[House Report 106-753]
[From the U.S. Government Publishing Office]
106th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 106-753
======================================================================
COMPREHENSIVE RETIREMENT SECURITY AND PENSION REFORM ACT OF 2000
_______
July 17, 2000.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Archer, from the Committee on Ways and Means,
submitted the following
R E P O R T
together with
ADDITIONAL VIEWS
[To accompany H.R. 4843]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 4843) to amend the Internal Revenue Code of 1986 to
provide for retirement security and pension reform, having
considered the same, report favorably thereon with an amendment
and recommend that the bill as amended do pass.
CONTENTS
Page
I. Summary and Background..........................................30
A. Purpose and Summary................................. 30
B. Background and Need for Legislation................. 36
C. Legislative History................................. 36
II. Explanation of the Revenue Provisions of the Bill...............37
Title I. Individual Retirement Arrangements (``IRAs'')..........37
Title II. Expanding Coverage....................................39
A. Increase in benefit and contribution limits (sec.
201)............................................... 39
B. Plans loans for Subchapter S shareholders, partners,
and sole proprietors (sec. 202).................... 42
C. Modification of top-heavy rules (sec. 203).......... 43
D. Elective deferrals not taken into account for
purposes of deduction limits (sec. 204)............ 47
E. Repeal of coordination requirements for deferred
compensation plans of State and local governments
and tax-exempt organizations (sec. 205)............ 48
F. Eliminate IRS user fees for certain requests
regarding employer plans (sec. 206)................ 49
G. Deduction limits (sec. 207)......................... 50
H. Option to treat elective deferrals as after-tax
contributions (sec. 208)........................... 51
Title III. Enhancing Fairness for Women.........................53
A. Additional salary catch-up contributions (sec. 301). 53
B. Equitable treatment for contributions of employees
to defined contribution plans (sec. 302)........... 54
C. Faster vesting of employer matching contributions
(sec. 303)......................................... 57
D. Simplify and update the minimum distribution rules
(secs. 304 and 409)................................ 58
E. Clarification of tax treatment of division of
section 457 plan benefits upon divorce (sec. 305).. 60
F. Modification of safe harbor relief for hardship
withdrawals from 401(k) plans (sec. 306)........... 61
Title IV. Increasing Portability for Participants...............62
A. Rollovers of retirement plan and IRA distributions
(secs. 301-403 and 409)............................ 62
B. Waiver of 60-day rule (sec. 404).................... 66
C. Treatment of forms of distribution (sec. 405)....... 67
D. Rationalization of restrictions on distributions
(sec. 406)......................................... 69
E. Purchase of service credit under governmental
pension plans (sec. 407)........................... 70
F. Employers may disregard rollovers for purposes of
cash-out rules (sec. 408).......................... 71
Title V. Strengthening Pension Security and Enforcement.........72
A. Phase in repeal of 150 percent of current liability
funding limit; deduction for contributions to fund
termination liability (secs. 501-502).............. 72
B. Excise tax relief for sound pension funding (sec.
503)............................................... 73
C. Notice of significant reduction in plan benefit
accruals (sec. 506)................................ 75
D. Modifications to section 415 limits for
multiemployer plans (sec. 507)..................... 77
E. Prohibited allocations of stock in an S corporation
ESOP (sec. 508).................................... 78
Title VI. Reducing Regulatory Burdens...........................82
A. Modification of timing of plan valuations (sec. 601) 82
B. ESOP dividends may be reinvested without loss of
dividend deduction (sec. 602)...................... 82
C. Repeal transition rule relating to certain highly
compensated employees (sec. 603)................... 83
D. Employees of tax-exempt entities (sec. 604)......... 84
E. Treatment of employer-provided retirement advice
(sec. 605)......................................... 85
F. Reporting simplification (sec. 606)................. 86
G. Improvement to Employer Plans Compliance Resolution
System (sec. 607).................................. 87
H. Repeal of the multiple use test (sec. 608).......... 89
I. Flexibility in nondiscrimination, coverage, and line
of business rules (sec. 609)....................... 90
J. Extension to all governmental plans of moratorium on
application of certain nondiscrimination rules
applicable to State and local government plans
(sec. 610)......................................... 91
K. Notice and consent period regarding distributions
(sec. 611)......................................... 92
Title VII. Provisions Relating to Plan Amendments...............93
III. Votes of the Committee..........................................94
IV. Budget Effects of the Bill......................................95
A. Committee Estimates of Budgetary Effects............ 95
B. Statement Regarding New Budget Authority and Tax
Expenditures....................................... 100
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 100
V. Other Matters to be Discussed Under Rules of the House.........103
A. Committee Oversight Findings and Recommendations.... 103
B. Summary of Findings and Recommendations of the
Committee on Government Reform and Oversight....... 103
C. Constitutional Authority Statement.................. 103
D. Information Relating to Unfunded Mandates........... 103
E. Applicability of House Rule XX15(b)................. 104
F. Tax Complexity Analysis............................. 104
VI. Changes in Existing Law of the Bill as Reported................104
VII. Additional Views...............................................163
The amendment is as follows:
Strike all after the enacting clause and insert the following:
SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Comprehensive
Retirement Security and Pension Reform Act of 2000''.
(b) Amendment of 1986 Code.--Except as otherwise expressly provided,
whenever in this Act an amendment or repeal is expressed in terms of an
amendment to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provision of the
Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; references; table of contents.
TITLE I--INDIVIDUAL RETIREMENT ACCOUNT PROVISIONS
Sec. 101. Modification of IRA contribution limits.
TITLE II--EXPANDING COVERAGE
Sec. 201. Increase in benefit and contribution limits.
Sec. 202. Plan loans for subchapter S owners, partners, and sole
proprietors.
Sec. 203. Modification of top-heavy rules.
Sec. 204. Elective deferrals not taken into account for purposes of
deduction limits.
Sec. 205. Repeal of coordination requirements for deferred compensation
plans of State and local governments and tax-exempt organizations.
Sec. 206. Elimination of user fee for requests to IRS regarding pension
plans.
Sec. 207. Deduction limits.
Sec. 208. Option to treat elective deferrals as after-tax
contributions.
TITLE III--ENHANCING FAIRNESS FOR WOMEN
Sec. 301. Catch-up contributions for individuals age 50 or over.
Sec. 302. Equitable treatment for contributions of employees to defined
contribution plans.
Sec. 303. Faster vesting of certain employer matching contributions.
Sec. 304. Simplify and update the minimum distribution rules.
Sec. 305. Clarification of tax treatment of division of section 457
plan benefits upon divorce.
Sec. 306. Modification of safe harbor relief for hardship withdrawals
from cash or deferred arrangements.
TITLE IV--INCREASING PORTABILITY FOR PARTICIPANTS
Sec. 401. Rollovers allowed among various types of plans.
Sec. 402. Rollovers of IRAs into workplace retirement plans.
Sec. 403. Rollovers of after-tax contributions.
Sec. 404. Hardship exception to 60-day rule.
Sec. 405. Treatment of forms of distribution.
Sec. 406. Rationalization of restrictions on distributions.
Sec. 407. Purchase of service credit in governmental defined benefit
plans.
Sec. 408. Employers may disregard rollovers for purposes of cash-out
amounts.
Sec. 409. Minimum distribution and inclusion requirements for section
457 plans.
TITLE V--STRENGTHENING PENSION SECURITY AND ENFORCEMENT
Sec. 501. Repeal of 150 percent of current liability funding limit.
Sec. 502. Maximum contribution deduction rules modified and applied to
all defined benefit plans.
Sec. 503. Excise tax relief for sound pension funding.
Sec. 504. Excise tax on failure to provide notice by defined benefit
plans significantly reducing future benefit accruals.
Sec. 505. Treatment of multiemployer plans under section 415.
Sec. 506. Prohibited allocations of stock in S corporation ESOP.
TITLE VI--REDUCING REGULATORY BURDENS
Sec. 601. Modification of timing of plan valuations.
Sec. 602. ESOP dividends may be reinvested without loss of dividend
deduction.
Sec. 603. Repeal of transition rule relating to certain highly
compensated employees.
Sec. 604. Employees of tax-exempt entities.
Sec. 605. Clarification of treatment of employer-provided retirement
advice.
Sec. 606. Reporting simplification.
Sec. 607. Improvement of employee plans compliance resolution system.
Sec. 608. Repeal of the multiple use test.
Sec. 609. Flexibility in nondiscrimination, coverage, and line of
business rules.
Sec. 610. Extension to all governmental plans of moratorium on
application of certain nondiscrimination rules applicable to State and
local plans.
Sec. 611. Notice and consent period regarding distributions.
TITLE VII--PLAN AMENDMENTS
Sec. 701. Provisions relating to plan amendments.
TITLE I--INDIVIDUAL RETIREMENT ACCOUNTS
SEC. 101. MODIFICATION OF IRA CONTRIBUTION LIMITS.
(a) Increase in Contribution Limit.--
(1) In general.--Paragraph (1)(A) of section 219(b) (relating
to maximum amount of deduction) is amended by striking
``$2,000'' and inserting ``the deductible amount''.
(2) Deductible amount.--Section 219(b) is amended by adding at
the end the following new paragraph:
``(5) Deductible amount.--For purposes of paragraph (1)(A)--
``(A) In general.--The deductible amount shall be
determined in accordance with the following table:
``For taxable years
The deductible
beginning in:
amount is:
2001...................................... $3,000
2002...................................... $4,000
2003 and thereafter....................... $5,000.
``(B) Catch-up contributions for individuals 50 or
older.--In the case of an individual who has attained
the age of 50 before the close of the taxable year, the
deductible amount for taxable years beginning in 2001
or 2002 shall be $5,000.
``(C) Cost-of-living adjustment.--
``(i) In general.--In the case of any taxable
year beginning in a calendar year after 2003,
the $5,000 amount under subparagraph (A) shall
be increased by an amount equal to--
``(I) such dollar amount, multiplied
by
``(II) the cost-of-living adjustment
determined under section 1(f )(3) for
the calendar year in which the taxable
year begins, determined by substituting
`calendar year 2002' for `calendar year
1992' in subparagraph (B) thereof.
``(ii) Rounding rules.--If any amount after
adjustment under clause (i) is not a multiple
of $500, such amount shall be rounded to the
next lower multiple of $500.''.
(b) Conforming Amendments.--
(1) Section 408(a)(1) is amended by striking ``in excess of
$2,000 on behalf of any individual'' and inserting ``on behalf
of any individual in excess of the amount in effect for such
taxable year under section 219(b)(1)(A)''.
(2) Section 408(b)(2)(B) is amended by striking ``$2,000''
and inserting ``the dollar amount in effect under section
219(b)(1)(A)''.
(3) Section 408(b) is amended by striking ``$2,000'' in the
matter following paragraph (4) and inserting ``the dollar
amount in effect under section 219(b)(1)(A)''.
(4) Section 408( j) is amended by striking ``$2,000''.
(5) Section 408(p)(8) is amended by striking ``$2,000'' and
inserting ``the dollar amount in effect under section
219(b)(1)(A)''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2000.
TITLE II--EXPANDING COVERAGE
SEC. 201. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.
(a) Defined Benefit Plans.--
(1) Dollar limit.--
(A) Subparagraph (A) of section 415(b)(1) (relating
to limitation for defined benefit plans) is amended by
striking ``$90,000'' and inserting ``$160,000''.
(B) Subparagraphs (C) and (D) of section 415(b)(2)
are each amended by striking ``$90,000'' each place it
appears in the headings and the text and inserting
``$160,000''.
(C) Paragraph (7) of section 415(b) (relating to
benefits under certain collectively bargained plans) is
amended by striking ``the greater of $68,212 or one-
half the amount otherwise applicable for such year
under paragraph (1)(A) for `$90,000' '' and inserting
``one-half the amount otherwise applicable for such
year under paragraph (1)(A) for `$160,000' ''.
(2) Limit reduced when benefit begins before age 62.--
Subparagraph (C) of section 415(b)(2) is amended by striking
``the social security retirement age'' each place it appears in
the heading and text and inserting ``age 62''.
(3) Limit increased when benefit begins after age 65.--
Subparagraph (D) of section 415(b)(2) is amended by striking
``the social security retirement age'' each place it appears in
the heading and text and inserting ``age 65''.
(4) Cost-of-living adjustments.--Subsection (d) of section
415 (related to cost-of-living adjustments) is amended--
(A) by striking ``$90,000'' in paragraph (1)(A) and
inserting ``$160,000''; and
(B) in paragraph (3)(A)--
(i) by striking ``$90,000'' in the heading
and inserting ``$160,000''; and
(ii) by striking ``October 1, 1986'' and
inserting ``July 1, 2000''.
(5) Conforming amendment.--Section 415(b)(2) is amended by
striking subparagraph (F).
(b) Defined Contribution Plans.--
(1) Dollar limit.--Subparagraph (A) of section 415(c)(1)
(relating to limitation for defined contribution plans) is
amended by striking ``$30,000'' and inserting ``$40,000''.
(2) Cost-of-living adjustments.--Subsection (d) of section
415 (related to cost-of-living adjustments) is amended--
(A) by striking ``$30,000'' in paragraph (1)(C) and
inserting ``$40,000''; and
(B) in paragraph (3)(D)--
(i) by striking ``$30,000'' in the heading
and inserting ``$40,000''; and
(ii) by striking ``October 1, 1993'' and
inserting ``July 1, 2000''.
(c) Qualified Trusts.--
(1) Compensation limit.--Sections 401(a)(17), 404(l), 408(k),
and 505(b)(7) are each amended by striking ``$150,000'' each
place it appears and inserting ``$200,000''.
(2) Base period and rounding of cost-of-living adjustment.--
Subparagraph (B) of section 401(a)(17) is amended--
(A) by striking ``October 1, 1993'' and inserting
``July 1, 2000''; and
(B) by striking ``$10,000'' both places it appears
and inserting ``$5,000''.
(d) Elective Deferrals.--
(1) In general.--Paragraph (1) of section 402(g) (relating to
limitation on exclusion for elective deferrals) is amended to
read as follows:
``(1) In general.--
``(A) Limitation.--Notwithstanding subsections (e)(3)
and (h)(1)(B), the elective deferrals of any individual
for any taxable year shall be included in such
individual's gross income to the extent the amount of
such deferrals for the taxable year exceeds the
applicable dollar amount.
``(B) Applicable dollar amount.--For purposes of
subparagraph (A), the applicable dollar amount shall be
the amount determined in accordance with the following
table:
``For taxable years
The applicable
beginning in
dollar amount:
calendar year:
2001..................................... $11,000
2002..................................... $12,000
2003..................................... $13,000
2004..................................... $14,000
2005 or thereafter....................... $15,000.''.
(2) Cost-of-living adjustment.--Paragraph (5) of section
402(g) is amended to read as follows:
``(5) Cost-of-living adjustment.--In the case of taxable
years beginning after December 31, 2005, the Secretary shall
adjust the $15,000 amount under paragraph (1)(B) at the same
time and in the same manner as under section 415(d), except
that the base period shall be the calendar quarter beginning
July 1, 2004, and any increase under this paragraph which is
not a multiple of $500 shall be rounded to the next lowest
multiple of $500.''.
(3) Conforming amendments.--
(A) Section 402(g) (relating to limitation on
exclusion for elective deferrals), as amended by
paragraphs (1) and (2), is further amended by striking
paragraph (4) and redesignating paragraphs (5), (6),
(7), (8), and (9) as paragraphs (4), (5), (6), (7), and
(8), respectively.
(B) Paragraph (2) of section 457(c) is amended by
striking ``402(g)(8)(A)(iii)'' and inserting
``402(g)(7)(A)(iii)''.
(C) Clause (iii) of section 501(c)(18)(D) is amended
by striking ``(other than paragraph (4) thereof)''.
(e) Deferred Compensation Plans of State and Local Governments and
Tax-Exempt Organizations.--
(1) In general.--Section 457 (relating to deferred
compensation plans of State and local governments and tax-
exempt organizations) is amended--
(A) in subsections (b)(2)(A) and (c)(1) by striking
``$7,500'' each place it appears and inserting ``the
applicable dollar amount''; and
(B) in subsection (b)(3)(A) by striking ``$15,000''
and inserting ``twice the dollar amount in effect under
subsection (b)(2)(A)''.
(2) Applicable dollar amount; cost-of-living adjustment.--
Paragraph (15) of section 457(e) is amended to read as follows:
``(15) Applicable dollar amount.--
``(A) In general.--The applicable dollar amount shall
be the amount determined in accordance with the
following table:
``For taxable years
The applicable
beginning in
dollar amount:
calendar year:
2001..................................... $11,000
2002..................................... $12,000
2003..................................... $13,000
2004..................................... $14,000
2005 or thereafter....................... $15,000.
``(B) Cost-of-living adjustments.--In the case of
taxable years beginning after December 31, 2005, the
Secretary shall adjust the $15,000 amount specified in
the table in subparagraph (A) at the same time and in
the same manner as under section 415(d), except that
the base period shall be the calendar quarter beginning
July 1, 2004, and any increase under this paragraph
which is not a multiple of $500 shall be rounded to the
next lowest multiple of $500.''.
(f) Simple Retirement Accounts.--
(1) Limitation.--Clause (ii) of section 408(p)(2)(A)
(relating to general rule for qualified salary reduction
arrangement) is amended by striking ``$6,000'' and inserting
``the applicable dollar amount''.
(2) Applicable dollar amount.--Subparagraph (E) of 408(p)(2)
is amended to read as follows:
``(E) Applicable dollar amount; cost-of-living
adjustment.--
``(i) In general.--For purposes of
subparagraph (A)(ii), the applicable dollar
amount shall be the amount determined in
accordance with the following table:
``For taxable years
The applicable
beginning in
dollar amount:
calendar year:
2001............................. $7,000
2002............................. $8,000
2003............................. $9,000
2004 or thereafter............... $10,000.
``(ii) Cost-of-living adjustment.--In the
case of a year beginning after December 31,
2004, the Secretary shall adjust the $10,000
amount under clause (i) at the same time and in
the same manner as under section 415(d), except
that the base period taken into account shall
be the calendar quarter beginning July 1, 2003,
and any increase under this subparagraph which
is not a multiple of $500 shall be rounded to
the next lower multiple of $500.''.
(3) Conforming amendments.--
(A) Clause (I) of section 401(k)(11)(B)(i) is amended
by striking ``$6,000'' and inserting ``the amount in
effect under section 408(p)(2)(A)(ii)''.
(B) Section 401(k)(11) is amended by striking
subparagraph (E).
(g) Rounding Rule Relating to Defined Benefit Plans and Defined
Contribution Plans.--Paragraph (4) of section 415(d) is amended to read
as follows:
``(4) Rounding.--
``(A) $160,000 amount.--Any increase under
subparagraph (A) of paragraph (1) which is not a
multiple of $5,000 shall be rounded to the next lowest
multiple of $5,000.
``(B) $40,000 amount.--Any increase under
subparagraph (C) of paragraph (1) which is not a
multiple of $1,000 shall be rounded to the next lowest
multiple of $1,000.''.
(h) Effective Date.--The amendments made by this section shall apply
to years beginning after December 31, 2000.
SEC. 202. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND SOLE
PROPRIETORS.
(a) In General.--Subparagraph (B) of section 4975(f)(6) (relating to
exemptions not to apply to certain transactions) is amended by adding
at the end the following new clause:
``(iii) Loan exception.--For purposes of
subparagraph (A)(i), the term `owner-employee'
shall only include a person described in
subclause (II) or (III) of clause (i).''.
(b) Effective Date.--The amendment made by this section shall apply
to loans made after December 31, 2000.
SEC. 203. MODIFICATION OF TOP-HEAVY RULES.
(a) Simplification of Definition of Key Employee.--
(1) In general.--Section 416(i)(1)(A) (defining key employee)
is amended--
(A) by striking ``or any of the 4 preceding plan
years'' in the matter preceding clause (i);
(B) by striking clause (i) and inserting the
following:
``(i) an officer of the employer having an
annual compensation greater than $150,000,'';
(C) by striking clause (ii) and redesignating clauses
(iii) and (iv) as clauses (ii) and (iii), respectively;
and
(D) by striking the second sentence in the matter
following clause (iii), as redesignated by subparagraph
(C).
(2) Conforming amendment.--Section 416(i)(1)(B)(iii) is
amended by striking ``and subparagraph (A)(ii)''.
(b) Matching Contributions Taken Into Account for Minimum
Contribution Requirements.--Section 416(c)(2)(A) (relating to defined
contribution plans) is amended by adding at the end the following:
``Employer matching contributions (as defined in section 401(m)(4)(A))
shall be taken into account for purposes of this subparagraph.''.
(c) Distributions During Last Year Before Determination Date Taken
Into Account.--
(1) In general.--Paragraph (3) of section 416(g) is amended
to read as follows:
``(3) Distributions during last year before determination
date taken into account.--
``(A) In general.--For purposes of determining--
``(i) the present value of the cumulative
accrued benefit for any employee, or
``(ii) the amount of the account of any
employee,
such present value or amount shall be increased by the
aggregate distributions made with respect to such
employee under the plan during the 1-year period ending
on the determination date. The preceding sentence shall
also apply to distributions under a terminated plan
which if it had not been terminated would have been
required to be included in an aggregation group.
``(B) 5-year period in case of in-service
distribution.--In the case of any distribution made for
a reason other than separation from service, death, or
disability, subparagraph (A) shall be applied by
substituting `5-year period' for `1-year period'.''.
(2) Benefits not taken into account.--Subparagraph (E) of
section 416(g)(4) is amended--
(A) by striking ``last 5 years'' in the heading and
inserting ``last year before determination date''; and
(B) by striking ``5-year period'' and inserting ``1-
year period''.
(d) Definition of Top-Heavy Plans.--Paragraph (4) of section 416(g)
(relating to other special rules for top-heavy plans) is amended by
adding at the end the following new subparagraph:
``(H) Cash or deferred arrangements using alternative
methods of meeting nondiscrimination requirements.--The
term `top-heavy plan' shall not include a plan which
consists solely of--
``(i) a cash or deferred arrangement which
meets the requirements of section 401(k)(12),
and
``(ii) matching contributions with respect to
which the requirements of section 401(m)(11)
are met.
If, but for this subparagraph, a plan would be treated
as a top-heavy plan because it is a member of an
aggregation group which is a top-heavy group,
contributions under the plan may be taken into account
in determining whether any other plan in the group
meets the requirements of subsection (c)(2).''.
(e) Frozen Plan Exempt From Minimum Benefit Requirement.--
Subparagraph (C) of section 416(c)(1) (relating to defined benefit
plans) is amended--
(A) by striking ``clause (ii)'' in clause (i) and
inserting ``clause (ii) or (iii)''; and
(B) by adding at the end the following:
``(iii) Exception for frozen plan.--For
purposes of determining an employee's years of
service with the employer, any service with the
employer shall be disregarded to the extent
that such service occurs during a plan year
when the plan benefits (within the meaning of
section 410(b)) no employee or former
employee.''.
(f) Elimination of Family Attribution.--Section 416(i)(1)(B)
(defining 5-percent owner) is amended by adding at the end the
following new clause:
``(iv) Family attribution disregarded.--
Solely for purposes of applying this paragraph
(and not for purposes of any provision of this
title which incorporates by reference the
definition of a key employee or 5-percent owner
under this paragraph), section 318 shall be
applied without regard to subsection (a)(1)
thereof in determining whether any person is a
5-percent owner.''.
(g) Effective Date.--The amendments made by this section shall apply
to years beginning after December 31, 2000.
SEC. 204. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF
DEDUCTION LIMITS.
(a) In General.--Section 404 (relating to deduction for contributions
of an employer to an employees' trust or annuity plan and compensation
under a deferred payment plan) is amended by adding at the end the
following new subsection:
``(n) Elective Deferrals Not Taken Into Account for Purposes of
Deduction Limits.--Elective deferrals (as defined in section 402(g)(3))
shall not be subject to any limitation contained in paragraph (3), (7),
or (9) of subsection (a), and such elective deferrals shall not be
taken into account in applying any such limitation to any other
contributions.''.
(b) Effective Date.--The amendment made by this section shall apply
to years beginning after December 31, 2000.
SEC. 205. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED COMPENSATION
PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS.
(a) In General.--Subsection (c) of section 457 (relating to deferred
compensation plans of State and local governments and tax-exempt
organizations), as amended by section 201, is amended to read as
follows:
``(c) Limitation.--The maximum amount of the compensation of any one
individual which may be deferred under subsection (a) during any
taxable year shall not exceed the amount in effect under subsection
(b)(2)(A) (as modified by any adjustment provided under subsection
(b)(3)).''.
(b) Effective Date.--The amendment made by subsection (a) shall apply
to years beginning after December 31, 2000.
SEC. 206. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING PENSION
PLANS.
(a) Elimination of Certain User Fees.--The Secretary of the Treasury
or the Secretary's delegate shall not require payment of user fees
under the program established under section 7527 of the Internal
Revenue Code of 1986 for requests to the Internal Revenue Service for
determination letters with respect to the qualified status of a pension
benefit plan maintained solely by one or more eligible employers or any
trust which is part of the plan. The preceding sentence shall not apply
to any request--
(1) made after the fifth plan year the pension benefit plan
is in existence; or
(2) made by the sponsor of any prototype or similar plan
which the sponsor intends to market to participating employers.
(b) Pension Benefit Plan.--For purposes of this section, the term
``pension benefit plan'' means a pension, profit-sharing, stock bonus,
annuity, or employee stock ownership plan.
(c) Eligible Employer.--For purposes of this section, the term
``eligible employer'' has the same meaning given such term in section
408(p)(2)(C)(i)(I) of the Internal Revenue Code of 1986. The
determination of whether an employer is an eligible employer under this
section shall be made as of the date of the request described in
subsection (a).
(d) Effective Date.--The provisions of this section shall apply with
respect to requests made after December 31, 2000.
SEC. 207. DEDUCTION LIMITS.
(a) In General.--
(1) Stock bonus and profit sharing trusts.--Subclause (I) of
section 404(a)(3)(A)(i) (relating to stock bonus and profit
sharing trusts) is amended by striking ``15 percent'' and
inserting ``20 percent''.
(2) Compensation.--Section 404(a) (relating to general rule)
is amended by adding at the end the following:
``(12) Definition of compensation.--For purposes of
paragraphs (3), (7), (8), and (9), the term `compensation
otherwise paid or accrued during the taxable year' shall
include amounts treated as `participant's compensation' under
subparagraph (C) or (D) of section 415(c)(3).''.
(b) Conforming Amendments.--
(1) Subparagraph (B) of section 404(a)(3) is amended by
striking the last sentence thereof.
(2) Subparagraph (C) of section 404(h)(1) is amended by
striking ``15 percent'' each place it appears and inserting
``20 percent''.
(3) Clause (i) of section 4972(c)(6)(B) is amended by
striking ``(within the meaning of section 404(a))'' and
inserting ``(within the meaning of section 404(a) and as
adjusted under section 404(a)(12))''.
(c) Effective Date.--The amendments made by this section shall apply
to years beginning after December 31, 2000.
SEC. 208. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX
CONTRIBUTIONS.
(a) In General.--Subpart A of part I of subchapter D of chapter 1
(relating to deferred compensation, etc.) is amended by inserting after
section 402 the following new section:
``SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS PLUS
CONTRIBUTIONS.
``(a) General Rule.--If an applicable retirement plan includes a
qualified plus contribution program--
``(1) any designated plus contribution made by an employee
pursuant to the program shall be treated as an elective
deferral for purposes of this chapter, except that such
contribution shall not be excludable from gross income, and
``(2) such plan (and any arrangement which is part of such
plan) shall not be treated as failing to meet any requirement
of this chapter solely by reason of including such program.
``(b) Qualified Plus Contribution Program.--For purposes of this
section--
``(1) In general.--The term `qualified plus contribution
program' means a program under which an employee may elect to
make designated plus contributions in lieu of all or a portion
of elective deferrals the employee is otherwise eligible to
make under the applicable retirement plan.
``(2) Separate accounting required.--A program shall not be
treated as a qualified plus contribution program unless the
applicable retirement plan--
``(A) establishes separate accounts (`designated plus
accounts') for the designated plus contributions of
each employee and any earnings properly allocable to
the contributions, and
``(B) maintains separate recordkeeping with respect
to each account.
``(c) Definitions and Rules Relating to Designated Plus
Contributions.--For purposes of this section--
``(1) Designated plus contribution.--The term `designated
plus contribution' means any elective deferral which--
``(A) is excludable from gross income of an employee
without regard to this section, and
``(B) the employee designates (at such time and in
such manner as the Secretary may prescribe) as not
being so excludable.
``(2) Designation limits.--The amount of elective deferrals
which an employee may designate under paragraph (1) shall not
exceed the excess (if any) of--
``(A) the maximum amount of elective deferrals
excludable from gross income of the employee for the
taxable year (without regard to this section), over
``(B) the aggregate amount of elective deferrals of
the employee for the taxable year which the employee
does not designate under paragraph (1).
``(3) Rollover contributions.--
``(A) In general.--A rollover contribution of any
payment or distribution from a designated plus account
which is otherwise allowable under this chapter may be
made only if the contribution is to--
``(i) another designated plus account of the
individual from whose account the payment or
distribution was made, or
``(ii) a Roth IRA of such individual.
``(B) Coordination with limit.--Any rollover
contribution to a designated plus account under
subparagraph (A) shall not be taken into account for
purposes of paragraph (1).
``(d) Distribution Rules.--For purposes of this title--
``(1) Exclusion.--Any qualified distribution from a
designated plus account shall not be includible in gross
income.
``(2) Qualified distribution.--For purposes of this
subsection--
``(A) In general.--The term `qualified distribution'
has the meaning given such term by section
408A(d)(2)(A) (without regard to clause (iv) thereof).
``(B) Distributions within nonexclusion period.--A
payment or distribution from a designated plus account
shall not be treated as a qualified distribution if
such payment or distribution is made within the 5-
taxable-year period beginning with the earlier of--
``(i) the first taxable year for which the
individual made a designated plus contribution
to any designated plus account established for
such individual under the same applicable
retirement plan, or
``(ii) if a rollover contribution was made to
such designated plus account from a designated
plus account previously established for such
individual under another applicable retirement
plan, the first taxable year for which the
individual made a designated plus contribution
to such previously established account.
``(C) Distributions of excess deferrals and
earnings.--The term `qualified distribution' shall not
include any distribution of any excess deferral under
section 402(g)(2) and any income on the excess
deferral.
``(3) Aggregation rules.--Section 72 shall be applied
separately with respect to distributions and payments from a
designated plus account and other distributions and payments
from the plan.
``(e) Other Definitions.--For purposes of this section--
``(1) Applicable retirement plan.--The term `applicable
retirement plan' means--
``(A) an employees' trust described in section 401(a)
which is exempt from tax under section 501(a), and
``(B) a plan under which amounts are contributed by
an individual's employer for an annuity contract
described in section 403(b).
``(2) Elective deferral.--The term `elective deferral' means
any elective deferral described in subparagraph (A) or (C) of
section 402(g)(3).''.
(b) Excess Deferrals.--Section 402(g) (relating to limitation on
exclusion for elective deferrals) is amended--
(1) by adding at the end of paragraph (1) the following new
sentence: ``The preceding sentence shall not apply to so much
of such excess as does not exceed the designated plus
contributions of the individual for the taxable year.''; and
(2) by inserting ``(or would be included but for the last
sentence thereof)'' after ``paragraph (1)'' in paragraph
(2)(A).
(c) Rollovers.--Subparagraph (B) of section 402(c)(8) is amended by
adding at the end the following:
``If any portion of an eligible rollover distribution
is attributable to payments or distributions from a
designated plus account (as defined in section 402A),
an eligible retirement plan with respect to such
portion shall include only another designated plus
account and a Roth IRA.''.
(d) Reporting Requirements.--
(1) W-2 information.--Section 6051(a)(8) is amended by
inserting ``, including the amount of designated plus
contributions (as defined in section 402A)'' before the comma
at the end.
(2) Information.--Section 6047 is amended by redesignating
subsection (f) as subsection (g) and by inserting after
subsection (e) the following new subsection:
``(f) Designated Plus Contributions.--The Secretary shall require the
plan administrator of each applicable retirement plan (as defined in
section 402A) to make such returns and reports regarding designated
plus contributions (as so defined) to the Secretary, participants and
beneficiaries of the plan, and such other persons as the Secretary may
prescribe.''.
(e) Conforming Amendments.--
(1) Section 408A(e) is amended by adding after the first
sentence the following new sentence: ``Such term includes a
rollover contribution described in section 402A(c)(3)(A).''.
(2) The table of sections for subpart A of part I of
subchapter D of chapter 1 is amended by inserting after the
item relating to section 402 the following new item:
``Sec. 402A. Optional treatment of
elective deferrals as plus
contributions.''.
(f) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2000.
TITLE III--ENHANCING FAIRNESS FOR WOMEN
SEC. 301. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER.
(a) In General.--Section 414 (relating to definitions and special
rules) is amended by adding at the end the following new subsection:
``(v) Catch-up Contributions for Individuals Age 50 or Over.--
``(1) In general.--An applicable employer plan shall not be
treated as failing to meet any requirement of this title solely
because the plan permits an eligible participant to make
additional elective deferrals in any plan year.
``(2) Limitation on amount of additional deferrals.--A plan
shall not permit additional elective deferrals under paragraph
(1) for any year in an amount greater than the lesser of--
``(A) $5,000, or
``(B) the excess (if any) of--
``(i) the participant's compensation for the
year, over
``(ii) any other elective deferrals of the
participant for such year which are made
without regard to this subsection.
``(3) Treatment of contributions.--In the case of any
contribution to a plan under paragraph (1), such contribution
shall not, with respect to the year in which the contribution
is made--
``(A) be subject to any otherwise applicable
limitation contained in section 402(g), 402(h)(2),
404(a), 404(h), 408(p)(2)(A)(ii), 415, or 457, or
``(B) be taken into account in applying such
limitations to other contributions or benefits under
such plan or any other such plan.
``(4) Eligible participant.--For purposes of this subsection,
the term `eligible participant' means, with respect to any plan
year, a participant in a plan--
``(A) who has attained the age of 50 before the close
of the plan year, and
``(B) with respect to whom no other elective
deferrals may (without regard to this subsection) be
made to the plan for the plan year by reason of the
application of any limitation or other restriction
described in paragraph (3) or comparable limitation
contained in the terms of the plan.
``(5) Other definitions and rules.--For purposes of this
subsection--
``(A) Applicable employer plan.--The term `applicable
employer plan' means--
``(i) an employees' trust described in
section 401(a) which is exempt from tax under
section 501(a),
``(ii) a plan under which amounts are
contributed by an individual's employer for an
annuity contract described in section 403(b),
``(iii) an eligible deferred compensation
plan under section 457 of an eligible employer
as defined in section 457(e)(1)(A), and
``(iv) an arrangement meeting the
requirements of section 408 (k) or (p).
``(B) Elective deferral.--The term `elective
deferral' has the meaning given such term by subsection
(u)(2)(C).
``(C) Exception for section 457 plans.--This
subsection shall not apply to an applicable employer
plan described in subparagraph (A)(iii) for any year to
which section 457(b)(3) applies.
``(D) Cost-of-living adjustment.--For years beginning
after December 31, 2005, the Secretary shall adjust
annually the $5,000 amount in subparagraph (A) for
increases in the cost-of-living at the same time and in
the same manner as adjustments under section 415(d);
except that the base period shall be the calendar
quarter beginning July 1, 2004, and any increase which
is not a multiple of $500 shall be rounded to the next
lowest multiple of $500.''.
(b) Effective Date.--The amendment made by this section shall apply
to contributions in taxable years beginning after December 31, 2000.
SEC. 302. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO DEFINED
CONTRIBUTION PLANS.
(a) Equitable Treatment.--
(1) In general.--Subparagraph (B) of section 415(c)(1)
(relating to limitation for defined contribution plans) is
amended by striking ``25 percent'' and inserting ``100
percent''.
(2) Application to section 403(b).--Section 403(b) is
amended--
(A) by striking ``the exclusion allowance for such
taxable year'' in paragraph (1) and inserting ``the
applicable limit under section 415'';
(B) by striking paragraph (2); and
(C) by inserting ``or any amount received by a former
employee after the fifth taxable year following the
taxable year in which such employee was terminated''
before the period at the end of the second sentence of
paragraph (3).
(3) Conforming amendments.--
(A) Subsection (f) of section 72 is amended by
striking ``section 403(b)(2)(D)(iii))'' and inserting
``section 403(b)(2)(D)(iii), as in effect before the
enactment of the Comprehensive Retirement Security and
Pension Reform Act of 2000)''.
(B) Section 404(a)(10)(B) is amended by striking ``,
the exclusion allowance under section 403(b)(2),''.
(C) Section 415(a)(2) is amended by striking ``, and
the amount of the contribution for such portion shall
reduce the exclusion allowance as provided in section
403(b)(2)''.
(D) Section 415(c)(3) is amended by adding at the end
the following new subparagraph:
``(E) Annuity contracts.--In the case of an annuity
contract described in section 403(b), the term
`participant's compensation' means the participant's
includible compensation determined under section
403(b)(3).''.
(E) Section 415(c) is amended by striking paragraph
(4).
(F) Section 415(c)(7) is amended to read as follows:
``(7) Certain contributions by church plans not treated as
exceeding limit.--
``(A) In general.--Notwithstanding any other
provision of this subsection, at the election of a
participant who is an employee of a church or a
convention or association of churches, including an
organization described in section 414(e)(3)(B)(ii),
contributions and other additions for an annuity
contract or retirement income account described in
section 403(b) with respect to such participant, when
expressed as an annual addition to such participant's
account, shall be treated as not exceeding the
limitation of paragraph (1) if such annual addition is
not in excess of $10,000.
``(B) $40,000 aggregate limitation.--The total amount
of additions with respect to any participant which may
be taken into account for purposes of this subparagraph
for all years may not exceed $40,000.
``(C) Annual addition.--For purposes of this
paragraph, the term `annual addition' has the meaning
given such term by paragraph (2).''.
(G) Subparagraph (B) of section 402(g)(7) (as
redesignated by section 211) is amended by inserting
before the period at the end the following: ``(as in
effect before the enactment of the Comprehensive
Retirement Security and Pension Reform Act of 2000)''.
(3) Effective date.--The amendments made by this subsection
shall apply to years beginning after December 31, 2000.
(b) Special Rules for Sections 403(b) and 408.--
(1) In general.--Subsection (k) of section 415 is amended by
adding at the end the following new paragraph:
``(4) Special rules for sections 403(b) and 408.--For
purposes of this section, any annuity contract described in
section 403(b) for the benefit of a participant shall be
treated as a defined contribution plan maintained by each
employer with respect to which the participant has the control
required under subsection (b) or (c) of section 414 (as
modified by subsection (h)). For purposes of this section, any
contribution by an employer to a simplified employee pension
plan for an individual for a taxable year shall be treated as
an employer contribution to a defined contribution plan for
such individual for such year.''.
(2) Effective date.--
(A) In general.--The amendment made by paragraph (1)
shall apply to limitation years beginning after
December 31, 1999.
(B) Exclusion allowance.--Effective for limitation
years beginning in 2000, in the case of any annuity
contract described in section 403(b) of the Internal
Revenue Code of 1986, the amount of the contribution
disqualified by reason of section 415(g) of such Code
shall reduce the exclusion allowance as provided in
section 403(b)(2) of such Code.
(3) Modification of 403(b) exclusion allowance to conform to
415 modification.--The Secretary of the Treasury shall modify
the regulations regarding the exclusion allowance under section
403(b)(2) of the Internal Revenue Code of 1986 to render void
the requirement that contributions to a defined benefit pension
plan be treated as previously excluded amounts for purposes of
the exclusion allowance. For taxable years beginning after
December 31, 1999, such regulations shall be applied as if such
requirement were void.
(c) Deferred Compensation Plans of State and Local Governments and
Tax-Exempt Organizations.--
(1) In general.--Subparagraph (B) of section 457(b)(2)
(relating to salary limitation on eligible deferred
compensation plans) is amended by striking ``33\1/3\ percent''
and inserting ``100 percent''.
(2) Effective date.--The amendment made by this subsection
shall apply to years beginning after December 31, 2000.
SEC. 303. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.
(a) In General.--Section 411(a) (relating to minimum vesting
standards) is amended--
(1) in paragraph (2), by striking ``A plan'' and inserting
``Except as provided in paragraph (12), a plan''; and
(2) by adding at the end the following:
``(12) Faster vesting for matching contributions.--In the
case of matching contributions (as defined in section
401(m)(4)(A)), paragraph (2) shall be applied--
``(A) by substituting `3 years' for `5 years' in
subparagraph (A), and
``(B) by substituting the following table for the
table contained in subparagraph (B):
The nonforfeitable
``Years of service:
percentage is:
2........................................ 20
3........................................ 40
4........................................ 60
5........................................ 80
6........................................ 100.''.
(b) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to contributions
for plan years beginning after December 31, 2000.
(2) Collective bargaining agreements.--In the case of a plan
maintained pursuant to one or more collective bargaining
agreements between employee representatives and one or more
employers ratified by the date of the enactment of this Act,
the amendments made by this section shall not apply to
contributions on behalf of employees covered by any such
agreement for plan years beginning before the earlier of--
(A) the later of--
(i) the date on which the last of such
collective bargaining agreements terminates
(determined without regard to any extension
thereof on or after such date of the
enactment); or
(ii) January 1, 2001; or
(B) January 1, 2005.
(3) Service required.--With respect to any plan, the
amendments made by this section shall not apply to any employee
before the date that such employee has 1 hour of service under
such plan in any plan year to which the amendments made by this
section apply.
SEC. 304. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBUTION RULES.
(a) Simplification and Finalization of Minimum Distribution
Requirements.--
(1) In general.--The Secretary of the Treasury shall--
(A) simplify and finalize the regulations relating to
minimum distribution requirements under sections
401(a)(9), 408(a)(6) and (b)(3), 403(b)(10), and
457(d)(2) of the Internal Revenue Code of 1986; and
(B) modify such regulations to--
(i) reflect current life expectancy; and
(ii) revise the required distribution methods
so that, under reasonable assumptions, the
amount of the required minimum distribution
does not decrease over a participant's life
expectancy.
(2) Fresh start.--Notwithstanding subparagraph (D) of section
401(a)(9) of such Code, during the first year that regulations
are in effect under this subsection, required distributions for
future years may be redetermined to reflect changes under such
regulations. Such redetermination shall include the opportunity
to choose a new designated beneficiary and to elect a new
method of calculating life expectancy.
(3) Effective date for regulations.--Regulations referred to
in paragraph (1) shall be effective for years beginning after
December 31, 2000, and shall apply in such years without regard
to whether an individual had previously begun receiving minimum
distributions.
(b) Repeal of Rule Where Distributions Had Begun Before Death
Occurs.--
(1) In general.--Subparagraph (B) of section 401(a)(9) is
amended by striking clause (i) and redesignating clauses (ii),
(iii), and (iv) as clauses (i), (ii), and (iii), respectively.
(2) Conforming changes.--
(A) Clause (i) of section 401(a)(9)(B) (as so
redesignated) is amended--
(i) by striking ``for other cases'' in the
heading; and
(ii) by striking ``the distribution of the
employee's interest has begun in accordance
with subparagraph (A)(ii)'' and inserting ``his
entire interest has been distributed to him''.
(B) Clause (ii) of section 401(a)(9)(B) (as so
redesignated) is amended by striking ``clause (ii)''
and inserting ``clause (i)''.
(C) Clause (iii) of section 401(a)(9)(B) (as so
redesignated) is amended--
(i) by striking ``clause (iii)(I)'' and
inserting ``clause (ii)(I)'';
(ii) by striking ``clause (iii)(III)'' in
subclause (I) and inserting ``clause
(ii)(III)'';
(iii) by striking ``the date on which the
employee would have attained age 70\1/2\,'' in
subclause (I) and inserting ``April 1 of the
calendar year following the calendar year in
which the spouse attains 70\1/2\,''; and
(iv) by striking ``the distributions to such
spouse begin,'' in subclause (II) and inserting
``his entire interest has been distributed to
him,''.
(3) Effective date.--The amendments made by this subsection
shall apply to years beginning after December 31, 2000.
(c) Reduction in Excise Tax.--
(1) In general.--Subsection (a) of section 4974 is amended by
striking ``50 percent'' and inserting ``10 percent''.
(2) Effective date.--The amendment made by this subsection
shall apply to years beginning after December 31, 2000.
SEC. 305. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SECTION 457
PLAN BENEFITS UPON DIVORCE.
(a) In General.--Section 414(p)(11) (relating to application of rules
to governmental and church plans) is amended--
(1) by inserting ``or an eligible deferred compensation plan
(within the meaning of section 457(b))'' after ``subsection
(e))''; and
(2) in the heading, by striking ``governmental and church
plans'' and inserting ``certain other plans''.
(b) Waiver of Certain Distribution Requirements.--Paragraph (10) of
section 414(p) is amended by striking ``and section 409(d)'' and
inserting ``section 409(d), and section 457(d)''.
(c) Tax Treatment of Payments From a Section 457 Plan.--Subsection
(p) of section 414 is amended by redesignating paragraph (12) as
paragraph (13) and inserting after paragraph (11) the following new
paragraph:
``(12) Tax treatment of payments from a section 457 plan.--If
a distribution or payment from an eligible deferred
compensation plan described in section 457(b) is made pursuant
to a qualified domestic relations order, rules similar to the
rules of section 402(e)(1)(A) shall apply to such distribution
or payment.''.
(d) Effective Date.--The amendments made by this section shall apply
to transfers, distributions, and payments made after December 31, 2000.
SEC. 306. MODIFICATION OF SAFE HARBOR RELIEF FOR HARDSHIP WITHDRAWALS
FROM CASH OR DEFERRED ARRANGEMENTS.
(a) In General.--The Secretary of the Treasury shall revise the
regulations relating to hardship distributions under section
401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986 to provide
that the period an employee is prohibited from making elective and
employee contributions in order for a distribution to be deemed
necessary to satisfy financial need shall be equal to 6 months.
(b) Effective Date.--The revised regulations under subsection (a)
shall apply to years beginning after December 31, 2000.
TITLE IV--INCREASING PORTABILITY FOR PARTICIPANTS
SEC. 401. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.
(a) Rollovers From and to Section 457 Plans.--
(1) Rollovers from section 457 plans.--
(A) In general.--Section 457(e) (relating to other
definitions and special rules) is amended by adding at
the end the following:
``(16) Rollover amounts.--
``(A) General rule.--In the case of an eligible
deferred compensation plan established and maintained
by an employer described in subsection (e)(1)(A), if--
``(i) any portion of the balance to the
credit of an employee in such plan is paid to
such employee in an eligible rollover
distribution (within the meaning of section
402(c)(4) without regard to subparagraph (C)
thereof),
``(ii) the employee transfers any portion of
the property such employee receives in such
distribution to an eligible retirement plan
described in section 402(c)(8)(B), and
``(iii) in the case of a distribution of
property other than money, the amount so
transferred consists of the property
distributed,
then such distribution (to the extent so transferred)
shall not be includible in gross income for the taxable
year in which paid.
``(B) Certain rules made applicable.--The rules of
paragraphs (2) through (7) (other than paragraph
(4)(C)) and (9) of section 402(c) and section 402(f)
shall apply for purposes of subparagraph (A).
``(C) Reporting.--Rollovers under this paragraph
shall be reported to the Secretary in the same manner
as rollovers from qualified retirement plans (as
defined in section 4974(c)).''.
(B) Deferral limit determined without regard to
rollover amounts.--Section 457(b)(2) (defining eligible
deferred compensation plan) is amended by inserting
``(other than rollover amounts)'' after ``taxable
year''.
(C) Direct rollover.--Paragraph (1) of section 457(d)
is amended by striking ``and'' at the end of
subparagraph (A), by striking the period at the end of
subparagraph (B) and inserting ``, and'', and by
inserting after subparagraph (B) the following:
``(C) in the case of a plan maintained by an employer
described in subsection (e)(1)(A), the plan meets
requirements similar to the requirements of section
401(a)(31).
Any amount transferred in a direct trustee-to-trustee transfer
in accordance with section 401(a)(31) shall not be includible
in gross income for the taxable year of transfer.''.
(D) Withholding.--
(i) Paragraph (12) of section 3401(a) is
amended by adding at the end the following:
``(E) under or to an eligible deferred compensation
plan which, at the time of such payment, is a plan
described in section 457(b) maintained by an employer
described in section 457(e)(1)(A); or''.
(ii) Paragraph (3) of section 3405(c) is
amended to read as follows:
``(3) Eligible rollover distribution.--For purposes of this
subsection, the term `eligible rollover distribution' has the
meaning given such term by section 402(f)(2)(A).''.
(iii) Liability for withholding.--
Subparagraph (B) of section 3405(d)(2) is
amended by striking ``or'' at the end of clause
(ii), by striking the period at the end of
clause (iii) and inserting ``, or'', and by
adding at the end the following:
``(iv) section 457(b).''.
(2) Rollovers to section 457 plans.--
(A) In general.--Section 402(c)(8)(B) (defining
eligible retirement plan) is amended by striking
``and'' at the end of clause (iii), by striking the
period at the end of clause (iv) and inserting ``,
and'', and by inserting after clause (iv) the following
new clause:
``(v) an eligible deferred compensation plan
described in section 457(b) of an employer
described in section 457(e)(1)(A).''.
(B) Separate accounting.--Section 402(c) is amended
by adding at the end the following new paragraph:
``(11) Separate accounting.--Unless a plan described in
clause (v) of paragraph (8)(B) agrees to separately account for
amounts rolled into such plan from eligible retirement plans
not described in such clause, the plan described in such clause
may not accept transfers or rollovers from such retirement
plans.''.
(C) 10 percent additional tax.--Subsection (t) of
section 72 (relating to 10-percent additional tax on
early distributions from qualified retirement plans) is
amended by adding at the end the following new
paragraph:
``(9) Special rule for rollovers to section 457 plans.--For
purposes of this subsection, a distribution from an eligible
deferred compensation plan (as defined in section 457(b)) of an
employer described in section 457(e)(1)(A) shall be treated as
a distribution from a qualified retirement plan described in
4974(c)(1) to the extent that such distribution is attributable
to an amount transferred to an eligible deferred compensation
plan from a qualified retirement plan (as defined in section
4974(c)).''.
(b) Allowance of Rollovers From and to 403(b) Plans.--
(1) Rollovers from section 403(b) plans.--Section
403(b)(8)(A)(ii) (relating to rollover amounts) is amended by
striking ``such distribution'' and all that follows and
inserting ``such distribution to an eligible retirement plan
described in section 402(c)(8)(B), and''.
(2) Rollovers to section 403(b) plans.--Section 402(c)(8)(B)
(defining eligible retirement plan), as amended by subsection
(a), is amended by striking ``and'' at the end of clause (iv),
by striking the period at the end of clause (v) and inserting
``, and'', and by inserting after clause (v) the following new
clause:
``(vi) an annuity contract described in
section 403(b).''.
(c) Expanded Explanation to Recipients of Rollover Distributions.--
Paragraph (1) of section 402(f) (relating to written explanation to
recipients of distributions eligible for rollover treatment) is amended
by striking ``and'' at the end of subparagraph (C), by striking the
period at the end of subparagraph (D) and inserting ``, and'', and by
adding at the end the following new subparagraph:
``(E) of the provisions under which distributions
from the eligible retirement plan receiving the
distribution may be subject to restrictions and tax
consequences which are different from those applicable
to distributions from the plan making such
distribution.''.
(d) Spousal Rollovers.--Section 402(c)(9) (relating to rollover where
spouse receives distribution after death of employee) is amended by
striking ``; except that'' and all that follows up to the end period.
(e) Conforming Amendments.--
(1) Section 72(o)(4) is amended by striking ``and 408(d)(3)''
and inserting ``403(b)(8), 408(d)(3), and 457(e)(16)''.
(2) Section 219(d)(2) is amended by striking ``or 408(d)(3)''
and inserting ``408(d)(3), or 457(e)(16)''.
(3) Section 401(a)(31)(B) is amended by striking ``and
403(a)(4)'' and inserting ``, 403(a)(4), 403(b)(8), and
457(e)(16)''.
(4) Subparagraph (A) of section 402(f)(2) is amended by
striking ``or paragraph (4) of section 403(a)'' and inserting
``, paragraph (4) of section 403(a), subparagraph (A) of
section 403(b)(8), or subparagraph (A) of section 457(e)(16)''.
(5) Paragraph (1) of section 402(f) is amended by striking
``from an eligible retirement plan''.
(6) Subparagraphs (A) and (B) of section 402(f)(1) are
amended by striking ``another eligible retirement plan'' and
inserting ``an eligible retirement plan''.
(7) Subparagraph (B) of section 403(b)(8) is amended to read
as follows:
``(B) Certain rules made applicable.--The rules of
paragraphs (2) through (7) and (9) of section 402(c)
and section 402(f) shall apply for purposes of
subparagraph (A), except that section 402(f) shall be
applied to the payor in lieu of the plan
administrator.''.
(8) Section 408(a)(1) is amended by striking ``or
403(b)(8),'' and inserting ``403(b)(8), or 457(e)(16)''.
(9) Subparagraphs (A) and (B) of section 415(b)(2) are each
amended by striking ``and 408(d)(3)'' and inserting
``403(b)(8), 408(d)(3), and 457(e)(16)''.
(10) Section 415(c)(2) is amended by striking ``and
408(d)(3)'' and inserting ``408(d)(3), and 457(e)(16)''.
(11) Section 4973(b)(1)(A) is amended by striking ``or
408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
(f) Effective Date; Special Rule.--
(1) Effective date.--The amendments made by this section
shall apply to distributions after December 31, 2000.
(2) Special rule.--Notwithstanding any other provision of
law, subsections (h)(3) and (h)(5) of section 1122 of the Tax
Reform Act of 1986 shall not apply to any distribution from an
eligible retirement plan (as defined in clause (iii) or (iv) of
section 402(c)(8)(B) of the Internal Revenue Code of 1986) on
behalf of an individual if there was a rollover to such plan on
behalf of such individual which is permitted solely by reason
of any amendment made by this section.
SEC. 402. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.
(a) In General.--Subparagraph (A) of section 408(d)(3) (relating to
rollover amounts) is amended by adding ``or'' at the end of clause (i),
by striking clauses (ii) and (iii), and by adding at the end the
following:
``(ii) the entire amount received (including
money and any other property) is paid into an
eligible retirement plan for the benefit of
such individual not later than the 60th day
after the date on which the payment or
distribution is received, except that the
maximum amount which may be paid into such plan
may not exceed the portion of the amount
received which is includible in gross income
(determined without regard to this paragraph).
For purposes of clause (ii), the term `eligible
retirement plan' means an eligible retirement plan
described in clause (iii), (iv), (v), or (vi) of
section 402(c)(8)(B).''.
(b) Conforming Amendments.--
(1) Paragraph (1) of section 403(b) is amended by striking
``section 408(d)(3)(A)(iii)'' and inserting ``section
408(d)(3)(A)(ii)''.
(2) Clause (i) of section 408(d)(3)(D) is amended by striking
``(i), (ii), or (iii)'' and inserting ``(i) or (ii)''.
(3) Subparagraph (G) of section 408(d)(3) is amended to read
as follows:
``(G) Simple retirement accounts.--In the case of any
payment or distribution out of a simple retirement
account (as defined in subsection (p)) to which section
72(t)(6) applies, this paragraph shall not apply unless
such payment or distribution is paid into another
simple retirement account.''.
(c) Effective Date; Special Rule.--
(1) Effective date.--The amendments made by this section
shall apply to distributions after December 31, 2000.
(2) Special rule.--Notwithstanding any other provision of
law, subsections (h)(3) and (h)(5) of section 1122 of the Tax
Reform Act of 1986 shall not apply to any distribution from an
eligible retirement plan (as defined in clause (iii) or (iv) of
section 402(c)(8)(B) of the Internal Revenue Code of 1986) on
behalf of an individual if there was a rollover to such plan on
behalf of such individual which is permitted solely by reason
of the amendments made by this section.
SEC. 403. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.
(a) Rollovers From Exempt Trusts.--Paragraph (2) of section 402(c)
(relating to maximum amount which may be rolled over) is amended by
adding at the end the following: ``The preceding sentence shall not
apply to such distribution to the extent--
``(A) such portion is transferred in a direct
trustee-to-trustee transfer to a qualified trust which
is part of a plan which is a defined contribution plan
and which agrees to separately account for amounts so
transferred, including separately accounting for the
portion of such distribution which is includible in
gross income and the portion of such distribution which
is not so includible, or
``(B) such portion is transferred to an eligible
retirement plan described in clause (i) or (ii) of
paragraph (8)(B).''.
(b) Optional Direct Transfer of Eligible Rollover Distributions.--
Subparagraph (B) of section 401(a)(31) (relating to limitation) is
amended by adding at the end the following: ``The preceding sentence
shall not apply to such distribution if the plan to which such
distribution is transferred--
``(i) agrees to separately account for
amounts so transferred, including separately
accounting for the portion of such distribution
which is includible in gross income and the
portion of such distribution which is not so
includible, or
``(ii) is an eligible retirement plan
described in clause (i) or (ii) of section
402(c)(8)(B).''.
(c) Rules for Applying Section 72 to IRAs.--Paragraph (3) of section
408(d) (relating to special rules for applying section 72) is amended
by inserting at the end the following:
``(H) Application of section 72.--
``(i) In general.--If--
``(I) a distribution is made from an
individual retirement plan, and
``(II) a rollover contribution is
made to an eligible retirement plan
described in section 402(c)(8)(B)(iii),
(iv), (v), or (vi) with respect to all
or part of such distribution,
then, notwithstanding paragraph (2), the rules
of clause (ii) shall apply for purposes of
applying section 72.
``(ii) Applicable rules.--In the case of a
distribution described in clause (i)--
``(I) section 72 shall be applied
separately to such distribution,
``(II) notwithstanding the pro rata
allocation of income on, and investment
in, the contract to distributions under
section 72, the portion of such
distribution rolled over to an eligible
retirement plan described in clause (i)
shall be treated as from income on the
contract (to the extent of the
aggregate income on the contract from
all individual retirement plans of the
distributee), and
``(III) appropriate adjustments shall
be made in applying section 72 to other
distributions in such taxable year and
subsequent taxable years.''.
(d) Effective Date.--The amendments made by this section shall apply
to distributions made after December 31, 2000.
SEC. 404. HARDSHIP EXCEPTION TO 60-DAY RULE.
(a) Exempt Trusts.--Paragraph (3) of section 402(c) (relating to
transfer must be made within 60 days of receipt) is amended to read as
follows:
``(3) Transfer must be made within 60 days of receipt.--
``(A) In general.--Except as provided in subparagraph
(B), paragraph (1) shall not apply to any transfer of a
distribution made after the 60th day following the day
on which the distributee received the property
distributed.
``(B) Hardship exception.--The Secretary may waive
the 60-day requirement under subparagraph (A) where the
failure to waive such requirement would be against
equity or good conscience, including casualty,
disaster, or other events beyond the reasonable control
of the individual subject to such requirement.''.
(b) IRAs.--Paragraph (3) of section 408(d) (relating to rollover
contributions), as amended by section 403, is amended by adding after
subparagraph (H) the following new subparagraph:
``(I) Waiver of 60-day requirement.--The Secretary
may waive the 60-day requirement under subparagraphs
(A) and (D) where the failure to waive such requirement
would be against equity or good conscience, including
casualty, disaster, or other events beyond the
reasonable control of the individual subject to such
requirement.''.
(c) Effective Date.--The amendments made by this section shall apply
to distributions after December 31, 2000.
SEC. 405. TREATMENT OF FORMS OF DISTRIBUTION.
(a) Plan Transfers.--
(1) In general.--Paragraph (6) of section 411(d) (relating to
accrued benefit not to be decreased by amendment) is amended by
adding at the end the following:
``(D) Plan transfers.--
``(i) In general.--A defined contribution
plan (in this subparagraph referred to as the
`transferee plan') shall not be treated as
failing to meet the requirements of this
subsection merely because the transferee plan
does not provide some or all of the forms of
distribution previously available under another
defined contribution plan (in this subparagraph
referred to as the `transferor plan') to the
extent that--
``(I) the forms of distribution
previously available under the
transferor plan applied to the account
of a participant or beneficiary under
the transferor plan that was
transferred from the transferor plan to
the transferee plan pursuant to a
direct transfer rather than pursuant to
a distribution from the transferor
plan,
``(II) the terms of both the
transferor plan and the transferee plan
authorize the transfer described in
subclause (I),
``(III) the transfer described in
subclause (I) was made pursuant to a
voluntary election by the participant
or beneficiary whose account was
transferred to the transferee plan,
``(IV) the election described in
subclause (III) was made after the
participant or beneficiary received a
notice describing the consequences of
making the election,
``(V) if the transferor plan provides
for an annuity as the normal form of
distribution under the plan in
accordance with section 417, the
transfer is made with the consent of
the participant's spouse (if any), and
such consent meets requirements similar
to the requirements imposed by section
417(a)(2), and
``(VI) the transferee plan allows the
participant or beneficiary described in
subclause (III) to receive any
distribution to which the participant
or beneficiary is entitled under the
transferee plan in the form of a single
sum distribution.
``(ii) Exception.--Clause (i) shall apply to
plan mergers and other transactions having the
effect of a direct transfer, including
consolidations of benefits attributable to
different employers within a multiple employer
plan.
``(E) Elimination of form of distribution.--Except to
the extent provided in regulations, a defined
contribution plan shall not be treated as failing to
meet the requirements of this section merely because of
the elimination of a form of distribution previously
available thereunder. This subparagraph shall not apply
to the elimination of a form of distribution with
respect to any participant unless--
``(i) a single sum payment is available to
such participant at the same time or times as
the form of distribution being eliminated, and
``(ii) such single sum payment is based on
the same or greater portion of the
participant's account as the form of
distribution being eliminated.''.
(2) Effective date.--The amendment made by this subsection
shall apply to years beginning after December 31, 2000.
(b) Regulations.--
(1) In general.--The last sentence of paragraph (6)(B) of
section 411(d) (relating to accrued benefit not to be decreased
by amendment) is amended to read as follows: ``The Secretary
shall by regulations provide that this subparagraph shall not
apply to any plan amendment that does not adversely affect the
rights of participants in a material manner.''.
(2) Secretary directed.--Not later than December 31, 2001,
the Secretary of the Treasury is directed to issue final
regulations under section 411(d)(6) of the Internal Revenue
Code of 1986, including the regulations required by the
amendments made by this subsection. Such regulations shall
apply to plan years beginning after December 31, 2001, or such
earlier date as is specified by the Secretary of the Treasury.
SEC. 406. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.
(a) Modification of Same Desk Exception.--
(1) Section 401(k).--
(A) Section 401(k)(2)(B)(i)(I) (relating to qualified
cash or deferred arrangements) is amended by striking
``separation from service'' and inserting ``severance
from employment''.
(B) Subparagraph (A) of section 401(k)(10) (relating
to distributions upon termination of plan or
disposition of assets or subsidiary) is amended to read
as follows:
``(A) In general.--An event described in this
subparagraph is the termination of the plan without
establishment or maintenance of another defined
contribution plan (other than an employee stock
ownership plan as defined in section 4975(e)(7)).''.
(C) Section 401(k)(10) is amended--
(i) in subparagraph (B)--
(I) by striking ``An event'' in
clause (i) and inserting ``A
termination''; and
(II) by striking ``the event'' in
clause (i) and inserting ``the
termination'';
(ii) by striking subparagraph (C); and
(iii) by striking ``or disposition of assets
or subsidiary'' in the heading.
(2) Section 403(b).--
(A) Paragraphs (7)(A)(ii) and (11)(A) of section
403(b) are each amended by striking ``separates from
service'' and inserting ``has a severance from
employment''.
(B) The heading for paragraph (11) of section 403(b)
is amended by striking ``separation from service'' and
inserting ``severance from employment''.
(3) Section 457.--Clause (ii) of section 457(d)(1)(A) is
amended by striking ``is separated from service'' and inserting
``has a severance from employment''.
(b) Effective Date.--The amendments made by this section shall apply
to distributions after December 31, 2000.
SEC. 407. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED BENEFIT
PLANS.
(a) 403(b) Plans.--Subsection (b) of section 403 is amended by adding
at the end the following new paragraph:
``(13) Trustee-to-trustee transfers to purchase permissive
service credit.--No amount shall be includible in gross income
by reason of a direct trustee-to-trustee transfer to a defined
benefit governmental plan (as defined in section 414(d)) if
such transfer is--
``(A) for the purchase of permissive service credit
(as defined in section 415(n)(3)(A)) under such plan,
or
``(B) a repayment to which section 415 does not apply
by reason of subsection (k)(3) thereof.''.
(b) 457 Plans.--Subsection (e) of section 457 is amended by adding
after paragraph (16) the following new paragraph:
``(17) Trustee-to-trustee transfers to purchase permissive
service credit.--No amount shall be includible in gross income
by reason of a direct trustee-to-trustee transfer to a defined
benefit governmental plan (as defined in section 414(d)) if
such transfer is--
``(A) for the purchase of permissive service credit
(as defined in section 415(n)(3)(A)) under such plan,
or
``(B) a repayment to which section 415 does not apply
by reason of subsection (k)(3) thereof.''.
(c) Effective Date.--The amendments made by this section shall apply
to trustee-to-trustee transfers after December 31, 2000.
SEC. 408. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF CASH-OUT
AMOUNTS.
(a) Qualified Plans.--Section 411(a)(11) (relating to restrictions on
certain mandatory distributions) is amended by adding at the end the
following:
``(D) Special rule for rollover contributions.--A
plan shall not fail to meet the requirements of this
paragraph if, under the terms of the plan, the present
value of the nonforfeitable accrued benefit is
determined without regard to that portion of such
benefit which is attributable to rollover contributions
(and earnings allocable thereto). For purposes of this
subparagraph, the term `rollover contributions' means
any rollover contribution under sections 402(c),
403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and
457(e)(16).''.
(b) Eligible Deferred Compensation Plans.--Clause (i) of section
457(e)(9)(A) is amended by striking ``such amount'' and inserting ``the
portion of such amount which is not attributable to rollover
contributions (as defined in section 411(a)(11)(D))''.
(c) Effective Date.--The amendments made by this section shall apply
to distributions after December 31, 2000.
SEC. 409. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR SECTION
457 PLANS.
(a) Minimum Distribution Requirements.--Paragraph (2) of section
457(d) (relating to distribution requirements) is amended to read as
follows:
``(2) Minimum distribution requirements.--A plan meets the
minimum distribution requirements of this paragraph if such
plan meets the requirements of section 401(a)(9).''.
(b) Inclusion in Gross Income.--
(1) Year of inclusion.--Subsection (a) of section 457
(relating to year of inclusion in gross income) is amended to
read as follows:
``(a) Year of inclusion in gross income.--
``(1) In general.--Any amount of compensation deferred under
an eligible deferred compensation plan, and any income
attributable to the amounts so deferred, shall be includible in
gross income only for the taxable year in which such
compensation or other income--
``(A) is paid to the participant or other
beneficiary, in the case of a plan of an eligible
employer described in subsection (e)(1)(A), and
``(B) is paid or otherwise made available to the
participant or other beneficiary, in the case of a plan
of an eligible employer described in subsection
(e)(1)(B).
``(2) Special rule for rollover amounts.--To the extent
provided in section 72(t)(9), section 72(t) shall apply to any
amount includible in gross income under this subsection.''.
(2) Conforming amendments.--
(A) So much of paragraph (9) of section 457(e) as
precedes subparagraph (A) is amended to read as
follows:
``(9) Benefits of tax exempt organization plans not treated
as made available by reason of certain elections, etc.--In the
case of an eligible deferred compensation plan of an employer
described in subsection (e)(1)(B)''.
(B) Section 457(d) is amended by adding at the end
the following new paragraph:
``(3) Special rule for government plan.--An eligible deferred
compensation plan of an employer described in subsection
(e)(1)(A) shall not be treated as failing to meet the
requirements of this subsection solely by reason of making a
distribution described in subsection (e)(9)(A).''.
(c) Effective Date.--The amendments made by this section shall apply
to distributions after December 31, 2000.
TITLE V--STRENGTHENING PENSION SECURITY AND ENFORCEMENT
SEC. 501. REPEAL OF 150 PERCENT OF CURRENT LIABILITY FUNDING LIMIT.
(a) In General.--Section 412(c)(7) (relating to full-funding
limitation) is amended--
(1) by striking ``the applicable percentage'' in subparagraph
(A)(i)(I) and inserting ``in the case of plan years beginning
before January 1, 2004, the applicable percentage''; and
(2) by amending subparagraph (F) to read as follows:
``(F) Applicable percentage.--For purposes of
subparagraph (A)(i)(I), the applicable percentage shall
be determined in accordance with the following table:
``In the case of any plan year
The applicable
beginning in--
percentage is--
2001..................................... 160
2002..................................... 165
2003..................................... 170.''.
(b) Effective Date.--The amendments made by this section shall apply
to plan years beginning after December 31, 2000.
SEC. 502. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND APPLIED TO
ALL DEFINED BENEFIT PLANS.
(a) In General.--Subparagraph (D) of section 404(a)(1) (relating to
special rule in case of certain plans) is amended to read as follows:
``(D) Special rule in case of certain plans.--
``(i) In general.--In the case of any defined
benefit plan, except as provided in
regulations, the maximum amount deductible
under the limitations of this paragraph shall
not be less than the unfunded termination
liability (determined as if the proposed
termination date referred to in section
4041(b)(2)(A)(i)(II) of the Employee Retirement
Income Security Act of 1974 were the last day
of the plan year).
``(ii) Plans with less than 100
participants.--For purposes of this
subparagraph, in the case of a plan which has
less than 100 participants for the plan year,
termination liability shall not include the
liability attributable to benefit increases for
highly compensated employees (as defined in
section 414(q)) resulting from a plan amendment
which is made or becomes effective, whichever
is later, within the last 2 years before the
termination date.
``(iii) Rule for determining number of
participants.--For purposes of determining
whether a plan has more than 100 participants,
all defined benefit plans maintained by the
same employer (or any member of such employer's
controlled group (within the meaning of section
412(l)(8)(C))) shall be treated as one plan,
but only employees of such member or employer
shall be taken into account.
``(iv) Plans established and maintained by
professional service employers.--Clause (i)
shall not apply to a plan described in section
4021(b)(13) of the Employee Retirement Income
Security Act of 1974.''.
(b) Conforming Amendment.--Paragraph (6) of section 4972(c) is
amended to read as follows:
``(6) Exceptions.--In determining the amount of nondeductible
contributions for any taxable year, there shall not be taken
into account so much of the contributions to one or more
defined contribution plans which are not deductible when
contributed solely because of section 404(a)(7) as does not
exceed the greater of--
``(A) the amount of contributions not in excess of 6
percent of compensation (within the meaning of section
404(a)) paid or accrued (during the taxable year for
which the contributions were made) to beneficiaries
under the plans, or
``(B) the sum of--
``(i) the amount of contributions described
in section 401(m)(4)(A), plus
``(ii) the amount of contributions described
in section 402(g)(3)(A).
For purposes of this paragraph, the deductible limits under
section 404(a)(7) shall first be applied to amounts contributed
to a defined benefit plan and then to amounts described in
subparagraph (B).''.
(c) Effective Date.--The amendments made by this section shall apply
to plan years beginning after December 31, 2000.
SEC. 503. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.
(a) In General.--Subsection (c) of section 4972 (relating to
nondeductible contributions) is amended by adding at the end the
following new paragraph:
``(7) Defined benefit plan exception.--In determining the
amount of nondeductible contributions for any taxable year, an
employer may elect for such year not to take into account any
contributions to a defined benefit plan except to the extent
that such contributions exceed the full-funding limitation (as
defined in section 412(c)(7), determined without regard to
subparagraph (A)(i)(I) thereof). For purposes of this
paragraph, the deductible limits under section 404(a)(7) shall
first be applied to amounts contributed to defined contribution
plans and then to amounts described in this paragraph. If an
employer makes an election under this paragraph for a taxable
year, paragraph (6) shall not apply to such employer for such
taxable year.''.
(b) Effective Date.--The amendment made by this section shall apply
to years beginning after December 31, 2000.
SEC. 504. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED BENEFIT
PLANS SIGNIFICANTLY REDUCING FUTURE BENEFIT
ACCRUALS.
(a) In General.--Chapter 43 (relating to qualified pension, etc.,
plans) is amended by adding at the end the following new section:
``SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO
SATISFY NOTICE REQUIREMENTS.
``(a) Imposition of Tax.--There is hereby imposed a tax on the
failure of any applicable pension plan to meet the requirements of
subsection (e) with respect to any applicable individual.
``(b) Amount of Tax.--
``(1) In general.--The amount of the tax imposed by
subsection (a) on any failure with respect to any applicable
individual shall be $100 for each day in the noncompliance
period with respect to such failure.
``(2) Noncompliance period.--For purposes of this section,
the term `noncompliance period' means, with respect to any
failure, the period beginning on the date the failure first
occurs and ending on the date the failure is corrected.
``(c) Limitations on Amount of Tax.--
``(1) Overall limitation for unintentional failures.--In the
case of failures that are due to reasonable cause and not to
willful neglect, the tax imposed by subsection (a) for failures
during the taxable year of the employer (or, in the case of a
multiemployer plan, the taxable year of the trust forming part
of the plan) shall not exceed $500,000. For purposes of the
preceding sentence, all multiemployer plans of which the same
trust forms a part shall be treated as one plan. For purposes
of this paragraph, if not all persons who are treated as a
single employer for purposes of this section have the same
taxable year, the taxable years taken into account shall be
determined under principles similar to the principles of
section 1561.
``(2) Waiver by secretary.--In the case of a failure which is
due to reasonable cause and not to willful neglect, the
Secretary may waive part or all of the tax imposed by
subsection (a) to the extent that the payment of such tax would
be excessive relative to the failure involved.
``(d) Liability for Tax.--The following shall be liable for the tax
imposed by subsection (a):
``(1) In the case of a plan other than a multiemployer plan,
the employer.
``(2) In the case of a multiemployer plan, the plan.
``(e) Notice Requirements for Plans Significantly Reducing Benefit
Accruals.--
``(1) In general.--If an applicable pension plan is amended
to provide for a significant reduction in the rate of future
benefit accrual, the plan administrator shall provide written
notice to each applicable individual (and to each employee
organization representing applicable individuals).
``(2) Notice.--The notice required by paragraph (1) shall be
written in a manner calculated to be understood by the average
plan participant and shall provide sufficient information (as
determined in accordance with regulations prescribed by the
Secretary) to allow applicable individuals to understand the
effect of the plan amendment.
``(3) Timing of notice.--Except as provided in regulations,
the notice required by paragraph (1) shall be provided within a
reasonable time before the effective date of the plan
amendment.
``(4) Designees.--Any notice under paragraph (1) may be
provided to a person designated, in writing, by the person to
which it would otherwise be provided.
``(5) Notice before adoption of amendment.--A plan shall not
be treated as failing to meet the requirements of paragraph (1)
merely because notice is provided before the adoption of the
plan amendment if no material modification of the amendment
occurs before the amendment is adopted.
``(f) Applicable Individual; Applicable Pension Plan.--For purposes
of this section--
``(1) Applicable individual.--The term `applicable
individual' means, with respect to any plan amendment--
``(A) any participant in the plan, and
``(B) any beneficiary who is an alternate payee
(within the meaning of section 414(p)(8)) under an
applicable qualified domestic relations order (within
the meaning of section 414(p)(1)(A)),
who may reasonably be expected to be affected by such plan
amendment.
``(2) Applicable pension plan.--The term `applicable pension
plan' means--
``(A) any defined benefit plan, or
``(B) an individual account plan which is subject to
the funding standards of section 412,
which had 100 or more participants who had accrued a benefit,
or with respect to whom contributions were made, under the plan
(whether or not vested) as of the last day of the plan year
preceding the plan year in which the plan amendment becomes
effective. Such term shall not include a governmental plan
(within the meaning of section 414(d)) or a church plan (within
the meaning of section 414(e)) with respect to which the
election provided by section 410(d) has not been made.''.
(b) Clerical Amendment.--The table of sections for chapter 43 is
amended by adding at the end the following new item:
``Sec. 4980F. Failure of applicable
plans reducing benefit accruals
to satisfy notice
requirements.''.
(c) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to plan amendments taking effect on or after the date of
the enactment of this Act.
(2) Transition.--Until such time as the Secretary of the
Treasury issues regulations under sections 4980F(e)(2) and (3)
of the Internal Revenue Code of 1986 (as added by the
amendments made by this section), a plan shall be treated as
meeting the requirements of such sections if it makes a good
faith effort to comply with such requirements.
(3) Special rule.--The period for providing any notice
required by the amendments made by this section shall not end
before the date which is 3 months after the date of the
enactment of this Act.
(d) Study.--The Secretary of the Treasury shall prepare a report on
the effects of conversions of traditional defined benefit plans to cash
balance or hybrid formula plans. Such study shall examine the effect of
such conversions on longer service participants, including the
incidence and effects of ``wear away'' provisions under which
participants earn no additional benefits for a period of time after the
conversion. As soon as practicable, but not later than 60 days after
the date of the enactment of this Act, the Secretary shall submit such
report, together with recommendations thereon, to the Committee on Ways
and Means of the House of Representatives and the Committee on Finance
of the Senate.
SEC. 505. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.
(a) Compensation Limit.--Paragraph (11) of section 415(b) (relating
to limitation for defined benefit plans) is amended to read as follows:
``(11) Special limitation rule for governmental and
multiemployer plans.--In the case of a governmental plan (as
defined in section 414(d)) or amultiemployer plan (as defined
in section 414(f)), subparagraph (B) of paragraph (1) shall not
apply.''.
(b) Combining and Aggregation of Plans.--
(1) Combining of plans.--Subsection (f) of section 415
(relating to combining of plans) is amended by adding at the
end the following:
``(3) Exception for multiemployer plans.--Notwithstanding
paragraph (1) and subsection (g), a multiemployer plan (as
defined in section 414(f)) shall not be combined or aggregated
with any other plan maintained by an employer for purposes of
applying the limitations established in this section, except
that such plan shall be combined or aggregated with another
plan which is not such a multiemployer plan solely for purposes
of determining whether such other plan meets the requirements
of subsections (b)(1)(A) and (c).''.
(2) Conforming amendment for aggregation of plans.--
Subsection (g) of section 415 (relating to aggregation of
plans) is amended by striking ``The Secretary'' and inserting
``Except as provided in subsection (f)(3), the Secretary''.
(c) Effective Date.--The amendments made by this section shall apply
to years beginning after December 31, 2000.
SEC. 506. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION ESOP.
(a) In General.--Section 409 (relating to qualifications for tax
credit employee stock ownership plans) is amended by redesignating
subsection (p) as subsection (q) and by inserting after subsection (o)
the following new subsection:
``(p) Prohibited Allocations of Securities in an S Corporation.--
``(1) In general.--An employee stock ownership plan holding
employer securities consisting of stock in an S corporation
shall provide that no portion of the assets of the plan
attributable to (or allocable in lieu of) such employer
securities may, during a nonallocation year, accrue (or be
allocated directly or indirectly under any plan of the employer
meeting the requirements of section 401(a)) for the benefit of
any disqualified person.
``(2) Failure to meet requirements.--
``(A) In general.--If a plan fails to meet the
requirements of paragraph (1), the plan shall be
treated as having distributed to any disqualified
person the amount allocated to the account of such
person in violation of paragraph (1) at the time of
such allocation.
``(B) Cross reference.--
``For excise tax relating to violations of paragraph
(1) and ownership of synthetic equity, see section 4979A.
``(3) Nonallocation year.--For purposes of this subsection--
``(A) In general.--The term `nonallocation year'
means any plan year of an employee stock ownership plan
if, at any time during such plan year--
``(i) such plan holds employer securities
consisting of stock in an S corporation, and
``(ii) disqualified persons own at least 50
percent of the number of shares of stock in the
S corporation.
``(B) Attribution rules.--For purposes of
subparagraph (A)--
``(i) In general.--The rules of section
318(a) shall apply for purposes of determining
ownership, except that--
``(I) in applying paragraph (1)
thereof, the members of an individual's
family shall include members of the
family described in paragraph (4)(D),
and
``(II) paragraph (4) thereof shall
not apply.
``(ii) Deemed-owned shares.--Notwithstanding
the employee trust exception in section
318(a)(2)(B)(i), individual shall be treated as
owning deemed-owned shares of the individual.
Solely for purposes of applying paragraph (5), this
subparagraph shall be applied after the attribution
rules of paragraph (5) have been applied.
``(4) Disqualified person.--For purposes of this subsection--
``(A) In general.--The term `disqualified person'
means any person if--
``(i) the aggregate number of deemed-owned
shares of such person and the members of such
person's family is at least 20 percent of the
number of deemed-owned shares of stock in the S
corporation, or
``(ii) in the case of a person not described
in clause (i), the number of deemed-owned
shares of such person is at least 10 percent of
the number of deemed-owned shares of stock in
such corporation.
``(B) Treatment of family members.--In the case of a
disqualified person described in subparagraph (A)(i),
any member of such person's family with deemed-owned
shares shall be treated as a disqualified person if not
otherwise treated as a disqualified person under
subparagraph (A).
``(C) Deemed-owned shares.--
``(i) In general.--The term `deemed-owned
shares' means, with respect to any person--
``(I) the stock in the S corporation
constituting employer securities of an
employee stock ownership plan which is
allocated to such person under the
plan, and
``(II) such person's share of the
stock in such corporation which is held
by such plan but which is not allocated
under the plan to participants.
``(ii) Person's share of unallocated stock.--
For purposes of clause (i)(II), a person's
share of unallocated S corporation stock held
by such plan is the amount of the unallocated
stock which would be allocated to such person
if the unallocated stock were allocated to all
participants in the same proportions as the
most recent stock allocation under the plan.
``(D) Member of family.--For purposes of this
paragraph, the term `member of the family' means, with
respect to any individual--
``(i) the spouse of the individual,
``(ii) an ancestor or lineal descendant of
the individual or the individual's spouse,
``(iii) a brother or sister of the individual
or the individual's spouse and any lineal
descendant of the brother or sister, and
``(iv) the spouse of any individual described
in clause (ii) or (iii).
A spouse of an individual who is legally separated from
such individual under a decree of divorce or separate
maintenance shall not be treated as such individual's
spouse for purposes of this subparagraph.
``(5) Treatment of synthetic equity.--For purposes of
paragraphs (3) and (4), in the case of a person who owns
synthetic equity in the S corporation, except to the extent
provided in regulations, the shares of stock in such
corporation on which such synthetic equity is based shall be
treated as outstanding stock in such corporation and deemed-
owned shares of such person if such treatment of synthetic
equity of 1 or more such persons results in--
``(A) the treatment of any person as a disqualified
person, or
``(B) the treatment of any year as a nonallocation
year.
For purposes of this paragraph, synthetic equity shall be
treated as owned by a person in the same manner as stock is
treated as owned by a person under the rules of paragraphs (2)
and (3) of section 318(a). If, without regard to this
paragraph, a person is treated as a disqualified person or a
year is treated as a nonallocation year, this paragraph shall
not be construed to result in the person or year not being so
treated.
``(6) Definitions.--For purposes of this subsection--
``(A) Employee stock ownership plan.--The term
`employee stock ownership plan' has the meaning given
such term by section 4975(e)(7).
``(B) Employer securities.--The term `employer
security' has the meaning given such term by section
409(l).
``(C) Synthetic equity.--The term `synthetic equity'
means any stock option, warrant, restricted stock,
deferred issuance stock right, or similar interest or
right that gives the holder the right to acquire or
receive stock of the S corporation in the future.
Except to the extent provided in regulations, synthetic
equity also includes a stock appreciation right,
phantom stock unit, or similar right to a future cash
payment based on the value of such stock or
appreciation in such value.
``(7) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the purposes of
this subsection.''.
(b) Coordination With Section 4975(e)(7).--The last sentence of
section 4975(e)(7) (defining employee stock ownership plan) is amended
by inserting ``, section 409(p),'' after ``409(n)''.
(c) Excise Tax.--
(1) Application of tax.--Subsection (a) of section 4979A
(relating to tax on certain prohibited allocations of employer
securities) is amended--
(A) by striking ``or'' at the end of paragraph (1),
and
(B) by striking all that follows paragraph (2) and
inserting the following:
``(3) there is any allocation of employer securities which
violates the provisions of section 409(p), or a nonallocation
year described in subsection (e)(2)(C) with respect to an
employee stock ownership plan, or
``(4) any synthetic equity is owned by a disqualified person
in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership equal to
50 percent of the amount involved.''.
(2) Liability.--Section 4979A(c) (defining liability for tax)
is amended to read as follows:
``(c) Liability for Tax.--The tax imposed by this section shall be
paid--
``(1) in the case of an allocation referred to in paragraph
(1) or (2) of subsection (a), by--
``(A) the employer sponsoring such plan, or
``(B) the eligible worker-owned cooperative,
which made the written statement described in section
664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be),
and
``(2) in the case of an allocation or ownership referred to
in paragraph (3) or (4) of subsection (a), by the S corporation
the stock in which was so allocated or owned.''.
(3) Definitions.--Section 4979A(e) (relating to definitions)
is amended to read as follows:
``(e) Definitions and Special Rules.--For purposes of this section--
``(1) Definitions.--Except as provided in paragraph (2),
terms used in this section have the same respective meanings as
when used in sections 409 and 4978.
``(2) Special rules relating to tax imposed by reason of
paragraph (3) or (4) of subsection (a).--
``(A) Prohibited allocations.--The amount involved
with respect to any tax imposed by reason of subsection
(a)(3) is the amount allocated to the account of any
person in violation of section 409(p)(1).
``(B) Synthetic equity.--The amount involved with
respect to any tax imposed by reason of subsection
(a)(4) is the value of the shares on which the
synthetic equity is based.
``(C) Special rule during first nonallocation year.--
For purposes of subparagraph (A), the amount involved
for the first nonallocation year of any employee stock
ownership plan shall be determined by taking into
account the total value of all the deemed-owned shares
of all disqualified persons with respect to such plan.
``(D) Statute of limitations.--The statutory period
for the assessment of any tax imposed by this section
by reason of paragraph (3) or (4) of subsection (a)
shall not expire before the date which is 3 years from
the later of--
``(i) the allocation or ownership referred to
in such paragraph giving rise to such tax, or
``(ii) the date on which the Secretary is
notified of such allocation or ownership.''.
(d) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to plan years beginning after December 31, 2001.
(2) Exception for certain plans.--In the case of any--
(A) employee stock ownership plan established after
July 11, 2000, or
(B) employee stock ownership plan established on or
before such date if employer securities held by the
plan consist of stock in a corporation with respect to
which an election under section 1362(a) of the Internal
Revenue Code of 1986 is not in effect on such date,
the amendments made by this section shall apply to plan years
ending after July 11, 2000.
TITLE VI--REDUCING REGULATORY BURDENS
SEC. 601. MODIFICATION OF TIMING OF PLAN VALUATIONS.
(a) In General.--Paragraph (9) of section 412(c)(9) (relating to
annual valuation) is amended to read as follows:
``(9) Annual valuation.--
``(A) In general.--For purposes of this section, a
determination of experience gains and losses and a
valuation of the plan's liability shall be made not
less frequently than once every year, except that such
determination shall be made more frequently to the
extent required in particular cases under regulations
prescribed by the Secretary.
``(B) Valuation date.--
``(i) Current year.--Except as provided in
clause (ii), the valuation referred to in
subparagraph (A) shall be made as of a date
within the plan year to which the valuation
refers or within one month prior to the
beginning of such year.
``(ii) Election to use prior year
valuation.--The valuation referred to in
subparagraph (A) may be made as of a date
within the plan year prior to the year to which
the valuation refers if--
``(I) an election is in effect under
this clause with respect to the plan,
and
``(II) as of such date, the value of
the assets of the plan are not less
than 125 percent of the plan's current
liability (as defined in paragraph
(7)(B)).
``(iii) Adjustments.--Information under
clause (ii) shall, in accordance with
regulations, be actuarially adjusted to reflect
significant differences in participants.
``(iv) Election.--An election under clause
(ii), once made, shall be irrevocable without
the consent of the Secretary.''.
(b) Effective Date.--The amendments made by this section shall apply
to plan years beginning after December 31, 2000.
SEC. 602. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND
DEDUCTION.
(a) In General.--Section 404(k)(2)(A) (defining applicable dividends)
is amended by striking ``or'' at the end of clause (ii), by
redesignating clause (iii) as clause (iv), and by inserting after
clause (ii) the following new clause:
``(iii) is, at the election of such
participants or their beneficiaries--
``(I) payable as provided in clause
(i) or (ii), or
``(II) paid to the plan and
reinvested in qualifying employer
securities, or''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2000.
SEC. 603. REPEAL OF TRANSITION RULE RELATING TO CERTAIN HIGHLY
COMPENSATED EMPLOYEES.
(a) In General.--Paragraph (4) of section 1114(c) of the Tax Reform
Act of 1986 is hereby repealed.
(b) Effective Date.--The repeal made by subsection (a) shall apply to
plan years beginning after December 31, 2000.
SEC. 604. EMPLOYEES OF TAX-EXEMPT ENTITIES.
(a) In General.--The Secretary of the Treasury shall modify Treasury
Regulations section 1.410(b)-6(g) to provide that employees of an
organization described in section 403(b)(1)(A)(i) of the Internal
Revenue Code of 1986 who are eligible to make contributions under
section 403(b) of such Code pursuant to a salary reduction agreement
may be treated as excludable with respect to a plan under section
401(k) or (m) of such Code that is provided under the same general
arrangement as a plan under such section 401(k), if--
(1) no employee of an organization described in section
403(b)(1)(A)(i) of such Code is eligible to participate in such
section 401(k) plan or section 401(m) plan; and
(2) 95 percent of the employees who are not employees of an
organization described in section 403(b)(1)(A)(i) of such Code
are eligible to participate in such plan under such section
401(k) or (m).
(b) Effective Date.--The modification required by subsection (a)
shall apply as of the same date set forth in section 1426(b) of the
Small Business Job Protection Act of 1996.
SEC. 605. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT
ADVICE.
(a) In General.--Subsection (a) of section 132 (relating to exclusion
from gross income) is amended by striking ``or'' at the end of
paragraph (5), by striking the period at the end of paragraph (6) and
inserting ``, or'', and by adding at the end the following new
paragraph:
``(7) qualified retirement planning services.''.
(b) Qualified Retirement Planning Services Defined.--Section 132 is
amended by redesignating subsection (m) as subsection (n) and by
inserting after subsection (l) the following:
``(m) Qualified Retirement Planning Services.--
``(1) In general.--For purposes of this section, the term
`qualified retirement planning services' means any retirement
planning service provided to an employee and his spouse by an
employer maintaining a qualified employer plan.
``(2) Nondiscrimination rule.--Subsection (a)(7) shall apply
in the case of highly compensated employees only if such
services are available on substantially the same terms to each
member of the group of employees normally provided education
and information regarding the employer's qualified employer
plan.
``(3) Qualified employer plan.--For purposes of this
subsection, the term `qualified employer plan' means a plan,
contract, pension, or account described in section
219(g)(5).''.
(c) Effective Date.--The amendments made by this section shall apply
to years beginning after December 31, 2000.
SEC. 606. REPORTING SIMPLIFICATION.
(a) Simplified Annual Filing Requirement for Owners and Their
Spouses.--
(1) In general.--The Secretary of the Treasury shall modify
the requirements for filing annual returns with respect to one-
participant retirement plans to ensure that such plans with
assets of $250,000 or less as of the close of the plan year
need not file a return for that year.
(2) One-participant retirement plan defined.--For purposes of
this subsection, the term ``one-participant retirement plan''
means a retirement plan that--
(A) on the first day of the plan year--
(i) covered only the employer (and the
employer's spouse) and the employer owned the
entire business (whether or not incorporated);
or
(ii) covered only one or more partners (and
their spouses) in a business partnership
(including partners in an S or C corporation);
(B) meets the minimum coverage requirements of
section 410(b) of the Internal Revenue Code of 1986
without being combined with any other plan of the
business that covers the employees of the business;
(C) does not provide benefits to anyone except the
employer (and the employer's spouse) or the partners
(and their spouses);
(D) does not cover a business that is a member of an
affiliated service group, a controlled group of
corporations, or a group of businesses under common
control; and
(E) does not cover a business that leases employees.
(3) Other definitions.--Terms used in paragraph (2) which are
also used in section 414 of the Internal Revenue Code of 1986
shall have the respective meanings given such terms by such
section.
(b) Simplified Annual Filing Requirement for Plans With Fewer Than 25
Employees.--In the case of a retirement plan which covers less than 25
employees on the first day of the plan year and meets the requirements
described in subparagraphs (B), (D), and (E) of subsection (a)(2), the
Secretary of the Treasury shall provide for the filing of a simplified
annual return that is substantially similar to the annual return
required to be filed by a one-participant retirement plan.
(c) Effective Date.--The provisions of this section shall take effect
on January 1, 2001.
SEC. 607. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.
The Secretary of the Treasury shall continue to update and improve
the Employee Plans Compliance Resolution System (or any successor
program) giving special attention to--
(1) increasing the awareness and knowledge of small employers
concerning the availability and use of the program;
(2) taking into account special concerns and circumstances
that small employers face with respect to compliance and
correction of compliance failures;
(3) extending the duration of the self-correction period
under the Administrative Policy Regarding Self-Correction for
significant compliance failures;
(4) expanding the availability to correct insignificant
compliance failures under the Administrative Policy Regarding
Self-Correction during audit; and
(5) assuring that any tax, penalty, or sanction that is
imposed by reason of a compliance failure is not excessive and
bears a reasonable relationship to the nature, extent, and
severity of the failure.
SEC. 608. REPEAL OF THE MULTIPLE USE TEST.
(a) In General.--Paragraph (9) of section 401(m) is amended to read
as follows:
``(9) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the purposes of
this subsection and subsection (k), including regulations
permitting appropriate aggregation of plans and
contributions.''.
(b) Effective Date.--The amendment made by this section shall apply
to years beginning after December 31, 2000.
SEC. 609. FLEXIBILITY IN NONDISCRIMINATION, COVERAGE, AND LINE OF
BUSINESS RULES.
(a) Nondiscrimination.--
(1) In general.--The Secretary of the Treasury shall, by
regulation, provide that a plan shall be deemed to satisfy the
requirements of section 401(a)(4) of the Internal Revenue Code
of 1986 if such plan satisfies the facts and circumstances test
under section 401(a)(4) of such Code, as in effect before
January 1, 1994, but only if--
(A) the plan satisfies conditions prescribed by the
Secretary to appropriately limit the availability of
such test; and
(B) the plan is submitted to the Secretary for a
determination of whether it satisfies such test.
Subparagraph (B) shall only apply to the extent provided by the
Secretary.
(2) Effective dates.--
(A) Regulations.--The regulation required by
paragraph (1) shall apply to years beginning after
December 31, 2000.
(B) Conditions of availability.--Any condition of
availability prescribed by the Secretary under
paragraph (1)(A) shall not apply before the first year
beginning not less than 120 days after the date on
which such condition is prescribed.
(b) Coverage Test.--
(1) In general.--Section 410(b)(1) (relating to minimum
coverage requirements) is amended by adding at the end the
following:
``(D) In the case that the plan fails to meet the
requirements of subparagraphs (A), (B) and (C), the
plan--
``(i) satisfies subparagraph (B), as in
effect immediately before the enactment of the
Tax Reform Act of 1986,
``(ii) is submitted to the Secretary for a
determination of whether it satisfies the
requirement described in clause (i), and
``(iii) satisfies conditions prescribed by
the Secretary by regulation that appropriately
limit the availability of this subparagraph.
Clause (ii) shall apply only to the extent provided by
the Secretary.''.
(2) Effective dates.--
(A) In general.--The amendment made by paragraph (1)
shall apply to years beginning after December 31, 2000.
(B) Conditions of availability.--Any condition of
availability prescribed by the Secretary under
regulations prescribed by the Secretary under section
410(b)(1)(D) of the Internal Revenue Code of 1986 shall
not apply before the first year beginning not less than
120 days after the date on which such condition is
prescribed.
(c) Line of Business Rules.--The Secretary of the Treasury shall, on
or before December 31, 2000, modify the existing regulations issued
under section 414(r) of the Internal Revenue Code of 1986 in order to
expand (to the extent that the Secretary determines appropriate) the
ability of a pension plan to demonstrate compliance with the line of
business requirements based upon the facts and circumstances
surrounding the design and operation of the plan, even though the plan
is unable to satisfy the mechanical tests currently used to determine
compliance.
SEC. 610. EXTENSION TO ALL GOVERNMENTAL PLANS OF MORATORIUM ON
APPLICATION OF CERTAIN NONDISCRIMINATION RULES
APPLICABLE TO STATE AND LOCAL PLANS.
(a) In General.--
(1) Subparagraph (G) of section 401(a)(5) and subparagraph
(H) of section 401(a)(26) are each amended by striking
``section 414(d))'' and all that follows and inserting
``section 414(d)).''.
(2) Subparagraph (G) of section 401(k)(3) and paragraph (2)
of section 1505(d) of the Taxpayer Relief Act of 1997 are each
amended by striking ``maintained by a State or local government
or political subdivision thereof (or agency or instrumentality
thereof)''.
(b) Conforming Amendments.--
(1) The heading for subparagraph (G) of section 401(a)(5) is
amended to read as follows: ``Governmental plans''.
(2) The heading for subparagraph (H) of section 401(a)(26) is
amended to read as follows: ``Exception for governmental
plans''.
(3) Subparagraph (G) of section 401(k)(3) is amended by
inserting ``Governmental plans.--'' after ``(G)''.
(c) Effective Date.--The amendments made by this section shall apply
to years beginning after December 31, 2000.
SEC. 611. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.
(a) Expansion of Period.--
(1) In general.--Subparagraph (A) of section 417(a)(6) is
amended by striking ``90-day'' and inserting ``180-day''.
(2) Modification of regulations.--The Secretary of the
Treasury shall modify the regulations under sections 402(f),
411(a)(11), and 417 of the Internal Revenue Code of 1986 to
substitute ``180 days'' for ``90 days'' each place it appears
in Treasury Regulations sections 1.402(f)-1, 1.411(a)-11(c),
and 1.417(e)-1(b).
(3) Effective date.--The amendment made by paragraph (1) and
the modifications required by paragraph (2) shall apply to
years beginning after December 31, 2000.
(b) Consent Regulation Inapplicable to Certain Distributions.--
(1) In general.--The Secretary of the Treasury shall modify
the regulations under section 411(a)(11) of the Internal
Revenue Code of 1986 to provide that the description of a
participant's right, if any, to defer receipt of a distribution
shall also describe the consequences of failing to defer such
receipt.
(2) Effective date.--The modifications required by paragraph
(1) shall apply to years beginning after December 31, 2000.
TITLE VII--PLAN AMENDMENTS
SEC. 701. PROVISIONS RELATING TO PLAN AMENDMENTS.
(a) In General.--If this section applies to any plan or contract
amendment--
(1) such plan or contract shall be treated as being operated
in accordance with the terms of the plan during the period
described in subsection (b)(2)(A); and
(2) such plan shall not fail to meet the requirements of
section 411(d)(6) of the Internal Revenue Code of 1986 by
reason of such amendment.
(b) Amendments to Which Section Applies.--
(1) In general.--This section shall apply to any amendment to
any plan or annuity contract which is made--
(A) pursuant to any amendment made by this Act, or
pursuant to any regulation issued under this Act, and
(B) on or before the last day of the first plan year
beginning on or after January 1, 2003.
In the case of a governmental plan (as defined in section
414(d) of the Internal Revenue Code of 1986), this paragraph
shall be applied by substituting ``2005'' for ``2003''.
(2) Conditions.--This section shall not apply to any
amendment unless--
(A) during the period--
(i) beginning on the date the legislative or
regulatory amendment described in paragraph
(1)(A) takes effect (or in the case of a plan
or contract amendment not required by such
legislative or regulatory amendment, the
effective date specified by the plan); and
(ii) ending on the date described in
paragraph (1)(B) (or, if earlier, the date the
plan or contract amendment is adopted),
the plan or contract is operated as if such plan or
contract amendment were in effect; and
(B) such plan or contract amendment applies
retroactively for such period.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
Purpose
The revenue provisions of the bill, H.R. 4843 included in
the Committee bill (``Comprehensive Retirement Security and
Pension Reform Act'') (the ``bill'') provide for: (1) modifying
Individual Retirement Arrangement contributions limits (Title
I); (2) expanding coverage (Title II); (3) enhancing fairness
for women (Title III); (4) increasing portability for
participants (Title IV); (5) strengthening pension security and
enforcement (Title V); (6) reducing regulatory burdens (Title
VI); and (7) plan amendments (Title VII).
The bill provides net tax reductions of over $16 billion
over fiscal years 2001-2005. This will provide needed
retirement security and pension reform.
Summary
I. Individual Retirement Arrangements (``IRAs'')
Increase in IRA contribution limit.--The bill increases the
annual dollar IRA contribution limit from $2,000 to $3,000 in
2001, $4,000 in 2002, and $5,000 in 2003, with indexing
thereafter.
Catch-up contributions.--The bill accelerates the increase
of the IRA maximum contribution limit for individuals age 50
and older. The limit for such individuals is $5,000 beginning
in 2001, with indexing after 2003.
II. Expanding coverage
Increase in benefit and contribution limits.--Beginning in
2001, the bill increases the dollar limit on annual elective
deferrals under section 401(k) plans, section 403(b) annuities
and salary reduction SEPs in $1,000 annual increments until the
limits reach $15,000 in 2005. Beginning in 2001, the bill
increases the maximum annual elective deferrals that may be
made to a SIMPLE plan in $1,000 annual increments until the
limit reaches $10,000 in 2004. The $15,000 and $10,000 dollar
limits are indexed in $500 increments, as under present law.
The bill increases the dollar limit on deferrals under a
section 457 plan to $11,000 in 2001, $12,000 in 2002, $13,000
in 2003, $14,000 in 2004, and $15,000 in 2005. After 2005, the
limit is indexed in $500 increments. The limit is twice the
otherwise applicable dollar limit in the three years prior to
retirement. Effective in 2001, the bill: increases the $135,000
annual benefit limit for defined benefit plans to $160,000
(indexed in $5,000 increments) and lowers the early retirement
age to 62 and the normal retirement age to 65 for purposes of
applying the limit; increases the $30,000 annual contribution
limit for defined contribution plans to $40,000 (indexed in
$1,000 increments); and increases the limit on compensation
that may be taken into account under a plan to $200,000
(indexed in $5,000 increments).
Plan loans for subchapter S shareholders, partners, and
sole proprietors.--The bill generally eliminates the special
present-law rules relating to plan loans made to an owner-
employee. Thus, the general statutory exemption applies to such
transactions. Present law applies with respect to IRAs. The
provision is effective with respect to loans made in years
beginning after December 31, 2000.
Modification of top-heavy rules.--The bill provides that a
safe-harbor section 401(k) plan is not a top-heavy plan and
that matching contributions may be taken into account in
satisfying the minimum contribution requirements. In addition,
the bill simplifies the definition of key employee and the
determination of top-heavy and status and repeals the family
attribution rule used to determine whether an individual is a
key employee by reason of being a 5-percent owner of the
employer. The provision is effective for years beginning after
December 31, 2000.
Elective deferrals not taken into account for purposes of
deduction limits.--The bill provides that the elective deferral
contributions are not subject to the qualified plan deduction
limits, and the application of a deduction limitation to any
other employer contribution to a qualified retirement plan does
not take into account elective deferral contributions. The
provision is effective for years beginning after December 31,
2000.
Repeal of coordination requirements for deferred
compensation plans of State and local governments and tax-
exempt organizations.--For years beginning after December 31,
2000, the bill repeals the rules coordinating the section 457
dollar limit with contributions under other types of plans.
Eliminate IRS user fees for certain determination letter
requests regarding employer plans.--Under the bill, an employer
with no more than 100 employees is not required to pay a user
fee for any determination letter request made during the first
5 plan years with respect to the qualified status of a
retirement plan that the employer maintains. The provision is
effective for determination letter requests made after December
31, 2000.
Deduction limits.--The bill provides that for purposes of
the qualified plan deduction limit the compensation otherwise
paid or accrued during the employer's taxable year to the
beneficiaries under the plan includes elective deferrals under
a section 401(k) plan or a section 403(b) annuity, elective
contributions under a section 457 plan, and salary reductions
under a section 125 plan. In addition, the bill increases the
limit on deductible contributions under a profit-sharing or
stock bonus plan from 15 percent to 20 percent of the
compensation of the employees covered by the plan. The
provision is effective for years beginning after December 31,
2000.
Option to treat elective deferrals as after-tax
contributions.--The bill provides that a section 401(k) plan or
a section 403(b) annuity may permit a participant to elect to
have all or a portion of the participant's elective deferrals
under the plan treated as designated plus contributions. A
qualified distribution from a participant's designated plus
contributions account is not includible in the participant's
gross income. Designated plus contributions are generally
otherwise treated the same as elective deferrals for purposes
of the qualified plan rules. The provision is effective for
taxable years beginning after December 31, 2000.
III. Enhancing fairness for women
Additional salary reduction catch-up contributions.--The
bill permits individuals who are age 50 or older to make
additional contributions to a section 401(k) (or similar plan).
The maximum permitted additional contribution is $5,000
(indexed in 2006 and thereafter). Catch-upcontributions to a
section 401(k) (or similar) plan are not subject to any other
contribution limits and are not taken into account in applying other
contribution limits. Catch-up contributions are subject to
nondiscrimination rules.
Equitable treatment for contributions of employees to
defined contribution plans.--The bill (1) increases the 25
percent of compensation limitation on annual additions under a
defined contribution plan to 100 percent, (2) conforms the
limits on contributions to a tax-sheltered annuity to the
limits applicable to tax-qualified plans, and (3) increases the
33\1/3\ percent of compensation limitation on deferrals under a
section 457 plan to 100 percent of compensation. The provision
is effective for years beginning after December 31, 2000.
Faster vesting of employer matching contributions.--Under
the bill, employer matching contributions have to vest at least
as rapidly as under 3-year cliff vesting or under 6-year graded
vesting that provides for a nonforfeitable right to 20 percent
of employer matching contributions for each year of service
beginning with the participant's second year of service and
ending with 100 percent after 6 years of service. The provision
is effective for plan years beginning after December 31, 2000,
with a delayed effective date for plans maintained pursuant to
a collective bargaining agreement.
Simplify and update the minimum distribution rules.--The
bill applies the present-law rules applicable if the
participant dies before distribution of minimum benefits has
begun to all post-death distributions. The bill reduces the
excise tax on failures to satisfy the minimum distribution
rules to 10 percent of the amount that was required to be
distributed but was not distributed. The Treasury is directed
to update, simplify, and finalize the regulations relating to
the minimum distribution rules. The bill repeals the special
minimum distribution rules applicable to section 457 plans. The
provision is effective for years beginning after December 31,
2000.
Clarification of tax treatment of division of section 457
plan benefits upon divorce.--The bill applies the taxation
rules for qualified plan distributions pursuant to a QDRO to
distributions made pursuant to a domestic relations order from
a section 457 plan. In addition, a section 457 plan is not
treated as violating the restrictions on distributions from
such plans due to payments to an alternate payee under a QDRO.
The provision is effective for transfers, distributions and
payments made after December 31, 2000.
Modification of safe harbor relief for hardship withdrawals
from 401(k) plans.--The bill directs the Secretary of the
Treasury to revise the applicable regulations to reduce from 12
months to 6 months the period during which an employee must be
prohibited from making elective contributions and employee
contributions in order for a distribution to be deemed
necessary to satisfy an immediate and heavy financial need. The
provision is effective for years beginning after December 31,
2000.
IV. Increasing portability for participants
Rollovers of retirement plan and IRA distributions.--The
bill provides that eligible rollover distributions from
qualified retirement plans, section 403(b) annuities, IRAs and
governmental section 457 plans generally can be rolled over to
any of such plans or arrangements. The direct rollover and
withholding rules are extended to distributions from a section
457 plan. The bill provides that employee after-tax
contributions can be rolled over into another qualified plan or
a traditional IRA. In the case of a rollover from a qualified
plan to another qualified plan, the rollover can be
accomplished only through a direct rollover. The bill provides
that surviving spouses can roll over distributions to a
qualified plan, section 403(b) annuity, or governmental section
457 plan in which the spouse participates. The provision is
effective for distributions made after December 31, 2000.
Waiver of 60-day rule.--The bill provides that the
Secretary may waive the 60-day rollover period if the failure
to waive such requirement would be against equity or good
conscience, including cases of casualty, disaster, or other
events beyond the reasonable control of the individual subject
to such requirement. The provision applies to distributions
made after December 31, 2000.
Treatment of forms of distribution.--Under the bill, if
certain requirements are satisfied, a defined contribution plan
may eliminate optional forms of benefit (1) in connection with
certain transfers of benefits, or (2) if a single sum
distribution is offered. In addition, the Secretary is to
provide for circumstances under which early retirement
benefits, retirement-type subsidies, or an optional form of
benefit may be reduced or eliminated if the rights of
participants are not materially affected. The provision is
effective for years beginning after December 31, 2000.
Rationalization of restrictions on distributions.--The bill
modifies the distribution restrictions applicable to section
401(k) plans, section 403(b) annuities, and section 457 plans
to provide that distribution may occur upon severance from
employment rather than separation from service. The provision
is effective for distributions after December 31, 2000.
Purchase of service credit under governmental pension
plans.--Under the bill a participant in a State or local
governmental plan is not required to include in gross income a
direct trustee-to-trustee transfer to a governmental defined
benefit plan from a section 403(b) annuity or a section 457
plan if the transferred amount is used (1) to purchase
permissive service credits under the plan, or (2) to repay
certain contributions. The provision is effective for transfers
after December 31, 2000.
Employers may disregard rollovers for purposes of cash-out
rules.--Under the bill a plan is permitted to disregard
benefits attributable to rollover contributions for purposes of
the cash-out rules. The provision is effective for
distributions after December 31, 2000.
V. Strengthening pension security and enforcement
Phase in repeal of 150 percent of current liability full
funding limit; deduction for contributions to fund termination
liability.--Under the bill, the current liability full funding
limit is 160 percent of current liability for plan years
beginning in 2001, 165 percent for plan years beginning in
2002, and 170 percent for plan years beginning in 2003. The
current liability full funding limit is repealed for plan years
beginning in 2004 and thereafter. The special rule allowing a
deduction for unfunded current liability generally is extended
to all defined benefit pension plans covered by the PBGC. The
provision is effective for years beginning after December 31,
2000.
Excise tax relief for sound pension funding.--Under the
bill if an employer elects, contributions in excess of the
current liability full funding limit are not subject to the
excise tax on nondeductible contributions. The provision is
effective for years beginning after December 31, 2000.
Notice of significant reduction in plan benefit accruals.--
The bill requires the plan administrator of a defined benefit
plan (other than governmental plans and certain church
plans)with more than 100 participants to notify plan participants in
advance of an amendment that significantly reduces the rate of future
benefit accruals. The notice must include sufficient information to
allow participants to understand the effect of the amendment. An excise
tax applies if the required notice is not provided. The bill also
directs the Secretary of the Treasury to report on the effects of
conversions of traditional defined benefit plans to cash balance or
hybrid formula plans.
Modifications to section 415 limits for multiemployer
plans.--The bill modifies the section 415 limits for
multiemployer plans. The provision is effective for years
beginning after December 31, 2000.
VI. Reducing regulatory burdens
Modification of timing of plan valuations.--The bill
permits a defined benefit plan with assets of at least 125
percent of current liability to use a valuation date within the
prior plan year. The provision is effective for plan years
beginning after December 31, 2000.
ESOP dividends may be reinvested without loss of dividend
deduction.--Under the bill, an employer is entitled to deduct
dividends that, at the election of plan participants or their
beneficiaries, are paid to the plan and reinvested in employer
securities. The provision is effective for taxable years
beginning after December 31, 2000.
Repeal transition rule relating to certain highly
compensated employees.--The bill repeals the special definition
of highly compensated employee under the Tax Reform Act of
1986. The provision is effective for plan years beginning after
December 31, 2000.
Employees of tax-exempt entities.--The bill directs the
Treasury Department to revise its regulations under section
410(b) to provide that, if certain requirements are satisfied,
employees of a tax-exempt charitable organization who are
eligible to make salary reduction contributions under a section
403(b) annuity may be treated as excludable employees for
purposes of testing a section 401(k) plan.
Treatment of employer-provided retirement advice.--Under
the bill, qualified retirement planning services provided to an
employee and his or her spouse by an employer maintaining a
qualified plan are generally excludable from income and wages.
The provision is effective with respect to taxable years
beginning after December 31, 2000.
Reporting simplification.--The bill directs the Secretary
of the Treasury to provide for an exemption from the annual
return requirement for a plan that covers only the sole owner
of a business that maintains the plan (and such owner's
spouse), or partners in a partnership that maintains the plan
(and such partners' spouses), if the total value of the plan
assets as of the end of the plan year and all prior plan years
does not exceed $250,000 and the plan meets certain other
requirements. In addition, the Secretary of the Treasury is
directed to provide for the filing of a simplified annual
return substantially similar to the Form 5500-EZ by a plan that
meets certain requirements. The provision is effective on the
date of enactment.
Improvement to Employee Plans Compliance Resolution
System.--The bill directs the Secretary of the Treasury to
continue to update and improve EPCRS, giving special attention
to (1) increasing the awareness and knowledge of small
employers concerning the availability and use of EPCRS, (2)
taking into account special concerns and circumstances that
small employers face with respect to compliance and correction
of compliance failures, (3) extending the duration of the self-
correction period under APRSC for significant compliance
failures, (4) expanding the availability to correct
insignificant compliance failures under APRSC during audit, and
(5) assuring that any tax, penalty, or sanction that is imposed
by reason of a compliance failure is not excessive and bears a
reasonable relationship to the nature, extent, and severity of
the failure. The provision is effective on the date of
enactment.
Repeal of the multiple use test.--The bill repeals the
multiple use test, effective for years beginning after December
31, 2000.
Flexibility in nondiscrimination, coverage, and line of
business rules.--The bill directs the Secretary of the Treasury
to provide by regulation circumstances under which plans can
use the prior-law facts and circumstances test to satisfy the
nondiscrimination, coverage, and line of business rules. used
to determine compliance. The provision is effective on the date
of enactment.
Extension to all governmental plans of moratorium on
application of certain nondiscrimination rules applicable to
State and local government plans.--Under the bill, a plan
maintained by any governmental entity is exempt from the
nondiscrimination and minimum participation rules. The
provision is effective for plan years beginning after December
31, 2000.
Notice and consent period regarding distributions.--Under
the bill, a qualified retirement plan is required to provide
the applicable distribution notice no less than 30 days and no
more than six months before the date distribution commences.
The Secretary of the Treasury is directed to modify the
applicable regulations to reflect the extension of the notice
period to six months and to provide that the description of a
participant's right, if any, to defer receipt of a distribution
shall also describe the consequences of failing to defer such
receipt. The provision is effective for years beginning after
December 31, 2000.
VII. Provisions relating to plan amendments
Any amendments to a plan or annuity contract required to be
made by the bill are not required to be made before the last
day of the first plan year beginning on or after January 1,
2003. In the case of a governmental plan, the date for
amendments is extended to the first plan year beginning on or
after January 1, 2004. The provision is effective on the date
of enactment.
B. Background and Need for Legislation
The revenue provisions approved by the Committee reflect
the need for tax relief for retirement security and pension
reforms.
C. Legislative History
Committee action
The Committee on Ways and Means marked up the revenue
provisions of the bill on July 13, 2000, and approved the
provisions, as amended, on July 13, 2000, by a roll call vote
of 27 yeas and 9 nays, with a quorum present.
Committee hearings
The following Committee and Subcommittee hearings related
to provisions in the bill have been held during the 106th
Congress.
Full Committee hearings
Tax-related hearings were held by the full Committee as
follows:
Outlook for the state of the U.S. economy (January
20, 1999).
President's fiscal year 2000 budget (February 4,
1999).
Revenue provisions in President's fiscal year 2000
budget (March 10, 1999).
Reducing the tax burden: Enhancing retirement and
health security (June 16, 1999).
President's fiscal year 2001 budget (February 9,
2000).
Subcommittee hearings
The Oversight Subcommittee held tax-related hearings as
follows:
Pension issues (March 23, 1999).
Impact of complexity in the Tax Code on individual
taxpayers and small businesses (May 25, 1999).
II. EXPLANATION OF THE REVENUE PROVISIONS OF THE BILL
TITLE I. INDIVIDUAL RETIREMENT ARRANGEMENTS (``IRAs')
(Sec. 101 of the Bill and Secs. 219, 408, and 408A of the Code)
present law
In general
There are two general types of individual retirement
arrangements (``IRAs'') under present law: traditional IRAs, to
which both deductible and nondeductible contributions may be
made, and Roth IRAs. The Federal income tax rules regarding
each type of IRA (and IRA contribution) differ.
Traditional IRAs
Under present law, an individual may make deductible
contributions to an IRA up to the lesser of $2,000 or the
individual's compensation if neither the individual nor the
individual's spouse is an active participant in an employer-
sponsored retirement plan. In the case of a married couple,
deductible IRA contributions of up to $2,000 can be made for
each spouse (including, for example, a homemaker who does not
work outside the home), if the combined compensation of both
spouses is at least equal to the contributed amount. If the
individual (or the individual's spouse) is an active
participant in an employer-sponsored retirement plan, the
$2,000 deduction limit is phased out for taxpayers with
adjusted gross income (``AGI'') over certain levels for the
taxable year.
The AGI phase-out limits for taxpayers who are active
participants in employer-sponsored plans are as follows.
Single taxpayers
Taxable years beginning in Phase-out range
2000.................................................... $32,000-42,000
2001.................................................... 33,000-43,000
2002.................................................... 34,000-44,000
2003.................................................... 40,000-50,000
2004.................................................... 45,000-55,000
2005 and thereafter..................................... 50,000-60,000
Joint returns
2000.................................................... 52,000-62,000
2001.................................................... 53,000-63,000
2002.................................................... 54,000-64,000
2003.................................................... 60,000-70,000
2004.................................................... 65,000-75,000
2005.................................................... 70,000-80,000
2006.................................................... 75,000-85,000
2007 and thereafter..................................... 80,000-100,000
If the individual is not an active participant in an
employer-sponsored retirement plan, but the individual's spouse
is, the $2,000 deduction limit is phased out for taxpayers with
AGI between $150,000 and $160,000.
To the extent an individual cannot or does not make
deductible contributions to an IRA or contributions to a Roth
IRA, the individual may make nondeductible contributions to a
traditional IRA.
Amounts held in a traditional IRA are includible in income
when withdrawn (except to the extent the withdrawal is a return
of nondeductible contributions). Includible amounts withdrawn
prior to attainment of age 59\1/2\ are subject to an additional
10-percent early withdrawal tax, unless the withdrawal is due
to death or disability, is made in the form of certain periodic
payments, is used to pay medical expenses in excess of 7.5
percent of AGI, is used to purchase health insurance of an
unemployed individual, is used for education expenses, or is
used for first-time homebuyer expenses of up to $10,000.
Roth IRAs
Individuals with AGI below certain levels may make
nondeductible contributions to a Roth IRA. The maximum annual
contribution that may be made to a Roth IRA is the lesser of
$2,000 or the individual's compensation for the year. The
contribution limit is reduced to the extent an individual makes
contributions to any other IRA for the same taxable year. As
under the rules relating to IRAs generally, a contribution of
up to $2,000 for each spouse may be made to a Roth IRA provided
the combined compensation of the spouses is at least equal to
the contributed amount. The maximum annual contribution that
can be made to a Roth IRA is phased out for single individuals
with AGI between $95,000 and $110,000 and for joint filers with
AGI between $150,000 and $160,000.
Taxpayers with modified AGI of $100,000 or less generally
may convert a traditional IRA into an Roth IRA. The amount
converted is includible in income as if a withdrawal had been
made, except that the 10-percent early withdrawal tax does not
apply and, if the conversionoccurred in 1998, the income
inclusion may be spread ratably over 4 years. Married taxpayers who
file separate returns cannot convert a traditional IRA into a Roth IRA.
Amounts held in a Roth IRA that are withdrawn as a
qualified distribution are not includible in income, nor
subject to the additional 10-percent tax on early withdrawals.
A qualified distribution is a distribution that (1) is made
after the 5-taxable year period beginning with the first
taxable year for which the individual made a contribution to a
Roth IRA, and (2) which is made after attainment of age 59\1/
2\, on account of death or disability, or is made for first-
time homebuyer expenses of up to $10,000.
Distributions from a Roth IRA that are not qualified
distributions are includible in income to the extent
attributable to earnings, and subject to the 10-percent early
withdrawal tax (unless an exception applies).1 The
same exceptions to the early withdrawal tax that apply to IRAs
apply to Roth IRAs.
---------------------------------------------------------------------------
\1\ Early distribution of converted amounts may also accelerate
income inclusion of converted amounts that are taxable under the 4-year
rule applicable to 1998 conversions.
---------------------------------------------------------------------------
Reasons for Change
The Committee is concerned about the low national savings
rate, and that individuals may not be saving adequately for
retirement. The present-law IRA contribution limits have not
been increased since 1981. The Committee believes that the
limits should be raised in order to allow greater savings
opportunities.
The Committee understands that, for a variety of reasons,
other individuals may not have been saving sufficiently for
retirement. Thus, the Committee believes it appropriate to
accelerate the increase in the IRA contribution limits for such
individuals.
Explanation of Provision
Increase in annual contribution limits
The provision increases the maximum annual dollar
contribution limit (before application of the AGI phase-out
limits) for IRA contributions from $2,000 to $3,000 in 2001,
$4,000 in 2002, and $5,000 in 2003. The limit is indexed in
$500 increments in 2004 and thereafter.
Additional catch-up contributions
The provision accelerates the increase of the IRA maximum
contribution limit for individuals who have attained age 50
before the end of the taxable year. The maximum dollar
contribution limit (before application of the AGI phase-out
limits) for such an individual is increased to $5,000 in 2001,
2002, and 2003, and is indexed in $500 increments in 2004 and
thereafter, under the general rule.
Effective Date
The provision is effective for taxable years beginning
after December 31, 2000.
TITLE II. EXPANDING COVERAGE
A. Increase in Benefit and Contribution Limits (Sec. 201 of the Bill
and Secs. 401(a)(17), 402(g), 408(p), 415 and 457 of the Code)
Present Law
In general
Under present law, limits apply to contributions and
benefits under qualified plans (sec. 415), the amount of
compensation that may be taken into account under a plan for
determining benefits (sec. 401(a)(17)), the maximum amount of
elective deferrals that an individual may make to a salary
reduction plan or tax sheltered annuity (sec. 402(g)), and
deferrals under an eligible deferred compensation plan of a
tax-exempt organization or a State or local government (sec.
457).
Limitations on contributions and benefits
Under present law, the limits on contributions and benefits
under qualified plans are based on the type of plan. Under a
defined contribution plan, the qualification rules limit the
annual additions to the plan with respect to each plan
participant to the lesser of (1) 25 percent of compensation or
(2) $30,000 (for 2000). Annual additions are the sum of
employer contributions, employee contributions, and forfeitures
with respect to an individual under all defined contribution
plans of the same employer. The $30,000 limit is indexed for
cost-of-living adjustments in $5,000 increments.
Under a defined benefit plan, the maximum annual benefit
payable at retirement is generally the lesser of (1) 100
percent of average compensation, or (2) $135,000 (for 2000).
The dollar limit is adjusted for cost-of-living increases in
$5,000 increments.
Under present law, in general, the dollar limit on annual
benefits is reduced if benefits under the plan begin before the
social security retirement age (currently, age 65) and
increased if benefits begin after social security retirement
age.
Compensation limitation
Under present law, the annual compensation of each
participant that may be taken into account for purposes of
determining contributions and benefits under a plan, applying
the deduction rules, and for nondiscrimination testing purposes
is limited to $170,000 (for 2000). The compensation limit is
indexed for cost-of-living adjustments in $10,000 increments.
Elective deferral limitations
Under present law, under certain salary reduction
arrangements, an employee may elect to have the employer make
payments as contributions to a plan on behalf of the employee,
or to the employee directly in cash. Contributions made at the
election of the employee are called elective deferrals.
The maximum annual amount of elective deferrals that an
individual may make to a qualified cash or deferred arrangement
(a ``section 401(k) plan''), a tax-sheltered annuity (``section
403(b) annuity'') or a salary reduction simplified employee
pension plan (``SEP'') is $10,500 (for 2000). The maximum
annual amount of elective deferrals that an individual may make
to a SIMPLE plan is $6,000. These limits are indexed for
inflation in $500 increments.
Section 457 plans
The maximum annual deferral under a deferred compensation
plan of a State or local government or a tax-exempt
organization (a ``section 457 plan'') is the lesser of (1)
$8,000 (for 2000) or (2) 33\1/3\ percent of compensation. The
$8,000 dollar limit is increased for inflation in $500
increments. Under a special catch-up rule, the section 457 plan
may provide that, for one or more of the participant's last 3
years before retirement, the otherwise applicable limit is
increased to the lesser of (1) $15,000 or (2) the sum of the
otherwise applicable limit for the year plus the amount by
which the limit applicable in preceding years of participation
exceeded the deferrals for that year.
Reasons for Change
The tax benefits provided under qualified plans are a
departure from the normally applicable income tax rules. The
special tax benefits for qualified plans are generally
justified on the ground that they serve an important social
policy objective, i.e., the provision of retirement benefits to
a broad group of employees. The limits on contributions and
benefits, elective deferrals, and compensation that may be
taken into account under a qualified plan all serve to limit
the tax benefits associated with such plans. The level at which
to place such limits involves a balancing of different policy
objectives and a judgment as to what limits are most likely to
best further policy goals.
One of the factors that may influence the decision of an
employer, particularly a small employer, to adopt a plan is the
extent to which the owners of the business, the decision-
makers, or other highly compensated employees will benefit
under the plan. The Committee believes that increasing the
dollar limits on qualified plan contributions and benefits will
encourage employers to establish qualified plans for their
employees.
The Committee understands that, in recent years, section
401(k) plans have become increasingly more prevalent. The
Committee believes it is important to increase the amount of
employee elective deferrals allowed under such plans, and other
plans that allow deferrals, to better enable plan participants
to save for their retirement.
Explanation of Provision
Limits on contributions and benefits
The provision increases the $30,000 annual addition limit
for defined contribution plans to $40,000. This amount is
indexed in $1,000 increments.2
---------------------------------------------------------------------------
\2\ The 25 percent of compensation limitation is increased to 100
percent of compensation under another provision of the bill.
---------------------------------------------------------------------------
The provision increases the $135,000 annual benefit limit
under a defined benefit plan to $160,000. The dollar limit is
reduced for benefit commencement before age 62 and increased
for benefit commencement after age 65.
Compensation limitation
The provision increases the limit on compensation that may
be taken into account under a plan to $200,000. This amount is
indexed in $5,000 increments.
Elective deferral limitations
Beginning in 2001, the provision increases the dollar limit
on annual elective deferrals under section 401(k) plans,
section 403(b) annuities and salary reduction SEPs in $1,000
annual increments until the limits reach $15,000 in 2005, with
indexing in $500 increments thereafter. Beginning in 2001, the
provision increases the maximum annual elective deferrals that
may be made to a SIMPLE plan in $1,000 annual increments until
the limit reaches $10,000 in 2004. Beginning after 2004, the
$10,000 dollar limit is indexed in $500 increments.
Section 457 plans
The provision increases the dollar limit on deferrals under
a section 457 plan to conform to the elective deferral
limitation. Thus, the limit is $11,000 in 2001, and is
increased in $1,000 annual increments until the limit reaches
$15,000 in 2005. The limit is indexed thereafter in $500
increments. The limit is twice the otherwise applicable dollar
limit in the three years prior to retirement.3
---------------------------------------------------------------------------
\3\ Another provision of the bill increases the 33-\1/3\ percentage
of compensation limit to 100 percent.
---------------------------------------------------------------------------
Effective Date
The provision is effective for years beginning after
December 31, 2000.
B. Plan Loans for Subchapter S Shareholders, Partners, and Sole
Proprietors (Sec. 202 of the Bill and Sec. 4975 of the Code)
PRESENT LAW
The Internal Revenue Code prohibits certain transactions
(``prohibited transactions'') between a qualified plan and a
disqualified person in order to prevent persons with a close
relationship to the qualified plan from using that relationship
to the detriment of plan participants and
beneficiaries.4 Certain types of transactions are
exempted from the prohibited transaction rules, including loans
from the plan to plan participants, if certain requirements are
satisfied. In addition, the Department of Labor can grant an
administrative exemption from the prohibited transaction rules
if she finds the exemption is administratively feasible, in the
interest of the plan and plan participants and beneficiaries,
and protective of the rights of participants and beneficiaries
of the plan. Pursuant to this exemption process, the Secretary
of Labor grants exemptions both with respect to specific
transactions and classes of transactions.
---------------------------------------------------------------------------
\4\ Title I of the Employee Retirement Income Security Act of 1974,
as amended (``ERISA''), also contains prohibited transaction rules. The
Code and ERISA provisions are substantially similar, although not
identical.
---------------------------------------------------------------------------
The statutory exemptions to the prohibited transaction
rules do not apply to certain transactions in which the plan
makes a loan to an owner-employee.5 Loans to
participants other than owner-employees are permitted if loans
are available to all participants on a reasonably equivalent
basis, are not made available to highly compensated employees
in an amount greater than made available to other employees,
are made in accordance with specific provisions in the plan,
bear a reasonable rate of interest, and are adequately secured.
In addition, the Code places limits on the amount of loans and
repayment terms.
---------------------------------------------------------------------------
\5\ Certain transactions involving a plan and Subchapter S
shareholders are permitted.
---------------------------------------------------------------------------
For purposes of the prohibited transaction rules, an owner-
employee means (1) a sole proprietor, (2) a partner who owns
more than 10 percent of either the capital interest or the
profits interest in the partnership, (3) an employee or officer
of a Subchapter S corporation who owns more than 5 percent of
the outstanding stock of the corporation, and (4) the owner of
an individual retirement arrangement (``IRA''). The term owner-
employee also includes certain family members of an owner-
employee and certain corporations owned by an owner-employee.
Under the Internal Revenue Code, a two-tier excise tax is
imposed on disqualified persons who engage in a prohibited
transaction. The first level tax is equal to 15 percent of the
amount involved in the transaction. The second level tax is
imposed if the prohibited transaction is not corrected within a
certain period, and is equal to 100 percent of the amount
involved.
REASONS FOR CHANGE
The Committee believes that the present-law prohibited
transaction rules regarding loans unfairly discriminate against
the owners of unincorporated businesses and subchapter S
corporations. For example, under present law, the sole
shareholder of a C corporation may take advantage of the
statutory exemption to the prohibited transaction rules for
loans, but an individual who does business as a sole proprietor
may not.
EXPLANATION OF PROVISION
The provision generally eliminates the special present-law
rules relating to plan loans made to an owner-employee. Thus,
the general statutory exemption applies to such transactions.
Present law continues to apply with respect to IRAs.
EFFECTIVE DATE
The provision is effective with respect to loans made after
December 31, 2000.
C. Modification of Top-Heavy Rules (Sec. 203 of the Bill and Sec. 416
of the Code)
PRESENT LAW
In general
Under present law, additional qualification requirements
apply to plans that primarily benefit an employer's key
employees (``top-heavy plans''). These additional requirements
provide (1) more rapid vesting for plan participants who are
non-key employees and (2) minimum nonintegrated employer
contributions or benefits for plan participants who are non-key
employees.
Definition of top-heavy plan
In general, a top-heavy plan is a plan under which more
than 60 percent of the contributions or benefits are provided
to key employees. More precisely, a defined benefit plan is a
top-heavy plan if more than 60 percent of the cumulative
accrued benefits under the plan are for key employees. A
defined contribution plan is top heavy if the sum of the
account balances of key employees is more than 60 percent of
the total account balances under the plan. For each plan year,
the determination of top-heavy status generally is made as of
the last day of the preceding plan year (``the determination
date'').
For purposes of determining whether a plan is a top-heavy
plan, benefits derived both from employer and employee
contributions, including employee elective contributions, are
taken into account. In addition, the accrued benefit of a
participant in a defined benefit plan and the account balance
of a participant in a defined contribution plan includes any
amount distributed within the 5-year period ending on the
determination date.
An individual's accrued benefit or account balance is not
taken into account in determining whether a plan is top-heavy
if the individual has not performed services for the employer
during the 5-year period ending on the determination date.
In some cases, two or more plans of a single employer must
be aggregated for purposes of determining whether the group of
plans is top-heavy. The following plans must be aggregated: (1)
plans which cover a key employee (including collectively
bargained plans); and (2) any plan upon which a plan covering a
key employee depends for purposes of satisfying the Code's
nondiscrimination rules. The employer may be required to
include terminated plans in the required aggregation group. In
some circumstances, an employer may elect to aggregate plans
for purposes of determining whether they are top heavy.
SIMPLE plans are not subject to the top-heavy rules.
Definition of key employee
A key employee is an employee who, during the plan year
that ends on the determination date or any of the 4 preceding
plan years, is (1) an officer earning over one-half of the
defined benefit plan dollar limitation of section 415 ($67,500
for 2000), (2) a 5-percent owner of the employer, (3) a 1-
percent owner of the employer earning over $150,000, or (4) one
of the 10 employees earning more than the defined contribution
plan dollar limit ($30,000 for 2000) with the largest ownership
interests in the employer. A family ownership attribution rule
applies to the determination of 1-percent owner status, 5-
percent owner status, and largest ownership interest. Under
this attribution rule, an individual is treated as owning stock
owned by the individual's spouse, children, grandchildren, or
parents.
Minimum benefit for non-key employees
A minimum benefit generally must be provided to all non-key
employees in a top-heavy plan. In general, a top-heavy defined
benefit plan must provide a minimum benefit equal to the lesser
of (1) 2 percent of compensation multiplied by the employee's
years of service, or (2) 20 percent of compensation. A top-
heavy defined contribution plan must provide a minimum annual
contribution equal to the lesser of (1) 3 percent of
compensation, or (2) the percentage of compensation at which
contributions were made for key employees (including employee
elective contributions made by key employees and employer
matching contributions).
For purposes of the minimum benefit rules, only benefits
derived from employer contributions (other than amounts
employees have elected to defer) to the plan are taken into
account, and an employee's social security benefits are
disregarded (i.e., the minimum benefit is nonintegrated).
Employer matching contributions may be used to satisfy the
minimum contribution requirement; however, in such a case the
contributions are not treated as matching contributions for
purposes of applying the special nondiscrimination requirements
applicable to employee elective contributions and matching
contributions under sections 401(k) and (m). Thus, such
contributions would have to meet the general nondiscrimination
test of section 401(a)(4).6
---------------------------------------------------------------------------
\6\ Tres. Reg. sec. 1.416-1 Q&A M-19.
---------------------------------------------------------------------------
Top-heavy vesting
Benefits under a top-heavy plan must vest at least as
rapidly as under one of the following schedules: (1) 3-year
cliff vesting, which provides for 100 percent vesting after 3
years of service; and (2) 2-6 year graduated vesting, which
provides for 20 percent vesting after 2 years of service, and
20 percent more each year thereafter so that a participant is
fully vested after 6 years of service.7
---------------------------------------------------------------------------
\7\ Benefits under a plan that is not top heavy must vest at least
as rapidly as under one of the following schedules: (1) 5-year cliff
vesting; and (2) 3-7 year graded vesting, which provides for 20 percent
vesting after 3 years and 20 percent more each year thereafter so that
a participant is fully vested after 7 years of service.
---------------------------------------------------------------------------
Qualified cash or deferred arrangements
Under a qualified cash or deferred arrangement (a ``section
401(k) plan''), an employee may elect to have the employer make
payments as contributions to a qualified plan on behalf of the
employee, or to the employee directly in cash. Contributions
made at the election of the employee are called elective
deferrals. A special nondiscrimination test applies to elective
deferrals under cash or deferred arrangements, which compares
the elective deferrals of highly compensated employees with
elective deferrals of nonhighly compensated employees. (This
test is called the actual deferral percentage test or the
``ADP'' test). Employer matching contributions under qualified
defined contribution plans are also subject to a similar
nondiscrimination test. (This test is called the actual
contribution percentage test or the ``ACP'' test.)
Under a design-based safe harbor, a cash or deferred
arrangement is deemed to satisfy the ADP test if the plan
satisfies one of two contribution requirements and satisfies a
notice requirement. A plan satisfies the contribution
requirement under the safe harbor rule for qualified cash or
deferred arrangements if the employer either (1) satisfies a
matching contribution requirement or (2) makes a nonelective
contribution to a defined contribution plan of at least 3
percent of an employee's compensation on behalf of each
nonhighly compensated employee who is eligible to participate
in the arrangement without regard to the permitted disparity
rules (sec. 401(1)). A plan satisfies the matching contribution
requirement if, under the arrangement: (1) the employer makes a
matching contribution on behalf of each nonhighly compensated
employee that is equal to (a) 100 percent of the employee's
elective deferrals up to 3 percent of compensation and (b) 50
percent of the employee's elective deferrals from 3 to 5
percent of compensation; and (2), the rate of match with
respect to any elective contribution for highly compensated
employees is not greater than the rate of match for nonhighly
compensated employees. Matching contributions that satisfy the
design-based safe harbor for cash or deferred arrangements are
deemed to satisfy the ACP test. Certain additional matching
contributions are also deemed to satisfy the ACP test.
REASONS FOR CHANGE
The top-heavy rules primarily affect the plans of small
employers. While the top-heavy rules were intended to provide
additional minimum benefits to rank-and-file employees, the
Committee is concerned that in some cases the top-heavy rules
may act as a deterrent to the establishment of a plan by a
small employer. The Committee believes that simplification of
the top-heavy rules will help alleviate the additional
administrative burdens the rules place on small employers. The
Committee also believes that, in applying the top-heavy minimum
benefit rules, the employer should receive credit for all
contributions the employer makes, including matching
contributions.
The Committee understands that some employers may have been
discouraged from adopting a safe harbor section 401(k) plan due
to concerns about the top-heavy rules. The Committee believes
that facilitating the adoption of such plans will broaden
coverage. Thus, the Committee believes it appropriate to
provide that such plans are not subject to the top-heavy rules.
Explanation of Provision
Definition of top-heavy plan
The provision provides that a plan consisting of a cash-or-
deferred arrangement that satisfies the design-based safe
harbor for such plans and matching contributions that satisfy
the safe harbor rule for such contributions is not a top-heavy
plan. Matching or nonelective contributions provided under such
a plan may be taken into account in satisfying the minimum
contribution requirements applicable to top-heavy
plans.8
---------------------------------------------------------------------------
\8\ This provision is not intended to preclude the use of
nonelective contributions that are used to satisfy the safe harbor
rules from being used to satisfy other qualified retirement plan
nondiscrimination rules, including those involving cross-testing.
---------------------------------------------------------------------------
In determining whether a plan is top-heavy, the provision
provides that distributions during the year ending on the date
the top-heavy determination is being made are taken into
account. The present-law 5-year rule applies with respect to
in-service distributions. Similarly, the provision provides
that an individual's accrued benefit or account balance is not
taken into account if the individual has not performed services
for the employer during the 1-year period ending on the date
the top-heavy determination is being made.
Definition of key employee
The provision (1) provides that an employee is not
considered a key employee by reason of officer status unless
the employee earns more than $150,000 in compensation for the
year, and (2) repeals the top-10 owner key employee category.
The provision repeals the 4-year lookback rule for
determining key employee status and provides that an employee
is a key employee only if he or she is a key employee during
the current plan year.
The family ownership attribution rule no longer applies in
determining whether an individual is a 5-percent owner of the
employer for purposes of the top-heavy rules only.
Minimum benefit for non-key employees
Under the provision, matching contributions are taken into
account in determining whether the minimum benefit requirement
has been satisfied.9
---------------------------------------------------------------------------
\9\ Thus, this provision overrides the provision in Treasury
regulations that, if matching contributions are used to satisfy the
minimum benefit requirement, then they are not treated as matching
contributions for purposes of the section 401(m) nondiscrimination
rules.
---------------------------------------------------------------------------
The provision provides that, in determining the minimum
benefit required under a defined benefit plan, a year of
service does not include any year in which no employee benefits
under the plan (as determined under sec. 410).
Effective Date
The provision is effective for years beginning after
December 31, 2000.
D. Elective Deferrals Not Taken Into Account for Purposes of Deduction
Limits (Sec. 204 of the Bill and Sec. 404 of the Code)
Present Law
Employer contributions to one or more qualified retirement
plans are deductible subject to certain limits. In general, the
deduction limit depends on the kind of plan.
In the case of a defined benefit pension plan or a money
purchase pension plan, the employer generally may deduct the
amount necessary to satisfy the minimum funding cost of the
plan for the year. If a defined benefit pension plan has more
than 100 participants, the maximum amount deductible is at
least equal to the plan's unfunded current liabilities.
In the case of a profit-sharing or stock bonus plan, the
employer generally may deduct an amount equal to 15 percent of
compensation of the employees covered by the plan for the year.
If an employer sponsors both a defined benefit pension plan
and a defined contribution plan that covers some of the same
employees (or a money purchase pension plan and another kind of
defined contribution plan), the total deduction for all plans
for a plan year generally is limited to the greater of (1) 25
percent of compensation or (2) the contribution necessary to
meet the minimum funding requirements of the defined benefit
pension plan for the year (or the amount of the plan's unfunded
current liabilities, in the case of a plan with more than 100
participants).
For purposes of the deduction limits, employee elective
deferral contributions to a section 401(k) plan are treated as
employer contributions and, thus, are subject to the generally
applicable deduction limits.
Subject to certain exceptions, nondeductible contributions
are subject to a 10-percent excise tax.
Reasons for Change
Subjecting elective deferrals to the normally applicable
deduction limits may cause employers to restrict the amount of
elective deferrals an employee may make or to restrict employer
contributions to the plan, thereby reducing participants'
ultimate retirement benefits and their ability to save
adequately for retirement. The Committee believes that the
amount of elective deferrals otherwise allowable should not be
further limited through application of the deduction rules.
Explanation of Provision
Under the provision, elective deferral contributions are
not subject to the deduction limits, and the application of a
deduction limitation to any other employer contribution to a
qualified retirement plan does not take into account elective
deferral contributions.
Effective Date
The provision is effective for years beginning after
December 31, 2000.
E. Repeal of Coordination Requirements for Deferred Compensation Plans
of State and Local Governments and Tax-Exempt Organizations (Sec. 205
of the Bill and Sec. 457 of the Code)
Present Law
Compensation deferred under an eligible deferred
compensation plan of a tax-exempt or State and local government
employer (a ``section 457 plan'') is not includible in gross
income until paid or made available. In general, the maximum
permitted annual deferral under such a plan is the lesser of
(1) $8,000 (in 2000) or (2) 33\1/3\ percent of compensation.
The $8,000 limit is increased for inflation in $500 increments.
Under a special catch-up rule, a section 457 plan may provide
that, for one or more of the participant's last 3 years before
retirement, the otherwise applicable limit is increased to the
lesser of (1) $15,000 or (2) the sum of the otherwise
applicable limit for the year plus the amount by which the
limit applicable in preceding years of participation exceeded
the deferrals for that year.
The $8,000 limit (as modified under the catch-up rule),
applies to all deferrals under all section 457 plans in which
the individual participates. In addition, in applying the
$8,000 limit, contributions under a tax-sheltered annuity
(``section 403(b) annuity''), elective deferrals under a
qualified cash or deferred arrangement (``section 401(k)
plan''), salary reduction contributions under a simplified
employee pension plan (``SEP''), and contributions under a
SIMPLE plan are taken into account. Further, the amount
deferred under a section 457 plan is taken into account in
applying a special catch-up rule for section 403(b) annuities.
Reasons for Change
The Committee believes that individuals participating in a
section 457 plan should also be able to fully participate in a
section 403(b) annuity or section 401(k) plan of the employer.
Eliminating the coordination rule may also encourage the
establishment of section 403(b) or 401(k) plans by tax-exempt
and governmental employers (as permitted under present law).
Explanation of Provision
The provision repeals the rules coordinating the section
457 dollar limit with contributions under other types of
plans.10
---------------------------------------------------------------------------
\10\ The limits on deferrals under a section 457 plan are modified
under other provisions of the bill.
---------------------------------------------------------------------------
Effective Date
The provision is effective for years beginning after
December 31, 2000.
F. Eliminate IRS User Fees for Certain Determination Letter Requests
Regarding Employer Plans (Sec. 206 of the Bill and Sec. 7527 of the
Code)
Present Law
An employer that maintains a retirement plan for the
benefit of its employees may request from the Internal Revenue
Service (``IRS'') a determination as to whether the form of the
plan satisfies the requirements applicable to tax-qualified
plans (sec. 401(a)). In order to obtain from the IRS a
determination letter on the qualified status of the plan, the
employer must pay a user fee. The user fee may range from $125
to $1,250, depending upon the scope of the request and the type
and format of the plan.11
---------------------------------------------------------------------------
\11\ User fees are statutorily authorized; however, the IRS sets
the dollar amount of the fee applicable to any particular type of
request.
---------------------------------------------------------------------------
Reasons for Change
One of the factors affecting the decision of a small
employer to adopt a plan is the levelof administrative costs
associated with the plan. The Committee believes that reducing
administrative costs, such as IRS user fees, will help further the
establishment of qualified plans by small employers.
Explanation of Provision
A small employer (100 or fewer employees) is not required
to pay a user fee for a determination letter request with
respect to the qualified status of a retirement plan that the
employer maintains if the request is made within the first 5
plan years of the plan. The provision applies only to requests
by employers for determination letters concerning the qualified
retirement plans they maintain. Therefore, a sponsor of a
prototype plan is required to pay a user fee for a request for
a notification letter, opinion letter, or similar ruling. A
small employer that adopts a prototype plan, however, is not
required to pay a user fee for a determination letter request
with respect to the employer's plan.
Effective Date
The provision is effective for determination letter
requests made after December 31, 2000.
G. Deduction Limits (Sec. 207 of the Bill and Sec. 404 of the Code)
Present Law
Employer contributions to one or more qualified retirement
plans are deductible subject to certain limits. In general, the
deduction limit depends on the kind of plan. Subject to certain
exceptions, nondeductible contributions are subject to a 10-
percent excise tax.
In the case of a defined benefit pension plan or a money
purchase pension plan, the employer generally may deduct the
amount necessary to satisfy the minimum funding cost of the
plan for the year. If a defined benefit pension plan has more
than 100 participants, the maximum amount deductible is at
least equal to the plan's unfunded current liabilities.
In some cases, the amount of deductible contributions is
limited by compensation. In the case of a profit-sharing or
stock bonus plan, the employer generally may deduct an amount
equal to 15 percent of compensation of the employees covered by
the plan for the year.
If an employer sponsors both a defined benefit pension plan
and a defined contribution plan that covers some of the same
employees (or a money purchase pension plan and another kind of
defined contribution plan), the total deduction for all plans
for a plan year generally is limited to the greater of (1) 25
percent of compensation or (2) the contribution necessary to
meet the minimum funding requirements of the defined benefit
pension plan for the year (or the amount of the plan's unfunded
current liabilities, in the case of a plan with more than 100
participants).
In the case of an employee stock ownership plan (``ESOP''),
principal payments on a loan used to acquire qualifying
employer securities are deductible up to 25 percent of
compensation.
For purposes of the deduction limits, employee elective
deferral contributions to a qualified cash or deferred
arrangement (``section 401(k) plan'') are treated as employer
contributions and, thus, are subject to the generally
applicable deduction limits.12
---------------------------------------------------------------------------
\12\ Another provision in the bill provides that elective deferrals
are not subject to the deduction limits.
---------------------------------------------------------------------------
For purposes of the deduction limits, compensation means
the compensation otherwise paid or accrued during the taxable
year to the beneficiaries under the plan, and the beneficiaries
under a profit-sharing or stock bonus plan are the employees
who benefit under the plan with respect to the employer's
contribution.13 An employee who is eligible to make
elective deferrals under a section 401(k) plan is treated as
benefitting under the arrangement even if the employee elects
not to defer.14
---------------------------------------------------------------------------
\13\ Rev. Rul. 65-295, 1965-2 C.B. 148.
\14\ Treas. Reg. sec. 1.410(b)-3.
---------------------------------------------------------------------------
For purposes of the deduction rules, compensation generally
includes only taxable compensation, and thus does not include
salary reduction amounts, such as elective deferrals under a
section 401(k) plan or a tax-sheltered annuity (``section
403(b) annuity''), elective contributions under a deferred
compensation plan of a tax-exempt organization or a State or
local government (``section 457 plan''), and salary reduction
contributions under a section 125 cafeteria plan. For purposes
of the contribution limits under section 415, compensation does
include such salary reduction amounts.
Reasons for Change
The Committee believes that compensation unreduced by
employee elective contributions is a more appropriate measure
of compensation for plan purposes, including deduction limits,
than the present-law rule. Applying the same definition for
deduction purposes as is generally used for other qualified
plan purposes will also simplify application of the qualified
plan rules. The Committee also believes that the 15 percent of
compensation limit may restrict the amount of employer
contributions to the plan, thereby reducing participants'
ultimate retirement benefits and their ability to adequately
save for retirement.
Explanation of Provision
Under the provision, the definition of compensation for
purposes of the deduction rules includes salary reduction
amounts treated as compensation under section 415. In addition,
the annual limitation on the amount of deductible contributions
to a profit-sharing or stock bonusplan is increased from 15
percent to 20 percent of compensation of the employees who benefit
under the plan for the year.
Effective Date
The provision is effective for years beginning after
December 31, 2000.
H. Option To Treat Elective Deferrals as After-tax Contributions (Sec.
208 of the Bill and New Sec. 402a of the Code)
Present Law
A qualified cash or deferred arrangement (``section 401(k)
plan'') or a tax-sheltered annuity (``section 403(b) annuity'')
may permit a participant to elect to have the employer make
payments as contributions to the plan or to the participant
directly in cash. Contributions made to the plan at the
election of a participant are elective deferrals. Elective
deferrals must be nonforfeitable and are subject to an annual
dollar limitation (sec. 402(g)) and distribution restrictions.
In addition, elective deferrals under a section 401(k) plan are
subject to special nondiscrimination rules. Elective deferrals
(and earnings attributable thereto) are not includible in a
participant's gross income until distributed from the plan.
Individuals with adjusted gross income below certain levels
generally may make nondeductible contributions to a Roth IRA
and may convert a deductible or nondeductible IRA into a Roth
IRA. Amounts held in a Roth IRA that are withdrawn as a
qualified distribution are not includible in income, nor
subject to the additional 10-percent tax on early withdrawals.
A qualified distribution is a distribution that (1) is made
after the 5-taxable year period beginning with the first
taxable year for which the individual made a contribution to a
Roth IRA, and (2) is made after attainment of age 59\1/2\, is
made on account of death or disability, or is a qualified
special purpose distribution (i.e., for first-time homebuyer
expenses of up to $10,000). A distribution from a Roth IRA that
is not a qualified distribution is includible in income to the
extent attributable to earnings, and is subject to the 10-
percent tax on early withdrawals (unless an exception
applies).15
---------------------------------------------------------------------------
\15\ Early distributions of converted amounts may also accelerate
income inclusion of converted amounts that are taxable under the 4-year
rule applicable to 1998 conversions.
---------------------------------------------------------------------------
Reasons for Change
The recently-enacted Roth IRA provisions have provided
individuals with another form of tax-favored retirement
savings. For a variety of reasons, some individuals may prefer
to save through a Roth IRA rather than a traditional deductible
IRA. The Committee believes that similar savings choices should
be available to participants in section 401(k) plans and tax-
sheltered annuities.
Explanation of Provision
A section 401(k) plan or a section 403(b) annuity is
permitted to include a ``qualified plus contribution program''
that permits a participant to elect to have all or a portion of
the participant's elective deferrals under the plan treated as
designated plus contributions. Designated plus contributions
are elective deferrals that the participant designates as not
excludable from the participant's gross income.
The annual dollar limitation on a participant's designated
plus contributions is the section 402(g) annual limitation on
elective deferrals, reduced by the participant's elective
deferrals that the participant does not designate as designated
plus contributions. Designated plus contributions are treated
as any other elective deferral for purposes of
nonforfeitability requirements and distribution restrictions.
Under a section 401(k) plan, designated plus contributions also
are treated as any other elective deferral for purposes of the
special nondiscrimination requirements.
The plan is required to establish a separate account, and
maintain separate recordkeeping, for a participant's designated
plus contributions (and earnings allocable thereto). A
qualified distribution from a participant's designated plus
contributions account is not includible in the participant's
gross income. A qualified distribution is a distribution that
is made after the end of a specified nonexclusion period and
that is (1) made on or after the date on which the participant
attains age 59\1/2\, (2) made to a beneficiary (or to the
estate of the participant) on or after the death of the
participant, or (3) attributable to the participant's being
disabled.16 The nonexclusion period is the 5-year-
taxable period beginning with the earlier of (1) the first
taxable year for which the participant made a designated plus
contribution to any designated plus contribution account
established for the participant under the plan, or (2) if the
participant has made a rollover contribution to the designated
plus contribution account that is the source of the
distribution from a designated plus contribution account
established for the participant under another plan, the first
taxable year for which the participant made a designated plus
contribution to the previously established account.
---------------------------------------------------------------------------
\16\ A qualified special purpose distribution, as defined under the
rules relating to Roth IRAs, does not qualify as a tax-free
distribution from a designated plus contributions account.
---------------------------------------------------------------------------
A distribution from a designated plus contributions account
that is a corrective distribution of an elective deferral (and
income allocable thereto) that exceeds the section 402(g)
annual limit on elective deferrals is not a qualified
distribution.
A participant is permitted to roll over a distribution from
a designated plus contributions account only to another
designated plus contributions account or a Roth IRA of the
participant.
The Secretary of the Treasury is directed to require the
plan administrator of each section 401(k) plan or section
403(b) annuity that permits participants to make designated
plus contributions to make such returns and reports regarding
designated plus contributions to theSecretary, plan
participants and beneficiaries, and other persons that the Secretary
may designate.
Effective Date
The provision is effective for taxable years beginning
after December 31, 2000.
TITLE III. ENHANCING FAIRNESS FOR WOMEN
A. Additional Salary Reduction Catch-Up Contributions (Sec. 301 of the
Bill and Sec. 414 of the Code)
Present Law
Elective deferral limitations
Under present law, under certain salary reduction
arrangements, an employee may elect to have the employer make
payments as contributions to a plan on behalf of the employee,
or to the employee directly in cash. Contributions made at the
election of the employee are called elective deferrals.
The maximum annual amount of elective deferrals that an
individual may make to a qualified cash or deferred arrangement
(a ``401(k) plan''), a tax-sheltered annuity (``section 403(b)
annuity'') or a salary reduction simplified employee pension
plan (``SEP'') is $10,500 (for 2000). The maximum annual amount
of elective deferrals that an individual may make to a SIMPLE
plan is $6,000. These limits are indexed for inflation in $500
increments.
Section 457 plans
The maximum annual deferral under a deferred compensation
plan of a State or local government or a tax-exempt
organization (a ``section 457 plan'') is the lesser of (1)
$8,000 (for 2000) or (2) 33\1/3\ percent of compensation. The
$8,000 dollar limit is increased for inflation in $500
increments. Under a special catch-up rule, the section 457 plan
may provide that, for one or more of the participant's last 3
years before retirement, the otherwise applicable limit is
increased to the lesser of (1) $15,000 or (2) the sum of the
otherwise applicable limit for the year plus the amount by
which the limit applicable in preceding years of participation
exceeded the deferrals for that year.
Reasons for Change
Although the Committee believes that individuals should be
saving for retirement throughout their working lives, as a
practical matter, many individuals simply do not focus on the
amount of retirement savings they need until they near
retirement. In addition, many individuals may have difficulty
saving more in earlier years, e.g., because an employee leaves
the workplace to care for a family. Some individuals may have a
greater ability to save as they near retirement.
The Committee believes that the pension laws should assist
individuals who are nearing retirement to save more for their
retirement.
Explanation of Provision
The provision provides that the otherwise applicable dollar
limit on elective deferrals under a section 401(k) plan,
section 403(b) annuity, or SIMPLE, or deferrals under a section
457 plan are increased for individuals who have attained age 50
by the end of the year.17 Additional contributions
are permitted to be made by an individual who has attained age
50 before the end of the plan year and with respect to whom no
other elective deferrals may otherwise be made to the plan for
the year because of the application of any limitation of the
Code (e.g., the annual limit on elective deferrals) or of the
plan. Under the provision, the additional amount of elective
contributions that are permitted to be made by an eligible
individual participating in such a plan is the lesser of (1)
$5,000, or (2) the participant's compensation for the year
reduced by any other elective deferrals of the participant for
the year.18 This $5,000 amount is increased for
inflation in $500 increments in 2006 and thereafter.
---------------------------------------------------------------------------
\17\ Another provision of the bill increases the dollar limit on
elective deferrals under such arrangements.
\18\ In the case of a section 457 plan, this catch-up rule does not
apply during the participant's last 3 years before retirement (in those
years, the regularly applicable dollar limit is doubled).
---------------------------------------------------------------------------
Catch-up contributions made under the provision are not
subject to any other contribution limits and are not taken into
account in applying other contribution limits. Such
contributions are subject to applicable nondiscrimination
rules.19
---------------------------------------------------------------------------
\19\ Another provision of the bill provides that elective
contributions are deductible without regard to the otherwise applicable
deduction limits.
---------------------------------------------------------------------------
An employer is permitted to make matching contributions
with respect to catch-up contributions. Any such matching
contributions are subject to the normally applicable rules.
Effective Date
The provision is effective for taxable years beginning
after December 31, 2000.
B. Equitable Treatment for Contributions of Employees to Defined
Contribution Plans (Sec. 302 of the Bill and Secs. 403(b), 415, and 457
of the Code)
Present Law
Present law imposes limits on the contributions that may be
made to tax-favored retirement plans.
Defined contribution plans
In the case of a tax-qualified defined contribution plan,
the limit on annual additions that can be made to the plan on
behalf of an employee is the lesser of $30,000 (for 2000) or 25
percent of the employee's compensation (sec. 415(c)). Annual
additions include employer contributions, including
contributions made at the election of the employee (i.e.,
employee elective deferrals), after-tax employee contributions,
and any forfeitures allocated to the employee. For this
purpose, compensation means taxable compensation of the
employee, plus elective deferrals, and similar salary reduction
contributions. A separate limit applies to benefits under a
defined benefit plan.
For years before January 1, 2000, an overall limit applies
if an employee is a participant in both a defined contribution
plan and a defined benefit plan of the same employer.
Tax-sheltered annuities
In the case of a tax-sheltered annuity (a ``section 403(b)
annuity'), the annual contribution generally cannot exceed the
lesser of the exclusion allowance or the section 415(c) defined
contribution limit. The exclusion allowance for a year is equal
to 20 percent of the employee's includible compensation,
multiplied by the employee's years of service, minus excludable
contributions for prior years under qualified plans, tax-
sheltered annuities or section 457 plans of the employer.
In addition to this general rule, employees of nonprofit
educational institutions, hospitals, home health service
agencies, health and welfare service agencies, and churches may
elect application of one of several special rules that increase
the amount of the otherwise permitted contributions. The
election of a special rule is irrevocable; an employee may not
elect to have more than one special rule apply.
Under one special rule, in the year the employee separates
from service, the employee may elect to contribute up to the
exclusion allowance, without regard to the 25 percent of
compensation limit under section 415. Under this rule, the
exclusion allowance is determined by taking into account no
more than 10 years of service.
Under a second special rule, the employee may contribute up
to the lesser of: (1) the exclusion allowance; (2) 25 percent
of the participant's includible compensation; or (3) $15,000.
Under a third special rule, the employee may elect to
contribute up to the section 415(c) limit, without regard to
the exclusion allowance. If this option is elected, then
contributions to other plans of the employer are also taken
into account in applying the limit.
For purposes of determining the contribution limits
applicable to section 403(b) annuities, includible compensation
means the amount of compensation received from the employer for
the most recent period which may be counted as a year of
service under the exclusion allowance. In addition, includible
compensation includes elective deferrals and similar salary
reduction amounts.
Treasury regulations include provisions regarding
application of the exclusion allowance in cases where the
employee participates in a section 403(b) annuity and a defined
benefit plan. The Taxpayer Relief Act of 1997 directed the
Secretary of the Treasury to revise these regulations,
effective for years beginning after December 31, 1999, to
reflect the repeal of the overall limit on contributions and
benefits.
Section 457 plans
Compensation deferred under an eligible deferred
compensation plan of a tax-exempt or State and local
governmental employer (a ``section 457 plan'') is not
includible in gross income until paid or made available. In
general, the maximum permitted annual deferral under such a
plan is the lesser of (1) $8,000 (in 2000) or (2)
33\1/3\ percent of compensation. The $8,000 limit is increased
for inflation in $500 increments.
Reasons for Change
The present-law rules that limit contributions to defined
contribution plans by a percentage of compensation reduce the
amount that lower- and middle-income workers can save for
retirement. The present-law limits may not allow such workers
to accumulate adequate retirement benefits, particularly if a
defined contribution plan is the only type of retirement plan
maintained by the employer.
Conforming the contribution limits for tax-sheltered
annuities to the limits applicable to retirement plans will
simplify the administration of the pension laws, and provide
more equitable treatment for participants in similar types of
plans.
Explanation of Provision
Increase in defined contribution plan limit
The provision increases the 25 percent of compensation
limitation on annual additions under a defined contribution
plan to 100 percent.20
---------------------------------------------------------------------------
\20\ Another provision of the bill increases the defined
contribution plan dollar limit.
---------------------------------------------------------------------------
Conforming limits on tax-sheltered annuities
The provision repeals the exclusion allowance applicable to
contributions to tax-sheltered annuities. Thus, such annuities
are subject to the limits applicable to tax-qualified plans.
The provision also directs the Secretary of the Treasury to
revise the regulations relating to the exclusion allowance
under section 403(b)(2) to render void the requirement that
contributions to a defined benefit plan be treated as
previously excluded amounts for purposes of the exclusion
allowance. For taxable years beginning after December 31, 1999,
the regulatory provisions regarding the exclusion allowance are
to be applied as if the requirement that contributions to a
defined benefit plan be treated as previously excluded amounts
for purposes of the exclusion allowance were void.
Section 457 plans
The provision increases the 33\1/3\ percent of compensation
limitation on deferrals under a section 457 plan to 100 percent
of compensation.
effective date
The provision is generally effective for years beginning
after December 31, 2000. The provision regarding the
regulations under section 403(b)(2) is effective on the date of
enactment.
C. Faster Vesting of Employer Matching Contributions (Sec. 303 of the
Bill and Sec. 411 of the Code)
Present Law
Under present law, a plan is not a qualified plan unless a
participant's employer-provided benefit vests at least as
rapidly as under one of two alternative minimum vesting
schedules. A plan satisfies the first schedule if a participant
acquires a nonforfeitable right to 100 percent of the
participant's accrued benefit derived from employer
contributions upon the completion of 5 years of service. A plan
satisfies the second schedule if a participant has a
nonforfeitable right to at least 20 percent of the
participant's accrued benefit derived from employer
contributions after 3 years of service, 40 percent after 4
years of service, 60 percent after 5 years of service, 80
percent after 6 years of service, and 100 percent after 7 years
of service.\21\
---------------------------------------------------------------------------
\21\ The minimum vesting requirements are also contained in Title I
of the Employee Retirement Income Security Act of 1974, as amended
(``ERISA'').
---------------------------------------------------------------------------
Reasons for Change
The Committee understands that many employees, particularly
lower- and middle-income employees, do not take full advantage
of the retirement savings opportunities provided by their
employer's section 401(k) plan. The Committee believes that
providing faster vesting for matching contributions will make
section 401(k) plans more attractive for employees,
particularly lower- and middle-income employees, and will
encourage employees to save more for their own retirement. In
addition, faster vesting for matching contributions will enable
short-service employees to accumulate greater retirement
savings.
Explanation of Provision
The provision applies faster vesting schedules to employer
matching contributions. Under the provision, employer matching
contributions have to vest at least as rapidly as under one of
the following two alternative minimum vesting schedules. A plan
satisfies the first schedule if a participant acquires a
nonforfeitable right to 100 percent of employer matching
contributions upon the completion of 3 years of service. A plan
satisfies the second schedule if a participant has a
nonforfeitable right to 20 percent of employer matching
contributions for each year of service beginning with the
participant's second year of service and ending with 100
percent after 6 years of service.
effective date
The provision is effective for plan years beginning after
December 31, 2000, with a delayed effective date for plans
maintained pursuant to a collective bargaining agreement. The
provision does not apply to any employee until the employee has
an hour of service after the effective date. In applying the
new vesting schedule, service before the effective date is
taken into account.
D. Simplify and Update the Minimum Distribution Rules (Secs. 304 and
409 of the Bill and Secs. 401(a)(9) and 457 of the Code)
Present Law
In general
Minimum distribution rules apply to all types of tax-
favored retirement vehicles, including qualified plans,
individual retirement arrangements (``IRAs''), tax-sheltered
annuities (``section 403(b) annuities''), and eligible deferred
compensation plans of tax-exempt and State and local government
employers (``section 457 plans''). In general, under these
rules, distribution of minimum benefits must begin no later
than the required beginning date. Minimum distribution rules
also apply to benefits payable with respect to a plan
participant who has died. Failure to comply with the minimum
distribution rules results in an excise tax imposed on the
individual plan participant equal to 50 percent of the required
minimum distribution not distributed for the year. The excise
tax can be waived if the individual establishes to the
satisfaction of the Secretary that the shortfall in the amount
distributed was due to reasonable error and reasonable steps
are being taken to remedy the shortfall.
Distributions prior to the death of the individual
In the case of distributions prior to the death of the plan
participant, the minimum distribution rules are satisfied if
either (1) the participant's entire interest in the plan is
distributed by the required beginning date, or (2) the
participant's interest in the plan is to be distributed (in
accordance with regulations), beginning not later than the
required beginning date, over a permissible period. The
permissible periods are (1) the life of the participant, (2)
the lives of theparticipant and a designated beneficiary, (3)
the life expectancy of the participant, or (4) the joint life and last
survivor expectancy of the participant and a designated beneficiary. In
calculating minimum required distributions, life expectancies of the
participant and the participant's spouse may be recomputed annually.
In the case of qualified plans, tax-sheltered annuities,
and section 457 plans, the required beginning date is the April
1 of the calendar year following the later of (1) the calendar
year in which the employee attains age 70\1/2\ or (2) the
calendar year in which the employee retires. However, in the
case of a 5-percent owner of the employer, distributions are
required to begin no later than the April 1 of the calendar
year following the year in which the 5-percent owner attains
age 70\1/2\. If commencement of benefits is delayed beyond age
70\1/2\ from a defined benefit plan, then the accrued benefit
of the employee must be actuarially increased to take into
account the period after age 70\1/2\ in which the employee was
not receiving benefits under the plan.22 In the case
of distributions from an IRA other than a Roth IRA, the
required beginning date is the April 1 following the calendar
year in which the IRA owner attains age 70\1/2.\ The pre-death
minimum distribution rules do not apply to Roth IRAs.
---------------------------------------------------------------------------
\22\ State and local government plans and church plans are not
required to actuarially increase benefits that begin after age 70\1/2\.
---------------------------------------------------------------------------
In general, under proposed regulations, in order to satisfy
the minimum distribution rules, annuity payments under a
defined benefit plan must be paid in period payments made at
intervals not longer than one year over a permissible period,
and must be nonincreasing, or increase only as a result of the
following: (1) cost-of-living adjustments; (2) cash refunds of
employee contributions; (3) benefit increases under the plan;
or (4) an adjustment due to death of the employee's
beneficiary. In the case of a defined contribution plan, the
minimum required distribution is determined by dividing the
employee's benefit by the applicable life expectancy.
Distributions after the death of the plan participant
The minimum distribution rules also apply to distributions
to beneficiaries of deceased participants. In general, if the
participant dies after minimum distributions have begun, the
remaining interest must be distributed at least as rapidly as
under the minimum distribution method being used as of the date
of death. If the participant dies before minimum distributions
have begun, then the entire remaining interest must generally
be distributed within 5 years of the participant's death. The
5-year rule does not apply if distributions begin within 1 year
of the participant's death and are payable over the life of a
designated beneficiary or over the life expectancy of a
designated beneficiary. A surviving spouse beneficiary is not
required to begin distribution until the date the deceased
participant would have attained age 70\1/2\.
Special rules for section 457 plans
Eligible deferred compensation plans of State and local and
tax-exempt employers (``section 457 plans'') are subject to the
minimum distribution rules described above. Such plans are also
subject to additional minimum distribution requirements (sec.
457(d)(2)(b)).
reasons for change
The Committee believes that the minimum distribution rules
are among the most complex of the rules relating to tax-favored
arrangements. While a plan or IRA trustee may assist the
individual in complying with the minimum distribution rules,
ultimately the responsibility for compliance falls on the
individual. Many of the complexities of the present-law rules
are contained in Treasury regulations, which have not yet been
finalized. The Committee believes that the present-law rules
impose undue burdens on individuals and plan administrators.
The sanction for failure to comply with the minimum
distribution rules is severe. The Committee believes this
sanction is inappropriate, particularly given the complexity of
the rules, and the likelihood of inadvertent mistakes.
Explanation of Provision
Modification of post-death distribution rules
The provision applies the present-law rules applicable if
the participant dies before distribution of minimum benefits
has begun to all post-death distributions. Thus, in general, if
the employee dies before his or her entire interest has been
distributed, distribution of the remaining interest must be
made within 5 years of the date of death, or begin within one
year of the date of death and be paid over the life or life
expectancy of a designated beneficiary. In the case of a
surviving spouse, distributions are not required to begin until
the surviving spouse attains age 70\1/2\. Minimum distributions
that have already begun may be recalculated under the new rule.
Reduction in excise tax
The provision reduces the excise tax on failures to satisfy
the minimum distribution rules to 10 percent of the amount that
was required to be distributed but was not distributed.
Treasury regulations
The Treasury is directed to update, simplify and finalize
the regulations relating to the minimum distribution rules. The
Treasury is directed to reflect in the regulations current life
expectancies and to revise the required distribution methods so
that, under reasonable assumptions, the amount of the required
distribution does not decrease over time. The regulations are
to permit recalculation of distributions for future years to
reflect the change in the regulations, and to permit the
election of a new designated beneficiary and method of
calculating life expectancy. The regulations are to be
effective for years beginning after December 31, 2000.
Section 457 plans
The provision repeals the special minimum distribution
rules applicable to section 457 plans. Thus, such plans are
subject to the same minimum distribution rules applicable to
other types of tax-favored arrangements.
Effective Date
In general, the provision is effective for years beginning
after December 31, 2000.
E. Clarification of Tax Treatment of Division of Section 457 Plan
Benefits Upon Divorce (Sec. 305 of the Bill and Secs. 414(p) and 457 of
the Code)
Present Law
Under present law, benefits provided under a qualified
retirement plan for a participant may not be assigned or
alienated to creditors of the participant, except in very
limited circumstances. One exception to the prohibition on
assignment or alienation rule is a qualified domestic relations
order (``QDRO''). A QDRO is a domestic relations order that
creates or recognizes a right of an alternate payee to any plan
benefit payable with respect to a participant, and that meets
certain procedural requirements.
Under present law, a distribution from a governmental plan
or a church plan is treated as made pursuant to a QDRO if it is
made pursuant to a domestic relations order that creates or
recognizes a right of an alternate payee to any plan benefit
payable with respect to a participant. Such distributions are
not required to meet the procedural requirements that apply
with respect to distributions from qualified plans.
Under present law, amounts distributed from a qualified
plan generally are taxable to the participant in the year of
distribution. However, if amounts are distributed to the spouse
(or former spouse) of the participant by reason of a QDRO, the
benefits are taxable to the spouse (or former spouse). Amounts
distributed pursuant to a QDRO to an alternate payee other than
the spouse (or former spouse) are taxable to the plan
participant.
Section 457 of the Internal Revenue Code provides rules for
deferral of compensation by an individual participating in an
eligible deferred compensation plan (``section 457 plan'') of a
tax-exempt or State and local government employer. The QDRO
rules do not apply to section 457 plans.
Reasons for Change
The Committee believes that the rules regarding qualified
domestic relations orders should apply to all types of
employer-sponsored retirement plans.
Explanation of Provision
The provision applies the taxation rules for qualified plan
distributions pursuant to a QDRO to distributions made pursuant
to a domestic relations order from a section 457 plan. In
addition, a section 457 plan is not treated as violating the
restrictions on distributions from such plans due to payments
to an alternate payee under a QDRO. The special rule applicable
to governmental plans and church plans applies for purposes of
determining whether a distribution is pursuant to a QDRO.
Effective Date
The provision is effective for transfers, distributions and
payments made after December 31, 2000.
F. Modification of Safe Harbor Relief for Hardship Withdrawals from
401(k) Plans (Sec. 306 of the Bill)
Present Law
Elective deferrals under a qualified cash or deferred
arrangement (a ``section 401(k) plan'') may not be
distributable prior to the occurrence of one or more specified
events. One event upon which distribution is permitted is the
financial hardship of the employee. Applicable Treasury
regulations 23 provide that a distribution is made
on account of hardship only if the distribution is made on
account of an immediate and heavy financial need of the
employee and is necessary to satisfy the heavy need.
---------------------------------------------------------------------------
\23\ Treas. Reg. sec. 1.401(k)-1.
---------------------------------------------------------------------------
The Treasury regulations provide a safe harbor under which
a distribution may be deemed necessary to satisfy an immediate
and heavy financial need. One requirement of this safe harbor
is that the employee be prohibited from making elective
contributions and employee contributions to the plan and all
other plans maintained by the employer for at least 12 months
after receipt of the hardship distribution.
Reasons for Change
Although the Committee believes that it is appropriate to
restrict the circumstances in which an in-service distribution
from a 401(k) plan is permitted and to encourage participants
to take such distributions only when necessary to satisfy an
immediate and heavy financial need, the Committee is concerned
about the impact that a 12-month suspension of contributions
may have on the retirement savings of a participant who
experiences a hardship. The Committee believes that the
combination of a 6-month contribution suspension and the other
elements of the regulatory safe harbor will provide an adequate
incentive for a participant to seek sources of funds other than
his or her 401(k) plan account balance in order to satisfy
financial hardships.
Explanation of Provision
The Secretary of the Treasury is directed to revise the
applicable regulations to reduce from 12 months to 6 months the
period during which an employee must be prohibited from making
elective contributions and employee contributions in order for
a distribution to be deemed necessary to satisfy an immediate
and heavy financial need.
Effective Date
The provision is effective for years beginning after
December 31, 2000.
TITLE IV. INCREASING PORTABILITY FOR PARTICIPANTS
A. Rollovers of Retirement Plan and IRA Distributions (Secs. 401-403
and 409 of the Bill and Secs. 401, 402, 403(b), 408, 457, and 3405 of
the Code)
Present Law
In general
Present law permits the rollover of funds from a tax-
favored retirement plan to another tax-favored retirement plan.
The rules that apply depend on the type of plan involved.
Similarly, the rules regarding the tax treatment of amounts
that are not rolled over depend on the type of plan involved.
Distributions from qualified plans
Under present law, an ``eligible rollover distribution''
from a tax-qualified employer-sponsored retirement plan may be
rolled over tax free to a traditional individual retirement
arrangement (``IRA'') 24 or another qualified plan.
25 An ``eligible rollover distribution'' means any
distribution to an employee of all or any portion of the
balance to the credit of the employee in a qualified plan,
except the term does not include (1) any distribution which is
one of a series of substantially equal periodic payments made
(a) for the life (or life expectancy) of the employee or the
joint lives (or joint life expectancies) of the employee and
the employee's designated beneficiary, or (b) for a specified
period of 10 years or more, (2) any distribution to the extent
such distribution is required under the minimum distribution
rules, and (3) certain hardship distributions. The maximum
amount that can be rolled over is the amount of the
distribution includible in income, i.e., after-tax employee
contributions cannot be rolled over. Qualified plans are not
required to accept rollovers.
---------------------------------------------------------------------------
\24\ A ``traditional'' IRA refers to IRAs other than Roth IRAs or
SIMPLE IRAs. All references to IRAs refers only to traditional IRAs.
\25\ An eligible rollover distribution may either be rolled over by
the distributee within 60 days of the date of the distribution or, as
described below, directly rolled over by the distributing plan.
---------------------------------------------------------------------------
Distributions from tax-sheltered annuities
Eligible rollover distributions from a tax-sheltered
annuity (``section 403(b) annuity'') may be rolled over into an
IRA or another section 403(b) annuity. Distributions from a
section 403(b) annuity cannot be rolled over into a tax-
qualified plan. Section 403(b) annuities are not required to
accept rollovers.
IRA distributions
Distributions from a traditional IRA, other than minimum
required distributions, can be rolled over into another IRA. In
general, distributions from an IRA cannot be rolled over into a
qualified plan or section 403(b) annuity. An exception to this
rule applies in the case of so-called ``conduit IRAs.'' Under
the conduit IRA rule, amounts can be rolled from a qualified
plan into an IRA and then subsequently rolled back to another
qualified plan if the amounts in the IRA are attributable
solely to rollovers from a qualified plan. Similarly, an amount
may be rolled over from a section 403(b) annuity to an IRA and
subsequently rolled back into a section 403(b) annuity if the
amounts in the IRA are attributable solely to rollovers from a
section 403(b) annuity.
Distributions from section 457 plans
A ``section 457 plan'' is an eligible deferred compensation
plan of a State or local government or tax-exempt employer that
meets certain requirements. In some cases, different rules
apply under section 457 to governmental plans and plans of tax-
exempt employers. For example, governmental section 457 plans
are like qualified plans in that plan assets are required to be
held in a trust for the exclusive benefit of plan participants
and beneficiaries. In contrast, benefits under a section 457
plan of a tax-exempt employer are unfunded, like nonqualified
deferred compensation plans of private employers.
Section 457 benefits can be transferred to another section
457 plan. Distributions from a section 457 plan cannot be
rolled over to another section 457 plan, a qualified plan, a
section 403(b) annuity, or an IRA.
Rollovers by surviving spouses
A surviving spouse that receives an eligible rollover
distribution may roll over the distribution into an IRA, but
not a qualified plan or section 403(b) annuity.
Direct rollovers and withholding requirements
Qualified plans and section 403(b) annuities are required
to provide that a plan participant has the right to elect that
an eligible rollover distribution be directly rolled over to
another eligible retirement plan. If the plan participant does
not elect the direct rollover option, then withholding is
required on the distribution at a 20-percent rate.
Notice of eligible rollover distribution
The plan administrator of a qualified plan or a section
403(b) annuity is required to provide a written explanation of
rollover rules to individuals who receive a distribution
eligible for rollover. In general, the notice is to be provided
within a reasonable period of time before making the
distribution and is to include an explanation of (1) the
provisions under which the individual may have the distribution
directly rolled over to another eligible retirement plan, (2)
the provision that requires withholding if the distribution is
not directly rolled over, (3) the provision under which the
distribution may be rolled over within 60 days of receipt, and
(4) if applicable, certain other rules that may apply to the
distribution. The Treasury Department has provided more
specific guidance regarding timing and content of the notice.
Taxation of distributions
As is the case with the rollover rules, different rules
regarding taxation of benefits apply to different types of tax-
favored arrangements. In general, distributions from a
qualified plan, section 403(b) annuity, or IRA are includible
in income in the year received. In certain cases, distributions
from qualified plans are eligible for capital gains treatment
and averaging. These rules do not apply to distributions from
another type of plan. Distributions from a qualified plan, IRA,
and section 403(b) annuity generally are subject to an
additional 10-percent early withdrawal tax if made before age
59\1/2\. There are a number of exceptions to the early
withdrawal tax. Some of the exceptions apply to all three types
of plans, and others apply only to certain types of plans. For
example, the 10-percent early withdrawal tax does not apply to
IRA distributions for educational expenses, but does apply to
similar distributions from qualified plans and section 403(b)
annuities. Benefits under a section 457 plan are generally
includible in income when paid or made available. The 10-
percent early withdrawal tax does not apply to section 457
plans.
Reasons for Change
Present law encourages individuals who receive
distributions from qualified plans and similar arrangements to
save those distributions for retirement by facilitating tax-
free rollovers to an IRA or another qualified plan. The
Committee believes that expanding the rollover options for
individuals in employer-sponsored retirement plans and owners
of IRAs will provide further incentives for individuals to
continue to accumulate funds for retirement. The Committee
believes it appropriate to extend the same rollover rules to
governmental section 457 plans; like qualified plans, such
plans are required to hold plan assets in trust for employees.
Explanation of Provision
In general
The provision provides that eligible rollover distributions
from qualified retirement plans, section 403(b) annuities, and
governmental section 457 plans generally could be rolled over
to any of such plans or arrangements.26 Similarly,
distributions from an IRA generally may be rolled over into a
qualified plan, section 403(b) annuity, or governmental section
457 plan. The direct rollover and withholding rules are
extended to distributions from a governmental section 457 plan,
and such plans are required to provide the written notification
regarding eligible rollover distributions. The rollover notice
(with respect to all plans) is required to include a
description of the provisions under which distributions from
the plan to which the distribution is rolled over may be
subject to restrictions and tax consequences different than
those applicable to distributions from the distributing plan.
Qualified plans, section 403(b) annuities, and section 457
plans are not required to accept rollovers.
---------------------------------------------------------------------------
\26\ Hardship distributions from governmental section 457 plans
would be considered eligible rollover distributions.
---------------------------------------------------------------------------
Some special rules apply in certain cases. A distribution
from a qualified plan is not eligible for capital gains or
averaging treatment if there was a rollover to the plan that
would not have been permitted under present law. Thus, in order
to preserve capital gains and averaging treatment for a
qualified plan distribution that is rolled over, the rollover
has to be made to a ``conduit IRA'' as under present law, and
then rolled back into a qualified plan. Amounts distributed
from a section 457 plan are subject to the early withdrawal tax
to the extent the distribution consists of amounts attributable
to rollovers from another type of plan. Section 457 plans are
required to separately account for such amounts.
The provision also provides that benefits in governmental
section 457 plans are includible in income when paid.
Rollover of after-tax contributions
The provision provides that employee after-tax
contributions may be rolled over into another qualified plan or
a traditional IRA. In the case of a rollover from a qualified
plan to another qualified plan, the rollover may be
accomplished only through a direct rollover. In addition, a
qualified plan may not accept rollovers of after-tax
contributions unless the plan provides separate accounting for
such contributions (and earnings thereon). After-tax
contributions (including nondeductible contributions to an IRA)
may not be rolled over from an IRA into a qualified plan, tax-
sheltered annuity, or section 457 plan.
In the case of a distribution from a traditional IRA that
is rolled over into an eligible rollover plan that is not an
IRA, the distribution is attributed first to amounts other than
after-tax contributions.
Expansion of spousal rollovers
The provision provides that surviving spouses may roll over
eligible rollover distributions to a qualified plan, section
403(b) annuity, or governmental section 457 plan in which the
spouse participates.
Treasury regulations
The Secretary is directed to prescribe rules necessary to
carry out the provisions. Such rules may include, for example,
reporting requirements and mechanisms to address mistakes
relating to rollovers. It is anticipated that the IRS will
develop forms to assist individuals who roll over after-tax
contributions to an IRA in keeping track of such contributions.
Such forms could, for example, expand Form 8606--Nondeductible
IRAs, to include information regarding after-tax contributions.
Effective Date
The provision is effective for distributions made after
December 31, 2000.
B. Waiver of 60-Day Rule (Sec. 404 of the Bill and Secs. 402 and 408 of
the Code)
Present Law
Under present law, amounts received from an IRA or
qualified plan may be rolled over tax free if the rollover is
made within 60 days of the date of the distribution. The
Secretary does not have the authority to waive the 60-day
requirement.
Reasons for Change
The inability of the Secretary to waive the 60-day rollover
period can result in adverse tax consequences for individuals.
The Committee believes such harsh results are inappropriate and
that providing for waivers of the rule will help facilitate
rollovers.
Explanation of Provision
The provision provides that the Secretary may waive the 60-
day rollover period if the failure to waive such requirement
would be against equity or good conscience, including cases of
casualty, disaster, or other events beyond the reasonable
control of the individual subject to such requirement.
Effective Date
The provision applies to distributions made after December
31, 2000.
C. Treatment of Forms of Distribution (Sec. 405 of the Bill and Sec.
411(d)(6) of the Code)
Present Law
An amendment of a qualified retirement plan may not
decrease the accrued benefit of a plan participant. An
amendment is treated as reducing an accrued benefit if, with
respect to benefits accrued before the amendment is adopted,
the amendment has the effect of either (1) eliminating or
reducing an early retirement benefit or a retirement-type
subsidy, or (2) except as provided by Treasury regulations,
eliminating an optional form of benefit (sec.
411(d)(6)).27
---------------------------------------------------------------------------
\27\ A similar provision is contained in Title I of ERISA.
---------------------------------------------------------------------------
The prohibition against the elimination of an optional form
of benefit applies to plan mergers, spinoffs, transfers, and
transactions amending or having the effect of amending a plan
or plans to transfer plan benefits. For example, if Plan A, a
profit-sharing plan that provides for distribution of benefits
in annual installments over ten or twenty years, is merged with
Plan B, a profit-sharing plan that provides for distribution of
benefits in annual installments over life expectancy at the
time of retirement, the merged plan must preserve the ten- or
twenty-year installment option with respect to benefits accrued
under Plan A as of the date of the merger and the installments
over life expectancy with respect to benefits accrued under
Plan B as of the date of the merger. Similarly, for example, if
a participant's benefit under a defined contribution plan is
transferred to another defined contribution plan maintained by
the same or a different employer, the optional forms of benefit
available with respect to the participant's accrued benefit
under the transferor plan must be preserved.28
---------------------------------------------------------------------------
\28\ Treas. Reg. sec. 1.411(d)-4, Q&A-2(a)(3)(i).
---------------------------------------------------------------------------
Reasons for Change
The Committee understands that the application of the
prohibition against the elimination of any optional form of
benefit frequently results in complexity and confusion,
especially in the context of business acquisitions and similar
transactions, and makes it difficult for participants to
understand their benefit options and make choices that are
best-suited to their needs. The Committee believes that it is
appropriate to permit the elimination of duplicative benefit
options that develop following plan mergers and similar events
while ensuring that meaningful early retirement benefit payment
options and subsidies may not be eliminated. In addition, the
Committee understands that a defined contribution plan
participant who is entitled to receive a single sum
distribution generally may roll over such a distribution to an
IRA and control the manner of distribution from the IRA, thus
reducing the need to prohibit the elimination of all optional
forms of benefits.
Explanation of Provision
A defined contribution plan to which benefits are
transferred is not treated as reducing a participant's or
beneficiary's accrued benefit even though it does not provide
all of the forms of distribution previously available under the
transferor plan if (1) the plan receives from another defined
contribution plan a direct transfer of the participant's or
beneficiary's benefit accrued under the transferor plan, or the
plan results from a merger or other transaction that has the
effect of a direct transfer (including consolidations of
benefits attributable to different employers within a multiple
employer plan), (2) the terms of both the transferor plan and
the transferee plan authorize the transfer, (3) the transfer
occurs pursuant to a voluntary election by the participant
orbeneficiary that is made after the participant or beneficiary
received a notice describing the consequences of making the election,
(4) if the transferor plan provides for an annuity as the normal form
of distribution in accordance with the joint and survivor annuity rules
(sec. 417), the participant's spouse (if any) consents to the transfer
in a manner similar to the consent required by section 417, and (5) the
transferee plan allows the participant or beneficiary to receive
distribution of his or her benefit under the transferee plan in the
form of a single sum distribution.
In addition, except to the extent provided by the Secretary
of the Treasury in regulations, a defined contribution plan is
not treated as reducing a participant's accrued benefit if (1)
a plan amendment eliminates a form of distribution previously
available under the plan, (2) a single sum distribution is
available to the participant at the same time or times as the
form of distribution eliminated by the amendment, and (3) the
single sum distribution is based on the same or greater portion
of the participant's accrued benefit as the form of
distribution eliminated by the amendment.
Furthermore, the provision directs the Secretary of the
Treasury to provide by regulations that the prohibitions
against eliminating or reducing an early retirement benefit, a
retirement-type subsidy, or an optional form of benefit shall
not apply to plan amendments that do not adversely affect the
rights of participants in a material manner but that do
eliminate or reduce early retirement benefits, retirement-type
subsidies, and optional forms of benefit that create
significant burdens and complexities for a plan and its
participants.
It is intended that the factors to be considered in
determining whether an amendment has a materially adverse
effect on a participant would include (1) all of the
participant's early retirement benefits, retirement-type
subsidies, and optional forms of benefits that are reduced or
eliminated by the amendment, (2) the extent to which early
retirement benefits, retirement-type subsidies, and optional
forms of benefit in effect with respect to a participant after
the amendment effective date provide rights that are comparable
to the rights that are reduced or eliminated by the plan
amendment, (3) the number of years before the participant
attains normal retirement age under the plan (or early
retirement age, as applicable), (4) the size of the
participant's benefit that is affected by the plan amendment,
in relation to the amount of the participant's compensation,
and (5) the number of years before the plan amendment is
effective.
The Secretary is directed to issue, not later than December
31, 2001, final regulations under section 411(d)(6), including
regulations required under the provision.
Effective Date
The provision is effective for years beginning after
December 31, 2000, except that the direction to the Secretary
is effective on the date of enactment.
D. Rationalization of Restrictions on Distributions (Sec. 406 of the
Bill and Secs. 401(k), 403(b), and 457 of the Code)
Present Law
Elective deferrals under a qualified cash or deferred
arrangement (``section 401(k) plan''), tax-sheltered annuity
(``section 403(b) annuity''), or an eligible deferred
compensation plan of a tax-exempt organization or State or
local government (``section 457 plan''), may not be
distributable prior to the occurrence of one or more specified
events. These permissible distributable events include
``separation from service.''
A separation from service occurs only upon a participant's
death, retirement, resignation or discharge, and not when the
employee continues on the same job for a different employer as
a result of the liquidation, merger, consolidation or other
similar corporate transaction. A severance from employment
occurs when a participant ceases to be employed by the employer
that maintains the plan. Under a so-called ``same desk rule,''
a participant's severance from employment does not necessarily
result in a separation from service. 29
---------------------------------------------------------------------------
\29\ Rev. Rul. 79-336, 1979-2 C.B. 187.
---------------------------------------------------------------------------
In addition to separation from service and other events, a
section 401(k) plan that is maintained by a corporation may
permit distributions to certain employees who experience a
severance from employment with the corporation that maintains
the plan but does not experience a separation from service
because the employee continues on the same job for a different
employer as a result of a corporate transaction. If the
corporation disposes of substantially all of the assets used by
the corporation in a trade or business, a distributable event
occurs with respect to the accounts of the employees who
continue employment with the corporation that acquires the
assets. If the corporation disposes of its interest in a
subsidiary, a distributable event occurs with respect to the
accounts of the employees who continue employment with the
subsidiary.
Reasons for Change
The Committee believes that application of the ``same
desk'' rule is inappropriate because it hinders portability of
retirement benefits, creates confusion for employees, and
results in significant administrative burdens for employers
that engage in business acquisition transactions.
Explanation of Provision
The provision modifies the distribution restrictions
applicable to section 401(k) plans, section 403(b) annuities,
and section 457 plans to provide that distribution may occur
upon severance from employment rather than separation from
service. In addition, the provisions for distribution from a
section 401(k) plan based upon a corporation's disposition of
its assets or a subsidiary are repealed; this special rule is
no longer necessary under the provision.
Effective Date
The provision is effective for distributions after December
31, 2000.
E. Purchase of Service Credit Under Governmental Pension Plans (Sec.
407 of the Bill and Secs. 403(b) and 457 of the Code)
Present Law
A qualified retirement plan maintained by a State or local
government employer may provide that a participant may make
after-tax employee contributions in order to purchase
permissive service credit, subject to certain limits (sec.
415). Permissive service credit means credit for a period of
service recognized by the governmental plan only if the
employee voluntarily contributes to the plan an amount (as
determined by the plan) that does not exceed the amount
necessary to fund the benefit attributable to the period of
service and that is in addition to the regular employee
contributions, if any, under the plan.
In the case of any repayment of contributions and earnings
to a governmental plan with respect to an amount previously
refunded upon a forfeiture of service credit under the plan (or
another plan maintained by a State or local government employer
within the same State), any such repayment is not taken into
account for purposes of the section 415 limits on contributions
and benefits. Also, service credit obtained as a result of such
a repayment is not considered permissive service credit for
purposes of the section 415 limits.
A participant may not use a rollover or direct transfer of
benefits from a tax-sheltered annuity (``section 403(b)
annuity'') or an eligible deferred compensation plan of a tax-
exempt organization of a State or local government (``section
457 plan'') to purchase permissive service credits or repay
contributions and earnings with respect to a forfeiture of
service credit.
Reasons for Change
The Committee understands that many employees work for
multiple State or local government employers during their
careers. The Committee believes that allowing such employees to
use their section 403(b) annuity and section 457 plan accounts
to purchase permissive service credits or make repayments with
respect to forfeitures of service credit will result in more
significant retirement benefits for employees who would not
otherwise be able to afford such credits or repayments.
Explanation of Provision
A participant in a State or local governmental plan is not
required to include in gross income a direct trustee-to-trustee
transfer to a governmental defined benefit plan from a section
403(b) annuity or a section 457 plan if the transferred amount
is used (1) to purchase permissive service credits under the
plan, or (2) to repay contributions and earnings with respect
to an amount previously refunded under a forfeiture of service
credit under the plan (or another plan maintained by a State or
local government employer within the same State).
Effective Date
The provision is effective for transfers after December 31,
2000.
F. Employers May Disregard Rollovers for Purposes of Cash-Out Rules
(Sec. 408 of the Bill and Sec. 411(a)(11) of the Code)
Present Law
If an qualified retirement plan participant ceases to be
employed by the employer that maintains the plan, the plan may
distribute the participant's nonforfeitable accrued benefit
without the consent of the participant and, if applicable, the
participant's spouse, if the present value of the benefit does
not exceed $5,000. If such an involuntary distribution occurs
and the participant subsequently returns to employment covered
by the plan, then service taken into account in computing
benefits payable under the plan after the return need not
include service with respect to which a benefit was
involuntarily distributed unless the employee repays the
benefit.30
---------------------------------------------------------------------------
\30\ A similar provision is contained in Title I of ERISA.
---------------------------------------------------------------------------
Generally, a participant may roll over an involuntary
distribution from a qualified plan to an IRA or to another
qualified plan.31
---------------------------------------------------------------------------
\31\ Other provisions of the bill expand the kinds of plans to
which benefits may be rolled over.
---------------------------------------------------------------------------
Reasons for Change
The present-law cash-out rule reflects a balancing of
various policies. On the one hand is the desire to assist
individuals to save for retirement by making it easier to keep
retirement funds in tax-favored vehicles. On the other hand is
the recognition that keeping track of small account balances of
former employees creates administrative burdens for plans.
The Committee is concerned that, in some cases, the cash-
out rule may discourage plans from accepting rollovers because
the rollover will increase participants' benefits to above the
cash-out amount, and increase administrative burdens. The
Committee believes that disregarding rollovers for purposes of
the cash-out rule will further the intent of the cash-out rule
by removing a possible disincentive for plans to accept
rollovers.
Explanation of Provision
A plan is permitted to provide that the present value of a
participant's nonforfeitable accrued benefit is determined
without regard to the portion of such benefit that is
attributable to rollover contributions (and any earnings
allocable thereto).
Effective Date
The provision is effective for distributions after December
31, 2000.
TITLE V. STRENGTHENING PENSION SECURITY AND ENFORCEMENT
A. Phase in Repeal of 150 Percent of Current Liability Funding Limit;
Deduction for Contributions to Fund Termination Liability (Secs. 501
and 502 of the Bill and Secs. 404(a)(1), 412(c)(7), and 4972(c) of the
Code)
present law
Under present law, defined benefit pension plans are
subject to minimum funding requirements designed to ensure that
pension plans have sufficient assets to pay benefits. A defined
benefit pension plan is funded using one of a number of
acceptable actuarial cost methods.
No contribution is required under the minimum funding rules
in excess of the full funding limit. The full funding limit is
generally defined as the excess, if any, of (1) the lesser of
(a) the accrued liability under the plan (including normal
cost) or (b) 155 percent of the plan's current liability, over
(2) the value of the plan's assets (sec.
412(c)(7)).32 In general, current liability is all
liabilities to plan participants and beneficiaries accrued to
date, whereas the accrued liability full funding limit is based
on projected benefits. The current liability full funding limit
is scheduled to increase as follows: 160 percent for plan years
beginning in 2001 or 2002, 165 percent for plan years beginning
in 2003 and 2004, and 170 percent for plan years beginning in
2005 and thereafter. 33 In no event is a plan's full
funding limit less than 90 percent of the plan's current
liability over the value of the plan's assets.
---------------------------------------------------------------------------
\32\ The minimum funding requirements, including the full funding
limit, are also contained in title I of ERISA.
\33\ As originally enacted in the Pension Protection Act of 1997,
the current liability full funding limit was 150 percent of current
liability. The Taxpayer Relief Act of 1997 increased the current
liability full funding limit to 155 percent in 1999 and 2000, and
adopted the scheduled increases described in the text.
---------------------------------------------------------------------------
An employer sponsoring a defined benefit pension plan
generally may deduct amounts contributed to satisfy the minimum
funding standard for the plan year. Contributions in excess of
the full funding limit generally are not deductible. Under a
special rule, an employer that sponsors a defined benefit
pension plan (other than a multiemployer plan) which has more
than 100 participants for the plan year may deduct amounts
contributed of up to 100 percent of the plan's unfunded current
liability.
Reasons for Change
The Committee is concerned that the current liability full
funding limit, which focuses on current but not projected
benefits, may result in inadequate funding of pension plans and
thus jeopardize pension security. The Committee believes that
repealing the current liability full funding limit will
encourage responsible pension funding and help ensure that plan
participants receive promised benefits. Also, the Committee
believes that the special deduction rule should be expanded to
give more plan sponsors incentives to adequately fund their
plans.
Explanation of Provision
Current liability full funding limit
The provision gradually increases and then repeals the
current liability full funding limit. The current liability
full funding limit is 160 percent of current liability for plan
years beginning in 2001, 165 percent for plan years beginning
in 2002, and 170 percent for plan years beginning in 2003. The
current liability full funding limit is repealed for plan years
beginning in 2004 and thereafter.
Deduction for contributions to fund termination liability
The special rule allowing a deduction for unfunded current
liability generally is modified to apply with respect to
unfunded termination liability and is extended to all defined
benefit pension plans, i.e., the provision applies to
multiemployer plans and plans with 100 or fewer participants.
The special rule does not apply to plans not covered by the
PBGC termination insurance program.34
---------------------------------------------------------------------------
\34\ The PBGC termination insurance program does not cover plans of
professional service employers that have fewer than 25 participants.
---------------------------------------------------------------------------
The provision also modifies the rule by providing that the
deduction is for up to 100 percent of unfunded termination
liability, determined as if the plan terminated at the end of
the plan year. In the case of a plan with less than 100
participants for the plan year, termination liability does not
include the liability attributable to benefit increases for
highly compensated employees resulting from a plan amendment
which was made or became effective, whichever is later, within
the last two years.
Effective Date
The provision is effective for plan years beginning after
December 31, 2000.
B. Excise Tax Relief for Sound Pension Funding (Sec. 503 of the Bill
and Sec. 4972 of the Code)
Present Law
Under present law, defined benefit pension plans are
subject to minimum fundingrequirements designed to ensure that
pension plans have sufficient assets to pay benefits. A defined benefit
pension plan is funded using one of a number of acceptable actuarial
cost methods.
No contribution is required under the minimum funding rules
in excess of the full funding limit. The full funding limit is
generally defined as the excess, if any, of (1) the lesser of
(a) the accrued liability under the plan (including normal
cost) or (b) 155 percent of the plan's current liability, over
(2) the value of the plan's assets (sec. 412(c)(7)). In
general, current liability is all liabilities to plan
participants and beneficiaries accrued to date, whereas the
accrued liability full funding limit is based on projected
benefits. The current liability full funding limit is scheduled
to increase as follows: 160 percent for plan years beginning in
2001 or 2002, 165 percent for plan years beginning in 2003 and
2004, and 170 percent for plan years beginning in 2005 and
thereafter. 35 In no event is a plan's full funding
limit less than 90 percent of the plan's current liability over
the value of the plan's assets.
---------------------------------------------------------------------------
\35\ As originally enacted in the Pension Protection Act of 1997,
the current liability full funding limit was 150 percent of current
liability. The Taxpayer Relief Act of 1997 increased the current
liability full funding limit to 155 percent in 1999 and 2000, and
adopted the scheduled increases described in the text. Another
provision in the bill gradually increases and then repeals the current
liability full funding limit.
---------------------------------------------------------------------------
An employer sponsoring a defined benefit pension plan
generally may deduct amounts contributed to satisfy the minimum
funding standard for the plan year. Contributions in excess of
the full funding limit generally are not deductible. Under a
special rule, an employer that sponsors a defined benefit
pension plan (other than a multiemployer plan) which has more
than 100 participants for the plan year may deduct amounts
contributed of up to 100 percent of the plan's unfunded current
liability.
Present law also provides that contributions to defined
contribution plans are deductible, subject to certain
limitations.
Subject to certain exceptions, an employer that makes
nondeductible contributions to a plan is subject to an excise
tax equal to 10 percent of the amount of the nondeductible
contributions for the year. The 10-percent excise tax does not
apply to contributions to certain terminating defined benefit
plans. The 10-percent excise tax also does not apply to
contributions of up to 6 percent of compensation to a defined
contribution plan for employer matching and employee elective
deferrals.
Reasons for Change
The Committee believes that employers should be encouraged
to adequately fund their pension plans. Therefore, the
Committee does not believe that an excise tax should be imposed
on employer contributions that do not exceed the accrued
liability full funding limit.
Explanation of Provision
In determining the amount of nondeductible contributions,
the employer may elect not to take into account contributions
to a defined benefit pension plan except to the extent they
exceed the accrued liability full funding limit. Thus, if an
employer elects, contributions in excess of the current
liability full funding limit are not subject to the excise tax
on nondeductible contributions.36 An employer making
such an election for a year may not take advantage of the
present-law exceptions for certain terminating plans and
certain contributions to defined contribution plans.
---------------------------------------------------------------------------
\36\ Other provisions of the bill repeal the current liability full
funding limit for years beginning in 2004 and thereafter.
---------------------------------------------------------------------------
Effective Date
The provision is effective for years beginning after
December 31, 2000.
C. Notice of Significant Reduction in Plan Benefit Accruals (Sec. 504
of the Bill and New Sec. 4980f of the Code)
Present Law
Section 204(h) of Title I of ERISA provides that a defined
benefit pension plan or a money purchase pension plan may not
be amended so as to provide for a significant reduction in the
rate of future benefit accrual, unless, after adoption of the
plan amendment and not less than 15 days before the effective
date of the plan amendment, the plan administrator provides a
written notice (``section 204(h) notice''), setting forth the
plan amendment (or a summary of the amendment written in a
manner calculated to be understood by the average plan
participant) and its effective date. The plan administrator
must provide the section 204(h) notice to each plan
participant, each alternate payee under an applicable qualified
domestic relations order (``QDRO''), and each employee
organization representing participants in the plan. The
applicable Treasury regulations 37 provide, however,
that a plan administrator need not provide the section 204(h)
notice to any participant or alternate payee whose rate of
future benefit accrual is reasonably expected not to be reduced
by the amendment, nor to an employee organization that does not
represent a participant to whom the section 204(h) notice must
be provided. In addition, the regulations provide that the rate
of future benefit accrual is determined without regard to
optional forms of benefit, early retirement benefits,
retirement-type subsidiaries, ancillary benefits, and certain
other rights and features.
---------------------------------------------------------------------------
\37\ Treas. Reg. sec. 1.411(d)-6.
---------------------------------------------------------------------------
A covered amendment generally will not become effective
with respect to any participants and alternate payees whose
rate of future benefit accrual is reasonably expected to be
reduced by the amendment but who do not receive a section
204(h) notice. An amendment willbecome effective with respect
to all participants and alternate payees to whom the section 204(h)
notice was required to be provided if the plan administrator (1) has
made a good faith effort to comply with the section 204(h) notice
requirements, (2) has provided a section 204(h) notice to each employee
organization that represents any participant to whom a section 204(h)
notice was required to be provided, (3) has failed to provide a section
204(h) notice to no more than a de minimis percentage of participants
and alternate payees to whom a section 204(h) notice was required to be
provided, and (4) promptly upon discovering the oversight, provides a
section 204(h) notice to each omitted participant and alternate payee.
The Internal Revenue Code does not require any notice
concerning a plan amendment that provides for a significant
reduction in the rate of future benefit accrual.
REASONS FOR CHANGE
The Committee is aware of recent significant publicity
concerning conversions of traditional defined benefit pension
plans to ``cash balance'' plans, with particular focus on the
impact such conversions have on affected workers. Several
legislative proposals have been introduced to address some of
the issues relating to such conversions.
The Committee believes that employees are entitled to
meaningful disclosure concerning plan amendments that may
result in reductions of future benefit accruals. The Committee
has determined that present law does not require employers to
provide such disclosure, particularly in cases where
traditional defined benefit plans are converted to cash balance
plans. The Committee also believes that any disclosure
requirements applicable to plan amendments should strike a
balance between providing meaningful disclosure and avoiding
the imposition of unnecessary administrative burdens on
employers, and that this balance may best be struck through the
regulatory process with an opportunity for input from affected
parties.
The Committee understands that there are other issues in
addition to disclosure that have arisen with respect to the
conversion of defined benefit plans to cash balance or other
hybrid plans, particularly situations in which plan
participants do not earn any additional benefit under the plan
for some time after conversion (called a ``wear away''). The
Committee believes that this issue should be further studied by
the Treasury in order to provide guidance to the Congress.
EXPLANATION OF PROVISION
The provision adds to the Internal Revenue Code a
requirement that the plan administrator of a defined benefit
pension plan or a money purchase pension plan with more than
100 participants furnish a written notice concerning a plan
amendment that provides for a significant reduction in the rate
of future benefit accrual. The plan administrator is required
to provide in this notice, in a manner calculated to be
understood by the average plan participant, sufficient
information (as defined in Treasury regulations) to allow
participants to understand the effect of the amendment.
The notice requirement does not apply to governmental plans
or church plans with respect to which an election to have the
qualified plan participation, vesting, and funding rules apply
has not been made (sec. 410(d)).
The plan administrator is required to provide this notice
to each affected participant, each affected alternate payee,
and each employee organization representing affected
participants. For purposes of the provision, an affected
participant or alternate payee is a participant or alternate
payee to whom the significant reduction in the rate of future
benefit accrual is reasonably expected to apply.
Except to the extent provided by Treasury regulations, the
plan administrator is required to provide the notice within a
reasonable time before the effective date of the plan
amendment.
The provision imposes on a plan administrator that fails to
comply with the notice requirement an excise tax equal to $100
per day per omitted participant and alternate payee. For
failures due to reasonable cause and not to willful neglect,
the total excise tax imposed during a taxable year of the
employer will not exceed $500,000. Furthermore, in the case of
a failure due to reasonable cause and not to willful neglect,
the Secretary of the Treasury is authorized to waive the excise
tax to the extent that the payment of the tax would be
excessive relative to the failure involved.
The Committee anticipates that the Secretary will issue the
necessary regulations with respect to disclosure within 90 days
of enactment. The Committee also anticipates that such guidance
may be relatively detailed because of the need to provide for
alternative disclosures rather than a single disclosure
methodology that may not fit all situations, and the need to
consider the complex actuarial calculations and assumptions
involved in providing necessary disclosures.
In addition, the provision directs the Secretary of the
Treasury to prepare a report on the effects of conversions of
traditional defined benefit plans to cash balance or hybrid
formula plans. Such study is to examine the effect of such
conversions on longer service participants, including the
incidence and effects of ``wear away'' provisions under which
participants earn no additional benefits for a period of time
after the conversion. The Secretary is directed to submit such
report, together with recommendations thereon, to the Committee
on Ways and Means of the House of Representatives and the
Committee on Finance of the Senate as soon as practicable, but
not later than 60 days after the date of enactment. The
Committee understands that the Treasury has been studying
issues related to conversions to cash balance and other hybrid
plans for some time. Thus, the Committee expects that the
Secretary will be able to provide its study well within the 60-
day deadline specified by the bill.
EFFECTIVE DATE
The provision is effective for plan amendments taking
effect on or after the date of enactment. The period for
providing any notice required under the provision will not end
before the last day of the 3-month period following the date of
enactment. Prior to the issuance of Treasury regulations, a
plan will be treated as meeting the requirements of the
provision if theplan makes a good faith effort to comply with
such requirements.
D. Modifications to Section 415 Limits for Multiemployer Plans (Sec.
505 of the Bill and Sec. 415 of the Code)
PRESENT LAW
Under present law, limits apply to contributions and
benefits under qualified plans (sec. 415). The limits on
contributions and benefits under qualified plans are based on
the type of plan.
Under a defined benefit plan, the maximum annual benefit
payable at retirement is generally the lesser of (1) 100
percent of average compensation for the highest three years, or
(2) $135,000 (for 2000). The dollar limit is adjusted for cost-
of-living increases in $5,000 increments. The dollar limit is
reduced in the case of retirement before the social security
retirement age and increases in the case of retirement after
the social security retirement age.
A special rule applies to governmental defined benefit
plans. In the case of such plans, the defined benefit dollar
limit is reduced in the case of retirement before age 62 and
increased in the case of retirement after age 65. In addition,
there is a floor on early retirement benefits. Pursuant to this
floor, the minimum benefit payable at age 55 is $75,000.
In the case of a defined contribution plan, the limit on
annual additions is the lesser of (1) 25 percent of
compensation 38 or (2) $30,000 (for 2000). In
applying the limits on contributions and benefits, plans of the
same employer are aggregated.
---------------------------------------------------------------------------
\38\ Another provision increases this limit to 100 percent of
compensation.
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee understands that, because pension benefits
under multiemployer plans are typically based upon factors
other than compensation, the section 415 benefit limits
frequently result in benefit reductions for employees in
industries in which wages vary annually.
EXPLANATION OF PROVISION
Under the provision, the 100 percent of compensation
defined benefit plan limit does not apply to multiemployer
plans. In addition, except in applying the defined benefit plan
dollar limitation and the limitation on annual additions,
multiemployer plans are not aggregated with other plans
maintained by an employer contributing to the multiemployer
plan.
EFFECTIVE DATE
The provision is effective for years beginning after
December 31, 2000.
E. Prohibited Allocations of Stock in an S Corporation ESOP (Sec. 506
of the Bill and Secs. 409 and 4979a of the Code)
PRESENT LAW
The Small Business Job Protection Act of 1996 allowed
qualified retirement plan trusts described in section 401(a) to
own stock in an S corporation. That Act treated the plan's
share of the S corporation's income (and gain on the
disposition of the stock) as includible in full in the trust's
unrelated business taxable income (``UBTI'').
The Tax Relief Act of 1997 repealed the provision treating
items of income or loss of an S corporation as UBTI in the case
of an employee stock ownership plan (``ESOP'). Thus, the income
of an S corporation allocable to an ESOP is not subject to
current taxation.
Present law provides a deferral of income on the sales of
certain employer securities to an ESOP (sec. 1042). A 50-
percent excise tax is imposed on certain prohibited allocations
of securities acquired by an ESOP in a transaction to which
section 1042 applies. In addition, such allocations are
currently includible in the gross income of the individual
receiving the prohibited allocation.
REASONS FOR CHANGE
In enacting the 1996 Act provision allowing ESOPs to be
shareholders of S corporations, the Congress intended to
encourage employee ownership of closely-held businesses, and to
facilitate the establishment of ESOPs by S corporations. At the
same time, the Congress provided that all income flowing
through to an ESOP (or other tax-exempt S shareholder), and
gains and losses from the disposition of the stock, was treated
as unrelated business taxable income. This treatment was
consistent with the premise underlying the S corporation rules
that all income of an S corporation (including all gains of the
sale of the stock of the corporation) should be subject to a
shareholder-level tax.
In enacting the present-law rule relating to S corporation
ESOPs in 1997, the Congress was concerned that the 1996 Act
rule imposed double taxation on such ESOPs and ESOP
participants. The Congress believed such a result was
inappropriate. Since the enactment of the 1997 Act, however,
the Committee has become aware that the present-law rules allow
inappropriate deferral and possibly tax avoidance in some
cases.
The Committee continues to believe that S corporations
should be able to encourage employee ownership through an ESOP.
The Committee does not believe, however, that ESOPs should be
used by S corporations owners to obtain inappropriate tax
deferral or avoidance. Specifically, the Committee believes
that the tax deferral opportunities provided by an S
corporation ESOP should be limited to those situations in which
there is broad-based employee coverage under the ESOP and the
ESOP benefits rank-and-file employees as well as highly
compensated employees and historical owners.
Explanation of Provision
In general
Under the provision, if there is a nonallocation year with
respect to an ESOP maintained by an S corporation: (1) the
amount allocated in a prohibited allocation to an individual
who is a disqualified person is treated as distributed to such
individual (i.e., the value of the prohibited allocation is
includible in the gross income of the individual receiving the
prohibited allocation); (2) an excise tax is imposed on the S
corporation equal to 50 percent of the amount involved in a
prohibited allocation; and (3) an excise tax is imposed on the
S corporation with respect to any synthetic equity owned by a
disqualified person.\39\
---------------------------------------------------------------------------
\39\ A prohibited allocation does not result in disqualification of
the plan.
---------------------------------------------------------------------------
It is expected that the provision will limit the
establishment of ESOPs by S corporations to those that provide
broad-based employee coverage and that benefit rank-and-file
employees as well as highly compensated employees and
historical owners. For example, suppose 5 individuals are the
sole, equal shareholders and sole employees of an S
corporation.40 Under the provision, it is expected
that such individuals would not be able to obtain deferral by
establishing an ESOP. In this case, the ESOP would benefit only
the 5 highly compensated historical owners of the S corporation
and the ESOP would not result in broad-based employee
ownership.
---------------------------------------------------------------------------
\40\ Under the nondiscrimination rules applicable to qualified
plans, including ESOPs, such individuals would be highly compensated.
---------------------------------------------------------------------------
Definition of nonallocation year
A nonallocation year means any plan year of an ESOP holding
shares in an S corporation if, at any time during the plan
year, disqualified persons own at least 50 percent of the
number of outstanding shares of the S corporation.
A person is a disqualified person if the person is either
(1) a member of a ``deemed 20-percent shareholder group'' or
(2) a ``deemed 10-percent shareholder.'' A person is a member
of a ``deemed 20-percent shareholder group'' if the aggregate
number of deemed-owned shares of the person and his or her
family members is at least 20 percent of the number of deemed-
owned shares of stock in the S corporation.41 A
person is a deemed 10-percent shareholder if the person is not
a member of a deemed 20-percent shareholder group and the
number of the person's deemed-owned shares is at least 10
percent of the number of deemed-owned shares of stock of the
corporation.
---------------------------------------------------------------------------
\41\ A family member of a member of a ``deemed 20-percent
shareholder group'' with deemed owned shares would also be treated as a
disqualified person.
---------------------------------------------------------------------------
In general, ``deemed-owned shares'' means: (1) stock
allocated to the account of an individual under the ESOP, and
(2) an individual's share of unallocated stock held by the
ESOP. An individual's share of unallocated stock held by an
ESOP is determined in the same manner as the most recent
allocation of stock under the terms of the plan.
For purposes of determining whether there is a
nonallocation year, ownership of stock is generally attributed
under the rules of section 318,42 except that: (1)
the family attribution rules are modified to include certain
other family members, as described below, (2) option
attribution does not apply (but instead special rules relating
to synthetic equity described below would apply), and (3)
``deemed-owned shares'' held by the ESOP are treated as held by
the individual with respect to whom they are deemed owned.
---------------------------------------------------------------------------
\42\ These attribution rules also apply to stock treated as owned
by reason of the ownership of synthetic equity.
---------------------------------------------------------------------------
Under the provision, family members of an individual
include (1) the spouse 43 of the individual, (2) an
ancestor or lineal descendant of the individual or his or her
spouse, (3) a sibling of the individual (or the individual's
spouse) and any lineal descendant of the brother or sister, and
(4) the spouse of any person described in (2) or (3).
---------------------------------------------------------------------------
\43\ As under section 318, an individual's spouse is not treated as
a member of the individual's family if the spouses are legally
separated.
---------------------------------------------------------------------------
The provision contains special rules applicable to
synthetic equity interests. Except to the extent provided in
regulations, the stock on which a synthetic equity interest is
based is treated as outstanding stock of the S corporation and
as deemed-owned shares of the person holding the synthetic
equity interest if such treatment would result in the treatment
of any person as a disqualified person or the treatment of any
year as a nonallocation year. Thus, for example, disqualified
persons for a year include those individuals who are
disqualified persons under the general rule (i.e., treating
only those shares held by the ESOP as deemed-owned shares) and
those individuals who are disqualified individuals if synthetic
equity interests are treated as deemed-owned shares.
``Synthetic equity'' means any stock option, warrant,
restricted stock, deferred issuance stock right, or similar
interest that gives the holder the right to acquire or receive
stock of the S corporation in the future. Except to the extent
provided in regulations, synthetic equity also includes a stock
appreciation right, phantom stock unit, or similar right to a
future cash payment based on the value of such stock or
appreciation in such value.44
---------------------------------------------------------------------------
\44\ The provisions relating to synthetic equity do not modify the
rules relating to S corporations, e.g., the circumstances in which
options or similar interests are treated as creating a second class of
stock.
---------------------------------------------------------------------------
Ownership of synthetic equity is attributed in the same
manner as stock would beattributed under the proposal (as
described above). In addition, ownership of synthetic equity is
attributed under the rules of section 318(a)(2) and (3) in the same
manner as stock.
Definition of prohibited allocation
An ESOP of an S corporation is required to provide that no
portion of the assets of the plan attributable to (or allocable
in lieu of) S corporation stock may, during a nonallocation
year, accrue (or be allocated directly or indirectly under any
qualified plan of the S corporation) for the benefit of a
disqualified person. A ``prohibited allocation'' refers to
violation of this provision. A prohibited allocation occurs,
for example, if income on S corporation stock held by an ESOP
is allocated to the account of an individual who is a
disqualified person.
Application of excise tax
In the case of a prohibited allocation, the S corporation
is liable for an excise tax equal to 50 percent of the amount
of the allocation. For example, if S corporation stock is
allocated in a prohibited allocation, the excise tax is equal
to 50 percent of the fair market value of such stock.
A special rule applies in the case of the first
nonallocation year, regardless of whether there is a prohibited
allocation. In that year, the excise tax also applies to the
fair market value of the deemed-owned shares of any
disqualified person held by the ESOP, even though those shares
are not allocated to the disqualified person in that year.
As mentioned above, the S corporation is also liable for an
excise tax with respect to any synthetic equity interest owned
by any disqualified person in a nonallocation year. The excise
tax would be 50 percent of the value of the shares on which
synthetic equity is based.
Treasury regulations
The Treasury Department is given the authority to prescribe
such regulations as may be necessary to carry out the purposes
of the provision.
Effective Date
The provision generally is effective with respect to plan
years beginning after December 31, 2001. In the case of an ESOP
established after July 11, 2000, or an ESOP established on or
before such date if the employer maintaining the plan was not
an S corporation on such date, the provision is effective with
respect to plan years ending after July 11, 2000.
TITLE VI. REDUCING REGULATORY BURDENS
A. Modification of Timing of Plan Valuations (Sec. 601 of the Bill and
Sec. 412 of the Code)
Present Law
Under present law, plan valuations are generally required
annually for plans subject to the minimum funding rules. Under
proposed Treasury regulations, except as provided by the
Commissioner, the valuation must be as of a date within the
plan year to which the valuation refers or within the month
prior to the beginning of that year
Reasons for Change
While plan valuations are necessary to ensure adequate
funding of defined benefit pension plans, they also create
administrative burdens for employers. The Committee believes
that permitting limited elections to use as the valuation date
for a plan year any date within the immediately preceding plan
year in the case of well-funded plans strikes an appropriate
balance between funding concerns and employer concerns about
plan administrative burdens.
Explanation of Provision
The provision incorporates into the statute the proposed
regulation regarding the date of valuations. The provision also
provides, as an exception to this general rule, that the
valuation date with respect to a plan year may be any date
within the immediately preceding plan year if, as of such date,
plan assets are not less than 125 percent of the plan's current
liability. Information determined as of such date is required
to be adjusted actuarially, in accordance with Treasury
regulations, to reflect significant differences in plan
participants. An election to use a prior plan year valuation
date, once made, may only be revoked with the consent of the
Secretary.
Effective Date
The provision is effective for plan years beginning after
December 31, 2000.
B. ESOP Dividends May Be Reinvested Without Loss of Dividend Deduction
(Sec. 602 of the Bill and Sec. 404 of the Code)
Present Law
An employer is entitled to deduct certain dividends paid in
cash during the employer's taxable year with respect to stock
of the employer that is held by an employee stock ownership
plan (``ESOP''). The deduction is allowed with respect to
dividends that, in accordance with plan provisions, are (1)
paid in cash directly to the plan participants or their
beneficiaries, (2) paid to the plan and subsequently
distributed to the participants or beneficiaries in cash no
later than 90 days after the close of the plan year in which
the dividends are paid to the plan, or (3) used to make
payments on loans (including payments of interest as well as
principal) that were used to acquire the employer securities
(whether or not allocated to participants) with respect to
which the dividend is paid.
Reasons for Change
The Committee believes that it is appropriate to provide
incentives for the accumulationof retirement benefits and
expansion of employee ownership. The Committee has determined that the
present-law rules concerning the deduction of dividends on employer
stock held by an ESOP discourage employers from permitting such
dividends to be reinvested in employer stock and accumulated for
retirement purposes.
Explanation of Provision
In addition to the deductions permitted under present law
for dividends paid with respect to employer securities that are
held by an ESOP, an employer is entitled to deduct dividends
that, at the election of plan participants or their
beneficiaries, are (1) payable in cash directly to plan
participants or beneficiaries, (2) paid to the plan and
subsequently distributed to the participants or beneficiaries
in cash no later than 90 days after the close of the plan year
in which the dividends are paid to the plan, or (3) paid to the
plan and reinvested in qualifying employer securities.
Effective Date
The provision is effective for taxable years beginning
after December 31, 2000.
C. Repeal Transition Rule Relating to Certain Highly Compensated
Employees (Sec. 603 of the Bill and Sec. 1114(c)(4) of the Tax Reform
Act of 1986)
Present Law
Under present law, for purposes of the rules relating to
qualified plans, a highly compensated employee is generally
defined as an employee 45 who (1) was a 5-percent
owner of the employer at any time during the year or the
preceding year or (2) either (a) had compensation for the
preceding year in excess of $85,000 (for 2000) or (b) at the
election of the employer, had compensation in excess of $85,000
for the preceding year and was in the top 20 percent of
employees by compensation for such year.
---------------------------------------------------------------------------
\45\ An employee includes a self-employed individual.
---------------------------------------------------------------------------
Under a rule enacted in the Tax Reform Act of 1986, a
special definition of highly compensated employee applies for
purposes of the nondiscrimination rules relating to qualified
cash or deferred arrangements (``section 401(k) plans'') and
matching contributions. This special definition applies to an
employer incorporated on December 15, 1924, that meets certain
specific requirements.
Reasons for Change
The Committee believes that it is appropriate to repeal the
special definition of highly compensated employee in light of
the substantial modification of the general definition of
highly compensated employee in the Small Business Job
Protection Act of 1996.
Explanation of Provision
The provision repeals the special definition of highly
compensated employee under the Tax Reform Act of 1986. Thus,
the present-law definition applies.
Effective Date
The provision is effective for plan years beginning after
December 31, 2000.
D. Employees of Tax-Exempt Entities (Sec. 604 of the Bill)
Present Law
The Tax Reform Act of 1986 provided that nongovernmental
tax-exempt employers were not permitted to maintain a qualified
cash or deferred arrangement (``section 401(k) plan''). This
prohibition was repealed, effective for years beginning after
December 31, 1996, by the Small Business Job Protection Act of
1996.
Treasury regulations provide that, in applying the
nondiscrimination rules to a section 401(k) plan (or a section
401(m) plan that is provided under the same general arrangement
as the section 401(k) plan), the employer may treat as
excludable those employees of a tax-exempt entity who could not
participate in the arrangement due to the prohibition on
maintenance of a section 401(k) plan by such entities. Such
employees may be disregarded only if more than 95 percent of
the employees who could participate in the section 401(k) plan
benefit under the plan for the plan year.46
---------------------------------------------------------------------------
\46\ Treas. Reg. sec. 1.410(b)-6(g).
---------------------------------------------------------------------------
Tax-exempt charitable organizations may maintain a tax-
sheltered annuity (a ``section 403(b) annuity'') that allows
employees to make salary reduction contributions.
Reasons for Change
The Committee believes that it is appropriate to modify the
special rule regarding the treatment of certain employees of a
tax-exempt organization as excludable for section 401(k) plan
nondiscrimination testing purposes in light of the provision of
the Small Business Job Protection Act of 1996 that permits such
organizations to maintain section 401(k) plans.
Explanation of Provision
The Treasury Department is directed to revise its
regulations under section 410(b) to provide that employees of a
tax-exempt charitable organization who are eligible to make
salary reduction contributions under a section 403(b) annuity
may be treated as excludable employees for purposes of testing
a section 401(k) plan, or a section 401(m) plan that is
provided under thesame general arrangement as the section
401(k) plan of the employer if (1) no employee of such tax-exempt
entity is eligible to participate in the section 401(k) or 401(m) plan
and (2) at least 95 percent of the employees who are not employees of
the charitable employer are eligible to participate in such section
401(k) plan or section 401(m) plan.
The revised regulations will be effective for years
beginning after December 31, 1996.
Effective Date
The provision is effective on the date of enactment.
E. Treatment of Employer-Provided Retirement Advice (Sec. 605 of the
Bill and Sec. 132 of the Code)
Present Law
Under present law, certain employer-provided fringe
benefits are excludable from gross income (sec. 132) and wages
for employment tax purposes. These excludable fringe benefits
include working condition fringe benefits and de minimis
fringes. In general, a working condition fringe benefit is any
property or services provided by an employer to an employee to
the extent that, if the employee paid for such property or
services, such payment would be allowable as a deduction as a
business expense. A de minimis fringe benefit is any property
or services provided by the employer the value of which, after
taking into account the frequency with which similar fringes
are provided, is so small as to make accounting for it
unreasonable or administratively impracticable.
In addition, if certain requirements are satisfied, up to
$5,250 annually of employer-provided educational assistance is
excludable from gross income (sec. 127) and wages. This
exclusion expires with respect to courses beginning after
December 31, 2001.47 Education not excludable under
section 127 may be excludable as a working condition fringe.
---------------------------------------------------------------------------
\47\ The exclusion does not apply with respect to graduate-level
courses.
---------------------------------------------------------------------------
There is no specific exclusion under present law for
employer-provided retirement planning services. However, such
services may be excludable as employer-provided educational
assistance or a fringe benefit.
Reasons for Change
In order to plan adequately for retirement, individuals
must anticipate retirement income needs and understand how
their retirement income goals can be achieved. Employer-
sponsored plans are a key part of retirement income planning.
The Committee believes that employers sponsoring retirement
plans should be encouraged to provide retirement planning
services for their employees in order to assist them in
preparing for retirement.
Explanation of Provision
Qualified retirement planning services provided to an
employee and his or her spouse by an employer maintaining a
qualified plan are excludable from income and wages. The
exclusion does not apply with respect to highly compensated
employees unless the services are available on substantially
the same terms to each member of the group of employees
normally provided education and information regarding the
employer's qualified plan. The exclusion is intended to allow
employers to provide advice and information regarding
retirement planning. The exclusion is not limited to
information regarding the qualified plan, and, thus, for
example, applies to advice and information regarding retirement
income planning for an individual and his or her spouse and how
the employer's plan fits into the individual's overall
retirement income plan. On the other hand, the exclusion is not
intended to apply to services that may be related to retirement
planning, such as tax preparation, accounting, legal or
brokerage services. The Committee also intends that the
provision is not to be interpreted as narrowing present law.
Effective Date
The provision is effective with respect to taxable years
beginning after December 31, 2000.
F. Reporting Simplification (Sec. 606 of the Bill)
Present Law
A plan administrator of a pension, annuity, stock bonus,
profit-sharing or other funded plan of deferred compensation
generally must file with the Secretary of the Treasury an
annual return for each plan year containing certain information
with respect to the qualification, financial condition, and
operation of the plan. Title I of ERISA also may require the
plan administrator to file annual reports concerning the plan
with the Department of Labor and the Pension Benefit Guaranty
Corporation (``PBGC''). The plan administrator must use the
Form 5500 series as the format for the required annual
return.48 The Form 5500 series annual return/report,
which consists of a primary form and various schedules,
includes the information required to be filed with all three
agencies. The plan administrator satisfies the reporting
requirement with respect to each agency by filing the Form 5500
series annual return/report with the Department of Labor, which
forwards the form to the Internal Revenue Service and the PBGC.
---------------------------------------------------------------------------
\48\ Treas. Reg. sec. 301.6058-1(a).
---------------------------------------------------------------------------
The Form 5500 series consists of 3 different forms: Form
5500, Form 5500-C/R, and Form 5500-EZ. Form 5500 is the most
comprehensive of the forms and requires the most detailed
financial information. Form 5500-C/R requires less information
than Form 5500, and Form 5500-EZ, which consists of only 1
page, is the simplest of the forms.
The size of the plan determines which form a plan
administrator must file. If the plan has more than 100
participants at the beginning of the plan year, the plan
administrator generally must file Form 5500. If the plan has
fewer than 100 participants at the beginning of the plan year,
the plan administrator generally may file Form 5500-C/R. A plan
administrator generally may file Form 5500-EZ if (1) the only
participants in the plan are the sole owner of a business that
maintains the plan (and such owner's spouse), or partners in a
partnership that maintains the plan (and such partners''
spouses), (2) the plan is not aggregated with another plan in
order to satisfy the minimum coverage requirements of section
410(b), (3) the employer is not a member of a related group of
employers, and (4) the employer does not receive the services
of leased employees. If the plan satisfies the eligibility
requirements for Form 5500-EZ and the total value of the plan
assets as of the end of the plan year and all prior plan years
does not exceed $100,000, the plan administrator is not
required to file a return.
Reasons for Change
The Committee believes that simplification of the reporting
requirements applicable to plans of small employers will
encourage such employers to provide retirement benefits for
their employees.
Explanation of Provision
The Secretary of the Treasury is directed to provide for
the filing of a simplified annual return substantially similar
to the Form 5500-EZ by a plan that (1) covers less than 25
employees on the first day of the plan year, (2) is not
aggregated with another plan in order to satisfy the minimum
coverage requirements of section 410(b), (3) is maintained by
an employer that is not a member of a related group of
employers, and (4) is maintained by an employer that does not
receive the services of leased employees.
In addition, the Secretary is directed to modify the annual
return filing requirements with respect to plans that satisfy
the eligibility requirements for Form 5500-EZ to provide that
if the total value of the plan assets of such a plan as of the
end of the plan year and all prior plan years does not exceed
$250,000, the plan administrator is not required to file a
return.
Effective Date
The provision is effective on the date of enactment.
G. Improvement to Employee Plans Compliance Resolution System (Sec. 607
of the Bill)
Present Law
A retirement plan that is intended to be a tax-qualified
plan provides retirement benefits on a tax-favored basis if the
plan satisfies all of the requirements of section 401(a).
Similarly, an annuity that is intended to be a tax-sheltered
annuity provides retirement benefits on a tax- favored basis if
the program satisfies all of the requirements of section
403(b). Failure to satisfy all of the applicable requirements
of section 401(a) or section 403(b) may disqualify a plan or
annuity for the intended tax-favored treatment.
The Internal Revenue Service (``IRS'') has established the
Employee Plans Compliance Resolution System (``EPCRS''), which
is a comprehensive system of correction programs for sponsors
of retirement plans and annuities that are intended, but have
failed, to satisfy the requirements of section 401(a) and
section 403(b), as applicable.49 EPCRS permits
employers to correct compliance failures and continue to
provide their employees with retirement benefits on a tax-
favored basis.
---------------------------------------------------------------------------
\49\ Rev. Proc. 98-22, 1998-12 I.R.B. 11, as modified by Rev. Proc.
99-13, 1999-5, I.R.B. 52.
---------------------------------------------------------------------------
The IRS has designed EPCRS to (1) encourage operational and
formal compliance, (2) promote voluntary and timely correction
of compliance failures, (3) provide sanctions for compliance
failures identified on audit that are reasonable in light of
the nature, extent, and severity of the violation, (4) provide
consistent and uniform administration of the correction
programs, and (5) permit employers to rely on the availability
of EPCRS in taking corrective actions to maintain the tax-
favored status of their retirement plans and annuities.
The basic elements of the programs that comprise EPCRS are
self-correction, voluntary correction with IRS approval, and
correction on audit. The Administrative Policy Regarding Self-
Correction (``APRSC'') permits a plan sponsor that has
established compliance practices to correct certain
insignificant failures at any time (including during an audit),
and certain significant failures within a 2-year period,
without payment of any fee or sanction. The Voluntary
Compliance Resolution (``VCR'') program, the Walk-In Closing
Agreement Program (``Walk-In CAP'), and the Tax-Sheltered
Annuity Voluntary Correction (``TVC'') program permit an
employer, at any time before an audit, to pay a limited fee and
receive IRS approval of a correction. For a failure that is
discovered on audit and corrected, the Audit Closing Agreement
Program (``Audit CAP'') provides for a sanction that bears a
reasonable relationship to the nature, extent, and severity of
the failure and that takes into account the extent to which
correction occurred before audit.
The IRS has expressed its intent that EPCRS will be updated
and improved periodically in light of experience and comments
from those who use it.
Reasons for Change
The Committee commends the IRS for the establishment of
EPCRS and agrees with the IRS that EPCRS should be updated and
improved periodically. The Committee believes that future
improvements should facilitate use of the compliance and
correction programs by small employers and expand the
flexibility of the programs.
Explanation of Provision
The Secretary of the Treasury is directed to continue to
update and improve EPCRS, giving special attention to (1)
increasing the awareness and knowledge of small employers
concerning the availability and use of EPCRS, (2) taking into
account special concerns and circumstances that small employers
face with respect to compliance and correction of compliance
failures, (3) extending the duration of the self-correction
period under APRSC for significant compliance failures, (4)
expanding the availability to correct insignificant compliance
failures under APRSC during audit, and (5) assuring that any
tax, penalty, or sanction that is imposed by reason of a
compliance failure is not excessive and bears a reasonable
relationship to the nature, extent, and severity of the
failure.
Effective Date
The provision is effective on the date of enactment.
H. Repeal of the Multiple Use Test (Sec. 608 of the Bill and Sec.
401(m) of the Code)
Present Law
Elective deferrals under a qualified cash or deferred
arrangement (``section 401(k) plan'') are subject to a special
annual nondiscrimination test (``ADP test''). The ADP test
compares the actual deferral percentages (``ADPs'') of the
highly compensated employee group and the nonhighly compensated
employee group. The ADP for each group generally is the average
of the deferral percentages separately calculated for the
employees in the group who are eligible to make elective
deferrals for all or a portion of the relevant plan year. Each
eligible employee's deferral percentage generally is the
employee's elective deferrals for the year divided by the
employee's compensation for the year.
The plan generally satisfies the ADP test if the ADP of the
highly compensated employee group for the current plan year is
either (1) not more than 125 percent of the ADP of the
nonhighly compensated employee group for the prior plan year,
or (2) not more than 200 percent of the ADP of the nonhighly
compensated employee group for the prior plan year and not more
than 2 percentage points greater than the ADP of the nonhighly
compensated employee group for the prior plan year.
Employer matching contributions and after-tax employee
contributions under a defined contribution plan also are
subject to a special annual nondiscrimination test (``ACP
test''). The ACP test compares the actual deferral percentages
(``ACPs'') of the highly compensated employee group and the
nonhighly compensated employee group. The ACP for each group
generally is the average of the contribution percentages
separately calculated for the employees in the group who are
eligible to make after-tax employee contributions or who are
eligible for an allocation of matching contributions for all or
a portion of the relevant plan year. Each eligible employee's
contribution percentage generally is the employee's aggregate
after-tax employee contributions and matching contributions for
the year divided by the employee's compensation for the year.
The plan generally satisfies the ACP test if the ACP of the
highly compensated employee group for the current plan year is
either (1) not more than 125 percent of the ACP of the
nonhighly compensated employee group for the prior plan year,
or (2) not more than 200 percent of the ACP of the nonhighly
compensated employee group for the prior plan year and not more
than 2 percentage points greater than the ACP of the nonhighly
compensated employee group for the prior plan year.
For any year in which (1) at least one highly compensated
employee is eligible to participate in an employer's plan or
plans that are subject to both the ADP test and the ACP test,
(2) the plan subject to the ADP test satisfies the ADP test but
the ADP of the highly compensated employee group exceeds 125
percent of the ADP of the nonhighly compensated employee group,
and (3) the plan subject to the ACP test satisfies the ACP test
but the ACP of the highly compensated employee group exceeds
125 percent of the ACP of the nonhighly compensated employee
group, an additional special nondiscrimination test (``multiple
use test'') applies to the elective deferrals, employer
matching contributions, and after-tax employee contributions.
The plan or plans generally satisfy the multiple use test if
the sum of the ADP and the ACP of the highly compensated
employee group does not exceed the greater of (1) the sum of
(A) 1.25 times the greater of the ADP or the ACP of the
nonhighly compensated employee group, and (B) 2 percentage
points plus (but not more than 2 times) the lesser of the ADP
or the ACP of the nonhighly compensated employee group, or (2)
the sum of (A) 1.25 times the lesser of the ADP or the ACP of
the nonhighly compensated employee group, and (B) 2 percentage
points plus (but not more than 2 times) the greater of the ADP
or the ACP of the nonhighly compensated employee group.
Reasons for Change
The Committee believes that the ADP test and the ACP test
are adequate to prevent discrimination in favor of highly
compensated employees under 401(k) plans and has determined
that the multiple use test unnecessarily complicates 401(k)
plan administration.
Explanation of Provision
The provision repeals the multiple use test.
Effective Date
The provision is effective for years beginning after
December 31, 2000.
I. Flexibility in Nondiscrimination, Coverage, and Line of Business
Rules (Sec. 609 of the Bill and Secs. 401(a)(4), 410(b), and 414(r) of
the Code)
Present Law
A plan is not a qualified retirement plan if the
contributions or benefits provided under the plan discriminate
in favor of highly compensated employees (sec. 401(a)(4)). The
applicableTreasury regulations set forth the exclusive rules
for determining whether a plan satisfies the nondiscrimination
requirement. These regulations state that the form of the plan and the
effect of the plan in operation determine whether the plan is
nondiscriminatory and that intent is irrelevant.
Similarly, a plan is not a qualified retirement plan if the
plan does not benefit a minimum number of employees (sec.
410(b)). A plan satisfies this minimum coverage requirement if
and only if it satisfies one of the tests specified in the
applicable Treasury regulations. If an employer is treated as
operating separate lines of business, the employer may apply
the minimum coverage requirements to a plan separately with
respect to the employees in each separate line of business
(sec. 414(r)). Under a so-called ``gateway'' requirement,
however, the plan must benefit a classification of employees
that does not discriminate in favor of highly compensated
employees in order for the employer to apply the minimum
coverage requirements separately for the employees in each
separate line of business. A plan satisfies this gateway
requirement only if it satisfies one of the tests specified in
the applicable Treasury regulations.
Reasons for Change
It has been brought to the attention of the Committee that
some plans are unable to satisfy the mechanical tests used to
determine compliance with the nondiscrimination and line of
business requirements solely as a result of relatively minor
plan provisions. The Committee believes that, in such cases, it
may be appropriate to expand the consideration of facts and
circumstances in the application of the mechanical tests.
Explanation of Provision
The Secretary of the Treasury is directed to modify, on or
before December 31, 2000, the existing regulations issued under
section 414(r) in order to expand (to the extent that the
Secretary may determine to be appropriate) the ability of a
plan to demonstrate compliance with the line of business
requirements based upon the facts and circumstances surrounding
the design and operation of the plan, even though the plan is
unable to satisfy the mechanical tests currently used to
determine compliance.
The Secretary of the Treasury is directed to provide by
regulation applicable to years beginning after December 31,
2000, that a plan is deemed to satisfy the nondiscrimination
requirements of section 401(a)(4) if the plan satisfies the
pre-1994 facts and circumstances test, satisfies the conditions
prescribed by the Secretary to appropriately limit the
availability of such test, and is submitted to the Secretary
for a determination of whether it satisfies such test (to the
extent provided by the Secretary).
Similarly, a plan complies with the minimum coverage
requirement of section 410(b) if the plan satisfies the pre-
1989 coverage rules, is submitted to the Secretary for a
determination of whether it satisfies the pre-1989 coverage
rules (to the extent provided by the Secretary), and satisfies
conditions prescribed by the Secretary by regulation that
appropriately limit the availability of the pre-1989 coverage
rules.
Effective Date
The provision is effective on the date of enactment.
J. Extension to All Governmental Plans of Moratorium on Application of
Certain Nondiscrimination Rules Applicable to State and Local
Government Plans (Sec. 610 of the Bill, Sec. 1505 of the Taxpayer
Relief Act of 1997, and Secs. 401(a) and 401(k) of the Code)
Present Law
All governmental plans are exempt from the minimum coverage
rules (sec. 410(b)). A qualified retirement plan maintained by
a State or local government is exempt from the rules concerning
nondiscrimination (sec. 401(a)(4)) and minimum participation
(sec. 401(a)(26)). All other governmental plans are not exempt
from the nondiscrimination and minimum participation rules.
Reasons for Change
The Committee believes that application of the
nondiscrimination and minimum participation rules to
governmental plans is unnecessary and inappropriate in light of
the unique circumstances under which such plans and
organizations operate. Further, the Committee believes that it
is appropriate to provide for consistent application of the
minimum coverage, nondiscrimination, and minimum participation
rules for governmental plans.
Explanation of Provision
The provision exempts all governmental plans (as defined in
sec. 414(d)) from the nondiscrimination and minimum
participation rules.
Effective Date
The provision is effective for plan years beginning after
December 31, 2000.
K. Notice and Consent Period Regarding Distributions (Sec. 611 of the
Bill and Sec. 417 of the Code)
Present Law
Notice and consent requirements apply to certain
distributions from qualified retirement plans. These
requirements relate to the content and timing of information
that a plan must provide to a participant prior to a
distribution, and to whether the plan must obtain the
participant's consent to the distribution. The nature and
extent of the notice and consent requirements applicable to a
distribution depend upon the value of the participant's vested
accrued benefit and whether the joint and survivor annuity
requirements (sec. 417) apply to theparticipant.50
---------------------------------------------------------------------------
\50\ Similar provisions are contained in Title I of ERISA.
---------------------------------------------------------------------------
If the present value of the participant's vested accrued
benefit exceeds $5,000, the plan may not distribute the
participant's benefit without the written consent of the
participant. The participant's consent to a distribution is not
valid unless the participant has received from the plan a
notice that contains a written explanation of (1) the material
features and the relative values of the optional forms of
benefit available under the plan, (2) the participant's right,
if any, to have the distribution directly transferred to
another retirement plan or IRA, and (3) the rules concerning
the taxation of a distribution. If the joint and survivor
annuity requirements apply to the participant, this notice also
must contain a written explanation of (1) the terms and
conditions of the qualified joint and survivor annuity
(``QJSA''), (2) the participant's right to make, and the effect
of, an election to waive the QJSA, (3) the rights of the
participant's spouse with respect to a participant's waiver of
the QJSA, and (4) the right to make, and the effect of, a
revocation of a waiver of the QJSA. The plan generally must
provide this notice to the participant no less than 30 and no
more than 90 days before the date distribution commences.
If the participant's vested accrued benefit does not exceed
$5,000, the terms of the plan may provide for distribution
without the participant's consent. The plan generally is
required, however, to provide to the participant a notice that
contains a written explanation of (1) the participant's right,
if any, to have the distribution directly transferred to
another retirement plan or IRA, and (2) the rules concerning
the taxation of a distribution. The plan generally must provide
this notice to the participant no less than 30 and no more than
90 days before the date distribution commences.
Reasons for Change
The Committee understands that an employee is not always
able to evaluate distribution alternatives, select the most
appropriate alternative, and notify the plan of the selection
within a 90-day period. The Committee believes that requiring a
plan to furnish multiple distribution notices to an employee
who does not make a distribution election within 90 days is
administratively burdensome. In addition, the Committee
believes that participants who are entitled to defer
distributions should be informed of the impact of a decision
not to defer distribution on the taxation and accumulation of
their retirement benefits.
Explanation of Provision
A qualified retirement plan is required to provide the
applicable distribution notice no less than 30 days and no more
than 180 days before the date distribution commences. The
Secretary of the Treasury is directed to modify the applicable
regulations to reflect the extension of the notice period to
180 days and to provide that the description of a participant's
right, if any, to defer receipt of a distribution shall also
describe the consequences of failing to defer such receipt.
Effective Date
The provision is effective for years beginning after
December 31, 2000.
TITLE VII. PROVISIONS RELATING TO PLAN AMENDMENTS
(Sec. 701 of the Bill)
Present Law
Plan amendments to reflect amendments to the law generally
must be made by the time prescribed by law for filing the
income tax return of the employer for the employer's taxable
year in which the change in law occurs.
Reasons for Change
The Committee believes that employers should have adequate
time to amend their plans to reflect amendments to the law
while operating their plans in compliance with such amendments.
Explanation of Provision
Any amendments to a plan or annuity contract required to be
made by the provisions of this Act or pursuant to any
regulation issued under this Act are not required to be made
before the last day of the first plan year beginning on or
after January 1, 2003. In the case of a governmental plan, the
date for amendments is extended to the last day of the first
plan year beginning on or after January 1, 2005. The delayed
amendment date shall not apply to any amendment required or
permitted by the provisions of this Act or any regulation
issued under this Act unless, during the period beginning on
the date the applicable section of the provision takes effect
and ending on the delayed amendment date, (1) the plan or
annuity contract is operated as if such amendment were in
effect, and (2) such amendment applies retroactively for such
period.
Effective Date
The provision is effective on the date of enactment.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statements are made
concerning the votes of the Committee on Ways and Means in its
consideration of the bill, H.R. 4843.
MOTION TO REPORT THE BILL
The bill, H.R. 4843, as amended, was ordered favorably
reported by a rollcall vote of 27 yeas to 9 nays (with a quorum
being present). The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Archer..................... X ........ ......... Mr. Rangel....... ........ X .........
Mr. Crane...................... ........ ........ ......... Mr. Stark........ ........ X .........
Mr. Thomas..................... X ........ ......... Mr. Matsui....... ........ X .........
Mr. Shaw....................... X ........ ......... Mr. Coyne........ X ........ .........
Mrs. Johnson................... X ........ ......... Mr. Levin........ ........ X .........
Mr. Houghton................... X ........ ......... Mr. Cardin....... X ........ .........
Mr. Herger..................... X ........ ......... Mr. McDermott.... ........ X .........
Mr. McCrery.................... X ........ ......... Mr. Kleczka...... X ........ .........
Mr. Camp....................... X ........ ......... Mr. Lewis (GA)... ........ X .........
Mr. Ramstad.................... X ........ ......... Mr. Neal......... ........ X .........
Mr. Nussle..................... X ........ ......... Mr. McNulty...... ........ ........ .........
Mr. Johnson.................... X ........ ......... Mr. Jefferson.... ........ X .........
Ms. Dunn....................... X ........ ......... Mr. Tanner....... X ........ .........
Mr. Collins.................... X ........ ......... Mr. Becerra...... ........ X .........
Mr. Portman.................... X ........ ......... Mrs. Thurman..... X ........ .........
Mr. English.................... X ........ ......... Mr. Doggett...... ........ ........ .........
Mr. Watkins.................... X ........ .........
Mr. Hayworth................... X ........ .........
Mr. Weller..................... X ........ .........
Mr. Hulshof.................... X ........ .........
Mr. McInnis.................... X ........ .........
Mr. Lewis (KY)................. X ........ .........
Mr. Foley...................... X ........ .........
----------------------------------------------------------------------------------------------------------------
VOTES ON AMENDMENTS
A rollcall vote was conducted on the following amendment to
the Chairman's amendment in the nature of a substitute.
An amendment by Messrs. Jefferson, Rangel, Matsui, Coyne,
Levin, Cardin, McDermott, Lewis of Georgia, Neal, Becerra, and
Thurman, regarding retirement benefits for low- and middle-
income workers, tax relief for small employers who establish
and maintain pension plans, relief for multiemployer plans, and
a sense of the Congress regarding cash balance plans, was
defeated by a rollcall vote of 13 yeas to 22 nays. The vote was
as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Archer..................... ........ X ......... Mr. Rangel....... X ........ .........
Mr. Crane...................... ........ ........ ......... Mr. Stark........ X ........ .........
Mr. Thomas..................... ........ X ......... Mr. Matsui....... X ........ .........
Mr. Shaw....................... ........ X ......... Mr. Coyne........ X ........ .........
Mrs. Johnson................... ........ X ......... Mr. Levin........ X ........ .........
Mr. Houghton................... ........ X ......... Mr. Cardin....... X ........ .........
Mr. Herger..................... ........ X ......... Mr. McDermott.... X ........ .........
Mr. McCrery.................... ........ X ......... Mr. Kleczka...... X ........ .........
Mr. Camp....................... ........ X ......... Mr. Lewis (GA)... ........ ........ .........
Mr. Ramstad.................... ........ X ......... Mr. Neal......... X ........ .........
Mr. Nussle..................... ........ X ......... Mr. McNulty...... ........ ........ .........
Mr. Johnson.................... ........ X ......... Mr. Jefferson.... X ........ .........
Ms. Dunn....................... ........ X ......... Mr. Tanner....... X ........ .........
Mr. Collins.................... ........ X ......... Mr. Becerra...... X ........ .........
Mr. Portman.................... ........ X ......... Mrs. Thurman..... X ........ .........
Mr. English.................... ........ X ......... Mr. Doggett...... ........ ........ .........
Mr. Watkins.................... ........ X .........
Mr. Hayworth................... ........ X .........
Mr. Weller..................... ........ X .........
Mr. Hulshof.................... ........ X .........
Mr. McInnis.................... ........ X .........
Mr. Lewis (KY)................. ........ X .........
Mr. Foley...................... ........ X .........
----------------------------------------------------------------------------------------------------------------
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d)(2) of Rule XIII of the Rules
of the House of Representatives, the following statement is
made concerning the affects on the budget of the revenue
provisions of the bill, H.R. 4843, as reported.
The bill is estimated to have the following effects on
budget receipts for fiscal years 2001-2005:
ESTIMATED BUDGET EFFECTS OF H.R. 4843, THE ``COMPREHENSIVE RETIREMENT SECURITY AND PENSION REFORM ACT,'' AS REPORTED BY THE COMMITTEE ON WAYS AND MEANS
[Fiscal Years 2001-2005 in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Provision Effective 2001 2002 2003 2004 2005 2001-05
--------------------------------------------------------------------------------------------------------------------------------------------------------
Individual Retirement Account
Provisions:
1. Modification of IRA Contribution tyba 12/31/00................... -395 -1,194 -2,013 -2,726 -3,404 -9,733
Limits--increase the maximum
contribution limit for traditional
and Roth IRAs to $4,000 in 2001,
$4,000 in 2002, $5,000 in 2003, and
index for inflation thereafter.
2. IRA Catch-Up Contributions-- tyba 12/31/00................... -201 -275 -87 -27 -26 -616
increase maximum contribution
limits for traditional and Roth
IRAs for individuals age 50 and
above to $5,000 in 2001 and 2002.
---------------------------------------------------------------------------------------------------------------
Total of Individual Retirement ................................ -596 -1,469 -2,100 -2,753 -3,430 -10,349
Account Provisions.
===============================================================================================================
Provisions for Expanding Coverage
1. Increase contribution and benefit
limits:
a. Increase limitation on yba 12/31/00.................... -130 -310 -452 -557 -640 -2,089
exclusion for elective
deferrals to $11,000 in 2001,
$12,000 in 2002, $13,000 in
2003, $14,000 in 2004, and
$15,000 in 2005; index
thereafter \1\ \2\.
b. Increase limitation on SIMPLE yba 12/31/00.................... -4 -14 -21 -26 -28 -93
elective contributions to:
$7,000 in 2001, $8,000 in 2002,
$9,000 in 2003, and $10,000 in
2004; index thereafter \1\ \2\.
c. Increase defined benefit yba 12/31/00.................... -18 -31 -40 -45 -48 -182
dollar limit to $160,000.
d. Lower early retirement age to yba 12/31/00.................... -3 -4 -4 -4 -5 -21
62; lower normal retirement age
to 65.
e. Increase annual addition yba 12/31/00.................... -6 -12 -14 -15 -16 -63
limitation for defined
contribution plans to $40,000
\1\.
f. Increase qualified plan yba 12/31/00.................... -43 -74 -84 -91 -99 -391
compensation limit to $200,000
\1\.
g. Increase limits on deferrals yba 12/31/00.................... -52 -91 -104 -114 -125 -486
under deferred compensation
plans of State and local
governments and tax-exempt
organizations to: $11,000 in
2001, $12,000 in 2002, $13,000
in 2003, $14,000 in 2004, and
$15,000 in 2005; index
thereafter \1\ \2\.
2. Plan loans for subchapter S lma 12/31/00.................... -18 -30 -33 -35 -37 -153
owners, partners, and sole
proprietors.
3. Modification of top-heavy rules.. yba 12/31/00.................... -4 -9 -11 -12 -14 -50
4. Elective deferrals not taken into yba 12/31/00.................... -40 -75 -87 -94 -101 -396
account for purposes of deduction
limits.
5. Repeal of coordination yba 12/31/00.................... -16 -22 -22 -22 -22 -104
requirements for deferred
compensation plans of State and
local governments and tax-exempt
organizations.
6. Elimination of user fee for rma 12/31/00.................... -9 -5 -5 ........... ........... -19
certain requests regarding small
employer pension plans; waiver
applies only for request made
during first 5 plan years \3\.
7. Definition of compensation for yba 12/31/00.................... -1 -2 -3 -3 -3 -12
purposes of deduction limits \1\.
8. Option to treat effective tyba 12/31/00................... 50 100 131 144 89 514
deferrals as after-tax
contributions.
9. Increase stock bonus and profit tyba 12/31/00................... -5 -9 -10 -11 -12 -47
sharing plan deduction limit from
15% to 20%.
---------------------------------------------------------------------------------------------------------------
Total of Provisions for Expanding ................................ -299 -588 -759 -885 -1,061 -3,592
coverage.
===============================================================================================================
Provisions for Enhancing Fairness for
Women:
1. Additional catch-up contributions tyba 12/31/00................... -34 -52 -55 -57 -59 -257
for individuals age 50 and above--
increase the otherwise applicable
contribution limit by $5,000 in
2001 through 2005 and index for
inflation thereafter.
2. Equitable treatment for yba 12/31/00.................... -51 -78 -84 -91 -97 -401
contributions of employees to
defined contribution plans\1\.
3. Faster vesting of certain pyba 12/31/00................... Negligible Revenue Effect
employer matching contributions.
4. Simplify and update the minimum yba 12/31/00.................... -118 -212 -239 -268 -297 -1,135
distribution rules by modifying
post-death distribution rules,
reducing (to 10%) the excise tax on
failures to make minimum
distributions, and directing the
Treasury to simplify and finalize
regulations relating to the minimum
distribution rules.
5. Clarification of tax treatment of tdapma 12/31/00................. Negligible Revenue Effect
division of section 457 plan
benefits upon divorce.
6. Modification of safe harbor yba 12/31/00.................... Negligible Revenue Effect
relief for hardship withdrawals
from 401(k) plans.
---------------------------------------------------------------------------------------------------------------
Total of Provisions for Enhancing ................................ -203 -342 -378 -416 -453 -1,793
Fairness for Women.
===============================================================================================================
Provisions for Increasing Portability
for Participants:
1. Rollovers allowed among da 12/31/00..................... 26 -5 -5 -5 -5 -6
governmental section 457 plans,
section 403(b) plans, and qualified
plans.
2. Rollovers of IRAs to workplace da 12/31/00..................... Negligible Revenue Effect
retirement plans.
3. Rollovers of after-tax retirement dma 12/31/00.................... Negligible Revenue Effect
plan contributions.
4. Waiver of 60-day rule............ da 12/31/00..................... Negligible Revenue Effect
5. Treatment of forms of qualified yba12/31/00..................... Negligible Revenue Effect
plan distributions.
6. Rationalization of restrictions da 12/31/00..................... Negligible Revenue Effect
on distributions.
7. Purchase of service credit in ta 12/31/00..................... Negligible Revenue Effect
governmental defined benefit plans.
8. Employers may disregard rollovers da 12/31/00..................... Negligible Revenue Effect
for cash-out amounts.
9. Minimum distribution and da 12/31/00..................... Considered in Other Provisions
inclusion requirements for section
457 plans.
---------------------------------------------------------------------------------------------------------------
Total of Provisions for Increasing ................................ 26 -5 -5 -5 -5 -6
Portability for Participants.
===============================================================================================================
Provisions for Strengthening Pension
Security and Enforcement:
1. Phase-in repeal of 150% of pyba 12/31/00................... -3 -14 -20 -36 -36 -109
current liability funding limit;
extend maximum deduction rule.
2. Excise tax relief for sound yba............................. -2 -3 -3 -3 -3 -14
pension funding.
3. Notice of significant reduction pateo/a DOE..................... Negligible Revenue Effect
in plan benefit accruals.
4. Repeal 100% of compensation limit yba 12/31/00.................... -2 -4 -4 -4 -4 -19
for multiemployer plans.
5. Modification of section 415 tyba 12/31/00................... -1 -1 -1 -1 -1 -5
aggregation rules for multi-
employer plans.
6. Prohibited allocations of stock (\4\)........................... 1 4 5 6 8 24
in an ESOP of a subchapter S
corporation.
---------------------------------------------------------------------------------------------------------------
Total of Provisions for ................................ -7 -18 -23 -38 -36 -122
Strengthening Pension Security
and Enforcement.
===============================================================================================================
Provisions for Reducing Regulatory
Burdens:
1. Modification of timing of plan pyba 12/31/00................... Negligible Revenue Effect
valuations.
2. ESOP dividends may be reinvested tyba 12/31/00................... -19 -44 -56 -61 -63 -243
without loss of dividend deduction.
3. Repeat transition rule relating pyba 12/31/00................... -2 -3 -3 -3 -3 -13
to certain highly compensated
employes.
4. Employees of tax-exempt entities DOE............................. Negligible Revenue Effect
\5\.
5. Treatment of employer-provided yba 12/31/00.................... Negligible Revenue Effect
retirement advice.
6. Pension plan reporting 1/1/01.......................... Negligible Revenue Effect
simplification \5\.
7. Improvement to Employee Plans DOE............................. Negligible Revenue Effect
Compliance Resolution System \5\.
8. Repeal of multiple use test..... yba 12/31/00.................... Considered in Other Provisions
9. Flexibility in DOE............................. Negligible Revenue Effect
nondiscrimination, coverage, and
line of business rules \5\.
10. Extension to all governmental yba 12/31/00.................... Negligible Revenue Effect
plans of moratorium on application
of certain nondiscrimination rules
applicable to State and local
government plans.
11. Notice and consent period yba 12/31/00.................... No Revenue Effect
regarding distributions.
---------------------------------------------------------------------------------------------------------------
Total of Provisions for Reducing ................................ -21 -47 -59 -64 -66 -256
Regulatory Burdens.
===============================================================================================================
Provisions Relating to Plan Amendments.. DOE............................. No Revenue Effect
Net Total......................... ................................ -1,100 -2,469 -3,324 -4,161 -5,051 -16,106
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Provision includes interaction with other provisions in Provisions for Expanding coverage.
\2\ Provision includes interaction with the Individual Retirement Arrangement Provisions.
\3\ Estimate provided by the Congressional Budget Office.
\4\ Generally effective with respect to years beginning after December 31, 2001. In the case of an ESOP established after July 11, 2000, or an ESOP
established on or before such date if the employer maintaining the plan was not an S corporation on such date, the proposal would be effective with
respect to plan years ending after July 11, 2000.
\5\ Directs the Secretary of the Treasury to modify rules through regulations.
Legend for ``Effective'' column; da = distributions after; dma = distributions made after; DOE = date of enactment; lma = loans made after; pateo/a =
plan amendments taking effect on or after; pyba = plan years beginning after; rma = requests made after; ta = transfer after; tdapma = transfers,
distributions, and payments made after; tyba = taxable years beginning after; and yba = years beginning after.
Note.--Details may not add to totals due to rounding.
Source: Joint Committee on Taxation.
B. Statement Regarding New Budget Authority and Tax Expenditures
Budget authority
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority.
Tax expenditures
In compliance with clause 2(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
revenue-reducing income tax provisions involve increased tax
expenditures, and the revenue-increasing income tax provisions
involve reduced tax expenditures. (See amounts in table in Part
IV.A., above.)
C. Cost Estimate Prepared by the Congressional Budget Office
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the Congressional Budget Office (CBO), the
following statement by CBO provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, July 17, 2000.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4843, the
Comprehensive Retirement Security and Pension Reform Act of
2000.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Hester
Grippando (for revenues), and John R. Righter (for federal
spending).
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
H.R. 4843--Comprehensive Retirement Security and Pension Reform Act of
2000
Summary: H.R. 4843 would increase the maximum contribution
limit for Individual Retirement Accounts (IRAs) to $3,000 in
2001, $4,000 in 2002, and $5,000 in 2003. After 2003, the
maximum contribution rate would be indexed for inflation. The
bill also would increase the maximum IRA contribution to $5,000
for individuals aged 50 or older in years 2001 and 2002. In
addition, the bill would make numerous changes to pension laws.
The Joint Committee on Taxation (JCT) estimates that the
bill would reduce revenues by $1 billion in fiscal year 2001,
by $16 billion over the 2001-2005 period, and by $52 billion
over the 2001-2010 period. In addition, CBO estimates that the
bill would decrease direct spending by between $1 million and
$2 million over the 2001-2004 period. Because the bill would
affect receipts and direct spending, pay-as-you-go procedures
would apply.
H.R. 4843 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would impose no
costs on state, local or tribal governments. The bill contains
one new private-sector mandate. JCT has determined the cost of
this mandate would not exceed the threshold established by UMRA
for private-sector mandates ($109 million in fiscal year 2000,
adjusted annually for inflation).
Estimated cost to the Federal Government: The estimated
budgetary impact on H.R. 4843 is shown in the following table.
The outlay impact of this legislation falls within budget
function 800 (general government).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------------
2000 2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES
Estimated Revenues............................ 0 -1,100 -2,469 -3,324 -4,161 -5,051
CHANGES IN DIRECT SPENDING
Estimated Budget Authority.................... 0 -1 (\1\) (\1\) (\1\) 0
Estimated Outlays............................. 0 -1 (\1\) (\1\) (\1\) 0
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.
Basis of estimate: JCT estimated the impact of the bill on
federal revenues, with the exception of the change in fees
charged by the Internal Revenue Service (IRS). Most of the
revenue loss would result from the increase in the limit on IRA
contributions. Those provisions would account for $35 billion
of the $52 billion reduction in revenues over the 2001-2010
period.
Beginning on January 1, 2001, the bill would eliminate the
fee the IRS currently charges for determination letters
regarding small business pension plans that are less than five
years old. CBO estimates that eliminating these fees would
decrease governmental receipts (revenue) by $19 million over
the 2001-2003 period, net of income and payroll tax offsets.
Under current law, the authority to charge such fees will
expire at the end of fiscal year 2003. Thus this provision
would have no impact beyond 2003. This estimate is based on
recent fee collections and on information from the IRS.
The IRS has the authority to retain and spend, without
further appropriation action, a small portion of the fees it
collects from taxpayers for certain rulings and determinations.
By eliminating the fee paid by small businesses for
determination letters, H.R. 4348 would reduce the amounts
available for the IRS to spend. CBO estimates that eliminating
the fees would decrease direct spending by nearly $1 million in
2001 and by amounts less than $500,000 in each of fiscal years
2002-2004.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Act sets up pay-as-you-go procedures for
legislation affecting direct spending or receipts. The net
changes in outlays and governmental receipts that are subject
to pay-as-you-go procedures are shown in the following table.
For the purposes of enforcing pay-as-you-go procedures, only
the effects in the current year, the budget year, and the
succeeding four years are counted.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts....................... 0 -1,100 -2,469 -3,324 -4,161 -5,051 -5,858 -6,498 -7,168 -7,906 -8,722
Changes in outlays........................ 0 -1 0 0 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated impact on state, local, and tribal governments:
JCT has determined that H.R. 4843 contains no intergovernmental
mandates as defined in UMRA and would impose no costs on state,
local, or tribal governments.
Estimated impact on the private sector: JCT has determined
the provision that would prohibit allocations of stock in an
Employee Stock Ownership Plan of a subchapter S corporation
would be a new private sector mandate. JCT has estimated that
the cost of this mandate would not exceed the threshold
established by UMRA for private-sector mandates ($109 million
in fiscal year 2000, adjusted annually for inflation).
Estimate prepared by: Federal Revenues: Hester Grippando.
Federal Spending: John R. Righter.
Estimate approved by: Robert A. Sunshine, Assistant
Director for Budget Analysis. G. Thomas Woodward, Assistant
Director for Tax Analysis.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was a result of the Committee's
oversight review concerning retirement security and pension
reforms, that the Committee concluded that it is appropriate
and timely to enact the revenue provisions included in the bill
as reported.
B. Summary of Findings and Recommendations of the Committee on
Government Reform
With respect to clause 3(c)(4) of rule XII of the Rules of
the House of Representatives, the Committee advises that no
oversight findings or recommendations have been submitted to
this Committee by the Committee on Government Reform with
respect to the provisions contained in the bill.
C. Constitutional Authority Statement
With respect to clause 3(d)(1) of rule XIII of the Rules of
the House of Representatives (relating to Constitutional
Authority), the Committee states that the Committee's action in
reporting this bill is derived from Article I of the
Constitution, Section 8 (``The Congress shall have Power To lay
and collect Taxes, Duties, Imposts and Excises * * *''), and
from the 16th Amendment to the Constitution.
D. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
The Committee has determined that the following provision
of the bill contains Federal mandates on the private sector
(for amounts, see tables in Part IV.A., above): prohibited
allocation of stock in an S corporation ESOP.
The costs required to comply with the Federal private
sector mandate generally are no greater than the estimated
budget effects of the provision. Benefits from the provision
include improved administration of the Federal tax laws and a
more accurate measurement of income for Federal income tax
purposes.
The bill will not impose a Federal intergovernmental
mandate on State, local, and tribal governments.
E. Applicability of House Rule XXI5(b)
Rule XXI5(b) of the Rules of the House of Representatives
provides, in part, that ``No bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase shall be considered as passed or agreed to unless
determined by a vote of not less than three-fifths of the
Members.'' The Committee has carefully reviewed the provisions
of the bill, and states that the provisions of the bill do not
involve any Federal income tax rate increase within the meaning
of the rule.
F. Tax Complexity Analysis
Section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the
Joint Committee on Taxation (in consultation with the Internal
Revenue Service and the Department of the Treasury) to provide
a tax complexity analysis. The complexity analysis is required
for all legislation reported by the House Committee on Ways and
Means, the Senate Committee on Finance, or any committee of
conference if the legislation includes a provision that
directly or indirectly amends the Internal Revenue Code and has
``widespread applicability'' to individuals or small
businesses.
The staff of the Joint Committee on Taxation has determined
that a complexity analysis is not required under section
4022(b) of the IRS Reform Act because the bill contains no
provisions that amend the Internal Revenue Code and that have
widespread applicability to individuals or small businesses.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter A--Determination of Tax Liability
* * * * * * *
PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
* * * * * * *
SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE INSURANCE
CONTRACTS.
(a) * * *
* * * * * * *
(f) Special rules for computing employees' contributions.--In
computing, for purposes of subsection (c)(1)(A), the aggregate
amount of premiums or other consideration paid for the
contract, and for purposes of subsection (e)(6), the aggregate
premiums or other consideration paid, amounts contributed by
the employer shall be included, but only to the extent that--
(1) * * *
* * * * * * *
Paragraph (2) shall not apply to amounts which were contributed
by the employer after December 31, 1962, and which would not
have been includible in the gross income of the employee by
reason of the application of section 911 if such amounts had
been paid directly to the employee at the time of contribution.
The preceding sentence shall not apply to amounts which were
contributed by the employer, as determined under regulations
prescribed by the Secretary, to provide pension or annuity
credits, to the extent such credits are attributable to
services performed before January 1, 1963, and are provided
pursuant to pension or annuity plan provisions in existence on
March 12, 1962, and on that date applicable to such services,
or to the extent such credits are attributable to services
performed as a foreign missionary (within the meaning of
[section 403(b)(2)(D)(iii))] section 403(b)(2)(D)(iii), as in
effect before the enactment of the Comprehensive Retirement
Security and Pension Reform Act of 2000).
* * * * * * *
(o) Special Rules for Distributions From Qualified Plans to
Which Employee Made Deductible Contributions.--
(1) * * *
* * * * * * *
(4) Special rule for treatment of rollover amounts.--
For purposes of sections 402(c), 403(a)(4), [and
408(d)(3)] 403(b)(8), 408(d)(3), and 457(e)(16), the
Secretary shall prescribe regulations providing for
such allocations of amounts attributable to accumulated
deductible employee contributions, and for such other
rules, as may be necessary to insure that such
accumulated deductible employee contributions do not
become eligible for additional tax benefits (or freed
from limitations) through the use of rollovers.
* * * * * * *
(t) 10-Percent Additional Tax on Early Distributions From
Qualified Retirement Plans.--
(1) * * *
* * * * * * *
(9) Special rule for rollovers to section 457
plans.--For purposes of this subsection, a distribution
from an eligible deferred compensation plan (as defined
in section 457(b)) of an employer described in section
457(e)(1)(A) shall be treated as a distribution from a
qualified retirement plan described in 4974(c)(1) to
the extent that such distribution is attributable to an
amount transferred to an eligible deferred compensation
plan from a qualified retirement plan (as defined in
section 4974(c)).
* * * * * * *
Subchapter B--Computation of Taxable Income
* * * * * * *
PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
* * * * * * *
SEC. 132. CERTAIN FRINGE BENEFITS.
(a) Exclusion From Gross Income.--Gross income shall not
include any fringe benefit which qualifies as a--
(1) * * *
* * * * * * *
(5) qualified transportation fringe, [or]
(6) qualified moving expense reimbursement[.], or
(7) qualified retirement planning services.
* * * * * * *
(m) Qualified Retirement Planning Services.--
(1) In general.--For purposes of this section, the
term ``qualified retirement planning services'' means
any retirement planning service provided to an employee
and his spouse by an employer maintaining a qualified
employer plan.
(2) Nondiscrimination rule.--Subsection (a)(7) shall
apply in the case of highly compensated employees only
if such services are available on substantially the
same terms to each member of the group of employees
normally provided education and information regarding
the employer's qualified employer plan.
(3) Qualified employer plan.--For purposes of this
subsection, the term ``qualified employer plan'' means
a plan, contract, pension, or account described in
section 219(g)(5).
[(m)] (n) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of this section.
* * * * * * *
PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
* * * * * * *
SEC. 219. RETIREMENT SAVINGS.
(a) * * *
(b) Maximum Amount of Deduction.--
(1) In general.--The amount allowable as a deduction
under subsection (a) to any individual for any taxable
year shall not exceed the lesser of--
(A) [$2,000] the deductible amount, or
(B) an amount equal to the compensation
includible in the individual's gross income for
such taxable year.
* * * * * * *
(5) Deductible amount.--For purposes of paragraph
(1)(A)--
(A) In general.--The deductible amount shall
be determined in accordance with the following
table:
For taxable years The deductible
beginning in: amount is:
2001................................................ $3,000
2002................................................ $4,000
2003 and thereafter................................. $5,000.
(B) Catch-up contributions for individuals 50
or older.--In the case of an individual who has
attained the age of 50 before the close of the
taxable year, the deductible amount for taxable
years beginning in 2001 or 2002 shall be
$5,000.
(C) Cost-of-living adjustment.--
(i) In general.--In the case of any
taxable year beginning in a calendar
year after 2003, the $5,000 amount
under subparagraph (A) shall be
increased by an amount equal to--
(I) such dollar amount,
multiplied by
(II) the cost-of-living
adjustment determined under
section 1(f )(3) for the
calendar year in which the
taxable year begins, determined
by substituting ``calendar year
2002'' for ``calendar year
1992'' in subparagraph (B)
thereof.
(ii) Rounding rules.--If any amount
after adjustment under clause (i) is
not a multiple of $500, such amount
shall be rounded to the next lower
multiple of $500.
* * * * * * *
(d) Other Limitations and Restrictions.--
(1) * * *
(2) Recontributed amounts.--No deduction shall be
allowed under this section with respect to a rollover
contribution described in section 402(c), 403(a)(4),
403(b)(8), [or 408(d)(3)] 408(d)(3), or 457(e)(16).
* * * * * * *
Subchapter D--Deferred Compensation, Etc.
* * * * * * *
PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
* * * * * * *
Subpart A--General Rule
Sec. 401. Qualified pension, profit-sharing, and stock bonus
plans.
* * * * * * *
Sec. 402A. Optional treatment of elective deferrals as plus
contributions.
* * * * * * *
SEC. 401. QUALIFIED PENSION, PROFIT-SHARING, AND STOCK BONUS PLANS.
(a) Requirements for Qualification.--A trust created or
organized in the United States and forming part of a stock
bonus, pension, or profit-sharing plan of an employer for the
exclusive benefit of his employees or their beneficiaries shall
constitute a qualified trust under this section--
(1) * * *
* * * * * * *
(5) Special rules relating to nondiscrimination
requirements.--
(A) * * *
* * * * * * *
(G) [State and local governmental plans]
Governmental plans.--Paragraphs (3) and (4)
shall not applyto a governmental plan (within
the meaning of [section 414(d)) maintained by a State or local
government or political subdivision thereof (or agency or
instrumentality thereof).] section 414(d)).
* * * * * * *
(9) Required distributions.--
(A) * * *
(B) Required distribution where employee dies
before entire interest is distributed.--
[(i) Where distributions have begun
under subparagraph (A)(ii).--A trust
shall not constitute a qualified trust
under this section unless the plan
provides that if--
[(I) the distribution of the
employee's interest has begun
in accordance with subparagraph
(A)(ii), and
[(II) the employee dies
before his entire interest has
been distributed to him, the
remaining portion of such
interest will be distributed at
least as rapidly as under the
method of distributions being
used under subparagraph (A)(ii)
as of the date of his death.]
[(ii)] (i) 5-year rule [for other
cases].--A trust shall not constitute a
qualified trust under this section
unless the plan provides that, if an
employee dies before [the distribution
of the employee's interest has begun in
accordance with subparagraph (A)(ii)]
his entire interest has been
distributed to him, the entire interest
of the employee will be distributed
within 5 years after the death of such
employee.
[(iii)] (ii) Exception to 5-year rule
for certain amounts payable over life
of beneficiary.--If--
(I) any portion of the
employee's interest is payable
to (or for the benefit of) a
designated beneficiary,
(II) such portion will be
distributed (in accordance with
regulations) over the life of
such designated beneficiary (or
over a period not extending
beyond the life expectancy of
such beneficiary), and
(III) such distributions
begin not later than 1 year
after the date of the
employee's death or such later
date as the Secretary may by
regulations prescribe,
for purposes of [clause (ii)] clause
(i), the portion referred to in
subclause (I) shall be treated as
distributed on the date on which such
distributions begin.
[(iv)] (iii) Special rule for
surviving spouse of employee.--If the
designated beneficiary referred to in
[clause (iii)(I)] clause (ii)(I) is the
surviving spouse of the employee--
(I) the date on which the
distributions are required to
begin under clause [(iii)(III)]
clause (ii)(III) shall not be
earlier than [the date on which
the employee would have
attained age 70\1/2\,] April 1
of the calendar year following
the calendar year in which the
spouse attains 70\1/2\, and
(II) if the surviving spouse
dies before [the distributions
to such spouse begin,] his
entire interest has been
distributed to him, this
subparagraph shall be applied
as if the surviving spouse were
the employee.
* * * * * * *
(17) Compensation limit.--
(A) In general.--A trust shall not constitute
a qualified trust under this section unless,
under the plan of which such trust is a part,
the annual compensation of each employee taken
into account under the plan for any year does
not exceed [$150,000] $200,000.
(B) Cost-of-living adjustment.--The Secretary
shall adjust annually the [$150,000] $200,000
amount in subparagraph (A) for increases in the
cost-of-living at the same time and in the same
manner as adjustments under section 415(d);
except that the base period shall be the
calendar quarter beginning [October 1, 1993]
July 1, 2000, and any increase which is not a
multiple of [$10,000] $5,000 shall be rounded
to the next lowest multiple of [$10,000]
$5,000.
* * * * * * *
(26) Additional participation requirements.--
(A) * * *
* * * * * * *
(H) [Exception for state and local
governmental plans] Exception for governmental
plans.--This paragraph shall not apply to a
governmental plan (within the meaning of
[section 414(d)) maintained by a State or local
government or political subdivision thereof (or
agency or instrumentality thereof).] section
414(d)).
* * * * * * *
(31) Optional direct transfer of eligible rollover
distributions.--
(A) * * *
(B) Limitation.--Subparagraph (A) shall apply
only to the extent that the eligible rollover
distribution would be includible in gross
income if not transferred as provided in
subparagraph (A) (determined without regard to
sections 402(c) [and 403(a)(4)], 403(a)(4),
403(b)(8), and 457(e)(16)). The preceding
sentence shall not apply to such distribution
if the plan to which such distribution is
transferred--
(i) agrees to separately account for
amounts so transferred, including
separately accounting for the portion
of such distribution which is
includible in gross income and the
portion of such distribution which is
not so includible, or
(ii) is an eligible retirement plan
described in clause (i) or (ii) of
section 402(c)(8)(B).
* * * * * * *
(k) Cash or Deferred Arrangements.--
(1) * * *
(2) Qualified cash or deferred arrangement.--A
qualified cash or deferred arrangement is any
arrangement which is part of a profit-sharing or stock
bonus plan, a pre-ERISA money purchase plan, or a rural
cooperative plan which meets the requirements of
subsection (a)--
(A) under which a covered employee may elect
to have the employer make payments as
contributions to a trust under the plan on
behalf of the employee, or to the employee
directly in cash;
(B) under which amounts held by the trust
which are attributable to employer
contributions made pursuant to the employee's
election--
(i) may not be distributable to
participants or other beneficiaries
earlier than--
(I) [separation from service]
severance from employment,
death, or disability,
* * * * * * *
(3) Application of participation and discrimination
standards.--
(A) * * *
* * * * * * *
(G) Governmental plans.--A governmental plan
(within the meaning of section 414(d))
[maintained by a State or local government or
political subdivision thereof (or agency or
instrumentality thereof)] shall be treated as
meeting the requirements of this paragraph.
* * * * * * *
(10) Distributions upon termination of plan [or
disposition of assets or subsidiary].--
[(A) In general.--The following events are
described in this paragraph:
[(i) Termination.--The termination of
the plan without establishment or
maintenance of another defined
contribution plan (other than an
employee stock ownership plan as
defined in section 4975(e)(7)).
[(ii) Disposition of assets.--The
disposition by a corporation of
substantially all of the assets (within
the meaning of section 409(d)(2)) used
by such corporation in a trade or
business of such corporation, but only
with respect to an employee who
continues employment with the
corporation acquiring such assets.
[(iii) Disposition of subsidiary.--
The disposition by a corporation of
such corporation's interest in a
subsidiary (within the meaning of
section 409(d)(3)), but only with
respect to an employee who continues
employment with such subsidiary.]
(A) In general.--An event described in this
subparagraph is the termination of the plan
without establishment or maintenance of another
defined contribution plan (other than an
employee stock ownership plan as defined in
section 4975(e)(7)).
(B) Distributions must be lump sum
distributions.--
(i) In general.--[An event] A
termination shall not be treated as
described in subparagraph (A) with
respect to any employee unless the
employee receives a lump sum
distribution by reason of [the event]
the termination.
* * * * * * *
[(C) Transferor corporation must maintain
plan.--An event shall not be treated as
described in clause (ii) or (iii) of
subparagraph (A) unless the transferor
corporation continues to maintain the plan
after the disposition.]
(11) Adoption of simple plan to meet
nondiscrimination tests.--
(A) * * *
(B) Contribution requirements.--
(i) In general.--The requirements of
this subparagraph are met if, under the
arrangement--
(I) an employee may elect to
have the employer make elective
contributions for the year on
behalf of the employee to a
trust under the plan in an
amount which is expressed as a
percentage of compensation of
the employee but which in no
event exceeds [$6,000] the
amount in effect under section
408(p)(2)(A)(ii).
* * * * * * *
[(E) Cost-of-living adjustment.--The
Secretary shall adjust the $6,000 amount under
subparagraph (B)(i)(I) at the same time and in
the same manner as under section 408(p)(2)(E).]
* * * * * * *
(m) Nondiscrimination Test for Matching Contributions and
Employee Contributions.--
(1) * * *
* * * * * * *
[(9) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the
purposes of this subsection and subsection (k)
including--
[(A) such regulations as may be necessary to
prevent the multiple use of the alternative
limitation with respect to any highly
compensated employee, and
[(B) regulations permitting appropriate
aggregation of plans and contributions.
For purposes of the preceding sentence, the term
``alternative limitation'' means the limitation of
section 401(k)(3)(A)(ii)(II) and the limitation of
paragraph (2)(A)(ii) of this subsection.]
(9) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the
purposes of this subsection and subsection (k),
including regulations permitting appropriate
aggregation of plans and contributions.
* * * * * * *
SEC. 402. TAXABILITY OF BENEFICIARY OF EMPLOYEES' TRUST.
(a) * * *
* * * * * * *
(c) Rules Applicable to Rollovers From Exempt Trusts.--
(1) * * *
(2) Maximum amount which may be rolled over.--In the
case of any eligible rollover distribution, the maximum
amount transferred to which paragraph (1) applies shall
not exceed the portion of such distribution which is
includible in gross income (determined without regard
to paragraph (1)). The preceding sentence shall not
apply to such distribution to the extent--
(A) such portion is transferred in a direct
trustee-to-trustee transfer to a qualified
trust which is part of a plan which is a
defined contribution plan and which agrees to
separately account for amounts so transferred,
including separately accounting for the portion
of such distribution which is includible in
gross income and the portion of such
distribution which is not so includible, or
(B) such portion is transferred to an
eligible retirement plan described in clause
(i) or (ii) of paragraph (8)(B).
[(3) Transfer must be made within 60 days of
receipt.--Paragraph (1) shall not apply to any transfer
of a distribution made after the 60th day following the
day on which the distributee received the property
distributed.]
(3) Transfer must be made within 60 days of
receipt.--
(A) In general.--Except as provided in
subparagraph (B), paragraph (1) shall not apply
to any transfer of a distribution made after
the 60th day following the day on which the
distributee received the property distributed.
(B) Hardship exception.--The Secretary may
waive the 60-day requirement under subparagraph
(A) where the failure to waive such requirement
would be against equity or good conscience,
including casualty, disaster, or other events
beyond the reasonable control of the individual
subject to such requirement.
* * * * * * *
(8) Definitions.--For purposes of this subsection--
(A) * * *
* * * * * * *
(B) Eligible retirement plan.--The term
``eligible retirement plan'' means--
(i) an individual retirement account
described in section 408(a),
(ii) an individual retirement annuity
described in section 408(b) (other than
an endowment contract),
(iii) a qualified trust, [and]
(iv) an annuity plan described in
section 403(a)[.],
(v) an eligible deferred compensation
plan described in section 457(b) of an
employer described in section
457(e)(1)(A), and
(vi) an annuity contract described in
section 403(b).
If any portion of an eligible rollover
distribution is attributable to payments or
distributions from a designated plus account
(as defined in section 402A), an eligible
retirement plan with respect to such portion
shall include only another designated plus
account and a Roth IRA.
(9) Rollover where spouse receives distribution after
death of employee.--If any distribution attributable to
an employee is paid to the spouse of the employee after
the employee's death, the preceding provisions of this
subsection shall apply to such distribution in the same
manner as if the spouse were the employee[; except that
a trust or plan described in clause (iii) or (iv) of
paragraph (8)(B) shall not be treated as an eligible
retirement plan with respect to such distribution].
* * * * * * *
(11) Separate accounting.--Unless a plan described in
clause (v) of paragraph (8)(B) agrees to separately
account for amounts rolled into such plan from eligible
retirement plans not described in such clause, the plan
described in such clause may not accept transfers or
rollovers from such retirement plans.
* * * * * * *
(f) Written Explanation to Recipients of Distributions
Eligible for Rollover Treatment.--
(1) In general.--The plan administrator of any plan
shall, within a reasonable period of time before making
an eligible rollover distribution [from an eligible
retirement plan], provide a written explanation to the
recipient--
(A) of the provisions under which the
recipient may have the distribution directly
transferred to [another eligible retirement
plan] an eligible retirement plan,
(B) of the provision which requires the
withholding of tax on the distribution if it is
not directly transferred to [another eligible
retirement plan] an eligible retirement plan,
(C) of the provisions under which the
distribution will not be subject to tax if
transferred to an eligible retirement plan
within 60 days after the date on which the
recipient received the distribution, [and]
(D) if applicable, of the provisions of
subsections (d) and (e) of this section[.], and
(E) of the provisions under which
distributions from the eligible retirement plan
receiving the distribution may be subject to
restrictions and tax consequences which are
different from those applicable to
distributions from the plan making such
distribution.
(2) Definitions.--For purposes of this subsection--
(A) Eligible rollover distribution.--The term
``eligible rollover distribution'' has the same
meaning as when used in subsection (c) of this
section [or paragraph (4) of section 403(a)],
paragraph (4) of section 403(a), subparagraph
(A) of section 403(b)(8), or subparagraph (A)
of section 457(e)(16).
* * * * * * *
(g) Limitation on Exclusion for Elective Deferrals.--
[(1) In general.--Notwithstanding subsections (e)(3)
and (h)(1)(B), the elective deferrals of any individual
for any taxable year shall be included in such
individual's gross income to the extent the amount of
such deferrals for the taxable year exceeds $7,000.]
(1) In general.--
(A) Limitation.--Notwithstanding subsections
(e)(3) and (h)(1)(B), the elective deferrals of
any individual for any taxable year shall be
included in such individual's gross income to
the extent the amount of such deferrals for the
taxable year exceeds the applicable dollar
amount.
(B) Applicable dollar amount.--For purposes
of subparagraph (A), the applicable dollar
amount shall be the amount determined in
accordance with the following table:
For taxable years The applicable
beginning in dollar amount:
calendar year:
2001................................................ $11,000
2002................................................ $12,000
2003................................................ $13,000
2004................................................ $14,000
2005 or thereafter.................................. $15,000.
The preceding sentence shall not apply to so much of
such excess as does not exceed the designated plus
contributions of the individual for the taxable year.
(2) Distribution of excess deferrals.--
(A) In general.--If any amount (hereinafter
in this paragraph referred to as ``excess
deferrals'') is included in the gross income of
an individual under paragraph (1) (or would be
included but for the last sentence thereof) for
any taxable year--
(i) * * *
* * * * * * *
[(4) Increase in limit for amounts contributed under
section 403(b) contracts.--The limitation under
paragraph (1) shall be increased (but not to an amount
in excess of $9,500) by the amount of any employer
contributions for the taxable year described in
paragraph (3)(C).
[(5) Cost-of-living adjustment.--The Secretary shall
adjust the $7,000 amount under paragraph (1) at the
same time and in the same manner as under section
415(d); except that any increase under this paragraph
which is not a multiple of $500 shall be rounded to the
next lowest multiple of $500.]
(4) Cost-of-living adjustment.--In the case of
taxable years beginning after December 31, 2005, the
Secretary shall adjust the $15,000 amount under
paragraph (1)(B) at the same time and in the same
manner as under section 415(d), except that the base
period shall be the calendar quarter beginning July 1,
2004, and any increase under this paragraph which is
not a multiple of $500 shall be rounded to the next
lowest multiple of $500.
[(6)] (5) Disregard of community property laws.--This
subsection shall be applied without regard to community
property laws.
[(7)] (6) Coordination with section 72.--For purposes
of applying section 72, any amount includible in gross
income for any taxable year under this subsection but
which is not distributed from the plan during such
taxable year shall not be treated as investment in the
contract.
[(8)] (7) Special rule for certain organizations.--
(A) * * *
* * * * * * *
(B) Qualified organization.--For purposes of
this paragraph, the term ``qualified
organization'' means any educational
organization, hospital, home health service
agency, health and welfare service agency,
church, or convention or association of
churches. Such term includes any organization
described in section 414(e)(3)(B)(ii). Terms
used in this subparagraph shall have the same
meaning as when used in section 415(c)(4) (as
in effect before the enactment of the
Comprehensive Retirement Security and Pension
Reform Act of 2000).
* * * * * * *
[(9)] (8) Matching contributions on behalf of self-
employed individuals not treated as elective employer
contributions.--Except as provided in section
401(k)(3)(D)(ii), any matching contribution described
in section 401(m)(4)(A) which is made on behalf of a
self-employed individual (as defined in section 401(c)
shall not be treated as an elective employer
contribution under a qualified cash or deferred
arrangement (as defined in section 401(k) for purposes
of this title.
* * * * * * *
SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS PLUS
CONTRIBUTIONS.
(a) General Rule.--If an applicable retirement plan includes
a qualified plus contribution program--
(1) any designated plus contribution made by an
employee pursuant to the program shall be treated as an
elective deferral for purposes of this chapter, except
that such contribution shall not be excludable from
gross income, and
(2) such plan (and any arrangement which is part of
such plan) shall not be treated as failing to meet any
requirement of this chapter solely by reason of
including such program.
(b) Qualified Plus Contribution Program.--For purposes of
this section--
(1) In general.--The term ``qualified plus
contribution program'' means a program under which an
employee may electto make designated plus contributions
in lieu of all or a portion of elective deferrals the employee is
otherwise eligible to make under the applicable retirement plan.
(2) Separate accounting required.--A program shall
not be treated as a qualified plus contribution program
unless the applicable retirement plan--
(A) establishes separate accounts
(``designated plus accounts'') for the
designated plus contributions of each employee
and any earnings properly allocable to the
contributions, and
(B) maintains separate recordkeeping with
respect to each account.
(c) Definitions and Rules Relating to Designated Plus
Contributions.--For purposes of this section--
(1) Designated plus contribution.--The term
``designated plus contribution'' means any elective
deferral which--
(A) is excludable from gross income of an
employee without regard to this section, and
(B) the employee designates (at such time and
in such manner as the Secretary may prescribe)
as not being so excludable.
(2) Designation limits.--The amount of elective
deferrals which an employee may designate under
paragraph (1) shall not exceed the excess (if any) of--
(A) the maximum amount of elective deferrals
excludable from gross income of the employee
for the taxable year (without regard to this
section), over
(B) the aggregate amount of elective
deferrals of the employee for the taxable year
which the employee does not designate under
paragraph (1).
(3) Rollover contributions.--
(A) In general.--A rollover contribution of
any payment or distribution from a designated
plus account which is otherwise allowable under
this chapter may be made only if the
contribution is to--
(i) another designated plus account
of the individual from whose account
the payment or distribution was made,
or
(ii) a Roth IRA of such individual.
(B) Coordination with limit.--Any rollover
contribution to a designated plus account under
subparagraph (A) shall not be taken into
account for purposes of paragraph (1).
(d) Distribution Rules.--For purposes of this title--
(1) Exclusion.--Any qualified distribution from a
designated plus account shall not be includible in
gross income.
(2) Qualified distribution.--For purposes of this
subsection--
(A) In general.--The term ``qualified
distribution'' has the meaning given such term
by section 408A(d)(2)(A) (without regard to
clause (iv) thereof).
(B) Distributions within nonexclusion
period.--A payment or distribution from a
designated plus account shall not be treated as
a qualified distribution if such payment or
distribution is made within the 5-taxable-year
period beginning with the earlier of--
(i) the first taxable year for which
the individual made a designated plus
contribution to any designated plus
account established for such individual
under the same applicable retirement
plan, or
(ii) if a rollover contribution was
made to such designated plus account
from a designated plus account
previously established for such
individual under another applicable
retirement plan, the first taxable year
for which the individual made a
designated plus contribution to such
previously established account.
(C) Distributions of excess deferrals and
earnings.--The term ``qualified distribution''
shall not include any distribution of any
excess deferral under section 402(g)(2) and any
income on the excess deferral.
(3) Aggregation rules.--Section 72 shall be applied
separately with respect to distributions and payments
from a designated plus account and other distributions
and payments from the plan.
(e) Other Definitions.--For purposes of this section--
(1) Applicable retirement plan.--The term
``applicable retirement plan'' means--
(A) an employees' trust described in section
401(a) which is exempt from tax under section
501(a), and
(B) a plan under which amounts are
contributed by an individual's employer for an
annuity contract described in section 403(b).
(2) Elective deferral.--The term ``elective
deferral'' means any elective deferral described in
subparagraph (A) or (C) of section 402(g)(3).
SEC. 403. TAXATION OF EMPLOYEE ANNUITIES.
(a) * * *
* * * * * * *
(b) Taxability of Beneficiary Under Annuity Purchased by
Section 501(c)(3) Organization or Public School.--
(1) General rule.--If--
(A) * * *
* * * * * * *
(E) in the case of a contract purchased under
a salary reduction agreement, the contract
meets the requirements of section 401(a)(30),
then amounts contributed by such employer for
such annuity contract on or after such rights
become nonforfeitable shall be excluded from
the gross income of the employee for the
taxable year to the extent that the aggregate
of such amounts does not exceed [the exclusion
allowance for such taxable year] the applicable
limit under section 415. The amount actually
distributed to any distributee under such
contract shall be taxable to the distributee
(in the year in which so distributed) under
section 72 (relating to annuities). For
purposes of applying the rules of this
subsection to amounts contributed by an
employer for a taxable year, amounts
transferred to a contract described in this
paragraph by reason of a rollover contribution
described in paragraph (8) of this subsection
or [section 408(d)(3)(A)(iii)] section
408(d)(3)(A)(ii) shall not be considered
contributed by such employer.
[(2) Exclusion allowance.--
[(A) In general.--For purposes of this
subsection, the exclusion allowance for any
employee for the taxable year is an amount
equal to the excess, if any, of--
[(i) the amount determined by
multiplying 20 percent of his
includible compensation by the number
of years of service, over
[(ii) the aggregate of the amounts
contributed by the employer for annuity
contracts and excludable from the gross
income of the employee for any prior
taxable year.
[(B) Election to have allowance determined
under section 415 rules.--In the case of an
employee who makes an election under section
415(c)(4)(D) to have the provisions of section
415(c)(4)(C) (relating to special rule for
section 403(b) contracts purchased by
educational institutions, hospitals, home
health service agencies, and certain churches,
etc.) apply, the exclusion allowance for any
such employee for the taxable year is the
amount which could be contributed (under
section 415 without regard to section
415(c)(8)) by his employer under a plan
described in section 403(a) if the annuity
contract for the benefit of such employee were
treated as a defined contribution plan
maintained by the employer.
[(C) Number of years of service for duly
ordained, commissioned, or licensed ministers
or lay employees.--For purposes of this
subsection and section 415(c)(4)(A)--
[(i) all years of service by--
[(I) a duly ordained,
commissioned, or licensed
minister of a church, or
[(II) a lay person,
as an employee of a church, a
convention or association of churches,
including an organization described in
section 414(e)(3)(B)(ii), shall be
considered as years of service for 1
employer, and
[(ii) all amounts contributed for
annuity contracts by each such church
(or convention or association of
churches) or such organization during
such years for such minister or lay
person shall be considered to have been
contributed by 1 employer.
For purposes of the preceding sentence, the
terms ``church'' and ``convention or
association of churches'' have the same meaning
as when used in section 414(e).
[(D) Alternative exclusion allowance.--
[(i) In general.--In the case of any
individual described in subparagraph
(C), the amount determined under
subparagraph (A) shall not be less than
the lesser of--
[(I) $3,000, or
[(II) the includible
compensation of such
individual.
[(ii) Subparagraph not to apply to
individuals with adjusted gross income
over $17,000.--This subparagraph shall
not apply with respect to any taxable
year to any individual whose adjusted
gross income for such taxable year
(determined separately and without
regard to any community property laws)
exceeds $17,000.
[(iii) Special rule for foreign
missionaries.--In the case of an
individual described in subparagraph
(C)(i) performing services outside the
United States, there shall be included
as includible compensation for any year
under clause (i)(II) any amount
contributed during such year by a
church (or convention or association of
churches) for an annuity contract with
respect to such individual.]
(3) Includible compensation.--For purposes of this
subsection, the term ``includible compensation'' means,
in the case of any employee, the amount of compensation
which is received from the employer described in
paragraph (1)(A), and which is includible in gross
income (computed without regard to section 911) for the
most recent period (ending not later than the close of
the taxable year) which under paragraph (4) may be
counted as one year of service. Such term does not
include any amount contributed by the employer for any
annuity contract to which this subsection applies. Such
term includes--
(A) any elective deferral (as defined in
section 402(g)(3), and
(B) any amount which is contributed or
deferred by the employer at the election of the
employee and which is not includible in the
gross income of the employee by reason of
section 125 or 457 or any amount received by a
former employee after the fifth taxable year
following the taxable year in which such
employee was terminated.
* * * * * * *
(7) Custodial accounts for regulated investment
company stock.--
(A) Amounts paid treated as contributions.--
For purposes of this title, amounts paid by an
employer described in paragraph (1)(A) to a
custodial account which satisfies the
requirements of section 401(f)(2) shall be
treated as amounts contributed by him for an
annuity contract for his employee if--
(i) the amounts are to be invested in
regulated investment company stock to
be held in that custodial account, and
(ii) under the custodial account no
such amounts may be paid or made
available to any distributee before the
employee dies, attains age 59\1/2\,
[separates from service] has a
severance from employment, becomes
disabled (within the meaning of section
72(m)(7)), or in the case of
contributions made pursuant to a salary
reduction agreement (within the meaning
of section 3121(a)(1)(D), encounters
financial hardship.
* * * * * * *
(8) Rollover amounts.--
(A) General rule.--If--
(i) any portion of the balance to the
credit of an employee in an annuity
contract described in paragraph (1) is
paid to him in an eligible rollover
distribution (within the meaning of
section 402(c)(4),
(ii) the employee transfers any
portion of the property he receives in
[such distribution to an individual
retirement plan or to an annuity
contract described in paragraph (1),
and] such distribution to an eligible
retirement plan described in section
402(c)(8)(B), and
(iii) in the case of a distribution
of property other than money, the
property so transferred consists of the
property distributed,
then such distribution (to the extent so
transferred) shall not be includible in gross
income for the taxable year in which paid.
[(B) Certain rules made applicable.--Rules
similar to the rules of paragraphs (2) through
(7) of section 402(c) (including paragraph
(4)(C) thereof) shall apply for purposes of
subparagraph (A).]
(B) Certain rules made applicable.--The rules
of paragraphs (2) through (7) and (9) of
section 402(c) and section 402(f) shall apply
for purposes of subparagraph (A), except that
section 402(f) shall be applied to the payor in
lieu of the plan administrator.
* * * * * * *
(11) Requirement that distributions not begin before
age 59\1/2\, [separation from service] severance from
employment, death, or disability.--This subsection
shall not apply to any annuity contract unless under
such contract distributions attributable to
contributions made pursuant to a salary reduction
agreement (within the meaning of section 402(g)(3)(C))
may be paid only--
(A) when the employee attains age 59\1/2\,
[separates from service] has a severance from
employment, dies, or becomes disabled (within
the meaning of section 72(m)(7)), or
(B) in the case of hardship.
Such contract may not provide for the distribution of
any income attributable to such contributions in the
case of hardship.
* * * * * * *
(13) Trustee-to-trustee transfers to purchase
permissive service credit.--No amount shall be
includible in gross income by reason of a direct
trustee-to-trustee transfer to a defined benefit
governmental plan (as defined in section 414(d)) if
such transfer is--
(A) for the purchase of permissive service
credit (as defined in section 415(n)(3)(A))
under such plan, or
(B) a repayment to which section 415 does not
apply by reason of subsection (k)(3) thereof.
* * * * * * *
SEC. 404. DEDUCTION FOR CONTRIBUTIONS OF AN EMPLOYER TO AN EMPLOYEES'
TRUST OR ANNUITY PLAN AND COMPENSATION UNDER A
DEFERRED-PAYMENT PLAN.
(a) General Rule.--If contributions are paid by an employer
to or under a stock bonus, pension, profit-sharing, or annuity
plan, or if compensation is paid or accrued on account of any
employee under a plan deferring the receipt of such
compensation, such contributions or compensation shall not be
deductible under this chapter; but, if they would otherwise be
deductible, they shall be deductible under this section,
subject, however, to the following limitations as to the
amounts deductible in any year:
(1) Pension trusts.--
(A) * * *
* * * * * * *
[(D) Special rule in case of certain plans.--
In the case of any defined benefit plan (other
than a multiemployer plan) which has more than
100 participants for the plan year, except as
provided in regulations, the maximum amount
deductible under the limitations of this
paragraph shall not be less than the unfunded
current liability determined under section
412(l). For purposes of determining whether a
plan has more than 100 participants, all
defined benefit plans maintained by the same
employer (or any member of such employer's
controlled group (within the meaning of section
412(l)(8)(C))) shall be treated as 1 plan, but
only employees of such member or employer shall
be taken into account.]
(D) Special rule in case of certain plans.--
(i) In general.--In the case of any
defined benefit plan, except as
provided in regulations, the maximum
amount deductible under the limitations
of this paragraph shall not be less
than the unfunded termination liability
(determined as if the proposed
termination date referred to in section
4041(b)(2)(A)(i)(II) of the Employee
Retirement Income Security Act of 1974
were the last day of the plan year).
(ii) Plans with less than 100
participants.--For purposes of this
subparagraph, in the case of a plan
which has less than 100 participants
for the plan year, termination
liability shall not include the
liability attributable to benefit
increases for highly compensated
employees (as defined in section
414(q)) resulting from a plan amendment
which is made or becomes effective,
whichever is later, within the last 2
years before the termination date.
(iii) Rule for determining number of
participants.--For purposes of
determining whether a plan has more
than 100 participants, all defined
benefit plans maintained by the same
employer (or any member of such
employer's controlled group (within the
meaning of section 412(l)(8)(C))) shall
be treated as one plan, but only
employees of such member or employer
shall be taken into account.
(iv) Plans established and maintain
by professional service employers.--
Clause (i) shall not apply to a plan
described in section 4021(b)(13) of the
Employee Retirement Income Security Act
of 1974.
* * * * * * *
(3) Stock bonus and profit-sharing trusts.--
(A) Limits on deductible contributions.--
(i) In general.--In the taxable year
when paid, if the contributions are
paid into a stock bonus or profit-
sharing trust, and if such taxable year
ends within or with a taxable year of
the trust with respect to which the
trust is exempt under section 501(a),
in an amount not in excess of the
greater of--
(I) [15] 20 percent of the
compensation otherwise paid or
accrued during the taxable year
to the beneficiaries under the
stock bonus or profit-sharing
plan, or
* * * * * * *
(B) Profit-sharing plan of affiliated
group.--In the case of a profit-sharing plan,
or a stock bonus plan in which contributions
are determined with reference to profits, of a
group of corporations which is an affiliated
group within the meaning of section 1504, if
any member of such affiliated group is
prevented from making a contribution which it
would otherwise have made under the plan, by
reason of having no current or accumulated
earnings or profits or because such earnings or
profits are less than the contributions which
it would otherwise have made, then so much of
the contribution which such member was so
prevented from making may be made, for the
benefit of the employees of such member, by the
other members of the group, to the extent of
current or accumulated earnings or profits,
except that such contribution by each such
other member shall be limited, where the group
does not file a consolidated return, to that
proportion of its total current and accumulated
earnings or profits remaining after adjustment
for its contribution deductible without regard
to this subparagraph which the total prevented
contribution bears to the total current and
accumulated earnings or profits of all the
members of the group remaining after adjustment
for all contributions deductible without regard
to this subparagraph. Contributions made under
the preceding sentence shall be deductible
under subparagraph (A) of this paragraph by the
employer making such contribution, and, for the
purpose of determining amounts which may be
carried forward and deducted under the second
sentence of subparagraph (A) of this paragraph
in succeeding taxable years, shall be deemed to
have been made by the employer on behalf of
whose employees such contributions were made.
[The term ``compensation otherwise paid or
accrued during the taxable year to all
employees'' shall include any amount with
respect to which an election under section
415(c)(3)(C) is in effect, but only to the
extent that any contribution with respect to
such amount is nonforfeitable.]
* * * * * * *
(10) Contributions by certain ministers to retirement
income accounts.--In the case of contributions made by
a minister described in section 414(e)(5) to a
retirement income account described in section
403(b)(9) and not by a person other than such minister,
such contributions--
(A) * * *
(B) shall be deductible under this subsection
to the extent such contributions do not exceed
the limit on elective deferrals under section
402(g)[, the exclusion allowance under section
403(b)(2),] or the limit on annual additions
under section 415.
For purposes of this paragraph, all plans in which the
minister is a participant shall be treated as one plan.
* * * * * * *
(12) Definition of compensation.--For purposes of
paragraphs (3), (7), (8), and (9), the term
``compensation otherwise paid or accrued during the
taxable year'' shall include amounts treated as
``participant's compensation'' under subparagraph (C)
or (D) of section 415(c)(3).
* * * * * * *
(h) Special Rules for Simplified Employee Pensions.--
(1) In general.--Employer contributions to a
simplified employee pension shall be treated as if they
are made to a plan subject to the requirements of this
section. Employer contributions to a simplified
employee pension are subject to the following
limitations:
(A) * * *
* * * * * * *
(C) The amount deductible in a taxable year
for a simplified employee pension shall not
exceed [15] 20 percent of the compensation paid
to the employees during the calendar year
ending with or within the taxable year (or
during the taxable year in the case of a
taxable year described in subparagraph
(A)(ii)). The excess of the amount contributed
over the amount deductible for a taxable year
shall be deductible in the succeeding taxable
years in order of time, subject to the [15] 20
percent limit of the preceding sentence.
* * * * * * *
(k) Deduction for Dividends Paid on Certain Employer
Securities.--
(1) * * *
(2) Applicable dividend.--For purposes of this
subsection--
(A) In general.--The term ``applicable
dividend'' means any dividend which, in
accordance with the plan provisions--
(i) is paid in cash to the
participants in the plan or their
beneficiaries,
(ii) is paid to the plan and is
distributed in cash to participants in
the plan or their beneficiaries not
later than 90 days after the close of
the plan year in which paid, [or]
(iii) is, at the election of such
participants or their beneficiaries--
(I) payable as provided in
clause (i) or (ii), or
(II) paid to the plan and
reinvested in qualifying
employer securities, or
[(iii)] (iv) is used to make payments
on a loan described in subsection
(a)(9) the proceeds of which were used
to acquire the employer securities
(whether or not allocated to
participants) with respect to which the
dividend is paid.
* * * * * * *
(l) Limitation on Amount of Annual Compensation Taken Into
Account.--For purposes of applying the limitations of this
section, the amount of annual compensation of each employee
taken into account under the plan for any year shall not exceed
[$150,000] $200,000. The Secretary shall adjust the [$150,000]
$200,000 amount at the same time, and by the same amount, as
any adjustment under section 401(a)(17)(B). For purposes of
clause (i), (ii), or (iii) of subsection (a)(1)(A), and in
computing the full funding limitation, any adjustment under the
preceding sentence shall not be taken into account for any year
before the year for which such adjustment first takes effect.
* * * * * * *
(n) Elective Deferrals Not Taken Into Account for Purposes of
Deduction Limits.--Elective deferrals (as defined in section
402(g)(3)) shall not be subject to any limitation contained in
paragraph (3), (7), or (9) of subsection (a), and such elective
deferrals shall not be taken into account in applying any such
limitation to any other contributions.
* * * * * * *
SEC. 408. INDIVIDUAL RETIREMENT ACCOUNTS.
(a) Individual Retirement Account.--For purposes of this
section, the term ``individual retirement account'' means a
trust created or organized in the United States for the
exclusive benefit of an individual or his beneficiaries, but
only if the written governing instrument creating the trust
meets the following requirements:
(1) Except in the case of a rollover contribution
described in subsection (d)(3) in section 402(c),
403(a)(4), [or 403(b)(8),] 403(b)(8), or 457(e)(16), no
contribution will be accepted unless it is in cash, and
contributions will not be accepted for the taxable year
[in excess of $2,000 on behalf of any individual] on
behalf of any individual in excess of the amount in
effect for such taxable year under section
219(b)(1)(A).
* * * * * * *
(b) Individual Retirement Annuity.--For purposes of this
section, the term ``individual retirement annuity'' means an
annuity contract, or an endowment contract (as determined under
regulations prescribed by the Secretary), issued by an
insurance company which meets the following requirements:
(1) * * *
(2) Under the contract.--
(A) the premiums are not fixed,
(B) the annual premium on behalf of any
individual will not exceed [$2,000] the dollar
amount in effect under section 219(b)(1)(A),
and
* * * * * * *
(4) The entire interest of the owner is
nonforfeitable.
Such term does not include such an annuity contract for any
taxable year of the owner in which it is disqualified on the
application of subsection (e) or for any subsequent taxable
year. For purposes of this subsection, no contract shall be
treated as an endowment contract if it matures later than the
taxable year in which the individual in whose name such
contract is purchased attains age 70\1/2\; if it is not for the
exclusive benefit of the individual in whose name it is
purchased or his beneficiaries; or if the aggregate annual
premiums under all such contracts purchased in the name of such
individual for any taxable year exceed [$2,000] the dollar
amount in effect under section 219(b)(1)(A).
* * * * * * *
(d) Tax treatment of distributions
(1) * * *
* * * * * * *
(3) Rollover contribution.--An amount is described in
this paragraph as a rollover contribution if it meets
the requirements of subparagraphs (A) and (B).
(A) In general.--Paragraph (1) does not apply
to any amount paid or distributed out of an
individual retirement account or individual
retirement annuity to the individual for whose
benefit the account or annuity is maintained
if--
(i) the entire amount received
(including money and any other
property) is paid into an individual
retirement account or individual
retirement annuity (other than an
endowment contract) for the benefit of
such individual not later than the 60th
day after the day on which he receives
the payment or distribution; or
[(ii) no amount in the account and no
part of the value of the annuity is
attributable to any source other than a
rollover contribution (as defined in
section 402 from an employee's trust
described in section 401(a) which is
exempt from tax under section 501(a) or
from an annuity plan described in
section 403(a) (and any earnings on
such contribution), and the entire
amount received (including property and
other money) is paid (for the benefit
of such individual) into another such
trust or annuity plan not later than
the 60th day on which the individual
receives the payment or the
distribution; or
[(iii)(I) the entire amount received
(including money and other property)
represents the entire interest in the
account or the entire value of the
annuity,
[(II) no amount in the
account and no part of the
value of the annuity is
attributable to any source
other than a rollover
contribution from an annuity
contract described in section
403(b) and any earnings on such
rollover, and
[(II) the entire amount
thereof is paid into another
annuity contract described in
section 403(b) (for the benefit
of such individual) not later
than the 60th day after he
receives the payment or
distribution.
[(III) the entire amount
thereof is paid into another
annuity contract described in
section 403(b) (for the benefit
of such individual) not later
than the 60th day after he
receives the payment or
distribution.]
(ii) the entire amount received
(including money and any other
property) is paid into an eligible
retirement plan for the benefit of such
individual not later than the 60th day
after the date on which the payment or
distribution is received, except that
the maximum amount which may be paid
into such plan may not exceed the
portion of the amount received which is
includible in gross income (determined
without regard to this paragraph).
For purposes of clause (ii), the term
``eligible retirement plan'' means an eligible
retirement plan described in clause (iii),
(iv), (v), or (vi) of section 402(c)(8)(B).
* * * * * * *
(D) Partial rollovers permitted.--
(i) general.--If any amount paid or
distributed out of an individual
retirement account or individual
retirement annuity would meet the
requirements of subparagraph (A) but
for the fact that the entire amount was
not paid into an eligible plan as
required by clause [(i), (ii), or
(iii)] (i) or (ii) of subparagraph (A),
such amount shall be treated as meeting
the requirements of subparagraph (A) to
the extent it is paid into an eligible
plan referred to in such clause not
later than the 60th day referred to in
such clause.
* * * * * * *
[(G) Simple retirements accounts.--This
paragraph shall not apply to any amount paid or
distributed out of a simple retirement account
(as defined in subsection (p)) unless--
[(i) it is paid into another simple
retirement account, or
[(ii) in the case of any payment or
distribution to which section 72(t)(6)
does not apply, it is paid into an
individual retirement plan.]
(G) Simple retirement accounts.--In the case
of any payment or distribution out of a simple
retirement account (as defined in subsection
(p)) to which section 72(t)(6) applies, this
paragraph shall not apply unless such payment
or distribution is paid into another simple
retirement account.
(H) Application of section 72.--
(i) In general.--If--
(I) a distribution is made
from an individual retirement
plan, and
(II) a rollover contribution
is made to an eligible
retirement plan described in
section 402(c)(8)(B)(iii),
(iv), (v), or (vi) with respect
to all or part of such
distribution,
then, notwithstanding paragraph (2),
the rules of clause (ii) shall apply
for purposes of applying section 72.
(ii) Applicable rules.--In the case
of a distribution described in clause
(i)--
(I) section 72 shall be
applied separately to such
distribution,
(II) notwithstanding the pro
rata allocation of income on,
and investment in, the contract
to distributions under section
72, the portion of such
distribution rolled over to an
eligible retirement plan
described in clause (i) shall
be treated as from income on
the contract (to the extent of
the aggregate income on the
contract from all individual
retirement plans of the
distributee), and
(III) appropriate adjustments
shall be made in applying
section 72 to other
distributions in such taxable
year and subsequent taxable
years.
(I) Waiver of 60-day requirement.--The
Secretary may waive the 60-day requirement
under subparagraphs (A) and (D) where the
failure to waive such requirement would be
against equity or good conscience, including
casualty, disaster, or other events beyond the
reasonable control of the individual subject to
such requirement.
* * * * * * *
(j) Increase in Maximum Limitations for Simplified Employee
Pensions.--In the case of any simplified employee pension,
subsections (a)(1) and (b)(2) of this section shall be applied
by increasing the [$2,000] amounts contained therein by the
amount of the limitation in effect under section 415(c)(1)(A).
(k) Simplified Employee Pension Defined.--
(1) * * *
* * * * * * *
(3) Contributions may not discriminate in favor of
the highly compensated, etc.--
(A) * * *
* * * * * * *
(C) Contributions must bear uniform
relationship to total compensation.--For
purposes of subparagraph (A), and except as
provided in subparagraph (D), employer
contributions to simplified employee pensions
(other than contributions under an arrangement
described in paragraph (6)) shall be considered
discriminatory unless contributions thereto
bear a uniform relationship to the compensation
(not in excess of the first [$150,000]
$200,000) of each employee maintaining a
simplified employee pension.
* * * * * * *
(6) Employee may elect salary reduction
arrangement.--
(A) * * *
* * * * * * *
(D) Deferral percentage.--For purposes of
this paragraph, the deferral percentage for an
employee for a year shall be the ratio of--
(i) the amount of elective employer
contributions actually paid over to the
simplified employee pension on behalf
of the employee for the year, to
(ii) the employee's compensation (not
in excess of the first [$150,000]
$200,000) for the year.
* * * * * * *
(8) Cost-of-living adjustment.--The Secretary shall
adjust the $300 amount in paragraph (2)(C) at the same
time and in the same manner as under section 415(d) and
shall adjust the [$150,000] $200,000 amount in
paragraphs (3)(C) and (6)(D)(ii) at the same time, and
by the same amount, as any adjustment under section
401(a)(17)(B); except that any increase in the $300
amount which is not a multiple of $50 shall be rounded
to the next lowest multiple of $50.
* * * * * * *
(p) Simple retirement accounts.--
(1) * * *
(2) Qualified salary reduction arrangement.--
(A) In general.--For purposes of this
subsection, the term ``qualified salary
reduction arrangement'' means a written
arrangement of an eligible employer under
which--
(i) * * *
(ii) the amount which an employee may
elect under clause (i) for any year is
required to be expressed as a
percentage of compensation and may not
exceed a total of [$6,000] the
applicable dollar amount for any year,
* * * * * * *
[(E) Cost-of-living adjustment.--The
Secretary shall adjust the $6,000 amount under
subparagraph (A)(ii) at the same time and in
the same manner as under section 415(d), except
that the base period taken into account shall
be the calendar quarter ending September 30,
1996, and any increase under this subparagraph
which is not a multiple of $500 shall be
rounded to the next lower multiple of $500.]
(E) Applicable dollar amount; cost-of-living
adjustment.--
(i) In general.--For purposes of
subparagraph (A)(ii), the applicable
dollar amount shall be the amount
determined in accordance with the
following table:
For taxable years The applicable
beginning in dollar amount:
calendar year:
2001............................................ $7,000
2002............................................ $8,000
2003............................................ $9,000
2004 or thereafter.............................. $10,000.
(ii) Cost-of-living adjustment.--In
the case of a year beginning after
December 31, 2004, the Secretary shall
adjust the $10,000 amount under clause
(i) at the same time and in the same
manner as under section 415(d), except
that the base period taken into account
shall be the calendar quarter beginning
July 1, 2003, and any increase under
this subparagraph which is not a
multiple of $500 shall be rounded to
the next lower multiple of $500.
* * * * * * *
(8) Coordination with maximum limitation under
subsection (a).--In the case of any simple retirement
account, subsections (a)(1) and (b)(2) shall be applied
by substituting ``the sum of the dollar amount in
effect under paragraph (2)(A)(ii) of this subsection
and the employer contribution required under
subparagraph (A)(ii) or (B)(i) of paragraph (2) of this
subsection, whichever is applicable'' for ``[$2,000]
the dollar amount in effect under section
219(b)(1)(A)''.
* * * * * * *
SEC. 408A. ROTH IRA'S.
(a) * * *
* * * * * * *
(e) Qualified Rollover Contribution.--For purposes of this
section, the term ``qualified rollover contribution'' means a
rollover contribution to a Roth IRA from another such account,
or from an individual retirement plan, but only if such
rollover contribution meets the requirements of section
408(d)(3). Such term includes a rollover contribution described
in section 402A(c)(3)(A). For purposes of section 408(d)(3)(B),
there shall be disregarded any qualified rollover contribution
from an individual retirement plan (other than a Roth IRA) to a
Roth IRA.
* * * * * * *
SEC. 409. QUALIFICATIONS FOR TAX CREDIT EMPLOYEE STOCK OWNERSHIP PLANS.
(a) * * *
* * * * * * *
(p) Prohibited Allocations of Securities in an S
Corporation.--
(1) In general.--An employee stock ownership plan
holding employer securities consisting of stock in an S
corporation shall provide that no portion of the assets
of the plan attributable to (or allocable in lieu of)
such employer securities may, during a nonallocation
year, accrue (or be allocated directly or indirectly
under any plan of the employer meeting the requirements
of section 401(a)) for the benefit of any disqualified
person.
(2) Failure to meet requirements.--
(A) In general.--If a plan fails to meet the
requirements of paragraph (1), the plan shall
be treated as having distributed to any
disqualified person the amount allocated to the
account of such person in violation of
paragraph (1) at the time of such allocation.
(B) Cross reference.--
For excise tax relating to violations of paragraph (1) and
ownership of synthetic equity, see section 4979A.
(3) Nonallocation year.--For purposes of this
subsection--
(A) In general.--The term ``nonallocation
year'' means any plan year of an employee stock
ownership plan if, at any time during such plan
year--
(i) such plan holds employer
securities consisting of stock in an S
corporation, and
(ii) disqualified persons own at
least 50 percent of the number of
shares of stock in the S corporation.
(B) Attribution rules.--For purposes of
subparagraph (A)--
(i) In general.--The rules of section
318(a) shall apply for purposes of
determining ownership, except that--
(I) in applying paragraph (1)
thereof, the members of an
individual's family shall
include members of the family
described in paragraph (4)(D),
and
(II) paragraph (4) thereof
shall not apply.
(ii) Deemed-owned shares.--
Notwithstanding the employee trust
exception in section 318(a)(2)(B)(i),
individual shall be treated as owning
deemed-owned shares of the individual.
Solely for purposes of applying paragraph (5),
this subparagraph shall be applied after the
attribution rules of paragraph (5) have been
applied.
(4) Disqualified person.--For purposes of this
subsection--
(A) In general.--The term ``disqualified
person'' means any person if--
(i) the aggregate number of deemed-
owned shares of such person and the
members of such person's family is at
least 20 percent of the number of
deemed-owned shares of stock in the S
corporation, or
(ii) in the case of a person not
described in clause (i), the number of
deemed-owned shares of such person is
at least 10 percent of the number of
deemed-owned shares of stock in such
corporation.
(B) Treatment of family members.--In the case
of a disqualified person described in
subparagraph (A)(i), any member of such
person's family with deemed-owned shares shall
be treated as a disqualified person if not
otherwise treated as a disqualified person
under subparagraph (A).
(C) Deemed-owned shares.--
(i) In general.--The term ``deemed-
owned shares'' means, with respect to
any person--
(I) the stock in the S
corporation constituting
employer securities of an
employee stock ownership plan
which is allocated to such
person under the plan, and
(II) such person's share of
the stock in such corporation
which is held by such plan but
which is not allocated under
the plan to participants.
(ii) Person's share of unallocated
stock.--For purposes of clause (i)(II),
a person's share of unallocated S
corporation stock held by such plan is
the amount of the unallocated stock
which would be allocated to such person
if the unallocated stock were allocated
to all participants in the same
proportions as the most recent stock
allocation under the plan.
(D) Member of family.--For purposes of this
paragraph, the term ``member of the family''
means, with respect to any individual--
(i) the spouse of the individual,
(ii) an ancestor or lineal descendant
of the individual or the individual's
spouse,
(iii) a brother or sister of the
individual or the individual's spouse
and any lineal descendant of the
brother or sister, and
(iv) the spouse of any individual
described in clause (ii) or (iii).
A spouse of an individual who is legally
separated from such individual under a decree
of divorce or separate maintenance shall not be
treated as such individual's spouse for
purposes of this subparagraph.
(5) Treatment of synthetic equity.--For purposes of
paragraphs (3) and (4), in the case of a person who
owns synthetic equity in the S corporation, except to
the extent provided in regulations, the shares of stock
in such corporation on which such synthetic equity is
based shall be treated as outstanding stock in such
corporation and deemed-owned shares of such person if
such treatment of synthetic equity of 1 or more such
persons results in--
(A) the treatment of any person as a
disqualified person, or
(B) the treatment of any year as a
nonallocation year.
For purposes of this paragraph, synthetic equity shall
be treated as owned by a person in the same manner as
stock is treated as owned by a person under the rules
of paragraphs (2) and (3) of section 318(a). If,
without regard to this paragraph, a person is treated
as a disqualified person or a year is treated as a
nonallocation year, this paragraph shall not be
construed to result in the person or year not being so
treated.
(6) Definitions.--For purposes of this subsection--
(A) Employee stock ownership plan.--The term
``employee stock ownership plan'' has the
meaning given such term by section 4975(e)(7).
(B) Employer securities.--The term ``employer
security'' has the meaning given such term by
section 409(l).
(C) Synthetic equity.--The term ``synthetic
equity'' means any stock option, warrant,
restricted stock, deferred issuance stock
right, or similar interest or right that gives
the holder the right to acquire or receive
stock of the S corporation in the future.
Except to the extent provided in regulations,
synthetic equity also includes a stock
appreciation right, phantom stock unit, or
similar right to a future cash payment based on
the value of such stock or appreciation in such
value.
(7) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the
purposes of this subsection.
[(p)] (q) Cross References.--
(1) For requirements for allowance of employee plan credit,
see section 48(n).
(2) For assessable penalties for failure to meet requirements
of this section, or for failure to make contributions required
with respect to the allowance of an employee plan credit or
employee stock ownership credit, see section 6699.
(3) For requirements for allowance of an employee stock
ownership credit, see section 41.
Subpart B--Special Rules
* * * * * * *
SEC. 410. MINIMUM PARTICIPATION STANDARDS.
(a) * * *
(b) Minimum Coverage Requirements.--
(1) In general.--A trust shall not constitute a
qualified trust under section 401(a) unless such trust
is designated by the employer as part of a plan which
meets 1 of the following requirements:
(A) * * *
* * * * * * *
(D) In the case that the plan fails to meet
the requirements of subparagraphs (A), (B) and
(C), the plan--
(i) satisfies subparagraph (B), as in
effect immediately before the enactment
of the Tax Reform Act of 1986,
(ii) is submitted to the Secretary
for a determination of whether it
satisfies the requirement described in
clause (i), and
(iii) satisfies conditions prescribed
by the Secretary by regulation that
appropriately limit the availability of
this subparagraph.
Clause (ii) shall apply only to the extent
provided by the Secretary.
* * * * * * *
SEC. 411. MINIMUM VESTING STANDARDS.
(a) General Rule.--A trust shall not constitute a qualified
trust under section 401(a) unless the plan of which such trust
is a part provides that an employee's right to his normal
retirement benefit is nonforfeitable upon the attainment of
normal retirement age (as defined in paragraph (8)) and in
addition satisfies the requirements of paragraphs (1), (2), and
(11) of this subsection and the requirements of subsection
(b)(3), and also satisfies, in the case of a defined benefit
plan, the requirements of subsection (b)(1) and, in the case of
a defined contribution plan, the requirements of subsection
(b)(2).
(1) * * *
(2) Employer contributions.--[A plan] Except as
provided in paragraph (12), a plan satisfies the
requirements of this paragraph if it satisfies the
requirements of subparagraph (A) or (B).
* * * * * * *
(11) Restrictions on certain mandatory
distributions.--
(A) * * *
* * * * * * *
(D) Special rule for rollover
contributions.--A plan shall not fail to meet
the requirements of this paragraph if, under
the terms of the plan, the present value of the
nonforfeitable accrued benefit is determined
without regard to that portion of such benefit
which is attributable to rollover contributions
(and earnings allocable thereto). For purposes
of this subparagraph, the term ``rollover
contributions'' means any rollover contribution
under sections 402(c), 403(a)(4), 403(b)(8),
408(d)(3)(A)(ii), and 457(e)(16).
* * * * * * *
(12) Faster vesting for matching contributions.--In
the case of matching contributions (as defined in
section 401(m)(4)(A)), paragraph (2) shall be applied--
(A) by substituting ``3 years'' for ``5
years'' in subparagraph (A), and
(B) by substituting the following table for
the table contained in subparagraph (B):
The nonforfeitable
Years of service: percentage is:
2................................................... 20
3................................................... 40
4................................................... 60
5................................................... 80
100. 6...................................................
* * * * * * *
(d) Special Rules.--
(1) * * *
* * * * * * *
(6) Accrued benefit not to be decreased by
amendment.--
(A) * * *
* * * * * * *
(B) Treatment of certain plan amendments.--
For purposes of subparagraph (A), a plan
amendment which has the effect of--
(i) eliminating or reducing an early
retirement benefit or a retirement-type
subsidy (as defined in regulations), or
(ii) eliminating an optional form of
benefit,
with respect to benefits attributable to
service before the amendment shall be treated
as reducing accrued benefits. In the case of a
retirement-type subsidy, the preceding sentence
shall apply only with respect to a participant
who satisfies (either before or after the
amendment) the preamendment conditions for the
subsidy. [The Secretary may by regulations
provide that this subparagraph shall not apply
to a plan amendment described in clause (ii)
(other than a plan amendment having an effect
described in clause (i)).] The Secretary shall
by regulations provide that this subparagraph
shall not apply to any plan amendment that does
not adversely affect the rights of participants
in a material manner.
* * * * * * *
(D) Plan transfers.--
(i) In general.--A defined
contribution plan (in this subparagraph
referred to as the ``transferee plan'')
shall not be treated as failing to meet
the requirements of this subsection
merely because the transferee plan does
not provide some or all of the forms of
distribution previously available under
another defined contribution plan (in
this subparagraph referred to as the
``transferor plan'') to the extent
that--
(I) the forms of distribution
previously available under the
transferor plan applied to the
account of a participant or
beneficiary under the
transferor plan that was
transferred from the transferor
plan to the transferee plan
pursuant to a direct transfer
rather than pursuant to a
distribution from the
transferor plan,
(II) the terms of both the
transferor plan and the
transferee plan authorize the
transfer described in subclause
(I),
(III) the transfer described
in subclause (I) was made
pursuant to a voluntary
election by the participant or
beneficiary whose account was
transferred to the transferee
plan,
(IV) the election described
in subclause (III) was made
after the participant or
beneficiary received a notice
describing the consequences of
making the election,
(V) if the transferor plan
provides for an annuity as the
normal form of distribution
under the plan in accordance
with section 417, the transfer
is made with the consent of the
participant's spouse (if any),
and such consent meets
requirements similar to the
requirements imposed by section
417(a)(2), and
(VI) the transferee plan
allows the participant or
beneficiary described in
subclause (III) to receive any
distribution to which the
participant or beneficiary is
entitled under the transferee
plan in the form of a single
sum distribution.
(ii) Exception.--Clause (i) shall
apply to plan mergers and other
transactions having the effect of a
direct transfer, including
consolidations of benefits attributable
to different employers within a
multiple employer plan.
(E) Elimination of form of distribution.--
Except to the extent provided in regulations, a
defined contribution plan shall not be treated
as failing to meet the requirements of this
section merely because of the elimination of a
form of distribution previously available
thereunder. This subparagraph shall not apply
to the elimination of a form of distribution
with respect to any participant unless--
(i) a single sum payment is available
to such participant at the same time or
times as the form of distribution being
eliminated, and
(ii) such single sum payment is based
on the same or greater portion of the
participant's account as the form of
distribution being eliminated.
SEC. 412. MINIMUM FUNDING STANDARDS.
(a) * * *
* * * * * * *
(c) Special Rules.--
(1) * * *
* * * * * * *
(7) Full-funding limitation.--
(A) In general.--For purposes of paragraph
(6), the term ``full-funding limitation'' means
the excess (if any) of--
(i) the lesser of
(I) [the applicable
percentage] in the case of plan
years beginning before January
1, 2004, the applicable
percentage of current liability
(including the expected
increase in current liability
due to benefits accruing during
the plan year), or
* * * * * * *
[(F) Applicable percentage.--For purposes of
subparagraph (A)(i)(I), the applicable
percentage shall be determined in accordance
with the following table:
[In the case of any plan year The applicable
beginning in-- percentage is--
1999 or 2000........................................ 155
2001 or 2002........................................ 160
2003 or 2004........................................ 165
2005 and succeeding years........................... 170.]
4 (F) Applicable percentage.--For purposes of
subparagraph (A)(i)(I), the applicable
percentage shall be determined in accordance
with the following table:
In the case of any plan year The applicable
beginning in-- percentage is--
2001................................................ 160
2002................................................ 165
170. 2003................................................
* * * * * * *
[(9) Annual valuation.--For purposes of this section,
a determination of experience gains and losses and a
valuation of the plan's liability shall be made not
less frequently than once every year, except that such
determination shall be made more frequently to the
extent required in particular cases under regulations
prescribed by the Secretary.]
(9) Annual valuation.--
(A) In general.--For purposes of this
section, a determination of experience gains
and losses and a valuation of the plan's
liability shall be made not less frequently
than once every year, except that such
determination shall be made more frequently to
the extent required in particular cases under
regulations prescribed by the Secretary.
(B) Valuation date.--
(i) Current year.--Except as provided
in clause (ii), the valuation referred
to in subparagraph (A) shall be made as
of a date within the plan year to which
the valuation refers or within one
month prior to the beginning of such
year.
(ii) Election to use prior year
valuation.--The valuation referred to
in subparagraph (A) may be made as of a
date within the plan year prior to the
year to which the valuation refers if--
(I) an election is in effect
under this clause with respect
to the plan, and
(II) as of such date, the
value of the assets of the plan
are not less than 125 percent
of the plan's current liability
(as defined in paragraph
(7)(B)).
(iii) Adjustments.--Information under
clause (ii) shall, in accordance with
regulations, be actuarially adjusted to
reflect significant differences in
participants.
(iv) Election.--An election under
clause (ii), once made, shall be
irrevocable without the consent of the
Secretary.
* * * * * * *
SEC. 414. DEFINITIONS AND SPECIAL RULES.
(a) * * *
* * * * * * *
(p) Qualified Domestic Relations Order Defined.--For purposes
of this subsection and section 401(a)(13)--
(1) * * *
* * * * * * *
(10) Waiver of certain distribution requirements.--
With respect to the requirements of subsections (a) and
(k) of section 401, section 403(b), [and section
409(d)] section 409(d), and section 457(d), a plan
shall not be treated as failing to meet such
requirements solely by reason of payments to an
alternative payee pursuant to a qualified domestic
relations order.
(11) Application of rules to [governmental and church
plans] certain other plans.--For purposes of this
title, a distribution or payment from a governmental
plan (as defined in subsection (d)) or a church plan
(as described in subsection (e)) or an eligible
deferred compensation plan (within the meaning of
section 457(b)) shall be treated as made pursuant to a
qualified domestic relations order if it is made
pursuant to a domestic relations order which meets the
requirement of clause (i) of paragraph (1)(A).
(12) Tax treatment of payments from a section 457
plan.--If a distribution or payment from an eligible
deferred compensation plan described in section 457(b)
is made pursuant to a qualified domestic relations
order, rules similar to the rules of section
402(e)(1)(A) shall apply to such distribution or
payment.
[(12)] (13) Consultation with the secretary.--In
prescribing regulations under this subsection and
section 401(a)(13), the Secretary of Labor shall
consult with the Secretary.
* * * * * * *
(v) Catch-up Contributions for Individuals Age 50 or Over.--
(1) In general.--An applicable employer plan shall
not be treated as failing to meet any requirement of
this title solely because the plan permits an eligible
participant to make additional elective deferrals in
any plan year.
(2) Limitation on amount of additional deferrals.--A
plan shall not permit additional elective deferrals
under paragraph (1) for any year in an amount greater
than the lesser of--
(A) $5,000, or
(B) the excess (if any) of--
(i) the participant's compensation
for the year, over
(ii) any other elective deferrals of
the participant for such year which are
made without regard to this subsection.
(3) Treatment of contributions.--In the case of any
contribution to a plan under paragraph (1), such
contribution shall not, with respect to the year in
which the contribution is made--
(A) be subject to any otherwise applicable
limitation contained in section 402(g),
402(h)(2), 404(a), 404(h), 408(p)(2)(A)(ii),
415, or 457, or
(B) be taken into account in applying such
limitations to other contributions or benefits
under such plan or any other such plan.
(4) Eligible participant.--For purposes of this
subsection, the term ``eligible participant'' means,
with respect to any plan year, a participant in a
plan--
(A) who has attained the age of 50 before the
close of the plan year, and
(B) with respect to whom no other elective
deferrals may (without regard to this
subsection) be made to the plan for the plan
year by reason of the application of any
limitation or other restriction described in
paragraph (3) or comparable limitation
contained in the terms of the plan.
(5) Other definitions and rules.--For purposes of
this subsection--
(A) Applicable employer plan.--The term
``applicable employer plan'' means--
(i) an employees' trust described in
section 401(a) which is exempt from tax
under section 501(a),
(ii) a plan under which amounts are
contributed by an individual's employer
for an annuity contract described in
section 403(b),
(iii) an eligible deferred
compensation plan under section 457 of
an eligible employer as defined in
section 457(e)(1)(A), and
(iv) an arrangement meeting the
requirements of section 408 (k) or (p).
(B) Elective deferral.--The term ``elective
deferral'' has the meaning given such term by
subsection (u)(2)(C).
(C) Exception for section 457 plans.--This
subsection shall not apply to an applicable
employer plan described in subparagraph
(A)(iii) for any year to which section
457(b)(3) applies.
(D) Cost-of-living adjustment.--For years
beginning after December 31, 2005, the
Secretary shall adjust annually the $5,000
amount in subparagraph (A) for increases in the
cost-of-living at the same time and in the same
manner as adjustments under section 415(d);
except that the base period shall be the
calendar quarter beginning July 1, 2004, and
any increase which is not a multiple of $500
shall be rounded to the next lowest multiple of
$500.
SEC. 415. LIMITATIONS ON BENEFITS AND CONTRIBUTIONS UNDER QUALIFIED
PLANS.
(a) General Rule.--
(1) * * *
(2) Section applies to certain annuities and
accounts.--In the case of--
(A) an employee annuity plan described in
section 403(a),
(B) an annuity contract described in section
403(b), or
(C) a simplified employee pension described
in section 408(k), such a contract, plan, or
pension shall not be considered to be described
in section 403(a), 403(b), or 408(k), as the
case may be, unless it satisfies the
requirements of subparagraph (A) or
subparagraph (B) of paragraph (1), whichever is
appropriate, and has not been disqualified
under subsection (g). In the case of an annuity
contract described in section 403(b), the
preceding sentence shall apply only to the
portion of the annuity contract which exceeds
the limitation of subsection (b) or the
limitation of subsection (c), whichever is
appropriate, [and the amount of the
contribution for such portion shall reduce the
exclusion allowance as provided in section
403(b)(2)].
(b) Limitation for Defined Benefit Plans.--
(1) In general.--Benefits with respect to a
participant exceed the limitation of this subsection
if, when expressed as an annual benefit (within the
meaning of paragraph (2)), such annual benefit is
greater than the lesser of--
(A) [$90,000] $160,000, or
(B) 100 percent of the participant's average
compensation for his high 3 years.
(2) Annual benefit.--
(A) In general.--For purposes of paragraph
(1), the term ``annual benefit'' means a
benefit payable annually in the form of a
straight life annuity (with no ancillary
benefits) under a plan to which employees do
not contribute and under which no rollover
contributions (as defined in sections 402(c),
403(a)(4), [and 408(d)(3)] 403(b)(8),
408(d)(3), and 457(e)(16)) are made.
(B) Adjustment for certain other forms of
benefit.--If the benefit under the plan is
payable in any form other than the form
described in subparagraph (A), or if the
employees contribute to the plan or make
rollover contributions (as defined in sections
402(c), 403(a)(4), [and 408(d)(3)] 403(b)(8),
408(d)(3), and 457(e)(16)), the determinations
as to whether the limitation described in
paragraph (1) has been satisfied shall be made,
in accordance with regulations prescribed by
the Secretary by adjusting such benefit so that
it is equivalent to the benefit described in
subparagraph (A). For purposes of this
subparagraph, any ancillary benefit which is
not directly related to retirement income
benefits shall not be taken into account; and
that portion of any joint and survivor annuity
which constitutes a qualified joint and
survivor annuity (as defined in section 417
shall not be taken into account.
(C) Adjustment to [$90,000] $160,000 limit
where benefit begins before [the social
security retirement age] age 62.--If the
retirement income benefit under the plan begins
before [the social security retirement age] age
62, the determination as to whether the
[$90,000] $160,000 limitation set forth in
paragraph (1)(A) has been satisfied shall be
made, in accordance with regulations prescribed
by the Secretary, by reducing the limitation of
paragraph (1)(A) so that such limitation (as so
reduced) equals an annual benefit (beginning
when such retirement income benefit begins)
which is equivalent to a [$90,000] $160,000
annual benefit beginning at [the social
security retirement age] age 62. The reduction
under this subparagraph shall be made in such
manner as the Secretary may prescribe which is
consistent with the reduction for old-age
insurance benefits commencing before [the
social security retirement age] age 62 under
the Social Security Act.
(D) Adjustment to [$90,000] $160,000 limit
where benefit begins after [the social security
retirement age] age 65.--If the retirement
income benefit under the plan begins after [the
social security retirement age] age 65, the
determination as to whether the [$90,000]
$160,000 limitation set forth in paragraph
(1)(A) has been satisfied shall be made, in
accordance with regulations prescribed by the
Secretary, by increasing the limitation of
paragraph (1)(A) so that such limitation (as so
increased) equals an annual benefit (beginning
when such retirement income benefit begins)
which is equivalent to a [$90,000] $160,000
annual benefit beginning at [the social
security retirement age] age 65.
* * * * * * *
[(F) Plans maintained by governments and tax-
exempt organizations.--In the case of a
governmental plan (within the meaning of
section 414(d)), a plan maintained by an
organization (other than a governmental unit)
exempt from tax under this subtitle, or a
qualified merchant marine plan--
[(i) subparagraph (C) shall be
applied--
[(I) by substituting ``age
62'' for ``social security
retirement age'' each place it
appears, and
[(II) as if the last sentence
thereof read as follows: ``The
reduction under this
subparagraph shall not reduce
the limitation of paragraph
(1)(A) below (i) $75,000 if the
benefit begins at or after age
55, or
[(ii) if the benefit begins before
age 55, the equivalent of the $75,000
limitation for age 55.'', and
[(ii) subparagraph (D) shall be
applied by substituting ``age 65'' for
``social security retirement age'' each
place it appears.
For purposes of this subparagraph, the term
``qualified merchant marine plan'' means a plan
in existence on January 1, 1986, the
participants in which are merchant marine
officers holding licenses issued by the
Secretary of Transportation under title 46,
United States Code.]
* * * * * * *
(7) Benefits under certain collectively bargained
plans.--For a year, the limitation referred to in
paragraph (1)(B) shall not apply to benefits with
respect to a participant under a defined benefit plan--
(A) * * *
* * * * * * *
This paragraph shall not apply to a participant whose
compensation for any 3 years during the 10-year period
immediately preceding the year in which he separates
from service exceeded the average compensation for such
3 years of all participants in such plan. This
paragraph shall not apply to a participant for any
period for which he is a participant under another plan
to which this section applies which is maintained by an
employer maintaining this plan. For any year for which
the paragraph applies to benefits with respect to a
participant, paragraph (1)(A) and subsection (d)(1)(A)
shall be applied with respect to such participant by
substituting [the greater of $68,212 or one-half the
amount otherwise applicable for such year under
paragraph (1)(A) for ``$90,000''] one-half the amount
otherwise applicable for such year under paragraph
(1)(A) for ``$160,000''.
* * * * * * *
[(11) Special limitation rule for governmental
plans.--In the case of a governmental plan (as defined
in section 414(d), subparagraph (B) of paragraph (1)
shall not apply.]
(11) Special limitation rule for governmental and
multiemployer plans.--In the case of a governmental
plan (as defined in section 414(d)) or a multiemployer
plan (as defined in section 414(f)), subparagraph (B)
of paragraph (1) shall not apply.
* * * * * * *
(c) Limitation for Defined Contribution Plans.--
(1) In general.--Contributions and other additions
with respect to a participant exceed the limitation of
this subsection if, when expressed as an annual
addition (within the meaning of paragraph (2)) to the
participant's account, such annual addition is greater
than the lesser of--
(A) [$30,000] $40,000, or
(B) [25] 100 percent of the participant's
compensation.
(2) Annual addition.--For purposes of paragraph (1),
the term ``annual addition'' means the sum for any year
of--
(A) employer contributions,
(B) the employee contributions, and
(C) forfeitures.
For the purposes of this paragraph, employee
contributions under subparagraph (B) are determined
without regard to any rollover contributions (as
defined in sections 402(c), 403(a)(4),403(b)(8), [and
408(d)(3)] 408(d)(3), and 457(e)(16)) without regard to employee
contributions to a simplified employee pension which are excludable
from gross income under section 408(k)(6). Subparagraph (B) of
paragraph (1) shall not apply to any contribution for medical benefits
(within the meaning of section 419A(f)(2)) after separation from
service which is treated as an annual addition.
(3) Participant's compensation.--For purposes of
paragraph (1)--
(A) * * *
* * * * * * *
(E) Annuity contracts.--In the case of an
annuity contract described in section 403(b),
the term ``participant's compensation'' means
the participant's includible compensation
determined under section 403(b)(3).
[(4) Special election for section 403(b) contracts
purchased by educational organizations, hospitals, home
health service agencies, and certain churches, etc.--
[(A) In the case of amounts contributed for
an annuity contract described in section 403(b)
for the year in which occurs a participant's
separation from the service with an educational
organization, a hospital, a home health service
agency, a health and welfare service agency, or
a church, convention or association of
churches, or an organization described in
section 414(e)(3)(B)(ii), at the election of
the participant there is substituted for the
amount specified in paragraph (1)(B) the amount
of the exclusion allowance which would be
determined under section 403(b)(2) (without
regard to this section) for the participant's
taxable year in which such separation occurs if
the participant's years of service were
computed only by taking into account his
service for the employer (as determined for
purposes of section 403(b)(2)) during the
period of years (not exceeding ten) ending on
the date of such separation.
[(B) In the case of amounts contributed for
an annuity contract described in section 403(b)
for any year in the case of a participant who
is an employee of an educational organization,
a hospital, a home health service agency, a
health and welfare service agency, or a church,
convention or association of churches, or an
organization described in section
414(e)(3)(B)(ii), at the election of the
participant there is substituted for the amount
specified in paragraph (1)(B) the least of--
[(i) 25 percent of the participant's
includible compensation (as defined in
section 403(b)(3)) plus $4,000,
[(ii) the amount of the exclusion
allowance determined for the year under
section 403(b)(2), or
[(iii) $15,000.
[(C) In the case of amounts contributed for
an annuity contract described in section 403(b)
for any year for a participant who is an
employee of an educational organization, a
hospital, a home health service agency, a
health and welfare service agency, or a church,
convention or association of churches, or an
organization described in section
414(e)(3)(B)(ii), at the election of the
participant the provisions of section
403(b)(2)(A) shall not apply.
[(D)(i) The provisions of this paragraph
apply only if the participant elects its
application at the time and in the manner
provided under regulations prescribed by the
Secretary. Not more than one election may be
made under subparagraph (A) by any participant.
A participant who elects to have the provisions
of subparagraph (A), (B), or (C) of this
paragraph apply to him may not elect to have
any other subparagraph of this paragraph apply
to him. Any election made under this paragraph
is irrevocable.
[(ii) For purposes of this paragraph
the term ``educational organization''
means an educational organization
described in section 170(b)(1)(A)(ii).
[(iii) For purposes of this paragraph
the term ``home health service agency''
means an organization described in
subsection 501(c)(3) which is exempt
from tax under section 501(a) and which
has been determined by the Secretary of
Health, Education, and Welfare to be a
home health agency (as defined in
section 1861(o) of the Social Security
Act).
[(iv) For purposes of this paragraph,
the terms ``church'' and ``convention
or association of churches'' have the
same meaning as when used in section
414(e).]
* * * * * * *
[(7) Certain contributions by church plans not
treated as exceeding limits.--
[(A) Alternative exclusion allowance.--Any
contribution or addition with respect to any
participant, when expressed as an annual
addition, which is allocable to the application
of section 403(b)(2)(D) to such participant for
such year, shall be treated as not exceeding
the limitations of paragraph (1).
[(B) Contributions not in excess of $40,000
($10,000 per year).--
[(i) In general.--Notwithstanding any
other provision of this subsection, at
the election of a participant who is an
employee of a church, a convention or
association of churches, including an
organization described in section
414(e)(3)(B)(ii), contributions and
other additions for an annuity contract
or retirement income account described
in section 403(b) with respect to such
participant, when expressed as an
annual addition to such participant's
account, shall be treated as not
exceeding the limitation of paragraph
(1) if such annual addition is not in
excess of $10,000.
[(ii) $40,000 aggregate limitation.--
The total amount of additions with
respect to any participant which may be
taken into account for purposes of this
subparagraph for all years may not
exceed $40,000.
[(iii) No election if paragraph
(4)(A) election made.--No election may
be made under this subparagraph for any
year if an election is made under
paragraph (4)(A) for such year.
[(C) Annual addition.--For purposes of this
paragraph, the term ``annual addition'' has the
meaning given such term by paragraph (2).]
(7) Certain contributions by church plans not treated
as exceeding limit.--
(A) In general.--Notwithstanding any other
provision of this subsection, at the election
of a participant who is an employee of a church
or a convention or association of churches,
including an organization described in section
414(e)(3)(B)(ii), contributions and other
additions for an annuity contract or retirement
income account described in section 403(b) with
respect to such participant, when expressed as
an annual addition to such participant's
account, shall be treated as not exceeding the
limitation of paragraph (1) if such annual
addition is not in excess of $10,000.
(B) $40,000 aggregate limitation.--The total
amount of additions with respect to any
participant which may be taken into account for
purposes of this subparagraph for all years may
not exceed $40,000.
(C) Annual addition.--For purposes of this
paragraph, the term ``annual addition'' has the
meaning given such term by paragraph (2).
(d) Cost-of-living adjustments.--
(1) In general.--The Secretary shall adjust
annually--
(A) the [$90,000] $160,000 amount in
subsection (b)(1)(A),
(B) in the case of a participant who
separated from service, the amount taken into
account under subsection (b)(1)(B), and
(C) the [$30,000] $40,000 amount in
subsection (c)(1)(A), for increases in the
cost-of-living in accordance with regulations
prescribed by the Secretary.
* * * * * * *
(3) Base period.--For purposes of paragraph (2)--
(A) [$90,000] $160,000 amount.--The base
period taken into account for purposes of
paragraph (1)(A) is the calendar quarter
beginning [October 1, 1986] July 1, 2000.
* * * * * * *
(D) [$30,000] $40,000 amount.--The base
period taken into account for purposes of
paragraph (1)(C) is the calendar quarter
beginning [October 1, 1993] July 1, 2000.
[(4) Rounding.--Any increase under subparagraph (A)
or (C) of paragraph (1) which is not a multiple of
$5,000 shall be rounded to the next lowest multiple of
$5,000.]
(4) Rounding.--
(A) $160,000 amount.--Any increase under
subparagraph (A) of paragraph (1) which is not
a multiple of$5,000 shall be rounded to the
next lowest multiple of $5,000.
(B) $40,000 amount.--Any increase under
subparagraph (C) of paragraph (1) which is not
a multiple of $1,000 shall be rounded to the
next lowest multiple of $1,000.
* * * * * * *
(f) Combining of Plans.--
(1) * * *
* * * * * * *
(3) Exception for multiemployer plans.--
Notwithstanding paragraph (1) and subsection (g), a
multiemployer plan (as defined in section 414(f)) shall
not be combined or aggregated with any other plan
maintained by an employer for purposes of applying the
limitations established in this section, except that
such plan shall be combined or aggregated with another
plan which is not such a multiemployer plan solely for
purposes of determining whether such other plan meets
the requirements of subsections (b)(1)(A) and (c).
(g) Aggregation of Plans.--[The Secretary] Except as provided
in subsection (f)(3), the Secretary, in applying the provisions
of this section to benefits or contributions under more than
one plan maintained by the same employer, and to any trusts,
contracts, accounts, or bonds referred to in subsection (a)(2),
with respect to which the participant has the control required
under section 414(b) or (c), as modified by subsection (h),
shall, under regulations prescribed by the Secretary,
disqualify one or more trusts, plans, contracts, accounts, or
bonds, or any combination thereof until such benefits or
contributions do not exceed the limitations contained in this
section. In addition to taking into account such other factors
as may be necessary to carry out the purposes of subsection
(f), the regulations prescribed under this paragraph shall
provide that no plan which has been terminated shall be
disqualified until all other trusts, plans, contracts,
accounts, or bonds have been disqualified.
* * * * * * *
(k) Special Rules.--
(1) * * *
* * * * * * *
(4) Special rules for sections 403(b) and 408.--For
purposes of this section, any annuity contract
described in section 403(b) for the benefit of a
participant shall be treated as a defined contribution
plan maintained by each employer with respect to which
the participant has the control required under
subsection (b) or (c) of section 414 (as modified by
subsection (h)). For purposes of this section, any
contribution by an employer to a simplified employee
pension plan for an individual for a taxable year shall
be treated as an employer contribution to a defined
contribution plan for such individual for such year.
* * * * * * *
SEC. 416. SPECIAL RULES FOR TOP-HEAVY PLANS.
(a) * * *
* * * * * * *
(c) Plan Must Provide Minimum Benefits.--
(1) Defined benefit plans.--
(A) * * *
* * * * * * *
(C) Years of service.--For purposes of this
paragraph--
(i) In general.--Except as provided
in [clause (ii)] clause (ii) or (iii),
years of service shall be determined
under the rules of paragraphs (4), (5),
and (6) of section 411(a).
* * * * * * *
(iii) Exception for frozen plan.--For
purposes of determining an employee's
years of service with the employer, any
service with the employer shall be
disregarded to the extent that such
service occurs during a plan year when
the plan benefits (within the meaning
of section 410(b)) no employee or
former employee.
* * * * * * *
(2) Defined contribution plans.--
(A) In general.--A defined contribution plan
meets the requirements of the subsection if the
employer contribution for the year for each
participant who is a non-key employee is not
less than 3 percent of such participant's
compensation (within the meaning of section
415). Employer matching contributions (as
defined in section 401(m)(4)(A)) shall be taken
into account for purposes of this subparagraph.
* * * * * * *
(g) Top-Heavy Plan Defined.--For purposes of this section--
(1) * * *
* * * * * * *
[(3) Distributions during last 5 years taken into
account.--For purposes of determining--
[(A) the present value of the cumulative
accrued benefit for any employee, or
[(B) the amount of the account of any
employee,such present value or amount shall be
increased by the aggregate distributions made
with respect to such employee under the plan
during the 5-year period ending on the
determination date. The preceding sentence
shall also apply to distributions under a
terminated plan which if it had not been
terminated would have been required to be
included in an aggregation group.]
(3) Distributions during last year before
determination date taken into account.--
(A) In general.--For purposes of
determining--
(i) the present value of the
cumulative accrued benefit for any
employee, or
(ii) the amount of the account of any
employee,
such present value or amount shall be increased
by the aggregate distributions made with
respect to such employee under the plan during
the 1-year period ending on the determination
date. The preceding sentence shall also apply
to distributions under a terminated plan which
if it had not been terminated would have been
required to be included in an aggregation
group.
(B) 5-year period in case of in-service
distribution.--In the case of any distribution
made for a reason other than separation from
service, death, or disability, subparagraph (A)
shall be applied by substituting ``5-year
period'' for ``1-year period''.
(4) Other special rules.--For purposes of this
subsection--
(A) * * *
* * * * * * *
(E) Benefits not taken into account if
employee not employed for [last 5 years] last
year before determination date.--If any
individual has not performed services for the
employer maintaining the plan at any time
during the [5-year period] 1-year period ending
on the determination date, any accrued benefit
for such individual (and the account of such
individual) shall not be taken into account.
* * * * * * *
(H) Cash or deferred arrangements using
alternative methods of meeting
nondiscrimination requirements.--The term
``top-heavy plan'' shall not include a plan
which consists solely of--
(i) a cash or deferred arrangement
which meets the requirements of section
401(k)(12), and
(ii) matching contributions with
respect to which the requirements of
section 401(m)(11) are met.
If, but for this subparagraph, a plan would be
treated as a top-heavy plan because it is a
member of an aggregation group which is a top-
heavy group, contributions under the plan may
be taken into account in determining whether
any other plan in the group meets the
requirements of subsection (c)(2).
* * * * * * *
(i) Definitions.--For purposes of this section--
(1) Key employee.--
(A) In general.--The term ``key employee''
means an employee who, at any time during the
plan year [or any of the 4 preceding plan
years], is--
[(i) an officer of the employer
having an annual compensation greater
than 50 percent of the amount in effect
under section 415(b)(1)(A) for any such
plan year,
[(ii) 1 of the 10 employees having
annual compensation from the employer
of more than the limitation in effect
under section 415(c)(1)(A) and owning
(or considered as owning within the
meaning of section 318 the largest
interests in the employer,]
(i) an officer of the employer having
an annual compensation greater than
$150,000,
[(iii)] (ii) a 5-percent owner of the
employer, or
[(iv)] (iii) a 1-percent owner of the
employer having an annual compensation
from the employer of more than
$150,000.
For purposes of clause (i), no more than 50
employees (or, if lesser, the greater of 3 or
10 percent of the employees) shall be treated
as officers. [For purposes of clause (ii), if 2
employees have the same interest in the
employer, the employee having greater annual
compensation from the employer shall be treated
as having a larger interest.] Such term shall
not include any officer or employee of an
entity referred to in section 414(d) (relating
to governmental plans). For purposes of
determining the number of officers taken into
account under clause (i), employees described
in section 414(q)(5) shall be excluded.
(B) Percentage owners.--
(i) * * *
* * * * * * *
(iii) Constructive ownership rules.--
For purposes of this subparagraph [and
subparagraph (A)(ii)]--
(I) subparagraph (C) of
section 318(a)(2) shall be
applied by substituting ``5
percent'' for ``50 percent'',
and
(II) in the case of any
employer which is not a
corporation, ownership in such
employer shall be determined in
accordance with regulations
prescribed by the Secretary
which shall be based on
principles similar to the
principles of section 318 (as
modified by subclause (I)).
(iv) Family attribution
disregarded.--Solely for purposes of
applying this paragraph (and not for
purposes of any provision of this title
which incorporates by reference the
definition of a key employee or 5-
percent owner under this paragraph),
section 318 shall be applied without
regard to subsection (a)(1) thereof in
determining whether any person is a 5-
percent owner.
* * * * * * *
SEC. 417. DEFINITIONS AND SPECIAL RULES FOR PURPOSES OF MINIMUM
SURVIVOR ANNUITY REQUIREMENTS.
(a) Election To Waive Qualified Joint and Survivor Annuity or
Qualified Preretirement Survivor Annuity.--
(1) * * *
* * * * * * *
(6) Applicable election period defined.--For purposes
of this subsection, the term ``applicable election
period'' means--
(A) in the case of an election to waive the
qualified joint and survivor annuity form of
benefit, the [90-day] 180-day period ending on
the annuity starting date, or
* * * * * * *
Subchapter E--Accounting periods and methods of accounting
* * * * * * *
PART II--METHODS OF ACCOUNTING
* * * * * * *
Subpart B--Taxable Year for Which Items of Gross Income Included
* * * * * * *
SEC. 457. DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS
AND TAX-EXEMPT ORGANIZATIONS.
[(a) Year of Inclusion in Gross Income.--In the case of a
participant in an eligible deferred compensation plan, any
amount of compensation deferred under the plan, and any income
attributable to the amounts so deferred, shall be includible in
gross income only for the taxable year in which such
compensation or other income is paid or otherwise made
available to the participant or other beneficiary.]
(a) Year of inclusion in gross income.--
(1) In general.--Any amount of compensation deferred
under an eligible deferred compensation plan, and any
income attributable to the amounts so deferred, shall
be includible in gross income only for the taxable year
in which such compensation or other income--
(A) is paid to the participant or other
beneficiary, in the case of a plan of an
eligible employer described in subsection
(e)(1)(A), and
(B) is paid or otherwise made available to
the participant or other beneficiary, in the
case of a plan of an eligible employer
described in subsection (e)(1)(B).
(2) Special rule for rollover amounts.--To the extent
provided in section 72(t)(9), section 72(t) shall apply
to any amount includible in gross income under this
subsection.
(b) Eligible Deferred Compensation Plan Defined.--For
purposes of this section, the term ``eligible deferred
compensation plan'' means a plan established and maintained by
an eligible employer--
(1) in which only individuals who perform service for
the employer may be participants,
(2) which provides that (except as provided in
paragraph (3)) the maximum amount which may be deferred
under the plan for the taxable year (other than
rollover amounts) shall not exceed the lesser of--
(A) [$7,500] the applicable dollar amount, or
(B) [33\1/3\] 100 percent of the
participant's includible compensation,
(3) which may provide that, for 1 or more of the
participant's last 3 taxable years ending before he
attains normal retirement age under the plan, the
ceiling set forth in paragraph (2) shall be the lesser
of--
(A) [$15,000] twice the dollar amount in
effect under subsection (b)(2)(A), or
* * * * * * *
(c) Individuals Who Are Participants in More Than 1 Plan.--
(1) In general.--The maximum amount of the
compensation of any one individual which may be
deferred under subsection (a) during any taxable year
shall not exceed [$7,500] the applicable dollar amount
(as modified by any adjustment provided under
subsection (b)(3)).
(2) Coordination with certain other deferrals.--In
applying paragraph (1) of this subsection--
(A) any amount excluded from gross income
under section 403(b) for the taxable year, and
(B) any amount--
(i) excluded from gross income under
section 402(e)(3) or section
402(h)(1)(B) or (k) for the taxable
year, or
(ii) with respect to which a
deduction is allowable by reason of a
contribution to an organization
described in section 501(c)(18) for the
taxable year,
shall be treated as an amount deferred under subsection
(a). In applying section [402(g)(8)(A)(iii)]
402(g)(7)(A)(iii) or 403(b)(2)(A)(ii), an amount
deferred under subsection (a) for any year of service
shall be taken into account as if described in section
402(g)(3)(C) or 403(b)(2)(A)(ii), respectively.
Subparagraph (B) shall not apply in the case of a
participant in a rural cooperative plan (as defined in
section 401(k)(7)).
[For years beginning after December 31, 2000, subsection (c) is amended
to read as follows:]
(c) Limitation.--The maximum amount of the compensation of
any one individual which may be deferred under subsection (a)
during any taxable year shall not exceed the amount in effect
under subsection (b)(2)(A) (as modified by any adjustment
provided under subsection (b)(3)).
(d) Distribution Requirements.--
(1) In general.--For purposes of subsection (b)(5), a
plan meets the distribution requirements of this
subsection if--
(A) under the plan amounts will not be made
available to participants or beneficiaries
earlier than--
(i) the calendar year in which the
participant attains age 70\1/2\,
(ii) when the participant [is
separated from service] has a severance
from employment with the employer, or
(iii) when the participant is faced
with an unforeseeable emergency
(determined in the manner prescribed by
the Secretary in regulations), [and]
(B) the plan meets the minimum distribution
requirements of paragraph (2)[.], and
(C) in the case of a plan maintained by an
employer described in subsection (e)(1)(A), the
plan meets requirements similar to the
requirements of section 401(a)(31).
Any amount transferred in a direct trustee-to-trustee
transfer in accordance with section 401(a)(31) shall
not be includible in gross income for the taxable year
of transfer.
[(2) Minimum distribution requirements.--A plan meets
the minimum distribution requirements of this paragraph
if such plan meets the requirements of subparagraphs
(A), (B), and (C):
[(A) Application of section 401(a)(9).--A
plan meets the requirements of this
subparagraph if the plan meets the requirements
of section 401(a)(9).
[(B) Additional distribution requirement.--A
plan meets the requirements of this
subparagraph if--
[(i) in the case of a distribution
beginning before the death of the
participant, such distribution will be
made in a form under which--
[(I) the amounts payable with
respect to the participant will
be paid at times specified by
the Secretary which are not
later than the time determined
under section 401(a)(9)(G)
(relating to incidental death
benefits), and
[(II) any amount not
distributed to the participant
during his life will be
distributed after the death of
the participant at least as
rapidly as under the method of
distributions being used under
subclause (I) as of the date of
his death, or
[(ii) in the case of a distribution
which does not begin before the death
of the participant, the entire amount
payable with respect to the participant
will be paid during a period not to
exceed 15 years (or the life expectancy
of the surviving spouse if such spouse
is the beneficiary).
[(C) Nonincreasing benefits.--A plan meets
the requirements of this subparagraph if any
distribution payable over a period of more than
1 year can only be made in substantially
nonincreasing amounts (paid not less frequently
than annually).]
(2) Minimum distribution requirements.--A plan meets
the minimum distribution requirements of this paragraph
if such plan meets the requirements of section
401(a)(9).
(3) Special rule for government plan.--An eligible
deferred compensation plan of an employer described in
subsection (e)(1)(A) shall not be treated as failing to
meet the requirements of this subsection solely by
reason of making a distribution described in subsection
(e)(9)(A).
* * * * * * *
(e) Other Definitions and Special Rules.--For purposes of
this section--
(1) * * *
* * * * * * *
[(9) Benefits not treated as made available by reason
of certain elections, etc.--]
(9) Benefits of tax exempt organization plans not
treated as made available by reason of certain
elections, etc.--In the case of an eligible deferred
compensation plan of an employer described in
subsection (e)(1)(B)--
(A) Total amount payable is dollar limit or
less.--The total amount payable to a
participant under the plan shall not be treated
as made available merely because the
participant may elect to receive such amount
(or the plan may distribute such amount without
the participant's consent) if--
(i) [such amount] the portion of such
amount which is not attributable to
rollover contributions (as defined in
section 411(a)(11)(D)) does not exceed
the dollar limit under section
411(a)(11)(A), and
(ii) such amount may be distributed
only if--
(I) no amount has been
deferred under the plan with
respect to such participant
during the 2-year period ending
on the date of the distribution
and
(II) there has been no prior
distribution under the plan to
such participant to which this
subparagraph applied.
A plan shall not be treated as failing to meet the
distribution requirements of subsection (d) by reason
of a distribution to which this subparagraph applies.
* * * * * * *
[(15) Cost-of-living adjustment of maximum deferral
amount.--The Secretary shall adjust the $7,500 amount
specified in subsections (b)(2) and (c)(1) at the same
time and in the same manner as under section 415(d),
except that the base period shall be the calendar
quarter ending September 30, 1994, and any increase
under this paragraph which is not a multiple of $500
shall be rounded to the next lowest multiple of $500.]
(15) Applicable dollar amount.--
(A) In general.--The applicable dollar amount
shall be the amount determined in accordance
with the following table:
For taxable years The applicable
beginning in dollar amount:
calendar year:
2001................................................ $11,000
2002................................................ $12,000
2003................................................ $13,000
2004................................................ $14,000
2005 or thereafter.................................. $15,000.
(B) Cost-of-living adjustments.--In the case
of taxable years beginning after December 31,
2005, the Secretary shall adjust the $15,000
amount specified in the table in subparagraph
(A) at the same time and in the same manner as
under section 415(d), except that the base
period shall be the calendar quarter beginning
July 1, 2004, and any increase under this
paragraph which is not a multiple of $500 shall
be rounded to the next lowest multiple of $500.
(16) Rollover amounts.--
(A) General rule.--In the case of an eligible
deferred compensation plan established and
maintained by an employer described in
subsection (e)(1)(A), if--
(i) any portion of the balance to the
credit of an employee in such plan is
paid to such employee in an eligible
rollover distribution (within the
meaning of section 402(c)(4) without
regard to subparagraph (C) thereof),
(ii) the employee transfers any
portion of the property such employee
receives in such distribution to an
eligible retirement plan described in
section 402(c)(8)(B), and
(iii) in the case of a distribution
of property other than money, the
amount so transferred consists of the
property distributed,
then such distribution (to the extent so
transferred) shall not be includible in gross
income for the taxable year in which paid.
(B) Certain rules made applicable.--The rules
of paragraphs (2) through (7) (other than
paragraph (4)(C)) and (9) of section 402(c) and
section 402(f) shall apply for purposes of
subparagraph (A).
(C) Reporting.--Rollovers under this
paragraph shall be reported to the Secretary in
the same manner as rollovers from qualified
retirement plans (as defined in section
4974(c)).
(17) Trustee-to-trustee transfers to purchase
permissive service credit.--No amount shall be
includible in gross income by reason of a direct
trustee-to-trustee transfer to a defined benefit
governmental plan (as defined in section 414(d)) if
such transfer is--
(A) for the purchase of permissive service
credit (as defined in section 415(n)(3)(A))
under such plan, or
(B) a repayment to which section 415 does not
apply by reason of subsection (k)(3) thereof.
* * * * * * *
Subchapter F--Exempt organizations
* * * * * * *
PART I--GENERAL RULE
* * * * * * *
SEC. 501. EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN TRUSTS, ETC.
(a) * * *
* * * * * * *
(c) List of Exempt Organizations.--The following
organizations are referred to in subsection (a):
(1) * * *
* * * * * * *
(18) A trust or trusts created before June 25, 1959,
forming part of a plan providing for the payment of
benefits under a pension plan funded only by
contributions of employees, if--
(A) * * *
* * * * * * *
(D) in the case of a plan under which an
employee may designate certain contributions as
deductible--
(i) * * *
* * * * * * *
(iii) such contributions are treated
as elective deferrals for purposes of
section 402(g) [(other than paragraph
(4) thereof)], and
(iv) the requirements of section
401(a)(30) are met.
* * * * * * *
SEC. 505. ADDITIONAL REQUIREMENTS FOR ORGANIZATIONS DESCRIBED IN
PARAGRAPH (9), (17), OR (20) OF SECTION 501(C).
(a) * * *
(b) Nondiscrimination Requirements.--
(1) * * *
* * * * * * *
(7) Compensation limit.--A plan shall not be treated
as meeting the requirements of this subsection unless
under the plan the annual compensation of each employee
taken into account for any year does not exceed
[$150,000] $200,000. The Secretary shall adjust the
[$150,000] $200,000 amount at the same time, and by the
same amount, as any adjustment under section
401(a)(17)(B). This paragraph shall not apply in
determining whether the requirements of section 79(d)
are met.
* * * * * * *
Subtitle C--Employment Taxes
* * * * * * *
CHAPTER 24--COLLECTION OF INCOME TAX AT SOURCE ON WAGES
* * * * * * *
SEC. 3401. DEFINITIONS.
(a) Wages.--For purposes of this chapter, the term ``wages''
means all remuneration (other than fees paid to a public
official) for services performed by an employee for his
employer, including the cash value of all remuneration
(including benefits) paid in any medium other than cash; except
that such term shall not include remuneration paid--
(1) * * *
* * * * * * *
(12) to, or on behalf of, an employee or his
beneficiary--
(A) * * *
* * * * * * *
(E) under or to an eligible deferred
compensation plan which, at the time of such
payment, is a plan described in section 457(b)
maintained by an employer described in section
457(e)(1)(A); or
* * * * * * *
SEC. 3405. SPECIAL RULES FOR PENSIONS, ANNUITIES, AND CERTAIN OTHER
DEFERRED INCOME.
(a) * * *
* * * * * * *
(c) Eligible rollover distributions.--
(1) * * *
* * * * * * *
[(3) Eligible rollover distribution.--For purposes of
this subsection, the term ``eligible rollover
distribution'' has the meaning given such term by
section 402(f)(2)(A) (or in the case of an annuity
contract under section 403(b), a distribution from such
contract described in section 402(f)(2)(A)).]
(3) Eligible rollover distribution.--For purposes of
this subsection, the term ``eligible rollover
distribution'' has the meaning given such term by
section 402(f)(2)(A).
* * * * * * *
(d) Liability for Withholding.--
(1) * * *
(2) Plan administrator liable in certain cases.--
(A) * * *
(B) Plans to which paragraph applies.--This
paragraph applies to any plan described in, or
which at any time has been determined to be
described in--
(i) section 401(a),
(ii) section 403(a), [or]
(iii) section 301(d) of the Tax
Reduction Act of 1975[.], or
(iv) section 457(b).
* * * * * * *
Subtitle D--Miscellaneous Excise Taxes
* * * * * * *
CHAPTER 43--QUALIFIED PENSION, ETC., PLANS
Sec. 4971. Taxes on failure to meet minimum funding standards.
* * * * * * *
Sec. 4980F. Failure of applicable plans reducing benefit
accruals to satisfy notice requirements.
* * * * * * *
SEC. 4972. TAX ON NONDEDUCTIBLE CONTRIBUTIONS TO QUALIFIED EMPLOYER
PLANS.
(a) * * *
* * * * * * *
(c) Nondeductible Contributions.--For purposes of this
section--
(1) * * *
* * * * * * *
(6) Exceptions.--In determining the amount of
nondeductible contributions for any taxable year, there
shall not be taken into account--
(A) contributions that would be deductible
under section 404(a)(1)(D) if the plan had more
than 100 participants if--
(i) the plan is covered under section
4021 of the Employee Retirement Income
Security Act of 1974, and
(ii) the plan is terminated under
section 4041(b) of such Act on or
before the last day of the taxable
year, and
(B) so much of the contributions to 1 or more
defined contribution plans which are not
deductible when contributed solely because of
section 404(a)(7) as does not exceed the
greater of--
(i) the amount of contributions not
in excess of 6 percent of compensation
[(within the meaning of section
404(a))] (within the meaning of section
404(a) and as adjusted under section
404(a)(12)) paid or accrued (during the
taxable year for which the
contributions were made) to
beneficiaries under the plans, or
(ii) the sum of--
(I) the amount of
contributions described in
section 401(m)(4)(A), plus
(II) the amount of
contributions described in
section 402(g)(3)(A).
If 1 or more defined benefit plans were taken into
account in determining the amount allowable as a
deduction under section 404 for contributions to any
defined contribution plan, subparagraph (B) shall apply
only if such defined benefit plans are described in
section 404(a)(1)(D). For purposes of subparagraph (B),
the deductible limits under section 404(a)(7) shall
first be applied to amounts contributed to a defined
benefit plan and then to amounts described in
subparagraph (B).
[For years beginning after December 31, 2000, paragraph (6) is amended
to read as follows:]
(6) Exceptions.--In determining the amount of
nondeductible contributions for any taxable year, there
shall not be taken into account so much of the
contributions to one or more defined contribution plans
which are not deductible when contributed solely
because of section 404(a)(7) as does not exceed the
greater of--
(A) the amount of contributions not in excess
of 6 percent of compensation (within the
meaning of section 404(a)) paid or accrued
(during the taxable year for which the
contributions were made) to beneficiaries under
the plans, or
(B) the sum of--
(i) the amount of contributions
described in section 401(m)(4)(A), plus
(ii) the amount of contributions
described in section 402(g)(3)(A).
For purposes of this paragraph, the deductible limits
under section 404(a)(7) shall first be applied to
amounts contributed to a defined benefit plan and then
to amounts described in subparagraph (B).
(7) Defined benefit plan exception.--In determining
the amount of nondeductible contributions for any
taxable year, an employer may elect for such year not
to take into account any contributions to a defined
benefit plan except to the extent that such
contributions exceed the full-funding limitation (as
defined in section 412(c)(7), determined without regard
to subparagraph (A)(i)(I) thereof). For purposes of
this paragraph, the deductible limits under section
404(a)(7) shall first be applied to amounts contributed
to defined contribution plans and then to amounts
described in this paragraph. If an employer makes an
election under this paragraph for a taxable year,
paragraph (6) shall not apply to such employer for such
taxable year.
* * * * * * *
SEC. 4973. TAX ON EXCESS CONTRIBUTIONS TO CERTAIN TAX-FAVORED ACCOUNTS
AND ANNUITIES.
(a) * * *
(b) Excess Contributions.--For purposes of this section, in
the case of individual retirement accounts or individual
retirement annuities, the term ``excess contributions'' means
the sum of--
(1) the excess (if any) of--
(A) the amount contributed for the taxable
year to the accounts or for the annuities
(other than a contribution to a Roth IRA or a
rollover contribution described in section
402(c), 403(a)(4), 403(b)(8), [or 408(d)(3)]
408(d)(3), or 457(e)(16)), over
* * * * * * *
SEC. 4974. EXCISE TAX ON CERTAIN ACCUMULATIONS IN QUALIFIED RETIREMENT
PLANS.
(a) General Rule.--If the amount distributed during the
taxable year of the payee under any qualified retirement plan
or any eligible deferred compensation plan (as defined in
section 457(b)) is less than the minimum required distribution
for such taxable year, there is hereby imposed a tax equal to
[50] 10 percent of the amount by which such minimum required
distribution exceeds the actual amount distributed during the
taxable year. The tax imposed by this section shall be paid by
the payee.
* * * * * * *
SEC. 4975. TAX ON PROHIBITED TRANSACTIONS.
(a) * * *
* * * * * * *
(e) Definitions.--
(1) * * *
* * * * * * *
(7) Employee stock ownership plan.--The term
``employee stock ownership plan'' means a defined
contribution plan--
(A) * * *
* * * * * * *
A plan shall not be treated as an employee stock
ownership plan unless it meets the requirements of
section 409(h), section 409(o), and, if applicable,
section 409(n), section 409(p), and section 664(g) and,
if the employer has a registration-type class of
securities (as defined in section 409(e)(4)), it meets
the requirements of section 409(e).
* * * * * * *
(f) Other Definitions and Special Rules.--For purposes of
this section--
(1) * * *
* * * * * * *
(6) Exemptions not to apply to certain
transactions.--
(A) * * *
(B) Special rules for shareholder-employees,
etc.--
(i) * * *
* * * * * * *
(iii) Loan exception.--For purposes
of subparagraph (A)(i), the term
``owner-employee'' shall only include a
person described in subclause (II) or
(III) of clause (i).
* * * * * * *
SEC. 4979A. TAX ON CERTAIN PROHIBITED ALLOCATIONS OF QUALIFIED
SECURITIES.
(a) Imposition of Tax.--If--
(1) there is a prohibited allocation of qualified
securities by any employee stock ownership plan or
eligible worker-owned cooperative, [or]
(2) there is an allocation described in section
664(g)(5)(A),
[there is hereby imposed a tax on such allocation equal to 50
percent of the amount involved.]
(3) there is any allocation of employer securities
which violates the provisions of section 409(p), or a
nonallocation year described in subsection (e)(2)(C)
with respect to an employee stock ownership plan, or
(4) any synthetic equity is owned by a disqualified
person in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership
equal to 50 percent of the amount involved.
* * * * * * *
[(c) Liability for Tax.--The tax imposed by this section
shall be paid by--
[(1) the employer sponsoring such plan, or
[(2) the eligible worker-owned cooperative, which
made the written statement described in section
664(g)(1)(E) or in section 1042(b)(3)(B) (as the case
may be).]
(c) Liability for Tax.--The tax imposed by this section shall
be paid--
(1) in the case of an allocation referred to in
paragraph (1) or (2) of subsection (a), by--
(A) the employer sponsoring such plan, or
(B) the eligible worker-owned cooperative,
which made the written statement described in section
664(g)(1)(E) or in section 1042(b)(3)(B) (as the case
may be), and
(2) in the case of an allocation or ownership
referred to in paragraph (3) or (4) of subsection (a),
by the S corporation the stock in which was so
allocated or owned.
* * * * * * *
[(e) Definitions.--Terms used in this section have the same
respective meaning as when used in section 4978.]
(e) Definitions and Special Rules.--For purposes of this
section--
(1) Definitions.--Except as provided in paragraph
(2), terms used in this section have the same
respective meanings as when used in sections 409 and
4978.
(2) Special rules relating to tax imposed by reason
of paragraph (3) or (4) of subsection (a).--
(A) Prohibited allocations.--The amount
involved with respect to any tax imposed by
reason of subsection (a)(3) is the amount
allocated to the account of any person in
violation of section 409(p)(1).
(B) Synthetic equity.--The amount involved
with respect to any tax imposed by reason of
subsection (a)(4) is the value of the shares on
which the synthetic equity is based.
(C) Special rule during first nonallocation
year.--For purposes of subparagraph (A), the
amount involved for the first nonallocation
year of any employee stock ownership plan shall
be determined by taking into account the total
value of all the deemed-owned shares of all
disqualified persons with respect to such plan.
(D) Statute of limitations.--The statutory
period for the assessment of any tax imposed by
this section by reason of paragraph (3) or (4)
of subsection (a) shall not expire before the
date which is 3 years from the later of--
(i) the allocation or ownership
referred to in such paragraph giving
rise to such tax, or
(ii) the date on which the Secretary
is notified of such allocation or
ownership.
* * * * * * *
SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO
SATISFY NOTICE REQUIREMENTS.
(a) Imposition of Tax.--There is hereby imposed a tax on the
failure of any applicable pension plan to meet the requirements
of subsection (e) with respect to any applicable individual.
(b) Amount of Tax.--
(1) In general.--The amount of the tax imposed by
subsection (a) on any failure with respect to any
applicable individual shall be $100 for each day in the
noncompliance period with respect to such failure.
(2) Noncompliance period.--For purposes of this
section, the term ``noncompliance period'' means, with
respect to any failure, the period beginning on the
date the failure first occurs and ending on the date
the failure is corrected.
(c) Limitations on Amount of Tax.--
(1) Overall limitation for unintentional failures.--
In the case of failures that are due to reasonable
cause and not to willful neglect, the tax imposed by
subsection (a) for failures during the taxable year of
the employer (or, in the case of a multiemployer plan,
the taxable year of the trust forming part of the plan)
shall not exceed $500,000. For purposes of the
preceding sentence, all multiemployer plans of which
the same trust forms a part shall be treated as one
plan. For purposes of this paragraph, if not all
persons who are treated as a single employer for
purposes of this section have the same taxable year,
the taxable years taken into account shall be
determined under principles similar to the principles
of section 1561.
(2) Waiver by secretary.--In the case of a failure
which is due to reasonable cause and not to willful
neglect, the Secretary may waive part or all of the tax
imposed by subsection (a) to the extent that the
payment of such tax would be excessive relative to the
failure involved.
(d) Liability for Tax.--The following shall be liable for the
tax imposed by subsection (a):
(1) In the case of a plan other than a multiemployer
plan, the employer.
(2) In the case of a multiemployer plan, the plan.
(e) Notice Requirements for Plans Significantly Reducing
Benefit Accruals.--
(1) In general.--If an applicable pension plan is
amended to provide for a significant reduction in the
rate of future benefit accrual, the plan administrator
shall provide written notice to each applicable
individual (and to each employee organization
representing applicable individuals).
(2) Notice.--The notice required by paragraph (1)
shall be written in a manner calculated to be
understood by the average plan participant and shall
provide sufficient information (as determined in
accordance with regulations prescribed by the
Secretary) to allow applicable individuals to
understand the effect of the plan amendment.
(3) Timing of notice.--Except as provided in
regulations, the notice required by paragraph (1) shall
be provided within a reasonable time before the
effective date of the plan amendment.
(4) Designees.--Any notice under paragraph (1) may be
provided to a person designated, in writing, by the
person to which it would otherwise be provided.
(5) Notice before adoption of amendment.--A plan
shall not be treated as failing to meet the
requirements of paragraph (1) merely because notice is
provided before the adoption of the plan amendment if
no material modification of the amendment occurs before
the amendment is adopted.
(f) Applicable Individual; Applicable Pension Plan.--For
purposes of this section--
(1) Applicable individual.--The term ``applicable
individual'' means, with respect to any plan
amendment--
(A) any participant in the plan, and
(B) any beneficiary who is an alternate payee
(within the meaning of section 414(p)(8)) under
an applicable qualified domestic relations
order (within the meaning of section
414(p)(1)(A)),
who may reasonably be expected to be affected by such
plan amendment.
(2) Applicable pension plan.--The term ``applicable
pension plan'' means--
(A) any defined benefit plan, or
(B) an individual account plan which is
subject to the funding standards of section
412,
which had 100 or more participants who had accrued a
benefit, or with respect to whom contributions were
made, under the plan (whether or not vested) as of the
last day of the plan year preceding the plan year in
which the plan amendment becomes effective. Such term
shall not include a governmental plan (within the
meaning of section 414(d)) or a church plan (within the
meaning of section 414(e)) with respect to which the
election provided by section 410(d) has not been made.
* * * * * * *
Subtitle F--Procedure and Administration
* * * * * * *
CHAPTER 61--INFORMATION AND RETURNS
* * * * * * *
Subchapter A--Returns and Records
* * * * * * *
PART III--INFORMATIONAL RETURNS
* * * * * * *
Subpart B--Information Concerning Transactions With Other Persons
* * * * * * *
SEC. 6047. INFORMATION RELATING TO CERTAIN TRUSTS AND ANNUITY PLANS.
(a) * * *
* * * * * * *
(f) Designated Plus Contributions.--The Secretary shall
require the plan administrator of each applicable retirement
plan (as defined in section 402A) to make such returns and
reports regarding designated plus contributions (as so defined)
to the Secretary, participants and beneficiaries of the plan,
and such other persons as the Secretary may prescribe.
[(f)] (g) Cross references
(1) For provisions relating to penalties for failures to file
returns and reports required under this section, see sections
6652(e), 6721, and 6722.
(2) For criminal penalty for furnishing fraudulent
information, see section 7207.
(3) For provisions relating to penalty for failure to comply
with the provisions of subsection (d), see section 6704.
* * * * * * *
Subpart C--Information Regarding Wages Paid Employees
* * * * * * *
SEC. 6051. RECEIPTS FOR EMPLOYEES.
(a) Requirement.--Every person required to deduct and
withhold from an employee a tax under section 3101 or 3402, or
who would have been required to deduct and withhold a tax under
section 3402 (determined without regard to subsection (n)) if
the employee had claimed no more than one withholding
exemption, or every employer engaged in a trade or business who
pays remuneration for services performed by an employee,
including the cash value of such remuneration paid in any
medium other than cash, shall furnish to each such employee in
respect of the remuneration paid by such person to such
employee during the calendar year, on or before January 31 of
the succeeding year, or, if his employment is terminated before
the close of such calendar year, within 30 days after the date
of receipt of a written request from the employee if such 30-
day period ends before January 31, a written statement showing
the following:
(1) * * *
* * * * * * *
(8) the total amount of elective deferrals (within
the meaning of section 402(g)(3)) and compensation
deferred under section 457, including the amount of
designated plus contributions (as defined in section
402A),
* * * * * * *
----------
SECTION 1114 OF THE TAX REFORM ACT OF 1986
SEC. 1114. DEFINITION OF HIGHLY COMPENSATED EMPLOYEE.
(a) * * *
* * * * * * *
(c) Effective Date.--
(1) * * *
* * * * * * *
[(4) Special rule for determining highly compensated
employees.--For purposes of sections 401(k) and 401(m)
of the Internal Revenue Code of 1986, in the case of an
employer incorporated on December 15, 1924, if more
than 50 percent of its employees in the top-paid group
(within the meaning of section 414(q)(4) of such Code)
earn less than $25,000 (indexed at the same time and in
the same manner as under section 415(d) of such Code),
then the highly compensated employees shall include
employees described in section 414(q)(1)(C) of such
Code determined without regard to the level of
compensation of such employees.]
----------
SECTION 1505 OF THE TAXPAYER RELIEF ACT OF 1997
SEC. 1505. EXTENSION OF MORATORIUM ON APPLICATION OF CERTAIN
NONDISCRIMINATION RULES TO STATE AND LOCAL
GOVERNMENTS.
(a) * * *
* * * * * * *
(d) Effective Dates.--
(1) * * *
(2) Treatment for years beginning before date of
enactment.--A governmental plan (within the meaning of
section 414(d) of the Internal Revenue Code of 1986)
[maintained by a State or local government or political
subdivision thereof (or agency or instrumentality
thereof)] shall be treated as satisfying the
requirements of sections 401(a)(3), 401(a)(4),
401(a)(26), 401(k), 401(m), 403 (b)(1)(D) and (b)(12),
and 410 of such Code for all taxable years beginning
before the date of enactment of this Act.
VII. ADDITIONAL VIEWS
H.R. 4843, the Comprehensive Retirement Security and
Pension Reform Act of 2000, is designed to: (1) increase
retirement savings mainly through tax-preferred employment-
based vehicles or Individual Retirement Accounts (IRAs), (2)
enhance long-term security of pension benefits, and (3) reduce
certain regulatory burdens relating to establishing and
administering employer-sponsored pension plans.
We strongly support the underlying goal of H.R. 4843, to
provide expanded opportunities for working Americans to save
for their retirement. This goal is shared by Members of both
parties and is reflected in the level of bipartisan support
this legislation has received. Many of the provisions that were
included in the original bill, H.R. 1102, are noncontroversial,
while others have been improved since the date of introduction.
Consequently, H.R. 4843 is a more balanced bill than the
original bill. However, there are some provisions we hope will
continue to be debated and improved as this bill moves through
the legislative process.
H.R. 4843 provides us with an opportunity to respond to the
pressing need for adequate and secure retirement benefits for
all workers. This bill should provide additional incentives for
increased retirement savings by rank and file workers.
Expanding pension coverage and increasing the rate of
participation in employment-based pension plans is even more
important now as we face a declining national savings rate
coupled with the imminent retirement of many baby boomers. In
addition, a significant number of workers will face retirement
with either insufficient or no retirement savings other than
their Social Security benefit.
Our current retirement system is built on the assumption
that benefits provided under Social Security would be
supplemented by other sources of income such as employment-
based pensions and personal savings. Thus, it is very important
that we develop legislation designed to increase and enhance
retirement savings for all working Americans.
H.R. 4843 contains many needed provisions such as those
designed to enhance and expand portability of pension benefits
by workers as they move from one employer to another, to
enhance fairness in pensions for women, and to strengthen
pension security and enforcement.
The current level of mobility among workers requires a
modified approach to our retirement system. There is great
demand for a system that incorporates flexibility for employers
and portability of pension benefits for workers. Lack of
pension portability in such a mobile workforce could result in
workers being shortchanged in pension benefits merely because
they changed jobs.
H.R. 4843 contains provisions that respond directly to this
need. Under this legislation, workers will have greater
flexibility to transfer their pension benefits between employer
plans or to an IRA. This flexibility would be available for all
forms of employer-sponsored qualified pension plans and IRAs.
We strongly support these provisions.
In addition, H.R. 4843 contains various proposals designed
to enhance the security of pension benefits for women. One such
proposal would improve the ability of workers to vest in their
accrued benefits through faster vesting requirements. Under the
bill, this rule would apply to certain employer matching
contributions to a section 401(k) plan. Because all workers
should have the opportunity to vest in these employer
contributions on an equal basis, we hope this provision sets
the precedent with respect to vesting in all employer
contributions under all pensions plans. There is no policy
reason for workers to vest more slowly in their pension
benefits based solely on the type of pension plan offered by
their employer.
Several provisions contained in H.R. 4843 are designed to
increase benefit and contribution limits for taxpayers who are
currently saving the maximum permitted under our current
pension laws. These taxpayers would be allowed to save
additional amounts on a tax-preferred basis through their
employer-sponsored plan. We believe the opportunity either to
begin to save or to increase current retirement savings through
a tax-preferred vehicle must be extended to all workers, not
just those who contribute the maximum contributions permitted
under current law. This has not been accomplished by H.R. 4843
in its present form.
While H.R. 4843 provides significant opportunities for
those workers who can most afford to, and currently do, save
the maximum amount allowed, few or no opportunities are
available to low- and moderate-income workers under the bill.
We must continue to work together to improve this aspect of the
bill. We must ensure that no segment of our workforce is
excluded from the opportunity to improve their retirement years
financially. The pressure to save adequately for retirement
affects all working Americans. We must respond to these needs
in a fair manner.
The Amendment offered by Congressman Jefferson and other
Democrats in Committee but defeated on a party line vote, is
essential to make H.R. 4843 a more balanced pension package.
The Amendment would increase savings opportunities for all
workers, not just those workers who can most afford to save, by
including low- and moderate-income workers in this legislation.
The Amendment would have added to H.R. 4843 a Retirement
Savings Account (RSA) proposal as developed by the
Administration. We support the goal of the RSA proposal and
consider it an important element to perfect the Comprehensive
Retirement Security and Pension Reform Act of 2000.
The RSA proposal would be a good first step in addressing
the balance needed in this legislation. It would provide a
refundable credit to low- and middle-income workers who
participate in an employer-sponsored pension plan or an IRA.
The maximum credit would equal 50 percent of the annual
contribution limit allowed under a traditional IRA. The credit
would be available to all qualifying taxpayers whose adjusted
gross income does not exceed certain specified levels.
The RSA proposal does not create a separate savings
account. Rather, it works with existing employer-sponsored
plans and IRAs. This feature would provide simplicity and ease
of administration for plan sponsors. The proposal is designed
to promote significant savings among low- and middle-income
workers who are not currently participating in a pension plan
or who are participating at a minimal level.
The RSA proposal is intended to provide a strong incentive
for our most vulnerable workers to save for their retirement.
Because many of these workers have not yet begun to save or are
saving at a minimal level, we believe a 50-percent credit would
encourage them to take an important step toward creating
increased retirement savings. Many of these workers will begin
with a small account balance but will watch it grow over the
years to an amount that could provide a more financially
secured retirement. In addition, the satisfaction of seeing a
small amount of savings grow through continuous contributions
and compound interest will be an additional incentive for these
individuals to continue the practice of saving for retirement.
Workers who have little or no retirement savings can be brought
into our current retirement system only through a different
form of saving incentive such as the RSA proposal. It is our
responsibility to ensure that these workers also benefit from
any legislation that expands opportunities to save for
retirement.
Statistics confirm that low-income workers are far less
likely to participate in an employment based retirement savings
plan than workers with higher incomes even when a plan is
available to them. Individuals earning between $10,000 and
$14,000 annually participate at a rate of 31 percent even
though 51 percent of them have access to plans at work.
However, the participation rate for workers earning $50,000 or
more increases to 83 percent, with 88 percent of such workers
having access to employer-sponsored plans.
The refundable aspect of the RSA credit is a key feature in
reaching the workers it is intended to help. This credit allows
us to include in our retirement system workers who simply
cannot afford to save without such an incentive. Receiving a
matching contribution of up to 50 percent of the annual
contribution amount will motivate many low- and middle-income
workers to direct some of their income or tax refund to
retirement savings. The RSA proposal included in our Amendment
would have accomplished all of these goals.
Another important aspect of our Amendment is the incentive
provided to small employers to establish and maintain pension
plans for their workers. These incentives would have been
provided through two credits for small employers.
First, the Amendment would give a 50-percent tax credit to
small employers for their start-up costs associated with
establishing and administering pension plans for their
employees. The credit would be available for the first three
years of the life of the plan. This credit would provide a
strong incentive for small businesses to offer pension plans
for their employees. In addition, it could be used as a
marketing tool by financial institutions and pension plan
advisors to promote the adoption of plans among small
employers.
Second, the Amendment would provide eligible small
employers with a 50-percent credit for certain employer
contributions made to a pension plan for their non-highly
compensated employees. The credit would encourage small
employers to make contributions on behalf of those workers who
have little or no money to contribute to the plan. The credit
would be available for non-elective employer contributions of
up to 1 percent of the employee's compensation, up to a total
of 3 percent for both non-elective and matching contributions.
By encouraging small employers to make contributions on behalf
of their non-highly compensated employees, retirement savings
for those workers will increase.
It is critical to improve plan sponsorship among small
employers who lag behind large employers in establishing
retirement plans. Today, small businesses (100 or fewer
employees) employ approximately two of every five U.S. workers,
yet less than one-third of these businesses offer any
retirement plan to their workers. The employees of small
employers have the same need to save for their retirement, and
we must provide them with the same opportunities to save in a
tax-preferred employment-based vehicle as their counterparts
who are employed by larger businesses.
We hope that these proposals, which form the cornerstone of
any inclusive pension reform package, will be given serious
consideration as this process moves forward. We remain hopeful
that any pension package signed into law this year will contain
these proposals.
Some have concerns that other provisions contained in H.R.
4843, such as the provisions to modify the top-heavy rules and
the nondiscrimination requirements, will be used by employers
to reduce coverage to rank and file workers while increasing
benefits for their highly-compensated workers. However, all of
us hope that H.R. 4843 can be improved by the addition of the
Administration's Retirement Saving Account proposal and the
small business tax credit incentives to expand pension coverage
and increase benefits for rank and file workers. This
legislation should be improved to address the retirement needs
of workers at all income levels. We intend to work in a
bipartisan manner to achieve this goal.
Xavier Becerra.
Richard E. Neal.
William J. Coyne.
Sander Levin.
John Lewis.
Charles B. Rangel.
Robert T. Matsui.
Jim McDermott.
William J. Jefferson.
Karen L. Thurman.