
                term ``qualified nonelective contribution'' 
                means any employer contribution (other than a 
                matching contribution) with respect to which--
                          (i) the employee may not elect to 
                        have the contribution paid to the 
                        employee in cash instead of being 
                        contributed to the plan, and
                          (ii) the requirements of 
                        subparagraphs (B) and (C) of subsection 
                        (k)(2) are met.
          (5) Employees taken into consideration.--
                  (A) In general.--Any employee who is eligible 
                to make an employee contribution (or, if the 
                employer takes elective contributions into 
                account, elective contributions) or to receive 
                a matching contribution under the plan being 
                tested under paragraph (1) shall be considered 
                an eligible employee for purposes of this 
                subsection.
                  (B) Certain nonparticipants.--If an employee 
                contribution is required as a condition of 
                participation in the plan, any employee who 
                would be a participant in the plan if such 
                employee made such a contribution shall be 
                treated as an eligible employee on behalf of 
                whom no employer contributions are made.
                  (C) Special rule for early participation.--If 
                an employer elects to apply section 
                410(b)(4)(B) in determining whether a plan 
                meets the requirements of section 410(b), the 
                employer may, in determining whether the plan 
                meets the requirements of paragraph (2), 
                exclude from consideration all eligible 
                employees (other than highly compensated 
                employees) who have not met the minimum age and 
                service requirements of section 410(a)(1)(A).
          (6) Plan not disqualified if excess aggregate 
        contributions distributed before end of following plan 
        year.--
                  (A) In general.--A plan shall not be treated 
                as failing to meet the requirements of 
                paragraph (1) for any plan year if, before the 
                close of the following plan year, the amount of 
                the excess aggregate contributions for such 
                plan year (and any income allocable to such 
                contributions through the end of such year) is 
                distributed (or, if forfeitable, is forfeited). 
                Such contributions (and such income) may be 
                distributed without regard to any other 
                provision of law.
                  (B) Excess aggregate contributions.--For 
                purposes of subparagraph (A), the term ``excess 
                aggregate contributions'' means, with respect 
                to any plan year, the excess of--
                          (i) the aggregate amount of the 
                        matching contributions and employee 
                        contributions (and any qualified 
                        nonelective contribution or elective 
                        contribution taken into account in 
                        computing the contribution percentage) 
                        actually made on behalf of highly 
                        compensated employees for such plan 
                        year, over
                          (ii) the maximum amount of such 
                        contributions permitted under the 
                        limitations of paragraph (2)(A) 
                        (determined by reducing contributions 
                        made on behalf of highly compensated 
                        employees in order of their 
                        contribution percentages beginning with 
                        the highest of such percentages).
                  (C) Method of distributing excess aggregate 
                contributions.--Any distribution of the excess 
                aggregate contributions for any plan year shall 
                be made to highly compensated employees on the 
                basis of the amount of contributions on behalf 
                of, or by, each such employee. Forfeitures of 
                excess aggregate contributions may not be 
                allocated to participants whose contributions 
                are reduced under this paragraph.
                  (D) Coordination with subsection (k) and 
                402(g).--The determination of the amount of 
                excess aggregate contributions with respect to 
                a plan shall be made after--
                          (i) first determining the excess 
                        deferrals (within the meaning of 
                        section 402(g)), and
                          (ii) then determining the excess 
                        contributions under subsection (k).
          (7) Treatment of distributions.--
                  (A) Additional tax of section 72(t) not 
                applicable.--No tax shall be imposed under 
                section 72(t) on any amount required to be 
                distributed under paragraph (6).
                  (B) Exclusion of employee contributions.--Any 
                distribution attributable to employee 
                contributions shall not be included in gross 
                income except to the extent attributable to 
                income on such contributions.
          (8) Highly compensated employee.--For purposes of 
        this subsection, the term ``highly compensated 
        employee'' has the meaning given to such term by 
        section 414(q).
          (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.
          (10) Alternative method of satisfying tests.--A 
        defined contribution plan shall be treated as meeting 
        the requirements of paragraph (2) with respect to 
        matching contributions if the plan--
                  (A) meets the contribution requirements of 
                subparagraph (B) of subsection (k)(11),
                  (B) meets the exclusive plan requirements of 
                subsection (k)(11)(C), and
                  (C) meets the vesting requirements of section 
                408(p)(3).
          (11) Additional alternative method of satisfying 
        tests.--
                  (A) In general.--A defined contribution plan 
                shall be treated as meeting the requirements of 
                paragraph (2) with respect to matching 
                contributions if the plan--
                          (i) meets the contribution 
                        requirements of subparagraph (B) or (C) 
                        of subsection (k)(12),
                          (ii) meets the notice requirements of 
                        subsection (k)(12)(D), and
                          (iii) meets the requirements of 
                        subparagraph (B).
                  (B) Limitation on matching contributions.--
                The requirements of this subparagraph are met 
                if--
                          (i) matching contributions on behalf 
                        of any employee may not be made with 
                        respect to an employee's contributions 
                        or elective deferrals in excess of 6 
                        percent of the employee's compensation,
                          (ii) the rate of an employer's 
                        matching contribution does not increase 
                        as the rate of an employee's 
                        contributions or elective deferrals 
                        increase, and
                          (iii) the matching contribution with 
                        respect to any highly compensated 
                        employee at any rate of an employee 
                        contribution or rate of elective 
                        deferral is not greater than that with 
                        respect to an employee who is not a 
                        highly compensated employee.
          (12) Alternative method for automatic contribution 
        arrangements.--A defined contribution plan shall be 
        treated as meeting the requirements of paragraph (2) 
        with respect to matching contributions if the plan--
                  (A) is a qualified automatic contribution 
                arrangement (as defined in subsection (k)(13)), 
                and
                  (B) meets the requirements of paragraph 
                (11)(B).
          (13) Cross reference.--For excise tax on certain 
        excess contributions, see section 4979.
  (n) Coordination with qualified domestic relations orders.--
The Secretary shall prescribe such rules or regulations as may 
be necessary to coordinate the requirements of subsection 
(a)(13)(B) and section 414(p) (and the regulations issued by 
the Secretary of Labor thereunder) with the other provisions of 
this chapter.
  (o) Special Rules for Applying Nondiscrimination Rules to 
Protect Older, Longer Service and Grandfathered Participants.--
          (1) Testing of defined benefit plans with closed 
        classes of participants.--
                  (A) Benefits, rights, or features provided to 
                closed classes.--A defined benefit plan which 
                provides benefits, rights, or features to a 
                closed class of participants shall not fail to 
                satisfy the requirements of subsection (a)(4) 
                by reason of the composition of such closed 
                class or the benefits, rights, or features 
                provided to such closed class, if--
                          (i) for the plan year as of which the 
                        class closes and the 2 succeeding plan 
                        years, such benefits, rights, and 
                        features satisfy the requirements of 
                        subsection (a)(4) (without regard to 
                        this subparagraph but taking into 
                        account the rules of subparagraph (I)),
                          (ii) after the date as of which the 
                        class was closed, any plan amendment 
                        which modifies the closed class or the 
                        benefits, rights, and features provided 
                        to such closed class does not 
                        discriminate significantly in favor of 
                        highly compensated employees, and
                          (iii) the class was closed before 
                        April 5, 2017, or the plan is described 
                        in subparagraph (C).
                  (B) Aggregate testing with defined 
                contribution plans permitted on a benefits 
                basis.--
                          (i) In general.--For purposes of 
                        determining compliance with subsection 
                        (a)(4) and section 410(b), a defined 
                        benefit plan described in clause (iii) 
                        may be aggregated and tested on a 
                        benefits basis with 1 or more defined 
                        contribution plans, including with the 
                        portion of 1 or more defined 
                        contribution plans which--
                                  (I) provides matching 
                                contributions (as defined in 
                                subsection (m)(4)(A)),
                                  (II) provides annuity 
                                contracts described in section 
                                403(b) which are purchased with 
                                matching contributions or 
                                nonelective contributions, or
                                  (III) consists of an employee 
                                stock ownership plan (within 
                                the meaning of section 
                                4975(e)(7)) or a tax credit 
                                employee stock ownership plan 
                                (within the meaning of section 
                                409(a)).
                          (ii) Special rules for matching 
                        contributions.--For purposes of clause 
                        (i), if a defined benefit plan is 
                        aggregated with a portion of a defined 
                        contribution plan providing matching 
                        contributions--
                                  (I) such defined benefit plan 
                                must also be aggregated with 
                                any portion of such defined 
                                contribution plan which 
                                provides elective deferrals 
                                described in subparagraph (A) 
                                or (C) of section 402(g)(3), 
                                and
                                  (II) such matching 
                                contributions shall be treated 
                                in the same manner as 
                                nonelective contributions, 
                                including for purposes of 
                                applying the rules of 
                                subsection (l).
                          (iii) Plans described.--A defined 
                        benefit plan is described in this 
                        clause if--
                                  (I) the plan provides 
                                benefits to a closed class of 
                                participants,
                                  (II) for the plan year as of 
                                which the class closes and the 
                                2 succeeding plan years, the 
                                plan satisfies the requirements 
                                of section 410(b) and 
                                subsection (a)(4) (without 
                                regard to this subparagraph but 
                                taking into account the rules 
                                of subparagraph (I)),
                                  (III) after the date as of 
                                which the class was closed, any 
                                plan amendment which modifies 
                                the closed class or the 
                                benefits provided to such 
                                closed class does not 
                                discriminate significantly in 
                                favor of highly compensated 
                                employees, and
                                  (IV) the class was closed 
                                before April 5, 2017, or the 
                                plan is described in 
                                subparagraph (C).
                  (C) Plans described.--A plan is described in 
                this subparagraph if, taking into account any 
                predecessor plan--
                          (i) such plan has been in effect for 
                        at least 5 years as of the date the 
                        class is closed, and
                          (ii) during the 5-year period 
                        preceding the date the class is closed, 
                        there has not been a substantial 
                        increase in the coverage or value of 
                        the benefits, rights, or features 
                        described in subparagraph (A) or in the 
                        coverage or benefits under the plan 
                        described in subparagraph (B)(iii) 
                        (whichever is applicable).
                  (D) Determination of substantial increase for 
                benefits, rights, and features.--In applying 
                subparagraph (C)(ii) for purposes of 
                subparagraph (A)(iii), a plan shall be treated 
                as having had a substantial increase in 
                coverage or value of the benefits, rights, or 
                features described in subparagraph (A) during 
                the applicable 5-year period only if, during 
                such period--
                          (i) the number of participants 
                        covered by such benefits, rights, or 
                        features on the date such period ends 
                        is more than 50 percent greater than 
                        the number of such participants on the 
                        first day of the plan year in which 
                        such period began, or
                          (ii) such benefits, rights, and 
                        features have been modified by 1 or 
                        more plan amendments in such a way 
                        that, as of the date the class is 
                        closed, the value of such benefits, 
                        rights, and features to the closed 
                        class as a whole is substantially 
                        greater than the value as of the first 
                        day of such 5-year period, solely as a 
                        result of such amendments.
                  (E) Determination of substantial increase for 
                aggregate testing on benefits basis.--In 
                applying subparagraph (C)(ii) for purposes of 
                subparagraph (B)(iii)(IV), a plan shall be 
                treated as having had a substantial increase in 
                coverage or benefits during the applicable 5-
                year period only if, during such period--
                          (i) the number of participants 
                        benefitting under the plan on the date 
                        such period ends is more than 50 
                        percent greater than the number of such 
                        participants on the first day of the 
                        plan year in which such period began, 
                        or
                          (ii) the average benefit provided to 
                        such participants on the date such 
                        period ends is more than 50 percent 
                        greater than the average benefit 
                        provided on the first day of the plan 
                        year in which such period began.
                  (F) Certain employees disregarded.--For 
                purposes of subparagraphs (D) and (E), any 
                increase in coverage or value or in coverage or 
                benefits, whichever is applicable, which is 
                attributable to such coverage and value or 
                coverage and benefits provided to employees--
                          (i) who became participants as a 
                        result of a merger, acquisition, or 
                        similar event which occurred during the 
                        7-year period preceding the date the 
                        class is closed, or
                          (ii) who became participants by 
                        reason of a merger of the plan with 
                        another plan which had been in effect 
                        for at least 5 years as of the date of 
                        the merger,
                shall be disregarded, except that clause (ii) 
                shall apply for purposes of subparagraph (D) 
                only if, under the merger, the benefits, 
                rights, or features under 1 plan are conformed 
                to the benefits, rights, or features of the 
                other plan prospectively.
                  (G) Rules relating to average benefit.--For 
                purposes of subparagraph (E)--
                          (i) the average benefit provided to 
                        participants under the plan will be 
                        treated as having remained the same 
                        between the 2 dates described in 
                        subparagraph (E)(ii) if the benefit 
                        formula applicable to such participants 
                        has not changed between such dates, and
                          (ii) if the benefit formula 
                        applicable to 1 or more participants 
                        under the plan has changed between such 
                        2 dates, then the average benefit under 
                        the plan shall be considered to have 
                        increased by more than 50 percent only 
                        if--
                                  (I) the total amount 
                                determined under section 
                                430(b)(1)(A)(i) for all 
                                participants benefitting under 
                                the plan for the plan year in 
                                which the 5-year period 
                                described in subparagraph (E) 
                                ends, exceeds
                                  (II) the total amount 
                                determined under section 
                                430(b)(1)(A)(i) for all such 
                                participants for such plan 
                                year, by using the benefit 
                                formula in effect for each such 
                                participant for the first plan 
                                year in such 5-year period, by 
                                more than 50 percent.
                        In the case of a CSEC plan (as defined 
                        in section 414(y)), the normal cost of 
                        the plan (as determined under section 
                        433(j)(1)(B)) shall be used in lieu of 
                        the amount determined under section 
                        430(b)(1)(A)(i).
                  (H) Treatment as single plan.--For purposes 
                of subparagraphs (E) and (G), a plan described 
                in section 413(c) shall be treated as a single 
                plan rather than as separate plans maintained 
                by each employer in the plan.
                  (I) Special rules.--For purposes of 
                subparagraphs (A)(i) and (B)(iii)(II), the 
                following rules shall apply:
                          (i) In applying section 410(b)(6)(C), 
                        the closing of the class of 
                        participants shall not be treated as a 
                        significant change in coverage under 
                        section 410(b)(6)(C)(i)(II).
                          (ii) 2 or more plans shall not fail 
                        to be eligible to be aggregated and 
                        treated as a single plan solely by 
                        reason of having different plan years.
                          (iii) Changes in the employee 
                        population shall be disregarded to the 
                        extent attributable to individuals who 
                        become employees or cease to be 
                        employees, after the date the class is 
                        closed, by reason of a merger, 
                        acquisition, divestiture, or similar 
                        event.
                          (iv) Aggregation and all other 
                        testing methodologies otherwise 
                        applicable under subsection (a)(4) and 
                        section 410(b) may be taken into 
                        account.
                The rule of clause (ii) shall also apply for 
                purposes of determining whether plans to which 
                subparagraph (B)(i) applies may be aggregated 
                and treated as 1 plan for purposes of 
                determining whether such plans meet the 
                requirements of subsection (a)(4) and section 
                410(b).
                  (J) Spun-off plans.--For purposes of this 
                paragraph, if a portion of a defined benefit 
                plan described in subparagraph (A) or (B)(iii) 
                is spun off to another employer and the spun-
                off plan continues to satisfy the requirements 
                of--
                          (i) subparagraph (A)(i) or 
                        (B)(iii)(II), whichever is applicable, 
                        if the original plan was still within 
                        the 3-year period described in such 
                        subparagraph at the time of the spin 
                        off, and
                          (ii) subparagraph (A)(ii) or 
                        (B)(iii)(III), whichever is applicable,
                the treatment under subparagraph (A) or (B) of 
                the spun-off plan shall continue with respect 
                to such other employer.
          (2) Testing of defined contribution plans.--
                  (A) Testing on a benefits basis.--A defined 
                contribution plan shall be permitted to be 
                tested on a benefits basis if--
                          (i) such defined contribution plan 
                        provides make-whole contributions to a 
                        closed class of participants whose 
                        accruals under a defined benefit plan 
                        have been reduced or eliminated,
                          (ii) for the plan year of the defined 
                        contribution plan as of which the class 
                        eligible to receive such make-whole 
                        contributions closes and the 2 
                        succeeding plan years, such closed 
                        class of participants satisfies the 
                        requirements of section 410(b)(2)(A)(i) 
                        (determined by applying the rules of 
                        paragraph (1)(I)),
                          (iii) after the date as of which the 
                        class was closed, any plan amendment to 
                        the defined contribution plan which 
                        modifies the closed class or the 
                        allocations, benefits, rights, and 
                        features provided to such closed class 
                        does not discriminate significantly in 
                        favor of highly compensated employees, 
                        and
                          (iv) the class was closed before 
                        April 5, 2017, or the defined benefit 
                        plan under clause (i) is described in 
                        paragraph (1)(C) (as applied for 
                        purposes of paragraph (1)(B)(iii)(IV)).
                  (B) Aggregation with plans including matching 
                contributions.--
                          (i) In general.--With respect to 1 or 
                        more defined contribution plans 
                        described in subparagraph (A), for 
                        purposes of determining compliance with 
                        subsection (a)(4) and section 410(b), 
                        the portion of such plans which 
                        provides make-whole contributions or 
                        other nonelective contributions may be 
                        aggregated and tested on a benefits 
                        basis with the portion of 1 or more 
                        other defined contribution plans 
                        which--
                                  (I) provides matching 
                                contributions (as defined in 
                                subsection (m)(4)(A)),
                                  (II) provides annuity 
                                contracts described in section 
                                403(b) which are purchased with 
                                matching contributions or 
                                nonelective contributions, or
                                  (III) consists of an employee 
                                stock ownership plan (within 
                                the meaning of section 
                                4975(e)(7)) or a tax credit 
                                employee stock ownership plan 
                                (within the meaning of section 
                                409(a)).
                          (ii) Special rules for matching 
                        contributions.--Rules similar to the 
                        rules of paragraph (1)(B)(ii) shall 
                        apply for purposes of clause (i).
                  (C) Special rules for testing defined 
                contribution plan features providing matching 
                contributions to certain older, longer service 
                participants.--In the case of a defined 
                contribution plan which provides benefits, 
                rights, or features to a closed class of 
                participants whose accruals under a defined 
                benefit plan have been reduced or eliminated, 
                the plan shall not fail to satisfy the 
                requirements of subsection (a)(4) solely by 
                reason of the composition of the closed class 
                or the benefits, rights, or features provided 
                to such closed class if the defined 
                contribution plan and defined benefit plan 
                otherwise meet the requirements of subparagraph 
                (A) but for the fact that the make-whole 
                contributions under the defined contribution 
                plan are made in whole or in part through 
                matching contributions.
                  (D) Spun-off plans.--For purposes of this 
                paragraph, if a portion of a defined 
                contribution plan described in subparagraph (A) 
                or (C) is spun off to another employer, the 
                treatment under subparagraph (A) or (C) of the 
                spun-off plan shall continue with respect to 
                the other employer if such plan continues to 
                comply with the requirements of clauses (ii) 
                (if the original plan was still within the 3-
                year period described in such clause at the 
                time of the spin off) and (iii) of subparagraph 
                (A), as determined for purposes of subparagraph 
                (A) or (C), whichever is applicable.
          (3) Definitions.--For purposes of this subsection--
                  (A) Make-whole contributions.--Except as 
                otherwise provided in paragraph (2)(C), the 
                term ``make-whole contributions'' means 
                nonelective allocations for each employee in 
                the class which are reasonably calculated, in a 
                consistent manner, to replace some or all of 
                the retirement benefits which the employee 
                would have received under the defined benefit 
                plan and any other plan or qualified cash or 
                deferred arrangement under subsection (k)(2) if 
                no change had been made to such defined benefit 
                plan and such other plan or arrangement. For 
                purposes of the preceding sentence, consistency 
                shall not be required with respect to employees 
                who were subject to different benefit formulas 
                under the defined benefit plan.
                  (B) References to closed class of 
                participants.--References to a closed class of 
                participants and similar references to a closed 
                class shall include arrangements under which 1 
                or more classes of participants are closed, 
                except that 1 or more classes of participants 
                closed on different dates shall not be 
                aggregated for purposes of determining the date 
                any such class was closed.
                  (C) Highly compensated employee.--The term 
                ``highly compensated employee'' has the meaning 
                given such term in section 414(q).
  [(o)] (p) Cross reference.--For exemption from tax of a trust 
qualified under this section, see section 501(a).

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

  (a) Taxability of beneficiary of exempt trust.--Except as 
otherwise provided in this section, any amount actually 
distributed to any distributee by any employees' trust 
described in section 401(a) which is exempt from tax under 
section 501(a) shall be taxable to the distributee, in the 
taxable year of the distributee in which distributed, under 
section 72 (relating to annuities).
  (b) Taxability of beneficiary of nonexempt trust.--
          (1) Contributions.--Contributions to an employees' 
        trust made by an employer during a taxable year of the 
        employer which ends with or within a taxable year of 
        the trust for which the trust is not exempt from tax 
        under section 501(a) shall be included in the gross 
        income of the employee in accordance with section 83 
        (relating to property transferred in connection with 
        performance of services), except that the value of the 
        employee's interest in the trust shall be substituted 
        for the fair market value of the property for purposes 
        of applying such section.
          (2) Distributions.--The amount actually distributed 
        or made available to any distributee by any trust 
        described in paragraph (1) shall be taxable to the 
        distributee, in the taxable year in which so 
        distributed or made available, under section 72 
        (relating to annuities), except that distributions of 
        income of such trust before the annuity starting date 
        (as defined in section 72(c)(4)) shall be included in 
        the gross income of the employee without regard to 
        section 72(e)(5) (relating to amounts not received as 
        annuities).
          (3) Grantor trusts.--A beneficiary of any trust 
        described in paragraph (1) shall not be considered the 
        owner of any portion of such trust under subpart E of 
        part I of subchapter J (relating to grantors and others 
        treated as substantial owners).
          (4) Failure to meet requirements of section 410(b)
                  (A) Highly compensated employees.--If 1 of 
                the reasons a trust is not exempt from tax 
                under section 501(a) is the failure of the plan 
                of which it is a part to meet the requirements 
                of section 401(a)(26) or 410(b), then a highly 
                compensated employee shall, in lieu of the 
                amount determined under paragraph (1) or (2) 
                include in gross income for the taxable year 
                with or within which the taxable year of the 
                trust ends an amount equal to the vested 
                accrued benefit of such employee (other than 
                the employee's investment in the contract) as 
                of the close of such taxable year of the trust.
                  (B) Failure to meet coverage tests.--If a 
                trust is not exempt from tax under section 
                501(a) for any taxable year solely because such 
                trust is part of a plan which fails to meet the 
                requirements of section 401(a)(26) or 410(b), 
                paragraphs (1) and (2) shall not apply by 
                reason of such failure to any employee who was 
                not a highly compensated employee during--
                          (i) such taxable year, or
                          (ii) any preceding period for which 
                        service was creditable to such employee 
                        under the plan.
                  (C) Highly compensated employee.--For 
                purposes of this paragraph, the term ``highly 
                compensated employee'' has the meaning given 
                such term by section 414(q).
  (c) Rules applicable to rollovers from exempt trusts.--
          (1) Exclusion from income.--If--
                  (A) any portion of the balance to the credit 
                of an employee in a qualified trust is paid to 
                the employee in an eligible rollover 
                distribution,
                  (B) the distributee transfers any portion of 
                the property received in such distribution to 
                an eligible retirement plan, and
                  (C) 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.
          (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 or to an annuity contract described in 
                section 403(b) and such trust or contract 
                provides for separate accounting for amounts so 
                transferred (and earnings thereon), 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).
        In the case of a transfer described in subparagraph (A) 
        or (B), the amount transferred shall be treated as 
        consisting first of the portion of such distribution 
        that is includible in gross income (determined without 
        regard to paragraph (1)).
          (3) Time limit on transfers.--
                  (A) In general.--Except as provided in 
                subparagraphs (B) and (C), 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.
                  (C) Rollover of certain plan loan offset 
                amounts.--
                          (i) In general.--In the case of a 
                        qualified plan loan offset amount, 
                        paragraph (1) shall not apply to any 
                        transfer of such amount made after the 
                        due date (including extensions) for 
                        filing the return of tax for the 
                        taxable year in which such amount is 
                        treated as distributed from a qualified 
                        employer plan.
                          (ii) Qualified plan loan offset 
                        amount.--For purposes of this 
                        subparagraph, the term ``qualified plan 
                        loan offset amount'' means a plan loan 
                        offset amount which is treated as 
                        distributed from a qualified employer 
                        plan to a participant or beneficiary 
                        solely by reason of--
                                  (I) the termination of the 
                                qualified employer plan, or
                                  (II) the failure to meet the 
                                repayment terms of the loan 
                                from such plan because of the 
                                severance from employment of 
                                the participant.
                          (iii) Plan loan offset amount.--For 
                        purposes of clause (ii), the term 
                        ``plan loan offset amount'' means the 
                        amount by which the participant's 
                        accrued benefit under the plan is 
                        reduced in order to repay a loan from 
                        the plan.
                          (iv) Limitation.--This subparagraph 
                        shall not apply to any plan loan offset 
                        amount unless such plan loan offset 
                        amount relates to a loan to which 
                        section 72(p)(1) does not apply by 
                        reason of section 72(p)(2).
                          (v) Qualified employer plan.--For 
                        purposes of this subsection, the term 
                        ``qualified employer plan'' has the 
                        meaning given such term by section 
                        72(p)(4).
          (4) Eligible rollover distribution.--For purposes of 
        this subsection, the term ``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 trust; except that such term 
        shall not include--
                  (A) any distribution which is one of a series 
                of substantially equal periodic payments (not 
                less frequently than annually) made--
                          (i) 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
                          (ii) for a specified period of 10 
                        years or more,
                  (B) any distribution to the extent such 
                distribution is required under section 
                401(a)(9), and
                  (C) any distribution which is made upon 
                hardship of the employee.
        If all or any portion of a distribution during 2009 is 
        treated as an eligible rollover distribution but would 
        not be so treated if the minimum distribution 
        requirements under section 401(a)(9) had applied during 
        2009, such distribution shall not be treated as an 
        eligible rollover distribution for purposes of section 
        401(a)(31) or 3405(c) or subsection (f) of this 
        section.
          (5) Transfer treated as rollover contribution under 
        section 408.--For purposes of this title, a transfer to 
        an eligible retirement plan described in clause (i) or 
        (ii) of paragraph (8)(B) resulting in any portion of a 
        distribution being excluded from gross income under 
        paragraph (1) shall be treated as a rollover 
        contribution described in section 408(d)(3).
          (6) Sales of distributed property.--For purposes of 
        this subsection--
                  (A) Transfer of proceeds from sale of 
                distributed property treated as transfer of 
                distributed property.--The transfer of an 
                amount equal to any portion of the proceeds 
                from the sale of property received in the 
                distribution shall be treated as the transfer 
                of property received in the distribution.
                  (B) Proceeds attributable to increase in 
                value.--The excess of fair market value of 
                property on sale over its fair market value on 
                distribution shall be treated as property 
                received in the distribution.
                  (C) Designation where amount of distribution 
                exceeds rollover contribution.--In any case 
                where part or all of the distribution consists 
                of property other than money--
                          (i) the portion of the money or other 
                        property which is to be treated as 
                        attributable to amounts not included in 
                        gross income, and
                          (ii) the portion of the money or 
                        other property which is to be treated 
                        as included in the rollover 
                        contribution,
                shall be determined on a ratable basis unless 
                the taxpayer designates otherwise. Any 
                designation under this subparagraph for a 
                taxable year shall be made not later than the 
                time prescribed by law for filing the return 
                for such taxable year (including extensions 
                thereof). Any such designation, once made, 
                shall be irrevocable.
                  (D) Nonrecognition of gain or loss.--No gain 
                or loss shall be recognized on any sale 
                described in subparagraph (A) to the extent 
                that an amount equal to the proceeds is 
                transferred pursuant to paragraph (1).
          (7) Special rule for frozen deposits.--
                  (A) In general.--The 60-day period described 
                in paragraph (3) shall not--
                          (i) include any period during which 
                        the amount transferred to the employee 
                        is a frozen deposit, or
                          (ii) end earlier than 10 days after 
                        such amount ceases to be a frozen 
                        deposit.
                  (B) Frozen deposits.--For purposes of this 
                subparagraph, the term ``frozen deposit'' means 
                any deposit which may not be withdrawn because 
                of--
                          (i) the bankruptcy or insolvency of 
                        any financial institution, or
                          (ii) any requirement imposed by the 
                        State in which such institution is 
                        located by reason of the bankruptcy or 
                        insolvency (or threat thereof) of 1 or 
                        more financial institutions in such 
                        State.
                A deposit shall not be treated as a frozen 
                deposit unless on at least 1 day during the 60-
                day period described in paragraph (3) (without 
                regard to this paragraph) such deposit is 
                described in the preceding sentence.
          (8) Definitions.--For purposes of this subsection--
                  (A) Qualified trust.--The term ``qualified 
                trust'' means an employees' trust described in 
                section 401(a) which is exempt from tax under 
                section 501(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,
                          (iv) an annuity plan described in 
                        section 403(a),
                          (v) an eligible deferred compensation 
                        plan described in section 457(b) which 
                        is maintained by an eligible 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 Roth account 
                (as defined in section 402A), an eligible 
                retirement plan with respect to such portion 
                shall include only another designated Roth 
                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.
          (10) 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.
          (11) Distributions to inherited individual retirement 
        plan of nonspouse beneficiary.--
                  (A) In general.--If, with respect to any 
                portion of a distribution from an eligible 
                retirement plan described in paragraph 
                (8)(B)(iii) of a deceased employee, a direct 
                trustee-to-trustee transfer is made to an 
                individual retirement plan described in clause 
                (i) or (ii) of paragraph (8)(B) established for 
                the purposes of receiving the distribution on 
                behalf of an individual who is a designated 
                beneficiary (as defined by section 
                401(a)(9)(E)) of the employee and who is not 
                the surviving spouse of the employee--
                          (i) the transfer shall be treated as 
                        an eligible rollover distribution,
                          (ii) the individual retirement plan 
                        shall be treated as an inherited 
                        individual retirement account or 
                        individual retirement annuity (within 
                        the meaning of section 408(d)(3)(C)) 
                        for purposes of this title, and
                          (iii) section 401(a)(9)(B) (other 
                        than clause (iv) thereof) shall apply 
                        to such plan.
                  (B) Certain trusts treated as 
                beneficiaries.--For purposes of this paragraph, 
                to the extent provided in rules prescribed by 
                the Secretary, a trust maintained for the 
                benefit of one or more designated beneficiaries 
                shall be treated in the same manner as a 
                designated beneficiary.
  (d) Taxability of beneficiary of certain foreign situs 
trusts.--For purposes of subsections (a), (b), and (c), a stock 
bonus, pension, or profit-sharing trust which would qualify for 
exemption from tax under section 501(a) except for the fact 
that it is a trust created or organized outside the United 
States shall be treated as if it were a trust exempt from tax 
under section 501(a).
  (e) Other rules applicable to exempt trusts.--
          (1) Alternate payees.--
                  (A) Alternate payee treated as distributee.--
                For purposes of subsection (a) and section 72, 
                an alternate payee who is the spouse or former 
                spouse of the participant shall be treated as 
                the distributee of any distribution or payment 
                made to the alternate payee under a qualified 
                domestic relations order (as defined in section 
                414(p)).
                  (B) Rollovers.--If any amount is paid or 
                distributed to an alternate payee who is the 
                spouse or former spouse of the participant by 
                reason of any qualified domestic relations 
                order (within the meaning of section 414(p)), 
                subsection (c) shall apply to such distribution 
                in the same manner as if such alternate payee 
                were the employee.
          (2) Distributions by United States to nonresident 
        aliens.--The amount includible under subsection (a) in 
        the gross income of a nonresident alien with respect to 
        a distribution made by the United States in respect of 
        services performed by an employee of the United States 
        shall not exceed an amount which bears the same ratio 
        to the amount includible in gross income without regard 
        to this paragraph as--
                  (A) the aggregate basic pay paid by the 
                United States to such employee for such 
                services, reduced by the amount of such basic 
                pay which was not includible in gross income by 
                reason of being from sources without the United 
                States, bears to
                  (B) the aggregate basic pay paid by the 
                United States to such employee for such 
                services.
        In the case of distributions under the civil service 
        retirement laws, the term ``basic pay'' shall have the 
        meaning provided in section 8331(3) of title 5, United 
        States Code.
          (3) Cash or deferred arrangements.--For purposes of 
        this title, contributions made by an employer on behalf 
        of an employee to a trust which is a part of a 
        qualified cash or deferred arrangement (as defined in 
        section 401(k)(2)) or which is part of a salary 
        reduction agreement under section 403(b) shall not be 
        treated as distributed or made available to the 
        employee nor as contributions made to the trust by the 
        employee merely because the arrangement includes 
        provisions under which the employee has an election 
        whether the contribution will be made to the trust or 
        received by the employee in cash.
          (4) Net unrealized appreciation.--
                  (A) Amounts attributable to employee 
                contributions.--For purposes of subsection (a) 
                and section 72, in the case of a distribution 
                other than a lump sum distribution, the amount 
                actually distributed to any distributee from a 
                trust described in subsection (a) shall not 
                include any net unrealized appreciation in 
                securities of the employer corporation 
                attributable to amounts contributed by the 
                employee (other than deductible employee 
                contributions within the meaning of section 
                72(o)(5)). This subparagraph shall not apply to 
                a distribution to which subsection (c) applies.
                  (B) Amounts attributable to employer 
                contributions.--For purposes of subsection (a) 
                and section 72, in the case of any lump sum 
                distribution which includes securities of the 
                employer corporation, there shall be excluded 
                from gross income the net unrealized 
                appreciation attributable to that part of the 
                distribution which consists of securities of 
                the employer corporation. In accordance with 
                rules prescribed by the Secretary, a taxpayer 
                may elect, on the return of tax on which a lump 
                sum distribution is required to be included, 
                not to have this subparagraph apply to such 
                distribution.
                  (C) Determination of amounts and 
                adjustments.--For purposes of subparagraphs (A) 
                and (B), net unrealized appreciation and the 
                resulting adjustments to basis shall be 
                determined in accordance with regulations 
                prescribed by the Secretary.
                  (D) Lump-sum distribution.--For purposes of 
                this paragraph--
                          (i) In general.--The term ``lump-sum 
                        distribution'' means the distribution 
                        or payment within one taxable year of 
                        the recipient of the balance to the 
                        credit of an employee which becomes 
                        payable to the recipient--
                                  (I) on account of the 
                                employee's death,
                                  (II) after the employee 
                                attains age 59 1/2,
                                  (III) on account of the 
                                employee's separation from 
                                service, or
                                  (IV) after the employee has 
                                become disabled (within the 
                                meaning of section 72(m)(7)),
                from a trust which forms a part of a plan 
                described in section 401(a) and which is exempt 
                from tax under section 501 or from a plan 
                described in section 403(a). Subclause (III) of 
                this clause shall be applied only with respect 
                to an individual who is an employee without 
                regard to section 401(c)(1), and subclause (IV) 
                shall be applied only with respect to an 
                employee within the meaning of section 
                401(c)(1). For purposes of this clause, a 
                distribution to two or more trusts shall be 
                treated as a distribution to one recipient. For 
                purposes of this paragraph, the balance to the 
                credit of the employee does not include the 
                accumulated deductible employee contributions 
                under the plan (within the meaning of section 
                72(o)(5)).
                          (ii) Aggregation of certain trusts 
                        and plans.--For purposes of determining 
                        the balance to the credit of an 
                        employee under clause (i)--
                                  (I) all trusts which are part 
                                of a plan shall be treated as a 
                                single trust, all pension plans 
                                maintained by the employer 
                                shall be treated as a single 
                                plan, all profit-sharing plans 
                                maintained by the employer 
                                shall be treated as a single 
                                plan, and all stock bonus plans 
                                maintained by the employer 
                                shall be treated as a single 
                                plan, and
                                  (II) trusts which are not 
                                qualified trusts under section 
                                401(a) and annuity contracts 
                                which do not satisfy the 
                                requirements of section 
                                404(a)(2) shall not be taken 
                                into account.
                          (iii) Community property laws.--The 
                        provisions of this paragraph shall be 
                        applied without regard to community 
                        property laws.
                          (iv) Amounts subject to penalty.--
                        This paragraph shall not apply to 
                        amounts described in subparagraph (A) 
                        of section 72(m)(5) to the extent that 
                        section 72(m)(5) applies to such 
                        amounts.
                          (v) Balance to credit of employee not 
                        to include amounts payable under 
                        qualified domestic relations order.--
                        For purposes of this paragraph, the 
                        balance to the credit of an employee 
                        shall not include any amount payable to 
                        an alternate payee under a qualified 
                        domestic relations order (within the 
                        meaning of section 414(p)).
                          (vi) Transfers to cost-of-living 
                        arrangement not treated as 
                        distribution.--For purposes of this 
                        paragraph, the balance to the credit of 
                        an employee under a defined 
                        contribution plan shall not include any 
                        amount transferred from such defined 
                        contribution plan to a qualified cost-
                        of-living arrangement (within the 
                        meaning of section 415(k)(2)) under a 
                        defined benefit plan.
                          (vii) Lump-sum distributions of 
                        alternate payees.--If any distribution 
                        or payment of the balance to the credit 
                        of an employee would be treated as a 
                        lump-sum distribution, then, for 
                        purposes of this paragraph, the payment 
                        under a qualified domestic relations 
                        order (within the meaning of section 
                        414(p)) of the balance to the credit of 
                        an alternate payee who is the spouse or 
                        former spouse of the employee shall be 
                        treated as a lump-sum distribution. For 
                        purposes of this clause, the balance to 
                        the credit of the alternate payee shall 
                        not include any amount payable to the 
                        employee.
                  (E) Definitions relating to securities.--For 
                purposes of this paragraph--
                          (i) Securities.--The term 
                        ``securities'' means only shares of 
                        stock and bonds or debentures issued by 
                        a corporation with interest coupons or 
                        in registered form.
                          (ii) Securities of the employer.--The 
                        term ``securities of the employer 
                        corporation'' includes securities of a 
                        parent or subsidiary corporation (as 
                        defined in subsections (e) and (f) of 
                        section 424) of the employer 
                        corporation.
          (6) Direct trustee-to-trustee transfers.--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 such 
        transfer.
  (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, provide a written 
        explanation to the recipient--
                  (A) of the provisions under which the 
                recipient may have the distribution directly 
                transferred to an eligible retirement plan and 
                that the automatic distribution by direct 
                transfer applies to certain distributions in 
                accordance with section 401(a)(31)(B),
                  (B) of the provision which requires the 
                withholding of tax on the distribution if it is 
                not directly transferred to 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,
                  (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, paragraph (4) of section 403(a), 
                subparagraph (A) of section 403(b)(8), or 
                subparagraph (A) of section 457(e)(16). Such 
                term shall include any distribution to a 
                designated beneficiary which would be treated 
                as an eligible rollover distribution by reason 
                of subsection (c)(11), or section 403(a)(4)(B), 
                403(b)(8)(B), or 457(e)(16)(B), if the 
                requirements of subsection (c)(11) were 
                satisfied.
                  (B) Eligible retirement plan.--The term 
                ``eligible retirement plan'' has the meaning 
                given such term by subsection (c)(8)(B).
  (g) Limitation on exclusion for elective deferrals.--
          (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. The preceding sentence shall not apply 
                to the portion of such excess as does not 
                exceed the designated Roth contributions of the 
                individual for the taxable year.
                  (B) Applicable dollar amount.--For purposes 
                of subparagraph (A), the applicable dollar 
                amount is $15,000.
                  (C) Catch-up contributions.--In addition to 
                subparagraph (A), in the case of an eligible 
                participant (as defined in section 414(v)), 
                gross income shall not include elective 
                deferrals in excess of the applicable dollar 
                amount under subparagraph (B) to the extent 
                that the amount of such elective deferrals does 
                not exceed the applicable dollar amount under 
                section 414(v)(2)(B)(i) for the taxable year 
                (without regard to the treatment of the 
                elective deferrals by an applicable employer 
                plan under section 414(v)).
          (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) not later than the 1st March 1 
                        following the close of the taxable 
                        year, the individual may allocate the 
                        amount of such excess deferrals among 
                        the plans under which the deferrals 
                        were made and may notify each such plan 
                        of the portion allocated to it, and
                          (ii) not later than the 1st April 15 
                        following the close of the taxable 
                        year, each such plan may distribute to 
                        the individual the amount allocated to 
                        it under clause (i) (and any income 
                        allocable to such amount through the 
                        end of such taxable year).
                The distribution described in clause (ii) may 
                be made notwithstanding any other provision of 
                law.
                  (B) Treatment of distribution under section 
                401(k).--Except to the extent provided under 
                rules prescribed by the Secretary, 
                notwithstanding the distribution of any portion 
                of an excess deferral from a plan under 
                subparagraph (A)(ii), such portion shall, for 
                purposes of applying section 401(k)(3)(A)(ii), 
                be treated as an employer contribution.
                  (C) Taxation of distribution.--In the case of 
                a distribution to which subparagraph (A) 
                applies--
                          (i) except as provided in clause 
                        (ii), such distribution shall not be 
                        included in gross income, and
                          (ii) any income on the excess 
                        deferral shall, for purposes of this 
                        chapter, be treated as earned and 
                        received in the taxable year in which 
                        such income is distributed.
                No tax shall be imposed under section 72(t) on 
                any distribution described in the preceding 
                sentence.
                  (D) Partial distributions.--If a plan 
                distributes only a portion of any excess 
                deferral and income allocable thereto, such 
                portion shall be treated as having been 
                distributed ratably from the excess deferral 
                and the income.
          (3) Elective deferrals.--For purposes of this 
        subsection, the term ``elective deferrals'' means, with 
        respect to any taxable year, the sum of--
                  (A) any employer contribution under a 
                qualified cash or deferred arrangement (as 
                defined in section 401(k)) to the extent not 
                includible in gross income for the taxable year 
                under subsection (e)(3) (determined without 
                regard to this subsection),
                  (B) any employer contribution to the extent 
                not includible in gross income for the taxable 
                year under subsection (h)(1)(B) (determined 
                without regard to this subsection),
                  (C) any employer contribution to purchase an 
                annuity contract under section 403(b) under a 
                salary reduction agreement (within the meaning 
                of section 3121(a)(5)(D)), and
                  (D) any elective employer contribution under 
                section 408(p)(2)(A)(i).
        An employer contribution shall not be treated as an 
        elective deferral described in subparagraph (C) if 
        under the salary reduction agreement such contribution 
        is made pursuant to a one-time irrevocable election 
        made by the employee at the time of initial eligibility 
        to participate in the agreement or is made pursuant to 
        a similar arrangement involving a one-time irrevocable 
        election specified in regulations.
          (4) Cost-of-living adjustment.--In the case of 
        taxable years beginning after December 31, 2006, 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, 
        2005, and any increase under this paragraph which is 
        not a multiple of $500 shall be rounded to the next 
        lowest multiple of $500.
          (5) Disregard of community property laws.--This 
        subsection shall be applied without regard to community 
        property laws.
          (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.
          (7) Special rule for certain organizations.--
                  (A) In general.--In the case of a qualified 
                employee of a qualified organization, with 
                respect to employer contributions described in 
                paragraph (3)(C) made by such organization, the 
                limitation of paragraph (1) for any taxable 
                year shall be increased by whichever of the 
                following is the least:
                          (i) $3,000,
                          (ii) $15,000 reduced by the sum of--
                                  (I) the amounts not included 
                                in gross income for prior 
                                taxable years by reason of this 
                                paragraph, plus
                                  (II) the aggregate amount of 
                                designated Roth contributions 
                                (as defined in section 402A(c)) 
                                permitted for prior taxable 
                                years by reason of this 
                                paragraph, or
                          (iii) the excess of $5,000 multiplied 
                        by the number of years of service of 
                        the employee with the qualified 
                        organization over the employer 
                        contributions described in paragraph 
                        (3) made by the organization on behalf 
                        of such employee for prior taxable 
                        years (determined in the manner 
                        prescribed by the Secretary).
                  (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 Economic 
                Growth and Tax Relief Reconciliation Act of 
                2001).
                  (C) Qualified employee.--For purposes of this 
                paragraph, the term ``qualified employee'' 
                means any employee who has completed 15 years 
                of service with the qualified organization.
                  (D) Years of service.--For purposes of this 
                paragraph, the term ``years of service'' has 
                the meaning given such term by section 403(b).
          (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.
          (9) Elective deferrals by members of ready reserve.--
                  (A) In general.--In the case of a qualified 
                ready reservist for any taxable year, the 
                limitations of subparagraphs (A) and (C) of 
                paragraph (1) shall be applied separately with 
                respect to--
                          (i) elective deferrals of such 
                        qualified ready reservist with respect 
                        to compensation described in 
                        subparagraph (B), and
                          (ii) all other elective deferrals of 
                        such qualified ready reservist.
                  (B) Qualified ready reservist.--For purposes 
                of this paragraph, the term ``qualified ready 
                reservist'' means any individual for any 
                taxable year if such individual received 
                compensation for service as a member of the 
                Ready Reserve of a reserve component (as 
                defined in section 101 of title 37, United 
                States Code) during such taxable year.
  (h) Special rules for simplified employee pensions.--For 
purposes of this chapter--
          (1) In general.--Except as provided in paragraph (2), 
        contributions made by an employer on behalf of an 
        employee to an individual retirement plan pursuant to a 
        simplified employee pension (as defined in section 
        408(k))--
                  (A) shall not be treated as distributed or 
                made available to the employee or as 
                contributions made by the employee, and
                  (B) if such contributions are made pursuant 
                to an arrangement under section 408(k)(6) under 
                which an employee may elect to have the 
                employer make contributions to the simplified 
                employee pension on behalf of the employee, 
                shall not be treated as distributed or made 
                available or as contributions made by the 
                employee merely because the simplified employee 
                pension includes provisions for such election.
          (2) Limitations on employer contributions.--
        Contributions made by an employer to a simplified 
        employee pension with respect to an employee for any 
        year shall be treated as distributed or made available 
        to such employee and as contributions made by the 
        employee to the extent such contributions exceed the 
        lesser of--
                  (A) 25 percent of the compensation (within 
                the meaning of section 414(s)) from such 
                employer includible in the employee's gross 
                income for the year (determined without regard 
                to the employer contributions to the simplified 
                employee pension), or
                  (B) the limitation in effect under section 
                415(c)(1)(A), reduced in the case of any highly 
                compensated employee (within the meaning of 
                section 414(q)) by the amount taken into 
                account with respect to such employee under 
                section 408(k)(3)(D).
          (3) Distributions.--Any amount paid or distributed 
        out of an individual retirement plan pursuant to a 
        simplified employee pension shall be included in gross 
        income by the payee or distributee, as the case may be, 
        in accordance with the provisions of section 408(d).
  (i) Treatment of self-employed individuals.--For purposes of 
this section, except as otherwise provided in subsection 
(e)(4)(D)(i), the term ``employee'' includes a self-employed 
individual (as defined in section 401(c)(1)(B)) and the 
employer of such individual shall be the person treated as his 
employer under section 401(c)(4).
  (j) Effect of disposition of stock by plan on net unrealized 
appreciation.--
          (1) In general.--For purposes of subsection (e)(4), 
        in the case of any transaction to which this subsection 
        applies, the determination of net unrealized 
        appreciation shall be made without regard to such 
        transaction.
          (2) Transaction to which subsection applies.--This 
        subsection shall apply to any transaction in which--
                  (A) the plan trustee exchanges the plan's 
                securities of the employer corporation for 
                other such securities, or
                  (B) the plan trustee disposes of securities 
                of the employer corporation and uses the 
                proceeds of such disposition to acquire 
                securities of the employer corporation within 
                90 days (or such longer period as the Secretary 
                may prescribe), except that this subparagraph 
                shall not apply to any employee with respect to 
                whom a distribution of money was made during 
                the period after such disposition and before 
                such acquisition.
  (k) Treatment of simple retirement accounts.--Rules similar 
to the rules of paragraphs (1) and (3) of subsection (h) shall 
apply to contributions and distributions with respect to a 
simple retirement account under section 408(p).
  (l) Distributions from governmental plans for health and 
long-term care insurance.--
          (1) In general.--In the case of an employee who is an 
        eligible retired public safety officer who makes the 
        election described in paragraph (6) with respect to any 
        taxable year of such employee, gross income of such 
        employee for such taxable year does not include any 
        distribution from an eligible retirement plan 
        maintained by the employer described in paragraph 
        (4)(B) to the extent that the aggregate amount of such 
        distributions does not exceed the amount paid by such 
        employee for qualified health insurance premiums for 
        such taxable year.
          (2) Limitation.--The amount which may be excluded 
        from gross income for the taxable year by reason of 
        paragraph (1) shall not exceed $3,000.
          (3) Distributions must otherwise be includible.--
                  (A) In general.--An amount shall be treated 
                as a distribution for purposes of paragraph (1) 
                only to the extent that such amount would be 
                includible in gross income without regard to 
                paragraph (1).
                  (B) Application of section 72.--
                Notwithstanding section 72, in determining the 
                extent to which an amount is treated as a 
                distribution for purposes of subparagraph (A), 
                the aggregate amounts distributed from an 
                eligible retirement plan in a taxable year (up 
                to the amount excluded under paragraph (1)) 
                shall be treated as includible in gross income 
                (without regard to subparagraph (A)) to the 
                extent that such amount does not exceed the 
                aggregate amount which would have been so 
                includible if all amounts to the credit of the 
                eligible public safety officer in all eligible 
                retirement plans maintained by the employer 
                described in paragraph (4)(B) were distributed 
                during such taxable year and all such plans 
                were treated as 1 contract for purposes of 
                determining under section 72 the aggregate 
                amount which would have been so includible. 
                Proper adjustments shall be made in applying 
                section 72 to other distributions in such 
                taxable year and subsequent taxable years.
          (4) Definitions.--For purposes of this subsection--
                  (A) Eligible retirement plan.--For purposes 
                of paragraph (1), the term ``eligible 
                retirement plan'' means a governmental plan 
                (within the meaning of section 414(d)) which is 
                described in clause (iii), (iv), (v), or (vi) 
                of subsection (c)(8)(B).
                  (B) Eligible retired public safety officer.--
                The term ``eligible retired public safety 
                officer'' means an individual who, by reason of 
                disability or attainment of normal retirement 
                age, is separated from service as a public 
                safety officer with the employer who maintains 
                the eligible retirement plan from which 
                distributions subject to paragraph (1) are 
                made.
                  (C) Public safety officer.--The term ``public 
                safety officer'' shall have the same meaning 
                given such term by section 1204(9)(A) of the 
                Omnibus Crime Control and Safe Streets Act of 
                1968 (42 U.S.C. 3796b(9)(A)), as in effect 
                immediately before the enactment of the 
                National Defense Authorization Act for Fiscal 
                Year 2013.
                  (D) Qualified health insurance premiums.--The 
                term ``qualified health insurance premiums'' 
                means premiums for coverage for the eligible 
                retired public safety officer, his spouse, and 
                dependents (as defined in section 152), by an 
                accident or health plan or qualified long-term 
                care insurance contract (as defined in section 
                7702B(b)).
          (5) Special rules.--For purposes of this subsection--
                  (A) Direct payment to insurer required.--
                Paragraph (1) shall only apply to a 
                distribution if payment of the premiums is made 
                directly to the provider of the accident or 
                health plan or qualified long-term care 
                insurance contract by deduction from a 
                distribution from the eligible retirement plan.
                  (B) Related plans treated as 1.--All eligible 
                retirement plans of an employer shall be 
                treated as a single plan.
          (6) Election described.--
                  (A) In general.--For purposes of paragraph 
                (1), an election is described in this paragraph 
                if the election is made by an employee after 
                separation from service with respect to amounts 
                not distributed from an eligible retirement 
                plan to have amounts from such plan distributed 
                in order to pay for qualified health insurance 
                premiums.
                  (B) Special rule.--A plan shall not be 
                treated as violating the requirements of 
                section 401, or as engaging in a prohibited 
                transaction for purposes of section 503(b), 
                merely because it provides for an election with 
                respect to amounts that are otherwise 
                distributable under the plan or merely because 
                of a distribution made pursuant to an election 
                described in subparagraph (A).
          (7) Coordination with medical expense deduction.--The 
        amounts excluded from gross income under paragraph (1) 
        shall not be taken into account under section 213.
          (8) Coordination with deduction for health insurance 
        costs of self-employed individuals.--The amounts 
        excluded from gross income under paragraph (1) shall 
        not be taken into account under section 162(l).

           *       *       *       *       *       *       *


SEC. 403. TAXATION OF EMPLOYEE ANNUITIES.

  (a) Taxability of beneficiary under a qualified annuity 
plan.--
          (1) Distributee taxable under section 72.--If an 
        annuity contract is purchased by an employer for an 
        employee under a plan which meets the requirements of 
        section 404(a)(2) (whether or not the employer deducts 
        the amounts paid for the contract under such section), 
        the amount actually distributed to any distributee 
        under the contract shall be taxable to the distributee 
        (in the year in which so distributed) under section 72 
        (relating to annuities).
          (2) Special rule for health and long-term care 
        insurance.--To the extent provided in section 402(l), 
        paragraph (1) shall not apply to the amount distributed 
        under the contract which is otherwise includible in 
        gross income under this subsection.
          (3) Self-employed individuals.--For purposes of this 
        subsection, the term ``employee'' includes an 
        individual who is an employee within the meaning of 
        section 401(c)(1), and the employer of such individual 
        is the person treated as his employer under section 
        401(c)(4).
          (4) Rollover amounts.--
                  (A) General rule.--If--
                          (i) any portion of the balance to the 
                        credit of an employee in an employee 
                        annuity 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 eligible 
                        retirement plan, 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) and (11) and (9) 
                of section 402(c) and section 402(f) shall 
                apply for purposes of subparagraph (A).
          (5) Direct trustee-to-trustee transfer.--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 such 
        transfer.
  (b) Taxability of beneficiary under annuity purchased by 
section 501(c)(3) organization or public school.--
          (1) General rule.--If--
                  (A) an annuity contract is purchased--
                          (i) for an employee by an employer 
                        described in section 501(c)(3) which is 
                        exempt from tax under section 501(a),
                          (ii) for an employee (other than an 
                        employee described in clause (i)), who 
                        performs services for an educational 
                        organization described in section 
                        170(b)(1)(A)(ii), by an employer which 
                        is a State, a political subdivision of 
                        a State, or an agency or 
                        instrumentality of any one or more of 
                        the foregoing, or
                          (iii) for the minister described in 
                        section 414(e)(5)(A) by the minister or 
                        by an employer,
                  (B) such annuity contract is not subject to 
                subsection (a),
                  (C) the employee's rights under the contract 
                are nonforfeitable, except for failure to pay 
                future premiums,
                  (D) except in the case of a contract 
                purchased by a church, such contract is 
                purchased under a plan which meets the 
                nondiscrimination requirements of paragraph 
                (12), and
                  (E) in the case of a contract purchased under 
                a salary reduction agreement, the contract 
                meets the requirements of section 401(a)(30),
        then contributions and other additions by such employer 
        for such annuity contract shall be excluded from the 
        gross income of the employee for the taxable year to 
        the extent that the aggregate of such contributions and 
        additions (when expressed as an annual addition (within 
        the meaning of section 415(c)(2))) does not exceed 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 contributions and other additions 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)(ii) shall not 
        be considered contributed by such employer.
          (2) Special rule for health and long-term care 
        insurance.--To the extent provided in section 402(l), 
        paragraph (1) shall not apply to the amount distributed 
        under the contract which is otherwise includible in 
        gross income under this subsection.
          (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, and which precedes the 
        taxable year by no more than five years. 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, 132(f)(4), or 457.
          (4) Years of service.--In determining the number of 
        years of service for purposes of this subsection, there 
        shall be included--
                  (A) one year for each full year during which 
                the individual was a full-time employee of the 
                organization purchasing the annuity for him, 
                and
                  (B) a fraction of a year (determined in 
                accordance with regulations prescribed by the 
                Secretary) for each full year during which such 
                individual was a part-time employee of such 
                organization and for each part of a year during 
                which such individual was a full-time or part-
                time employee of such organization.
        In no case shall the number of years of service be less 
        than one.
          (5) Application to more than one annuity contract.--
        If for any taxable year of the employee this subsection 
        applies to 2 or more annuity contracts purchased by the 
        employer, such contracts shall be treated as one 
        contract.
          (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 (unless 
                        such amount is a distribution to which 
                        section 72(t)(2)(G) applies) before the 
                        employee dies, attains age 59 1/2, 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)(5)(D)), encounters 
                        financial hardship.] if the amounts are 
                        to be invested in regulated investment 
                        company stock to be held in that 
                        custodial account, and under the 
                        custodial account--
                          (i) no such amounts may be paid or 
                        made available to any distributee 
                        (unless such amount is a distribution 
                        to which section 72(t)(2)(G) applies) 
                        before--
                                  (I) the employee dies, 
                                  (II) the employee attains age 
                                59\1/2\, 
                                  (III) the employee has a 
                                severance from employment, 
                                  (IV) the employee becomes 
                                disabled (within the meaning of 
                                section 72(m)(7)), 
                                  (V) in the case of 
                                contributions made pursuant to 
                                a salary reduction agreement 
                                (within the meaning of section 
                                3121(a)(5)(D)), the employee 
                                encounters financial hardship, 
                                or 
                                  (VI) except as may be 
                                otherwise provided by 
                                regulations, with respect to 
                                amounts invested in a lifetime 
                                income investment (as defined 
                                in section 401(a)(38)(B)(ii)), 
                                the date that is 90 days prior 
                                to the date that such lifetime 
                                income investment may no longer 
                                be held as an investment option 
                                under the contract, and 
                          (ii) in the case of amounts described 
                        in clause (i)(VI), such amounts will be 
                        distributed only in the form of a 
                        qualified distribution (as defined in 
                        section 401(a)(38)(B)(i)) or a 
                        qualified plan distribution annuity 
                        contract (as defined in section 
                        401(a)(38)(B)(iv)). 
                  (B) Account treated as plan.--For purposes of 
                this title, a custodial account which satisfies 
                the requirements of section 401(f)(2) shall be 
                treated as an organization described in section 
                401(a) solely for purposes of subchapter F and 
                subtitle F with respect to amounts received by 
                it (and income from investment thereof).
                  (C) Regulated investment company.--For 
                purposes of this paragraph, the term 
                ``regulated investment company'' means a 
                domestic corporation which is a regulated 
                investment company within the meaning of 
                section 851(a).
                  (D) Treatment of custodial account upon plan 
                termination.--
                          (i) In general.--If--
                                  (I) an employer terminates 
                                the plan under which amounts 
                                are contributed to a custodial 
                                account under subparagraph (A), 
                                and
                                  (II) the person holding the 
                                assets of the account has 
                                demonstrated to the 
                                satisfaction of the Secretary 
                                under section 408(a)(2) that 
                                the person is qualified to be a 
                                trustee of an individual 
                                retirement plan,
                        then, as of the date of the 
                        termination, the custodial account 
                        shall be deemed to be an individual 
                        retirement plan for purposes of this 
                        title.
                          (ii) Treatment as roth ira.--Any 
                        custodial account treated as an 
                        individual retirement plan under clause 
                        (i) shall be treated as a Roth IRA only 
                        if the custodial account was a 
                        designated Roth account.
          (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 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.--The rules 
                of paragraphs (2) through (7), (9), and (11) 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.
          (9) Retirement income accounts provided by churches, 
        etc.
                  (A) Amounts paid treated as contributions.--
                For purposes of this title--
                          (i) a retirement income account shall 
                        be treated as an annuity contract 
                        described in this subsection, and
                          (ii) amounts paid by an employer 
                        described in paragraph (1)(A) to a 
                        retirement income account shall be 
                        treated as amounts contributed by the 
                        employer for an annuity contract for 
                        the employee on whose behalf such 
                        account is maintained.
                  (B) Retirement income account.--For purposes 
                of this paragraph, the term ``retirement income 
                account'' means a defined contribution program 
                established or maintained by a church, or a 
                convention or association of churches, 
                including an organization described in section 
                414(e)(3)(A), to provide benefits under section 
                403(b) for an employee described in paragraph 
                (1) (including an employee described in section 
                414(e)(3)(B)) or his beneficiaries.
          (10) Distribution requirements.--Under regulations 
        prescribed by the Secretary, this subsection shall not 
        apply to any annuity contract (or to any custodial 
        account described in paragraph (7) or retirement income 
        account described in paragraph (9)) unless requirements 
        similar to the requirements of sections 401(a)(9) and 
        401(a)(31) are met (and requirements similar to the 
        incidental death benefit requirements of section 401(a) 
        are met) with respect to such annuity contract (or 
        custodial account or retirement income account). 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 the transfer.
          (11) Requirement that distributions not begin before 
        age 59 1/2, 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, has 
                a severance from employment, dies, or becomes 
                disabled (within the meaning of section 
                72(m)(7)),
                  (B) in the case of hardship, [or]
                  (C) for distributions to which section 
                72(t)(2)(G) applies[.], or
                  (D) except as may be otherwise provided by 
                regulations, with respect to amounts invested 
                in a lifetime income investment (as defined in 
                section 401(a)(38)(B)(ii))--
                          (i) on or after the date that is 90 
                        days prior to the date that such 
                        lifetime income investment may no 
                        longer be held as an investment option 
                        under the contract, and
                          (ii) in the form of a qualified 
                        distribution (as defined in section 
                        401(a)(38)(B)(i)) or a qualified plan 
                        distribution annuity contract (as 
                        defined in section 401(a)(38)(B)(iv)).
        Such contract may not provide for the distribution of 
        any income attributable to such contributions in the 
        case of hardship.
          (12) Nondiscrimination requirements.--
                  (A) In general.--For purposes of paragraph 
                (1)(D), a plan meets the nondiscrimination 
                requirements of this paragraph if--
                          (i) with respect to contributions not 
                        made pursuant to a salary reduction 
                        agreement, such plan meets the 
                        requirements of paragraphs (4), (5), 
                        (17), and (26) of section 401(a), 
                        section 401(m), and section 410(b) in 
                        the same manner as if such plan were 
                        described in section 401(a), and
                          (ii) all employees of the 
                        organization may elect to have the 
                        employer make contributions of more 
                        than $200 pursuant to a salary 
                        reduction agreement if any employee of 
                        the organization may elect to have the 
                        organization make contributions for 
                        such contracts pursuant to such 
                        agreement.
                For purposes of clause (i), a contribution 
                shall be treated as not made pursuant to a 
                salary reduction agreement if under the 
                agreement it is made pursuant to a 1-time 
                irrevocable election made by the employee at 
                the time of initial eligibility to participate 
                in the agreement or is made pursuant to a 
                similar arrangement involving a one-time 
                irrevocable election specified in regulations. 
                For purposes of clause (ii), there may be 
                excluded any employee who is a participant in 
                an eligible deferred compensation plan (within 
                the meaning of section 457) or a qualified cash 
                or deferred arrangement of the organization or 
                another annuity contract described in this 
                subsection. Any nonresident alien described in 
                section 410(b)(3)(C) may also be excluded. 
                Subject to the conditions applicable under 
                section 410(b)(4), there may be excluded for 
                purposes of this subparagraph employees who are 
                students performing services described in 
                section 3121(b)(10) and employees who normally 
                work less than 20 hours per week.
                  (B) Church.--For purposes of paragraph 
                (1)(D), the term ``church'' has the meaning 
                given to such term by section 3121(w)(3)(A). 
                Such term shall include any qualified church-
                controlled organization (as defined in section 
                3121(w)(3)(B)).
                  (C) State and local governmental plans.--For 
                purposes of paragraph (1)(D), the requirements 
                of subparagraph (A)(i) (other than those 
                relating to section 401(a)(17)) 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).
          (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.
          (14) Death benefits under USERRA-qualified active 
        military service.--This subsection shall not apply to 
        an annuity contract unless such contract meets the 
        requirements of section 401(a)(37).
  (c) Taxability of beneficiary under nonqualified annuities or 
under annuities purchased by exempt organizations.--Premiums 
paid by an employer for an annuity contract which is not 
subject to subsection (a) shall be included in the gross income 
of the employee in accordance with section 83 (relating to 
property transferred in connection with performance of 
services), except that the value of such contract shall be 
substituted for the fair market value of the property for 
purposes of applying such section. The preceding sentence shall 
not apply to that portion of the premiums paid which is 
excluded from gross income under subsection (b). In the case of 
any portion of any contract which is attributable to premiums 
to which this subsection applies, the amount actually paid or 
made available under such contract to any beneficiary which is 
attributable to such premiums shall be taxable to the 
beneficiary (in the year in which so paid or made available) 
under section 72 (relating to annuities).

           *       *       *       *       *       *       *


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) or in section 402(c), 
        403(a)(4), 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 
        on behalf of any individual in excess of the amount in 
        effect for such taxable year under section 
        219(b)(1)(A).
          (2) The trustee is a bank (as defined in subsection 
        (n)) or such other person who demonstrates to the 
        satisfaction of the Secretary that the manner in which 
        such other person will administer the trust will be 
        consistent with the requirements of this section.
          (3) No part of the trust funds will be invested in 
        life insurance contracts.
          (4) The interest of an individual in the balance in 
        his account is nonforfeitable.
          (5) The assets of the trust will not be commingled 
        with other property except in a common trust fund or 
        common investment fund.
          (6) Under regulations prescribed by the Secretary, 
        rules similar to the rules of section 401(a)(9) and the 
        incidental death benefit requirements of section 401(a) 
        shall apply to the distribution of the entire interest 
        of an individual for whose benefit the trust is 
        maintained.
  (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) The contract is not transferable by the owner.
          (2) Under the contract--
                  (A) the premiums are not fixed,
                  (B) the annual premium on behalf of any 
                individual will not exceed the dollar amount in 
                effect under section 219(b)(1)(A), and
                  (C) any refund of premiums will be applied 
                before the close of the calendar year following 
                the year of the refund toward the payment of 
                future premiums or the purchase of additional 
                benefits.
          (3) Under regulations prescribed by the Secretary, 
        rules similar to the rules of section 401(a)(9) and the 
        incidental death benefit requirements of section 401(a) 
        shall apply to the distribution of the entire interest 
        of the owner.
          (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 the dollar amount in 
effect under section 219(b)(1)(A).
  (c) Accounts established by employers and certain 
associations of employees.--A trust created or organized in the 
United States by an employer for the exclusive benefit of his 
employees or their beneficiaries, or by an association of 
employees (which may include employees within the meaning of 
section 401(c)(1)) for the exclusive benefit of its members or 
their beneficiaries, shall be treated as an individual 
retirement account (described in subsection (a)), but only if 
the written governing instrument creating the trust meets the 
following requirements:
          (1) The trust satisfies the requirements of 
        paragraphs (1) through (6) of subsection (a).
          (2) There is a separate accounting for the interest 
        of each employee or member (or spouse of an employee or 
        member).
          (3) There is a separate accounting for any interest 
        of an employee or member (or spouse of an employee or 
        member) in a Roth IRA.
The assets of the trust may be held in a common fund for the 
account of all individuals who have an interest in the trust.
  (d) Tax treatment of distributions.--
          (1) In general.--Except as otherwise provided in this 
        subsection, any amount paid or distributed out of an 
        individual retirement plan shall be included in gross 
        income by the payee or distributee, as the case may be, 
        in the manner provided under section 72.
          (2) Special rules for applying section 72.--For 
        purposes of applying section 72 to any amount described 
        in paragraph (1)--
                  (A) all individual retirement plans shall be 
                treated as 1 contract,
                  (B) all distributions during any taxable year 
                shall be treated as 1 distribution, and
                  (C) the value of the contract, income on the 
                contract, and investment in the contract shall 
                be computed as of the close of the calendar 
                year in which the taxable year begins.
        For purposes of subparagraph (C), the value of the 
        contract shall be increased by the amount of any 
        distributions during the calendar year.
          (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) 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) Limitation.--This paragraph does not 
                apply to any amount described in subparagraph 
                (A)(i) received by an individual from an 
                individual retirement account or individual 
                retirement annuity if at any time during the 1-
                year period ending on the day of such receipt 
                such individual received any other amount 
                described in that subparagraph from an 
                individual retirement account or an individual 
                retirement annuity which was not includible in 
                his gross income because of the application of 
                this paragraph.
                  (C) Denial of rollover treatment for 
                inherited accounts, etc..--
                          (i) In general.--In the case of an 
                        inherited individual retirement account 
                        or individual retirement annuity--
                                  (I) this paragraph shall not 
                                apply to any amount received by 
                                an individual from such an 
                                account or annuity (and no 
                                amount transferred from such 
                                account or annuity to another 
                                individual retirement account 
                                or annuity shall be excluded 
                                from gross income by reason of 
                                such transfer), and
                                  (II) such inherited account 
                                or annuity shall not be treated 
                                as an individual retirement 
                                account or annuity for purposes 
                                of determining whether any 
                                other amount is a rollover 
                                contribution.
                          (ii) Inherited individual retirement 
                        account or annuity.--An individual 
                        retirement account or individual 
                        retirement annuity shall be treated as 
                        inherited if--
                                  (I) the individual for whose 
                                benefit the account or annuity 
                                is maintained acquired such 
                                account by reason of the death 
                                of another individual, and
                                  (II) such individual was not 
                                the surviving spouse of such 
                                other individual.
                  (D) Partial rollovers permitted.--
                          (i) In 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) 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.
                          (ii) Eligible plan.--For purposes of 
                        clause (i), the term ``eligible plan'' 
                        means any account, annuity, contract, 
                        or plan referred to in subparagraph 
                        (A).
                  (E) Denial of rollover treatment for required 
                distributions.--This paragraph shall not apply 
                to any amount to the extent such amount is 
                required to be distributed under subsection 
                (a)(6) or (b)(3).
                  (F) Frozen deposits.--For purposes of this 
                paragraph, rules similar to the rules of 
                section 402(c)(7) (relating to frozen deposits) 
                shall apply.
                  (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.
          (4) Contributions returned before due date of 
        return.--Paragraph (1) does not apply to the 
        distribution of any contribution paid during a taxable 
        year to an individual retirement account or for an 
        individual retirement annuity if--
                  (A) such distribution is received on or 
                before the day prescribed by law (including 
                extensions of time) for filing such 
                individual's return for such taxable year,
                  (B) no deduction is allowed under section 219 
                with respect to such contribution, and
                  (C) such distribution is accompanied by the 
                amount of net income attributable to such 
                contribution.
        In the case of such a distribution, for purposes of 
        section 61, any net income described in subparagraph 
        (C) shall be deemed to have been earned and receivable 
        in the taxable year in which such contribution is made.
          (5) Distributions of excess contributions after due 
        date for taxable year and certain excess rollover 
        contributions.--
                  (A) In general.--In the case of any 
                individual, if the aggregate contributions 
                (other than rollover contributions) paid for 
                any taxable year to an individual retirement 
                account or for an individual retirement annuity 
                do not exceed the dollar amount in effect under 
                section 219(b)(1)(A), paragraph (1) shall not 
                apply to the distribution of any such 
                contribution to the extent that such 
                contribution exceeds the amount allowable as a 
                deduction under section 219 for the taxable 
                year for which the contribution was paid--
                          (i) if such distribution is received 
                        after the date described in paragraph 
                        (4),
                          (ii) but only to the extent that no 
                        deduction has been allowed under 
                        section 219 with respect to such excess 
                        contribution.
                If employer contributions on behalf of the 
                individual are paid for the taxable year to a 
                simplified employee pension, the dollar 
                limitation of the preceding sentence shall be 
                increased by the lesser of the amount of such 
                contributions or the dollar limitation in 
                effect under section 415(c)(1)(A) for such 
                taxable year.
                  (B) Excess rollover contributions 
                attributable to erroneous information.--If--
                          (i) the taxpayer reasonably relies on 
                        information supplied pursuant to 
                        subtitle F for determining the amount 
                        of a rollover contribution, but
                          (ii) the information was erroneous, 
                        subparagraph (A) shall be applied by 
                        increasing the dollar limit set forth 
                        therein by that portion of the excess 
                        contribution which was attributable to 
                        such information.
        For purposes of this paragraph, the amount allowable as 
        a deduction under section 219 shall be computed without 
        regard to section 219(g). (6) Transfer of account 
        incident to divorce.--The transfer of an individual's 
        interest in an individual retirement account or an 
        individual retirement annuity to his spouse or former 
        spouse under a divorce or separation instrument 
        described in clause (i) of section 121(d)(3)(C) is not 
        to be considered a taxable transfer made by such 
        individual notwithstanding any other provision of this 
        subtitle, and such interest at the time of the transfer 
        is to be treated as an individual retirement account of 
        such spouse, and not of such individual. Thereafter 
        such account or annuity for purposes of this subtitle 
        is to be treated as maintained for the benefit of such 
        spouse.
          (7) Special rules for simplified employee pensions or 
        simple retirement accounts.--
                  (A) Transfer or rollover of contributions 
                prohibited until deferral test met.--
                Notwithstanding any other provision of this 
                subsection or section 72(t), paragraph (1) and 
                section 72(t)(1) shall apply to the transfer or 
                distribution from a simplified employee pension 
                of any contribution under a salary reduction 
                arrangement described in subsection (k)(6) (or 
                any income allocable thereto) before a 
                determination as to whether the requirements of 
                subsection (k)(6)(A)(iii) are met with respect 
                to such contribution.
                  (B) Certain exclusions treated as 
                deductions.--For purposes of paragraphs (4) and 
                (5) and section 4973, any amount excludable or 
                excluded from gross income under section 402(h) 
                or 402(k) shall be treated as an amount 
                allowable or allowed as a deduction under 
                section 219.
          (8) Distributions for charitable purposes.--
                  (A) In general.--So much of the aggregate 
                amount of qualified charitable distributions 
                with respect to a taxpayer made during any 
                taxable year which does not exceed $100,000 
                shall not be includible in gross income of such 
                taxpayer for such taxable year.
                  (B) Qualified charitable distribution.--For 
                purposes of this paragraph, the term 
                ``qualified charitable distribution'' means any 
                distribution from an individual retirement plan 
                (other than a plan described in subsection (k) 
                or (p))--
                          (i) which is made directly by the 
                        trustee to an organization described in 
                        section 170(b)(1)(A) (other than any 
                        organization described in section 
                        509(a)(3) or any fund or account 
                        described in section 4966(d)(2)), and
                          (ii) which is made on or after the 
                        date that the individual for whose 
                        benefit the plan is maintained has 
                        attained age 70\1/2\.
                A distribution shall be treated as a qualified 
                charitable distribution only to the extent that 
                the distribution would be includible in gross 
                income without regard to subparagraph (A).
                  (C) Contributions must be otherwise 
                deductible.--For purposes of this paragraph, a 
                distribution to an organization described in 
                subparagraph (B)(i) shall be treated as a 
                qualified charitable distribution only if a 
                deduction for the entire distribution would be 
                allowable under section 170 (determined without 
                regard to subsection (b) thereof and this 
                paragraph).
                  (D) Application of section 72.--
                Notwithstanding section 72, in determining the 
                extent to which a distribution is a qualified 
                charitable distribution, the entire amount of 
                the distribution shall be treated as includible 
                in gross income without regard to subparagraph 
                (A) to the extent that such amount does not 
                exceed the aggregate amount which would have 
                been so includible if all amounts in all 
                individual retirement plans of the individual 
                were distributed during such taxable year and 
                all such plans were treated as 1 contract for 
                purposes of determining under section 72 the 
                aggregate amount which would have been so 
                includible. Proper adjustments shall be made in 
                applying section 72 to other distributions in 
                such taxable year and subsequent taxable years.
                  (E) Denial of deduction.--Qualified 
                charitable distributions which are not 
                includible in gross income pursuant to 
                subparagraph (A) shall not be taken into 
                account in determining the deduction under 
                section 170.
          (9) Distribution for health savings account 
        funding.--
                  (A) In general.--In the case of an individual 
                who is an eligible individual (as defined in 
                section 223(c)) and who elects the application 
                of this paragraph for a taxable year, gross 
                income of the individual for the taxable year 
                does not include a qualified HSA funding 
                distribution to the extent such distribution is 
                otherwise includible in gross income.
                  (B) Qualified HSA funding distribution.--For 
                purposes of this paragraph, the term 
                ``qualified HSA funding distribution'' means a 
                distribution from an individual retirement plan 
                (other than a plan described in subsection (k) 
                or (p)) of the employee to the extent that such 
                distribution is contributed to the health 
                savings account of the individual in a direct 
                trustee- to-trustee transfer.
                  (C) Limitations.--
                          (i) Maximum dollar limitation.--The 
                        amount excluded from gross income by 
                        subparagraph (A) shall not exceed the 
                        excess of--
                                  (I) the annual limitation 
                                under section 223(b) computed 
                                on the basis of the type of 
                                coverage under the high 
                                deductible health plan covering 
                                the individual at the time of 
                                the qualified HSA funding 
                                distribution, over
                                  (II) in the case of a 
                                distribution described in 
                                clause (ii)(II), the amount of 
                                the earlier qualified HSA 
                                funding distribution.
                          (ii) One-time transfer.--
                                  (I) In general.--Except as 
                                provided in subclause (II), an 
                                individual may make an election 
                                under subparagraph (A) only for 
                                one qualified HSA funding 
                                distribution during the 
                                lifetime of the individual. 
                                Such an election, once made, 
                                shall be irrevocable.
                                  (II) Conversion from self-
                                only to family coverage.--If a 
                                qualified HSA funding 
                                distribution is made during a 
                                month in a taxable year during 
                                which an individual has self-
                                only coverage under a high 
                                deductible health plan as of 
                                the first day of the month, the 
                                individual may elect to make an 
                                additional qualified HSA 
                                funding distribution during a 
                                subsequent month in such 
                                taxable year during which the 
                                individual has family coverage 
                                under a high deductible health 
                                plan as of the first day of the 
                                subsequent month.
                  (D) Failure to maintain high deductible 
                health plan coverage.--
                          (i) In general.--If, at any time 
                        during the testing period, the 
                        individual is not an eligible 
                        individual, then the aggregate amount 
                        of all contributions to the health 
                        savings account of the individual made 
                        under subparagraph (A)--
                                  (I) shall be includible in 
                                the gross income of the 
                                individual for the taxable year 
                                in which occurs the first month 
                                in the testing period for which 
                                such individual is not an 
                                eligible individual, and
                                  (II) the tax imposed by this 
                                chapter for any taxable year on 
                                the individual shall be 
                                increased by 10 percent of the 
                                amount which is so includible.
                          (ii) Exception for disability or 
                        death.--Subclauses (I) and (II) of 
                        clause (i) shall not apply if the 
                        individual ceased to be an eligible 
                        individual by reason of the death of 
                        the individual or the individual 
                        becoming disabled (within the meaning 
                        of section 72(m)(7)).
                          (iii) Testing period.--The term 
                        ``testing period'' means the period 
                        beginning with the month in which the 
                        qualified HSA funding distribution is 
                        contributed to a health savings account 
                        and ending on the last day of the 12th 
                        month following such month.
                  (E) Application of section 72.--
                Notwithstanding section 72, in determining the 
                extent to which an amount is treated as 
                otherwise includible in gross income for 
                purposes of subparagraph (A), the aggregate 
                amount distributed from an individual 
                retirement plan shall be treated as includible 
                in gross income to the extent that such amount 
                does not exceed the aggregate amount which 
                would have been so includible if all amounts 
                from all individual retirement plans were 
                distributed. Proper adjustments shall be made 
                in applying section 72 to other distributions 
                in such taxable year and subsequent taxable 
                years.
  (e) Tax treatment of accounts and annuities.--
          (1) Exemption from tax.--Any individual retirement 
        account is exempt from taxation under this subtitle 
        unless such account has ceased to be an individual 
        retirement account by reason of paragraph (2) or (3). 
        Notwithstanding the preceding sentence, any such 
        account is subject to the taxes imposed by section 511 
        (relating to imposition of tax on unrelated business 
        income of charitable, etc. organizations).
          (2) Loss of exemption of account where employee 
        engages in prohibited transaction.--
                  (A) In general.--If, during any taxable year 
                of the individual for whose benefit any 
                individual retirement account is established, 
                that individual or his beneficiary engages in 
                any transaction prohibited by section 4975 with 
                respect to such account, such account ceases to 
                be an individual retirement account as of the 
                first day of such taxable year. For purposes of 
                this paragraph--
                          (i) the individual for whose benefit 
                        any account was established is treated 
                        as the creator of such account, and
                          (ii) the separate account for any 
                        individual within an individual 
                        retirement account maintained by an 
                        employer or association of employees is 
                        treated as a separate individual 
                        retirement account.
                  (B) Account treated as distributing all its 
                assets.--In any case in which any account 
                ceases to be an individual retirement account 
                by reason of subparagraph (A) as of the first 
                day of any taxable year, paragraph (1) of 
                subsection (d) applies as if there were a 
                distribution on such first day in an amount 
                equal to the fair market value (on such first 
                day) of all assets in the account (on such 
                first day).
          (3) Effect of borrowing on annuity contract.--If 
        during any taxable year the owner of an individual 
        retirement annuity borrows any money under or by use of 
        such contract, the contract ceases to be an individual 
        retirement annuity as of the first day of such taxable 
        year. Such owner shall include in gross income for such 
        year an amount equal to the fair market value of such 
        contract as of such first day.
          (4) Effect of pledging account as security.--If, 
        during any taxable year of the individual for whose 
        benefit an individual retirement account is 
        established, that individual uses the account or any 
        portion thereof as security for a loan, the portion so 
        used is treated as distributed to that individual.
          (5) Purchase of endowment contract by individual 
        retirement account.--If the assets of an individual 
        retirement account or any part of such assets are used 
        to purchase an endowment contract for the benefit of 
        the individual for whose benefit the account is 
        established--
                  (A) to the extent that the amount of the 
                assets involved in the purchase are not 
                attributable to the purchase of life insurance, 
                the purchase is treated as a rollover 
                contribution described in subsection (d)(3), 
                and
                  (B) to the extent that the amount of the 
                assets involved in the purchase are 
                attributable to the purchase of life, health, 
                accident, or other insurance, such amounts are 
                treated as distributed to that individual (but 
                the provisions of subsection (f) do not apply).
          (6) Commingling individual retirement account amounts 
        in certain common trust funds and common investment 
        funds.--Any common trust fund or common investment fund 
        of individual retirement account assets which is exempt 
        from taxation under this subtitle does not cease to be 
        exempt on account of the participation or inclusion of 
        assets of a trust exempt from taxation under section 
        501(a) which is described in section 401(a).
  (g) Community property laws.--This section shall be applied 
without regard to any community property laws.
  (h) Custodial accounts.--For purposes of this section, a 
custodial account shall be treated as a trust if the assets of 
such account are held by a bank (as defined in subsection (n)) 
or another person who demonstrates, to the satisfaction of the 
Secretary, that the manner in which he will administer the 
account will be consistent with the requirements of this 
section, and if the custodial account would, except for the 
fact that it is not a trust, constitute an individual 
retirement account described in subsection (a). For purposes of 
this title, in the case of a custodial account treated as a 
trust by reason of the preceding sentence, the custodian of 
such account shall be treated as the trustee thereof.
  (i) Reports.--The trustee of an individual retirement account 
and the issuer of an endowment contract described in subsection 
(b) or an individual retirement annuity shall make such reports 
regarding such account, contract, or annuity to the Secretary 
and to the individuals for whom the account, contract, or 
annuity is, or is to be, maintained with respect to 
contributions (and the years to which they relate), 
distributions aggregating $10 or more in any calendar year, and 
such other matters as the Secretary may require. The reports 
required by this subsection--
          (1) shall be filed at such time and in such manner as 
        the Secretary prescribes, and
          (2) shall be furnished to individuals--
                  (A) not later than January 31 of the calendar 
                year following the calendar year to which such 
                reports relate, and
                  (B) in such manner as the Secretary 
                prescribes.
In the case of a simple retirement account under subsection 
(p), only one report under this subsection shall be required to 
be submitted each calendar year to the Secretary (at the time 
provided under paragraph (2)) but, in addition to the report 
under this subsection, there shall be furnished, within 31 days 
after each calendar year, to the individual on whose behalf the 
account is maintained a statement with respect to the account 
balance as of the close of, and the account activity during, 
such calendar year.
  (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 amounts contained therein by the amount of 
the limitation in effect under section 415(c)(1)(A).
  (k) Simplified employee pension defined.--
          (1) In general.--For purposes of this title, the term 
        ``simplified employee pension'' means an individual 
        retirement account or individual retirement annuity--
                  (A) with respect to which the requirements of 
                paragraphs (2), (3), (4), and (5) of this 
                subsection are met, and
                  (B) if such account or annuity is part of a 
                top-heavy plan (as defined in section 416), 
                with respect to which the requirements of 
                section 416(c)(2) are met.
          (2) Participation requirements.--This paragraph is 
        satisfied with respect to a simplified employee pension 
        for a year only if for such year the employer 
        contributes to the simplified employee pension of each 
        employee who--
                  (A) has attained age 21,
                  (B) has performed service for the employer 
                during at least 3 of the immediately preceding 
                5 years, and
                  (C) received at least $450 in compensation 
                (within the meaning of section 414(q)(4)) from 
                the employer for the year.
        For purposes of this paragraph, there shall be excluded 
        from consideration employees described in subparagraph 
        (A) or (C) of section 410(b)(3). For purposes of any 
        arrangement described in subsection (k)(6), any 
        employee who is eligible to have employer contributions 
        made on the employee's behalf under such arrangement 
        shall be treated as if such a contribution was made.
          (3) Contributions may not discriminate in favor of 
        the highly compensated, etc..--
                  (A) In general.--The requirements of this 
                paragraph are met with respect to a simplified 
                employee pension for a year if for such year 
                the contributions made by the employer to 
                simplified employee pensions for his employees 
                do not discriminate in favor of any highly 
                compensated employee (within the meaning of 
                section 414(q)).
                  (B) Special rules.--For purposes of 
                subparagraph (A), there shall be excluded from 
                consideration employees described in 
                subparagraph (A) or (C) of section 410(b)(3).
                  (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 $200,000) of each 
                employee maintaining a simplified employee 
                pension.
                  (D) Permitted disparity.--For purposes of 
                subparagraph (C), the rules of section 
                401(l)(2) shall apply to contributions to 
                simplified employee pensions (other than 
                contributions under an arrangement described in 
                paragraph (6)).
          (4) Withdrawals must be permitted.--A simplified 
        employee pension meets the requirements of this 
        paragraph only if--
                  (A) employer contributions thereto are not 
                conditioned on the retention in such pension of 
                any portion of the amount contributed, and
                  (B) there is no prohibition imposed by the 
                employer on withdrawals from the simplified 
                employee pension.
          (5) Contributions must be made under written 
        allocation formula.--The requirements of this paragraph 
        are met with respect to a simplified employee pension 
        only if employer contributions to such pension are 
        determined under a definite written allocation formula 
        which specifies--
                  (A) the requirements which an employee must 
                satisfy to share in an allocation, and
                  (B) the manner in which the amount allocated 
                is computed.
          (6) Employee may elect salary reduction 
        arrangement.--
                  (A) Arrangements which qualify.--
                          (i) In general.--A simplified 
                        employee pension shall not fail to meet 
                        the requirements of this subsection for 
                        a year merely because, under the terms 
                        of the pension, an employee may elect 
                        to have the employer make payments--
                                  (I) as elective employer 
                                contributions to the simplified 
                                employee pension on behalf of 
                                the employee, or
                                  (II) to the employee directly 
                                in cash.
                          (ii) 50 percent of eligible employees 
                        must elect.--Clause (i) shall not apply 
                        to a simplified employee pension unless 
                        an election described in clause (i)(I) 
                        is made or is in effect with respect to 
                        not less than 50 percent of the 
                        employees of the employer eligible to 
                        participate.
                          (iii) Requirements relating to 
                        deferral percentage.--Clause (i) shall 
                        not apply to a simplified employee 
                        pension for any year unless the 
                        deferral percentage for such year of 
                        each highly compensated employee 
                        eligible to participate is not more 
                        than the product of--
                                  (I) the average of the 
                                deferral percentages for such