S. 1006 (104th): Pension Simplification Act of 1995

104th Congress, 1995–1996. Text as of Jun 30, 1995 (Introduced).

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S 1006 IS

104th CONGRESS

1st Session

S. 1006

To amend the Internal Revenue Code of 1986 to simplify the pension laws, and for other purposes.

IN THE SENATE OF THE UNITED STATES

June 30 (legislative day, JUNE 19), 1995

Mr. PRYOR (for himself, Mr. HATCH, Mr. BREAUX, and Mr. LEAHY) introduced the following bill; which was read twice and referred to the Committee on Finance


A BILL

To amend the Internal Revenue Code of 1986 to simplify the pension laws, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

    (a) SHORT TITLE- This Act may be cited as the ‘Pension Simplification Act of 1995’.

    (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; amendment of 1986 Code; table of contents.

TITLE I--SIMPLIFICATION OF NONDISCRIMINATION PROVISIONS

      Sec. 101. Definition of highly compensated employees; repeal of family aggregation.

      Sec. 102. Definition of compensation for section 415 purposes.

      Sec. 103. Modification of additional participation requirements.

      Sec. 104. Nondiscrimination rules for qualified cash or deferred arrangements and matching contributions.

TITLE II--SIMPLIFIED DISTRIBUTION RULES

      Sec. 201. Repeal of 5-year income averaging for lump-sum distributions.

      Sec. 202. Repeal of $5,000 exclusion of employees’ death benefits.

      Sec. 203. Simplified method for taxing annuity distributions under certain employer plans.

      Sec. 204. Required distributions.

TITLE III--TARGETED ACCESS TO PENSION PLANS FOR SMALL EMPLOYERS

      Sec. 301. Credit for pension plan start-up costs of small employers.

      Sec. 302. Modifications of simplified employee pensions.

      Sec. 303. Exemption from top-heavy plan requirements.

      Sec. 304. Tax-exempt organizations eligible under section 401(k).

      Sec. 305. Regulatory treatment of small employers.

TITLE IV--PAPERWORK REDUCTION

      Sec. 401. Repeal of combined section 415 limit.

      Sec. 402. Duties of sponsors of certain prototype plans.

TITLE V--MISCELLANEOUS SIMPLIFICATION

      Sec. 501. Treatment of leased employees.

      Sec. 502. Plans covering self-employed individuals.

      Sec. 503. Elimination of special vesting rule for multiemployer plans.

      Sec. 504. Full-funding limitation of multiemployer plans.

      Sec. 505. Alternative full-funding limitation.

      Sec. 506. Affiliated employers.

      Sec. 507. Treatment of governmental plans under section 415.

      Sec. 508. Treatment of deferred compensation plans of State and local governments and tax-exempt organizations.

      Sec. 509. Contributions on behalf of disabled employees.

      Sec. 510. Distributions under rural cooperative plans.

      Sec. 511. Special rules for plans covering pilots.

      Sec. 512. Tenured faculty.

      Sec. 513. Uniform retirement age.

      Sec. 514. Uniform penalty provisions to apply to certain pension reporting requirements.

      Sec. 515. National Commission on Private Pension Plans.

      Sec. 516. Date for adoption of plan amendments.

TITLE I--SIMPLIFICATION OF NONDISCRIMINATION PROVISIONS

SEC. 101. DEFINITION OF HIGHLY COMPENSATED EMPLOYEES; REPEAL OF FAMILY AGGREGATION.

    (a) IN GENERAL- Paragraph (1) of section 414(q) (defining highly compensated employee) is amended to read as follows:

      ‘(1) IN GENERAL- The term ‘highly compensated employee’ means any employee who--

        ‘(A) was a 5-percent owner at any time during the year or the preceding year,

        ‘(B) had compensation for the preceding year from the employer in excess of $80,000, or

        ‘(C) was the most highly compensated officer of the employer for the preceding year.

      The Secretary shall adjust the $80,000 amount under subparagraph (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 October 1, 1995.’

    (b) SPECIAL RULE WHERE NO EMPLOYEE HAS COMPENSATION OVER SPECIFIED AMOUNT- Paragraph (2) of section 414(q) is amended to read as follows:

      ‘(2) SPECIAL RULE IF NO EMPLOYEE HAS COMPENSATION OVER SPECIFIED AMOUNT-

        ‘(A) IN GENERAL- Except as provided in subparagraph (B), if a defined benefit plan or a defined contribution plan meets the requirements of sections 401(a)(4) and 410(b) with respect to the availability of contributions, benefits, and other plan features, then for all other purposes, subparagraphs (A) and (C) of paragraph (1) shall not apply to such plan.

        ‘(B) EXCEPTION- Subparagraph (A) shall not apply to a plan to the extent provided in regulations that are prescribed by the Secretary to prevent the evasion of the purposes of this paragraph.’

    (c) REPEAL OF FAMILY AGGREGATION RULES-

      (1) IN GENERAL- Paragraph (6) of section 414(q) is hereby repealed.

      (2) COMPENSATION LIMIT- Paragraph (17)(A) of section 401(a) is amended by striking the last sentence.

      (3) DEDUCTION- Subsection (l) of section 404 is amended by striking the last sentence.

    (d) Conforming Amendments-

      (1) Paragraphs (4), (5), (8), and (12) of section 414(q) are hereby repealed.

      (2)(A) Section 414(r) is amended by adding at the end the following new paragraph:

      ‘(9) EXCLUDED EMPLOYEES- For purposes of this subsection, the following employees shall be excluded:

        ‘(A) Employees who have not completed 6 months of service.

        ‘(B) Employees who normally work less than 17 1/2 hours per week.

        ‘(C) Employees who normally work not more than 6 months during any year.

        ‘(D) Employees who have not attained the age of 21.

        ‘(E) Except to the extent provided in regulations, employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and the employer.

      Except as provided by the Secretary, the employer may elect to apply subparagraph (A), (B), (C), or (D) by substituting a shorter period of service, smaller number of hours or months, or lower age for the period of service, number of hours or months, or age (as the case may be) specified in such subparagraph.’

      (B) Subparagraph (A) of section 414(r)(2) is amended by striking ‘subsection (q)(8)’ and inserting ‘paragraph (9)’.

      (3) Section 1114(c)(4) of the Tax Reform Act of 1986 is amended by adding at the end the following new sentence: ‘Any reference in this paragraph to section 414(q) shall be treated as a reference to such section as in effect before the Pension Simplification Act of 1995.’

    (e) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1995, except that in determining whether an employee is a highly compensated employee for years beginning in 1996, such amendments shall be treated as having been in effect for years beginning in 1995.

SEC. 102. DEFINITION OF COMPENSATION FOR SECTION 415 PURPOSES.

    (a) GENERAL RULE- Section 415(c)(3) (defining participant’s compensation) is amended by adding at the end the following new subparagraph:

        ‘(D) CERTAIN DEFERRALS INCLUDED- The term ‘participant’s compensation’ shall include--

          ‘(i) any elective deferral (as defined in section 402(g)(3)), and

          ‘(ii) any amount which is contributed by the employer of the election of the employee and which is not includible in the gross income of the employee under section 125 or 457.’

    (b) CONFORMING AMENDMENTS-

      (1) Section 414(q)(7) is amended to read as follows:

      ‘(7) COMPENSATION- For purposes of this subsection, the term ‘compensation’ has the meaning given such term by section 415(c)(3).’

      (2) Section 414(s)(2) is amended by inserting ‘not’ after ‘elect’ in the text and heading thereof.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1995.

SEC. 103. MODIFICATION OF ADDITIONAL PARTICIPATION REQUIREMENTS.

    (a) GENERAL RULE- Section 401(a)(26)(A) (relating to additional participation requirements) is amended to read as follows:

      ‘(A) IN GENERAL- In the case of a trust which is a part of a defined benefit plan, such trust shall not constitute a qualified trust under this subsection unless on each day of the plan year such trust benefits at least the lesser of--

        ‘(i) 50 employees of the employer, or

        ‘(ii) the greater of--

          ‘(I) 40 percent of all employees of the employer, or

          ‘(II) 2 employees (or if there is only 1 employee, such employee).’

    (b) SEPARATE LINE OF BUSINESS TEST- Section 401(a)(26)(G) (relating to separate line of business) is amended by striking ‘paragraph (7)’ and inserting ‘paragraph (2)(A) or (7)’.

    (c) EFFECTIVE DATE- The amendment made by this section shall apply to years beginning after December 31, 1995.

SEC. 104. NONDISCRIMINATION RULES FOR QUALIFIED CASH OR DEFERRED ARRANGEMENTS AND MATCHING CONTRIBUTIONS.

    (a) ALTERNATIVE METHODS OF SATISFYING SECTION 401(k) NONDISCRIMINATION TESTS- Section 401(k) (relating to cash or deferred arrangements) is amended by adding at the end the following new paragraph:

      ‘(11) Alternative methods of meeting nondiscrimination requirements-

        ‘(A) IN GENERAL- A cash or deferred arrangement shall be treated as meeting the requirements of paragraph (3)(A)(ii) if such arrangement--

          ‘(i) meets the contribution requirements of subparagraph (B) or (C), and

          ‘(ii) meets the notice requirements of subparagraph (D).

        ‘(B) Matching contributions-

          ‘(i) IN GENERAL- The requirements of this subparagraph are met if, under the arrangement, the employer makes matching contributions on behalf of each employee who is not a highly compensated employee in an amount equal to--

            ‘(I) 100 percent of the elective contributions of the employee to the extent such elective contributions do not exceed 3 percent of the employee’s compensation, and

            ‘(II) 50 percent of the elective contributions of the employee to the extent that such elective contributions exceed 3 percent but do not exceed 5 percent of the employee’s compensation.

          ‘(ii) RATE FOR HIGHLY COMPENSATED EMPLOYEES- The requirements of this subparagraph are not met if, under the arrangement, the matching contribution with respect to any elective contribution of a highly compensated employee at any level of compensation is greater than that with respect to an employee who is not a highly compensated employee.

          ‘(iii) ALTERNATIVE PLAN DESIGNS- If the matching contribution with respect to any elective contribution at any specific level of compensation is not equal to the percentage required under clause (i), an arrangement shall not be treated as failing to meet the requirements of clause (i) if--

            ‘(I) the level of an employer’s matching contribution does not increase as an employee’s elective contributions increase, and

            ‘(II) the aggregate amount of matching contributions with respect to elective contributions not in excess of such level of compensation is at least equal to the amount of matching contributions which would be made if matching contributions were made on the basis of the percentages described in clause (i).

        ‘(C) NONELECTIVE CONTRIBUTIONS- The requirements of this subparagraph are met if, under the arrangement, the employer is required, without regard to whether the employee makes an elective contribution or employee contribution, to make a contribution to a defined contribution plan on behalf of each employee who is not a highly compensated employee and who is eligible to participate in the arrangement in an amount equal to at least 3 percent of the employee’s compensation.

        ‘(D) NOTICE REQUIREMENT- An arrangement meets the requirements of this paragraph if, under the arrangement, each employee eligible to participate is, within a reasonable period before any year, given written notice of the employee’s rights and obligations under the arrangement which--

          ‘(i) is sufficiently accurate and comprehensive to appraise the employee of such rights and obligations, and

          ‘(ii) is written in a manner calculated to be understood by the average employee eligible to participate.

        ‘(E) Other requirements-

          ‘(i) WITHDRAWAL AND VESTING RESTRICTIONS- An arrangement shall not be treated as meeting the requirements of subparagraph (B) or (C) unless the requirements of subparagraphs (B) and (C) of paragraph (2) are met with respect to all employer contributions (including matching contributions).

          ‘(ii) SOCIAL SECURITY AND SIMILAR CONTRIBUTIONS NOT TAKEN INTO ACCOUNT- An arrangement shall not be treated as meeting the requirements of subparagraph (B) or (C) unless such requirements are met without regard to subsection (l), and, for purposes of subsection (l), employer contributions under subparagraph (B) or (C) shall not be taken into account.

        ‘(F) OTHER PLANS- An arrangement shall be treated as meeting the requirements under subparagraph (A)(i) if any other plan maintained by the employer meets such requirements with respect to employees eligible under the arrangement.’

    (b) ALTERNATIVE METHODS OF SATISFYING SECTION 401(m) NONDISCRIMINATION TESTS- Section 401(m) (relating to nondiscrimination test for matching contributions and employee contributions) is amended by redesignating paragraph (10) as paragraph (11) and by adding after paragraph (9) the following new paragraph:

      ‘(10) Alternative method of satisfying tests-

        ‘(A) IN GENERAL- A defined contribution plan shall be treated as meeting the requirements of paragraph (2) with respect to matching contributions if the plan--

          ‘(i) meets the contribution requirements of subparagraph (B) or (C) of subsection (k)(11),

          ‘(ii) meets the notice requirements of subsection (k)(11)(D), and

          ‘(iii) meets the requirements of subparagraph (B).

        ‘(B) LIMITATION ON MATCHING CONTRIBUTIONS- The requirements of this subparagraph are met if--

          ‘(i) matching contributions on behalf of any employee may not be made with respect to an employee’s contributions or elective deferrals in excess of 6 percent of the employee’s compensation,

          ‘(ii) the level of an employer’s matching contribution does not increase as an employee’s contributions or elective deferrals increase, and

          ‘(iii) the matching contribution with respect to any highly compensated employee at a specific level of compensation is not greater than that with respect to an employee who is not a highly compensated employee.’

    (c) YEAR FOR COMPUTING NONHIGHLY COMPENSATED EMPLOYEE PERCENTAGE-

      (1) CASH OR DEFERRED ARRANGEMENTS- Clause (ii) of section 401(k)(3)(A) is amended--

        (A) by striking ‘such year’ and inserting ‘the plan year’, and

        (B) by striking ‘for such plan year’ and inserting ‘the preceding plan year’.

      (2) MATCHING AND EMPLOYEE CONTRIBUTIONS- Section 401(m)(2)(A) is amended--

        (A) by inserting ‘for such plan year’ after ‘highly compensated employee’, and

        (B) by inserting ‘for the preceding plan year’ after ‘eligible employees’ each place it appears in clause (i) and clause (ii).

    (d) SPECIAL RULE FOR DETERMINING AVERAGE DEFERRAL PERCENTAGE FOR FIRST PLAN YEAR, ETC-

      (1) Paragraph (3) of section 401(k) is amended by adding at the end the following new subparagraph:

        ‘(E) For purposes of this paragraph, in the case of the first plan year of any plan, the amount taken into account as the actual deferral percentage of nonhighly compensated employees for the preceding plan year shall be--

          ‘(i) 3 percent, or

          ‘(ii) if the employer makes an election under this subclause, the actual deferral percentage of nonhighly compensated employees determined for such first plan year.’

      (2) Paragraph (3) of section 401(m) is amended by adding at the end thereof the following: ‘Rules similar to the rules of subsection (k)(3)(E) shall apply for purposes of this subsection.’

    (e) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1995.

TITLE II--SIMPLIFIED DISTRIBUTION RULES

SEC. 201. REPEAL OF 5-YEAR INCOME AVERAGING FOR LUMP-SUM DISTRIBUTIONS.

    (a) IN GENERAL- Subsection (d) of section 402 (relating to taxability of beneficiary of employees’ trust) is amended to read as follows:

    ‘(d) TAXABILITY OF BENEFICIARY OF CERTAIN FOREIGN SITUS TRUSTS- For purposes of subsections (a), (b), and (c), a stock bonus, pension, or profit-sharing trust which would qualify for exemption from tax under section 501(a) except for the fact that it is a trust created or organized outside the United States shall be treated as if it were a trust exempt from tax under section 501(a).’

    (b) CONFORMING AMENDMENTS-

      (1) Subparagraph (D) of section 402(e)(4) (relating to other rules applicable to exempt trusts) is amended to read as follows:

        ‘(D) LUMP-SUM DISTRIBUTION- For purposes of this paragraph--

          ‘(i) IN GENERAL- The term ‘lump sum distribution’ means the distribution or payment within one taxable year of the recipient of the balance to the credit of an employee which becomes payable to the recipient--

            ‘(I) on account of the employee’s death,

            ‘(II) after the employee attains age 59 1/2 ,

            ‘(III) on account of the employee’s separation from service, or

            ‘(IV) after the employee has become disabled (within the meaning of section 72(m)(7)),

          from a trust which forms a part of a plan described in section 401(a) and which is exempt from tax under section 501 or from a plan described in section 403(a). Subclause (III) of this clause shall be applied only with respect to an individual who is an employee without regard to section 401(c)(1), and subclause (IV) shall be applied only with respect to an employee within the meaning of section 401(c)(1). For purposes of this clause, a distribution to two or more trusts shall be treated as a distribution to one recipient. For purposes of this paragraph, the balance to the credit of the employee does not include the accumulated deductible employee contributions under the plan (within the meaning of section 72(o)(5)).

          ‘(ii) AGGREGATION OF CERTAIN TRUSTS AND PLANS- For purposes of

determining the balance to the credit of an employee under clause (i)--

            ‘(I) all trusts which are part of a plan shall be treated as a single trust, all pension plans maintained by the employer shall be treated as a single plan, all profit-sharing plans maintained by the employer shall be treated as a single plan, and all stock bonus plans maintained by the employer shall be treated as a single plan, and

            ‘(II) trusts which are not qualified trusts under section 401(a) and annuity contracts which do not satisfy the requirements of section 404(a)(2) shall not be taken into account.

          ‘(iii) COMMUNITY PROPERTY LAWS- The provisions of this paragraph shall be applied without regard to community property laws.

          ‘(iv) AMOUNTS SUBJECT TO PENALTY- This paragraph shall not apply to amounts described in subparagraph (A) of section 72(m)(5) to the extent that section 72(m)(5) applies to such amounts.

          ‘(v) BALANCE TO CREDIT OF EMPLOYEE NOT TO INCLUDE AMOUNTS PAYABLE UNDER QUALIFIED DOMESTIC RELATIONS ORDER- For purposes of this paragraph, the balance to the credit of an employee shall not include any amount payable to an alternate payee under a qualified domestic relations order (within the meaning of section 414(p)).

          ‘(vi) TRANSFERS TO COST-OF-LIVING ARRANGEMENT NOT TREATED AS DISTRIBUTION- For purposes of this paragraph, the balance to the credit of an employee under a defined contribution plan shall not include any amount transferred from such defined contribution plan to a qualified cost-of-living arrangement (within the meaning of section 415(k)(2)) under a defined benefit plan.

          ‘(vii) LUMP-SUM DISTRIBUTIONS OF ALTERNATE PAYEES- If any distribution or payment of the balance to the credit of an employee would be treated as a lump-sum distribution, then, for purposes of this paragraph, the payment under a qualified domestic relations order (within the meaning of section 414(p)) of the balance to the credit of an alternate payee who is the spouse or former spouse of the employee shall be treated as a lump-sum distribution. For purposes of this clause, the balance to the credit of the alternate payee shall not include any amount payable to the employee.’

      (2) Section 402(c) (relating to rules applicable to rollovers from exempt trusts) is amended by striking paragraph (10).

      (3) Paragraph (1) of section 55(c) (defining regular tax) is amended by striking ‘shall not include any tax imposed by section 402(d) and’.

      (4) Paragraph (8) of section 62(a) (relating to certain portion of lump-sum distributions from pension plans taxed under section 402(d)) is hereby repealed.

      (5) Section 401(a)(28)(B) (relating to coordination with distribution rules) is amended by striking clause (v).

      (6) Subparagraph (B)(ii) of section 401(k)(10) (relating to distributions that must be lump-sum distributions) is amended to read as follows:

        ‘(ii) LUMP-SUM DISTRIBUTION- For purposes of this subparagraph, the term ‘lump-sum distribution’ means any distribution of the balance to the credit of an employee immediately before the distribution.’

      (7) Section 406(c) (relating to termination of status as deemed employee not to be treated as separation from service for purposes of limitation of tax) is hereby repealed.

      (8) Section 407(c) (relating to termination of status as deemed employee not to be treated as separation from service for purposes of limitation of tax) is hereby repealed.

      (9) Section 691(c) (relating to deduction for estate tax) is amended by striking paragraph (5).

      (10) Paragraph (1) of section 871(b) (relating to imposition of tax) is amended by striking ‘section 1, 55, or 402(d)(1)’ and inserting ‘section 1 or 55’.

      (11) Subsection (b) of section 877 (relating to alternative tax) is amended by striking ‘section 1, 55, or 402(d)(1)’ and inserting ‘section 1 or 55’.

      (12) Section 4980A(c)(4) is amended--

        (A) by striking ‘to which an election under section 402(d)(4)(B) applies’ and inserting ‘(as defined in section 402(e)(4)(D)) with respect to which the individual elects to have this paragraph apply’,

        (B) by adding at the end the following new flush sentence:

      ‘An individual may elect to have this paragraph apply to only one lump-sum distribution.’, and

        (C) by striking the heading and inserting:

      ‘(4) SPECIAL ONE-TIME ELECTION- ’.

      (13) Section 402(e) is amended by striking paragraph (5).

    (c) EFFECTIVE DATES-

      (1) IN GENERAL- The amendments made by this section shall apply to taxable years beginning after December 31, 1995.

      (2) RETENTION OF CERTAIN TRANSITION RULES- Notwithstanding any other provision of this section, the amendments made by this section shall not apply to any distribution for which the taxpayer elects the benefits of section 1122 (h)(3) or (h)(5) of the Tax Reform Act of 1986. For purposes of the preceding sentence, the rules of sections 402(c)(10) and 402(d) of the Internal Revenue Code of 1986 (as in effect before the amendments made by this Act) shall apply.

SEC. 202. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES’ DEATH BENEFITS.

    (a) IN GENERAL- Subsection (b) of section 101 is hereby repealed.

    (b) CONFORMING AMENDMENT- Subsection (c) of section 101 is amended by striking ‘subsection (a) or (b)’ and inserting ‘subsection (a)’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1995.

SEC. 203. SIMPLIFIED METHOD FOR TAXING ANNUITY DISTRIBUTIONS UNDER CERTAIN EMPLOYER PLANS.

    (a) GENERAL RULE- Subsection (d) of section 72 (relating to annuities; certain proceeds of endowment and life insurance contracts) is amended to read as follows:

    ‘(d) SPECIAL RULES FOR QUALIFIED EMPLOYER RETIREMENT PLANS-

      ‘(1) SIMPLIFIED METHOD OF TAXING ANNUITY PAYMENTS-

        ‘(A) IN GENERAL- In the case of any amount received as an annuity under a qualified employer retirement plan--

          ‘(i) subsection (b) shall not apply, and

          ‘(ii) the investment in the contract shall be recovered as provided in this paragraph.

        ‘(B) METHOD OF RECOVERING INVESTMENT IN CONTRACT-

          ‘(i) IN GENERAL- Gross income shall not include so much of any monthly annuity payment under a qualified employer retirement plan as does not exceed the amount obtained by dividing--

            ‘(I) the investment in the contract (as of the annuity starting date), by

            ‘(II) the number of anticipated payments determined under the table contained in clause (iii) (or, in the case of a contract to which subsection (c)(3)(B) applies, the number of monthly annuity payments under such contract).

          ‘(ii) CERTAIN RULES MADE APPLICABLE- Rules similar to the rules of paragraphs (2) and (3) of subsection (b) shall apply for purposes of this paragraph.

          ‘(iii) NUMBER OF ANTICIPATED PAYMENTS-

‘If the age of the

--

primary annuitant on

--The number

the annuity starting

--of anticipated

date is:

--payments is:

Not more than 55

--300

More than 55 but not more than 60

--260

More than 60 but not more than 65

--240

More than 65 but not more than 70

--170

More than 70

--120

        ‘(C) ADJUSTMENT FOR REFUND FEATURE NOT APPLICABLE- For purposes of this paragraph, investment in the contract shall be determined under subsection (c)(1) without regard to subsection (c)(2).

        ‘(D) SPECIAL RULE WHERE LUMP SUM PAID IN CONNECTION WITH COMMENCEMENT OF ANNUITY PAYMENTS- If, in connection with the commencement of annuity payments under any qualified employer retirement plan, the taxpayer receives a lump sum payment--

          ‘(i) such payment shall be taxable under subsection (e) as if received before the annuity starting date, and

          ‘(ii) the investment in the contract for purposes of this paragraph shall be determined as if such payment had been so received.

        ‘(E) EXCEPTION- This paragraph shall not apply in any case where the primary annuitant has attained age 75 on the annuity starting date unless there are fewer than 5 years of guaranteed payments under the annuity.

        ‘(F) ADJUSTMENT WHERE ANNUITY PAYMENTS NOT ON MONTHLY BASIS- In any case where the annuity payments are not made on a monthly basis, appropriate adjustments in the application of this paragraph shall be made to take into account the period on the basis of which such payments are made.

        ‘(G) QUALIFIED EMPLOYER RETIREMENT PLAN- For purposes of this paragraph, the term ‘qualified employer retirement plan’ means any plan or contract described in paragraph (1), (2), or (3) of section 4974(c).

      ‘(2) TREATMENT OF EMPLOYEE CONTRIBUTIONS UNDER DEFINED CONTRIBUTION PLANS- For purposes of this section, employee contributions (and any income allocable thereto) under a defined contribution plan may be treated as a separate contract.’

    (b) EFFECTIVE DATE- The amendment made by this section shall apply in cases where the annuity starting date is after December 31, 1995.

SEC. 204. REQUIRED DISTRIBUTIONS.

    (a) IN GENERAL- Section 401(a)(9)(C) (defining required beginning date) is amended to read as follows:

        ‘(C) REQUIRED BEGINNING DATE- For purposes of this paragraph--

          ‘(i) IN GENERAL- The term ‘required beginning date’ means April 1 of the calendar year following the later of--

            ‘(I) the calendar year in which the employee attains age 70 1/2 , or

            ‘(II) the calendar year in which the employee retires.

          ‘(ii) EXCEPTION- Subclause (II) of clause (i) shall not apply--

            ‘(I) except as provided in section 409(d), in the case of an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains age 70 1/2 , or

            ‘(II) for purposes of section 408 (a)(6) or (b)(3).

          ‘(iii) ACTUARIAL ADJUSTMENT- In the case of an employee to whom clause (i)(II) applies who retires in a calendar year after the calendar year in which the employee attains age 70 1/2 , the employee’s accrued benefit shall be actuarially increased to take into account the period after age 70 1/2 in which the employee was not receiving any benefits under the plan.

          ‘(iv) EXCEPTION FOR GOVERNMENTAL AND CHURCH PLANS- Clauses (ii) and (iii) shall not apply in the case of a governmental plan or church plan. For purposes of this clause, the term ‘church plan’ means a plan maintained by a church for church employees, and the term ‘church’ means any church (as defined in section 3121(w)(3)(A)) or qualified church-controlled organization (as defined in section 3121(w)(3)(B)).’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to years beginning after December 31, 1995.

TITLE III--TARGETED ACCESS TO PENSION PLANS FOR SMALL EMPLOYERS

SEC. 301. CREDIT FOR PENSION PLAN START-UP COSTS OF SMALL EMPLOYERS.

    (a) ALLOWANCE OF CREDIT- Section 38(b) (defining current year business credit) is amended by striking ‘plus’ at the end of paragraph (10), by striking the period at the end of paragraph (11) and inserting ‘, plus’, and by adding at the end the following new paragraph:

      ‘(12) the small employer pension plan start-up cost credit.’

    (b) SMALL EMPLOYER PENSION PLAN START-UP COST CREDIT- Subpart D of part IV of subchapter A of chapter 1 (relating to business related credits) is amended by adding at the end the following new section:

‘SEC. 45C. SMALL EMPLOYER PENSION PLAN START-UP COST CREDIT.

    ‘(a) AMOUNT OF CREDIT- For purposes of section 38--

      ‘(1) IN GENERAL- The small employer pension plan start-up cost credit for any taxable year is an amount equal to the qualified start-up costs of an eligible employer in establishing a qualified pension plan.

      ‘(2) AGGREGATE LIMITATION- The amount of the credit under paragraph (1) for any taxable year shall not exceed $1,000, reduced by the aggregate amount determined under this section for all preceding taxable years of the taxpayer.

    ‘(b) QUALIFIED START-UP COSTS; QUALIFIED PENSION PLAN- For purposes of this section--

      ‘(1) QUALIFIED START-UP COSTS- The term ‘qualified start-up costs’ means any ordinary and necessary expenses of an eligible employer which--

        ‘(A) are paid or incurred in connection with the establishment of a qualified pension plan, and

        ‘(B) are of a nonrecurring nature.

      ‘(2) QUALIFIED PENSION PLAN- The term ‘qualified pension plan’ means--

        ‘(A) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a), or

        ‘(B) a simplified employee pension (as defined in section 408(k)).

    ‘(c) ELIGIBLE EMPLOYER- For purposes of this section--

      ‘(1) IN GENERAL- The term ‘eligible employer’ means an employer which--

        ‘(A) had an average daily number of employees during the preceding taxable year not in excess of 50, and

        ‘(B) did not make any contributions on behalf of any employee to a qualified pension plan during the 2 taxable years immediately preceding the taxable year.

      ‘(2) PROFESSIONAL SERVICE EMPLOYERS EXCLUDED- Such term shall not include an employer substantially all of the activities of which involve the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting.

    ‘(d) SPECIAL RULES- For purposes of this section--

      ‘(1) AGGREGATION RULES- All persons treated as a single employer under subsection (a) or (b) of section 52 or subsection (n) or (o) of section 414 shall be treated as one person.

      ‘(2) DISALLOWANCE OF DEDUCTION- No deduction shall be allowable under this chapter for any qualified start-up costs for which a credit is allowable under subsection (a).’

    (c) CONFORMING AMENDMENTS-

      (1) Section 39(d) is amended by adding at the end the following new paragraph:

      ‘(7) NO CARRYBACK OF PENSION CREDIT- No portion of the unused business credit for any taxable year which is attributable to the small employer pension plan start-up cost credit determined under section 45C may be carried back to a taxable year ending before the date of the enactment of section 45C.’

      (2) The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by adding at the end the following new item:

      ‘Sec. 45C. Small employer pension plan start-up cost credit.’

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to costs incurred after the date of the enactment of this Act in taxable years ending after such date.

SEC. 302. MODIFICATIONS OF SIMPLIFIED EMPLOYEE PENSIONS.

    (a) INCREASE IN NUMBER OF ALLOWABLE PARTICIPANTS FOR SALARY REDUCTION ARRANGEMENTS- Section 408(k)(6)(B) is amended by striking ‘25’ each place it appears in the text and heading thereof and inserting ‘100’.

    (b) REPEAL OF PARTICIPATION REQUIREMENT-

      (1) IN GENERAL- Section 408(k)(6)(A) is amended by striking clause (ii) and by redesignating clauses (iii) and (iv) as clauses (ii) and (iii), respectively.

      (2) CONFORMING AMENDMENTS- Clause (ii) of section 408(k)(6)(C) and clause (ii) of section 408(k)(6)(F) are each amended by striking ‘subparagraph (A)(iii)’ and inserting ‘subparagraph (A)(ii)’.

    (c) ALTERNATIVE TEST- Clause (ii) of section 408(k)(6)(A), as redesignated by subsection (b)(1), is amended by adding at the end the following new flush sentence:

          ‘The requirements of the preceding sentence are met if the employer makes contributions to the simplified employee pension meeting the requirements of sections 401(k)(11) (B) or (C), 401(k)(11)(D), and 401(m)(10)(B).’

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1995.

SEC. 303. EXEMPTION FROM TOP-HEAVY PLAN REQUIREMENTS.

    (a) EXEMPTION FROM TOP-HEAVY PLAN REQUIREMENTS- Section 416(g) (defining top-heavy plans) is amended by adding at the end the following new paragraph:

      ‘(3) EXEMPTION FOR CERTAIN PLANS- A plan shall not be treated as a top-heavy plan if, for such plan year, the employer has no highly compensated employees (as defined in section 414(q)) by reason of section 414(q)(2).’

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to years beginning after December 31, 1995.

SEC. 304. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER SECTION 401(k).

    (a) GENERAL RULE- Clause (ii) of section 401(k)(4)(B) is amended to read as follows:

          ‘(ii) any organization described in section 501(c)(3) which is exempt from tax under section 501(a).’

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to plan years beginning after December 31, 1995, but shall not apply to any cash or deferred arrangement to which clause (i) of section 1116(f)(2)(B) of the Tax Reform Act of 1986 applies.

SEC. 305. REGULATORY TREATMENT OF SMALL EMPLOYERS.

    (a) IN GENERAL- Section 7805(f) (relating to review of impact of regulations on small business) is amended by adding at the end the following new subparagraph:

      ‘(4) SPECIAL RULE FOR PENSION REGULATIONS-

        ‘(A) IN GENERAL- Any regulation proposed to be issued by the Secretary which relates to qualified pension plans shall not take effect unless the Secretary includes provisions to address any special needs of the small employers.

        ‘(B) QUALIFIED PENSION PLAN- For purposes of this paragraph, the term ‘qualified pension plan’ means--

          ‘(i) any plan which includes a trust described in section 401(a) which is exempt from tax under section 501(a), or

          ‘(ii) any simplified employee pension (as defined in section 408(k)).’

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to regulations issued after the date of the enactment of this Act.

TITLE IV--PAPERWORK REDUCTION

SEC. 401. REPEAL OF COMBINED SECTION 415 LIMIT.

    (a) IN GENERAL- Section 415(e) (relating to limitation in case of defined benefit plan and defined contribution plan for same employee) is hereby repealed.

    (b) CONFORMING AMENDMENTS-

      (1) Subparagraph (B) of section 415(b)(5) is amended by striking ‘and subsection (e)’.

      (2) Section 415(f)(1) is amended by striking ‘, (c), and (e)’ and inserting ‘and (c)’.

      (3) Section 415(g) is amended by striking ‘subsections (e) and (f)’ and inserting ‘subsection (f)’.

      (4) Section 415(k)(2)(A) is amended--

        (A) by striking clause (i) and inserting:

          ‘(i) any contribution made directly by an employee under such arrangement shall not be treated as an annual addition for purposes of subsection (c), and’, and

        (B) by striking ‘subsections (c) and (e)’ in clause (ii) and inserting ‘subsection (c)’.

      (5) Section 416(h) is hereby repealed.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1995.

SEC. 402. DUTIES OF SPONSORS OF CERTAIN PROTOTYPE PLANS.

    (a) IN GENERAL- The Secretary of the Treasury may, as a condition of sponsorship, prescribe rules defining the duties and responsibilities of sponsors of master and prototype plans, regional prototype plans, and other Internal Revenue Service preapproved plans.

    (b) DUTIES RELATING TO PLAN AMENDMENT, NOTIFICATION OF ADOPTERS, AND PLAN ADMINISTRATION- The duties and responsibilities referred to in subsection (a) may include--

      (1) the maintenance of lists of persons adopting the sponsor’s plans, including the updating of such lists not less frequently than annually,

      (2) the furnishing of notices at least annually to such persons and to the Secretary or the Secretary’s delegate, in such form and at such time as the Secretary shall prescribe,

      (3) duties relating to administrative services to such persons in the operation of their plans, and

      (4) other duties that the Secretary considers necessary to ensure that--

        (A) the master and prototype, regional prototype, and other preapproved plans of adopting employers are timely amended to meet the requirements of the Internal Revenue Code of 1986 or of any rule or regulation of the Secretary, and

        (B) adopting employers receive timely notification of amendments and other actions taken by sponsors with respect to their plans.

TITLE V--MISCELLANEOUS SIMPLIFICATION

SEC. 501. TREATMENT OF LEASED EMPLOYEES.

    (a) GENERAL RULE- Subparagraph (C) of section 414(n)(2) (defining leased employee) is amended to read as follows:

        ‘(C) such services are performed under significant direction or control by the recipient.’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to years beginning after December 31, 1995, but shall not apply to any relationship determined under an Internal Revenue Service ruling issued before the date of the enactment of this Act pursuant to section 414(n)(2)(C) of the Internal Revenue Code of 1986 (as in effect on the day before such date) not to involve a leased employee.

SEC. 502. PLANS COVERING SELF-EMPLOYED INDIVIDUALS.

    (a) AGGREGATION RULES- Section 401(d) (relating to additional requirements for qualification of trusts and plans benefiting owner-employees) is amended to read as follows:

    ‘(d) CONTRIBUTION LIMIT ON OWNER-EMPLOYEES- A trust forming part of a pension or profit-sharing plan which provides contributions or benefits for employees some or all of whom are owner-employees shall constitute a qualified trust under this section only if, in addition to meeting the requirements of subsection (a), the plan provides that contributions on behalf of any owner-employee may be made only with respect to the earned income of such owner-employee which is derived from the trade or business with respect to which such plan is established.’

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1995.

SEC. 503. ELIMINATION OF SPECIAL VESTING RULE FOR MULTIEMPLOYER PLANS.

    (a) IN GENERAL- Paragraph (2) of section 411(a) (relating to minimum vesting standards) is amended--

      (1) by striking ‘subparagraph (A), (B), or (C)’ and inserting ‘subparagraph (A) or (B)’; and

      (2) by striking subparagraph (C).

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to plan years beginning on or after the earlier of--

      (1) the later of--

        (A) January 1, 1996, or

        (B) the date on which the last of the collective bargaining agreements pursuant to which the plan is maintained terminates (determined without regard to any extension thereof after the date of the enactment of this Act), or

      (2) January 1, 1998.

    Such amendments shall not apply to any individual who does not have more than 1 hour of service under the plan on or after the 1st day of the 1st plan year to which such amendments apply.

SEC. 504. FULL-FUNDING LIMITATION OF MULTIEMPLOYER PLANS.

    (a) FULL-FUNDING LIMITATION- Section 412(c)(7)(C) (relating to full-funding limitation) is amended--

      (1) by inserting ‘or in the case of a multiemployer plan,’ after ‘paragraph (6)(B),’, and

      (2) by inserting ‘AND MULTIEMPLOYER PLANS’ after ‘PARAGRAPH (6)(B)’ in the heading thereof.

    (b) VALUATION- Section 412(c)(9) is amended--

      (1) by inserting ‘(3 years in the case of a multiemployer plan)’ after ‘year’, and

      (2) by striking ‘ANNUAL VALUATION’ in the heading and inserting ‘VALUATION’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1995.

SEC. 505. ALTERNATIVE FULL-FUNDING LIMITATION.

    (a) IN GENERAL- Subsection (c) of section 412 (relating to minimum funding standards) is amended by redesignating paragraphs (8) through (12) as paragraphs (9) through (13), respectively, and by adding after paragraph (7) the following new paragraph:

      ‘(8) ALTERNATIVE FULL-FUNDING LIMITATION-

        ‘(A) GENERAL RULE- An employer may elect the full-funding limitation under this paragraph with respect to any defined benefit plan of the employer in lieu of the full-funding limitation determined under paragraph (7) if the requirements of subparagraphs (C) and (D) are met.

        ‘(B) ALTERNATIVE FULL-FUNDING LIMITATION- The full-funding limitation under this paragraph is the full-funding limitation determined under paragraph (7) without regard to subparagraph (A)(i)(I) thereof.

        ‘(C) REQUIREMENTS RELATING TO PLAN ELIGIBILITY-

          ‘(i) IN GENERAL- The requirements of this subparagraph are met with respect to a defined benefit plan if--

            ‘(I) as of the 1st day of the election period, the average accrued liability of participants accruing benefits under the plan for the 5 immediately preceding plan years is at least 80 percent of the plan’s total accrued liability,

            ‘(II) the plan is not a top-heavy plan (as defined in section 416(g)) for the 1st plan year of the election period or either of the 2 preceding plan years, and

            ‘(III) each defined benefit plan of the employer (and each defined benefit plan of each employer who is a member of any controlled group which includes such employer) meets the requirements of subclauses (I) and (II).

          ‘(ii) FAILURE TO CONTINUE TO MEET REQUIREMENTS-

            ‘(I) If any plan fails to meet the requirement of clause (i)(I) for any plan year during an election period, the benefits of the election under this paragraph shall be phased out under regulations prescribed by the Secretary.

            ‘(II) If any plan fails to meet the requirement of clause (i)(II) for any plan year during an election period, such plan shall be treated as not meeting the requirements of clause (i) for the remainder of the election period.

          If there is a failure described in subclause (I) or (II) with respect to any plan, such plan (and each plan described in clause (i)(III) with respect to such plan) shall be treated as not meeting the requirements of clause (i) for any of the 10 plan years beginning after the election period.

        ‘(D) REQUIREMENTS RELATING TO ELECTION- The requirements of this subparagraph are met with respect to an election if--

          ‘(i) FILING DATE- Notice of such election is filed with the Secretary (in such form and manner and containing such information as the Secretary may provide) by January 1 of any calendar year, and is effective as of the 1st day of the election period beginning on or after January 1 of the following calendar year.

          ‘(ii) CONSISTENT ELECTION- Such an election is made for all defined benefit plans maintained by the employer or by any member of a controlled group which includes the employer.

        ‘(E) TERM OF ELECTION- Any election made under this paragraph shall apply for the election period.

        ‘(F) OTHER CONSEQUENCES OF ELECTION-

          ‘(i) NO FUNDING WAIVERS- In the case of a plan with respect to which an election is made under this paragraph, no waiver may be granted under subsection (d) for any plan year beginning after the date the election was made and ending at the close of the election period with respect thereto.

          ‘(ii) FAILURE TO MAKE SUCCESSIVE ELECTIONS- If an election is made under this paragraph with respect to any plan and such an election does not apply for each successive plan year of such plan, such plan shall be treated as not meeting the requirements of subparagraph (C) for the period of 10 plan years beginning after the close of the last election period for such plan.

        ‘(G) DEFINITIONS- For purposes of this paragraph--

          ‘(i) ELECTION PERIOD- The term ‘election period’ means the period of 5 consecutive plan years beginning with the 1st plan year for which the election is made.

          ‘(ii) CONTROLLED GROUP- The term ‘controlled group’ means all persons who are treated as a single employer under subsection (b), (c), (m), or (o) of section 414.’

    (b) ALTERATION OF DISCRETIONARY REGULATORY AUTHORITY- Subparagraph (D) of section 412(c)(7) is amended by striking ‘provide--’ and all that follows through ‘(iii) for’ and inserting ‘provide for’.

    (c) EFFECTIVE DATES-

      (1) IN GENERAL- The amendments made by this section shall take effect on January 1, 1997.

      (2) TRANSITION PERIOD- In the case of a plan with respect to which a transition period election is made under section 412(c)(8)(D)(ii) of the Internal Revenue Code of 1986 (as added by this section), the amendments made by this section shall take effect on July 1, 1996.

SEC. 506. AFFILIATED EMPLOYERS.

    (a) IN GENERAL- For purposes of Treasury Regulations section 1.501(c)(9)-2(a)(1), a group of employers shall be deemed to be affiliated if they are substantially all section 501(c)(12) organizations which perform services (or with respect to which their members perform services) which are the same or are directly related to each other.

    (b) SECTION 501(c)(12) ORGANIZATION- For purposes of this section, the term ‘section 501(c)(12) organization’ means--

      (1) any organization described in section 501(c)(12) of the Internal Revenue Code of 1986,

      (2) any organization providing a service which is the same as a service which is (or could be) provided by an organization described in paragraph (1),

      (3) any organization described in paragraph (4) or (6) of section 501(c) of such Code, but only if at least 80 percent of the members of the organization are organizations described in paragraph (1) or (2), and

      (4) any organization which is a national association of organizations described in paragraph (1), (2), or (3).

    An organization described in paragraph (2) (but not in paragraph (1)) shall not be treated as a section 501(c)(12) organization with respect to a voluntary employees’ beneficiary association unless a substantial number of employers maintaining such association are described in paragraph (1).

    (c) EFFECTIVE DATE- The provisions of this section shall apply to years beginning after December 31, 1995.

SEC. 507. TREATMENT OF GOVERNMENTAL PLANS UNDER SECTION 415.

    (a) COMPENSATION LIMIT- Subsection (b) of section 415 is amended by adding immediately after paragraph (10) the following new paragraph:

      ‘(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.’

    (b) Treatment of Certain Excess Benefit Plans-

      (1) IN GENERAL- Section 415 is amended by adding at the end the following new subsection:

    ‘(m) Treatment of Qualified Governmental Excess Benefit Arrangements-

      ‘(1) GOVERNMENTAL PLAN NOT AFFECTED- In determining whether a governmental plan (as defined in section 414(d)) meets the requirements of this section, benefits provided under a qualified governmental excess benefit arrangement shall not be taken into account. Income accruing to a governmental plan (or to a trust that is maintained solely for the purpose of providing benefits under a qualified governmental excess benefit arrangement) in respect of a qualified governmental excess benefit arrangement shall constitute income derived from the exercise of an essential governmental function upon which such governmental plan (or trust) shall be exempt from tax under section 115.

      ‘(2) TAXATION OF PARTICIPANT- For purposes of this chapter--

        ‘(A) the taxable year or years for which amounts in respect of a qualified governmental excess benefit arrangement are includible in gross income by a participant, and

        ‘(B) the treatment of such amounts when so includible by the participant,

      shall be determined as if such qualified governmental excess benefit arrangement were treated as a plan for the deferral of compensation which is maintained by a corporation not exempt from tax under this chapter and which does not meet the requirements for qualification under section 401.

      ‘(3) QUALIFIED GOVERNMENTAL EXCESS BENEFIT ARRANGEMENT- For purposes of this subsection, the term ‘qualified governmental excess benefit arrangement’ means a portion of a governmental plan if--

        ‘(A) such portion is maintained solely for the purpose of providing to participants in the plan that part of the participant’s annual benefit otherwise payable under the terms of the plan that exceeds the limitations on benefits imposed by this section,

        ‘(B) under such portion no election is provided at any time to the participant (directly or indirectly) to defer compensation, and

        ‘(C) benefits described in subparagraph (A) are not paid from a trust forming a part of such governmental plan unless such trust is maintained solely for the purpose of providing such benefits.’

      (2) COORDINATION WITH SECTION 457- Subsection (e) of section 457 is amended by adding at the end the following new paragraph:

      ‘(14) TREATMENT OF QUALIFIED GOVERNMENTAL EXCESS BENEFIT ARRANGEMENTS- Subsections (b)(2) and (c)(1) shall not apply to any qualified governmental excess benefit arrangement (as defined in section 415(m)(3)), and benefits provided under such an arrangement shall not be taken into account in determining whether any other plan is an eligible deferred compensation plan.’

      (3) CONFORMING AMENDMENT- Paragraph (2) of section 457(f) is amended by striking the word ‘and’ at the end of subparagraph (C), by striking the period after subparagraph (D) and inserting ‘, and’, and by adding at the end the following new subparagraph:

        ‘(E) a qualified governmental excess benefit arrangement described in section 415(m).’

    (c) EXEMPTION FOR SURVIVOR AND DISABILITY BENEFITS- Paragraph (2) of section 415(b) is amended by adding at the end the following new subparagraph:

        ‘(I) EXEMPTION FOR SURVIVOR AND DISABILITY BENEFITS PROVIDED UNDER GOVERNMENTAL PLANS- Subparagraph (B) of paragraph (1), subparagraph (C) of this paragraph, and paragraph (5) shall not apply to--

          ‘(i) income received from a governmental plan (as defined in section 414(d)) as a pension, annuity, or similar allowance as the result of the recipient becoming disabled by reason of personal injuries or sickness, or

          ‘(ii) amounts received from a governmental plan by the beneficiaries, survivors, or the estate of an employee as the result of the death of the employee.’

    (d) Revocation of Grandfather Election-

      (1) IN GENERAL- Subparagraph (C) of section 415(b)(10) is amended by adding at the end the following new clause:

          ‘(ii) REVOCATION OF ELECTION- An election under clause (i) may be revoked not later than the last day of the third plan year beginning after the date of the enactment of this clause. The revocation shall apply to all plan years to which the election applied and to all subsequent plan years. Any amount paid by a plan in a taxable year ending after the revocation shall be includible in income in such taxable year under the rules of this chapter in effect for such taxable year, except that, for purposes of applying the limitations imposed by this section, any portion of such amount which is attributable to any taxable year during which the election was in effect shall be treated as received in such taxable year.’

      (2) CONFORMING AMENDMENT- Subparagraph (C) of section 415(b)(10) is amended by striking ‘This’ and inserting:

          ‘(i) IN GENERAL- This’.

    (e) Effective Date-

      (1) IN GENERAL- The amendments made by subsections (a), (b), (c), and (d) shall apply to taxable years beginning on or after the date of the enactment of this Act. The amendments made by subsection (e) shall apply with respect to revocations adopted after the date of the enactment of this Act.

      (2) TREATMENT FOR YEARS BEGINNING BEFORE DATE OF ENACTMENT- A governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986) shall be treated as satisfying the requirements of section 415 of such Code for all taxable years beginning before the date of the enactment of this Act.

SEC. 508. TREATMENT OF DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.

    (a) SPECIAL RULES FOR PLAN DISTRIBUTIONS- Paragraph (9) of section 457(e) (relating to other definitions and special rules) is amended to read as follows:

      ‘(9) BENEFITS NOT TREATED AS MADE AVAILABLE BY REASON OF CERTAIN ELECTIONS, ETC-

        ‘(A) TOTAL AMOUNT PAYABLE IS $3,500 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 does not exceed $3,500, 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.

        ‘(B) ELECTION TO DEFER COMMENCEMENT OF DISTRIBUTIONS- The total amount payable to a participant under the plan shall not be treated as made available merely because the participant may elect to defer commencement of distributions under the plan if--

          ‘(i) such election is made after amounts may be available under the plan in accordance with subsection (d)(1)(A) and before commencement of such distributions, and

          ‘(ii) the participant may make only 1 such election.’

    (b) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DEFERRAL AMOUNT- Subsection (e) of section 457, as amended by section 507(c)(2), is amended by adding at the end the following new paragraph:

      ‘(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 beginning October 1, 1994.’

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 509. CONTRIBUTIONS ON BEHALF OF DISABLED EMPLOYEES.

    (a) ALL DISABLED PARTICIPANTS RECEIVING CONTRIBUTIONS- Section 415(c)(3)(C) is amended by adding at the end the following: ‘If a defined contribution plan provides for the continuation of contributions on behalf of all participants described in clause (i) for a fixed or determinable period, this subparagraph shall be applied without regard to clauses (ii) and (iii).’

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1995.

SEC. 510. DISTRIBUTIONS UNDER RURAL COOPERATIVE PLANS.

    (a) DISTRIBUTIONS FOR HARDSHIP OR AFTER A CERTAIN AGE- Section 401(k)(7) is amended by adding at the end the following new subparagraph:

        ‘(C) SPECIAL RULE FOR CERTAIN DISTRIBUTIONS- A rural cooperative plan which includes a qualified cash or deferred arrangement shall not be treated as violating the requirements of section 401(a) or of paragraph (2) merely by reason of a hardship distribution or a distribution to a participant after attainment of age 59 1/2 . For purposes of this section, the term ‘hardship distribution’ means a distribution described in paragraph (2)(B)(i)(IV) (without regard to the limit of its application to profit-sharing or stock bonus plans).’

    (b) DEFINITION OF RURAL COOPERATIVE PLANS-

      (1) PUBLIC UTILITY DISTRICTS- Clause (i) of section 401(k)(7)(B) (defining rural cooperative) is amended to read as follows:

          ‘(i) any organization which--

            ‘(I) is engaged primarily in providing electric service on a mutual or cooperative basis, or

            ‘(II) is engaged primarily in providing electric service to the public in its area of service and which is exempt from tax under this subtitle or which is a State or local government (or an agency or instrumentality thereof), other than a municipality (or an agency or instrumentality thereof).’

      (2) RELATED ORGANIZATIONS- Subparagraph (B) of section 401(k)(7), as amended by paragraph (1), is amended by striking clause (iv) and inserting the following new clauses:

          ‘(iv) an organization which is a national association of organizations described in any other clause of this subparagraph, or

          ‘(v) any other organization which provides services which are related to the activities of an organization described in clause (i), (ii), (iii), or (iv), but only in the case of a plan with respect to which substantially all of the organizations maintaining it are described in clause (i), (ii), (iii), or (iv).’

    (c) EFFECTIVE DATES-

      (1) DISTRIBUTIONS- The amendments made by subsection (a) shall apply to distributions after the date of the enactment of this Act.

      (2) RURAL COOPERATIVE- The amendments made by subsection (b) shall apply to plan years beginning after December 31, 1984.

SEC. 511. SPECIAL RULES FOR PLANS COVERING PILOTS.

    (a) GENERAL RULE-

      (1) Subparagraph (B) of section 410(b)(3) is amended to read as follows:

        ‘(B) in the case of a plan established or maintained by one or more employers to provide contributions or benefits for air pilots employed by one or more common carriers engaged in interstate or foreign commerce or air pilots employed by carriers transporting mail for or under contract with the United States Government, all employees who are not air pilots.’

      (2) Paragraph (3) of section 410(b) is amended by striking the last sentence and inserting the following new sentence: ‘Subparagraph (B) shall not apply in the case of a plan which provides contributions or benefits for employees who are not air pilots or for air pilots whose principal duties are not customarily performed aboard aircraft in flight.’

    (b) EFFECTIVE DATE- The amendments made by subsection (a) shall apply to years beginning after December 31, 1995.

SEC. 512. TENURED FACULTY.

    (a) IN GENERAL- Section 457(e)(11) is amended by inserting ‘eligible faculty voluntary retirement incentive pay,’ after ‘disability pay,’.

    (b) DEFINITION- Section 457(e), as amended by sections 507(c)(2) and 508(b), is amended by adding at the end the following new paragraph:

      ‘(16) DEFINITION OF ELIGIBLE FACULTY VOLUNTARY RETIREMENT INCENTIVE PAY- For purposes of this section, the term ‘eligible faculty voluntary retirement incentive pay’ means payments under a plan established for employees serving under contracts of unlimited tenure (or similar arrangements providing for unlimited tenure) at an institution of higher education (as defined in section 1201(a) of the Higher Education Act of 1965 (20 U.S.C. 1141(a))) which--

        ‘(A) provides--

          ‘(i) payment to employees electing to retire during a specified period of time of limited duration, or

          ‘(ii) payment to employees who elect to retire prior to normal retirement age,

        ‘(B) provides that the total amount of payments to an employee does not exceed the equivalent of twice the employee’s annual compensation (within the meaning of section 415(c)(3)) during the year immediately preceding the employee’s termination of service, and

        ‘(C) provides that all payments to an employee must be completed within 5 years after the employee’s termination of service.’

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1995.

SEC. 513. UNIFORM RETIREMENT AGE.

    (a) DISCRIMINATION TESTING- Paragraph (5) of section 401(a) (relating to special rules relating to nondiscrimination requirements) is amended by adding at the end the following new subparagraph:

        ‘(F) SOCIAL SECURITY RETIREMENT AGE- For purposes of testing for discrimination under paragraph (4)--

          ‘(i) the social security retirement age (as defined in section 415(b)(8)) shall be treated as a uniform retirement age, and

          ‘(ii) subsidized early retirement benefits and joint and survivor annuities shall not be treated as being unavailable to employees on the same terms merely because such benefits or annuities are based in whole or in part on an employee’s social security retirement age (as so defined).’

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1995.

SEC. 514. UNIFORM PENALTY PROVISIONS TO APPLY TO CERTAIN PENSION REPORTING REQUIREMENTS.

    (a) IN GENERAL-

      (1) Paragraph (1) of section 6724(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 new subparagraph:

        ‘(C) any statement of the amount of payments to another person required to be made to the Secretary under--

          ‘(i) section 408(i) (relating to reports with respect to individual retirement accounts or annuities), or

          ‘(ii) section 6047(d) (relating to reports by employers, plan administrators, etc.).’

      (2) Paragraph (2) of section 6724(d) is amended by striking ‘or’ at the end of subparagraph (S), by striking the period at the end of subparagraph (T) and inserting a comma, and by inserting after subparagraph (T) the following new subparagraphs:

        ‘(U) section 408(i) (relating to reports with respect to individual retirement plans) to any person other than the Secretary with respect to the amount of payments made to such person, or

        ‘(V) section 6047(d) (relating to reports by plan administrators) to any person other than the Secretary with respect to the amount of payments made to such person.’

    (b) MODIFICATION OF REPORTABLE DESIGNATED DISTRIBUTIONS-

      (1) SECTION 408- Subsection (i) of section 408 (relating to individual retirement account reports) is amended by inserting ‘aggregating $10 or more in any calendar year’ after ‘distributions’.

      (2) SECTION 6047- Paragraph (1) of section 6047(d) (relating to reports by employers, plan administrators, etc.) is amended by adding at the end thereof the following new sentence: ‘No return or report may be required under the preceding sentence with respect to distributions to any person during any year unless such distributions aggregate $10 or more.’

    (c) QUALIFYING ROLLOVER DISTRIBUTIONS- Section 6652(i) is amended--

      (1) by striking ‘the $10’ and inserting ‘$100’, and

      (2) by striking ‘$5,000’ and inserting ‘$50,000’.

    (d) CONFORMING AMENDMENTS-

      (1) Paragraph (1) of section 6047(f) is amended to read as follows:

    ‘(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) Subsection (e) of section 6652 is amended by adding at the end the following new sentence: ‘This subsection shall not apply to any return or statement which is an information return described in section 6724(d)(1)(C)(ii) or a payee statement described in section 6724(d)(2)(V).’

      (3) Subsection (a) of section 6693 is amended by adding at the end the following new sentence: ‘This subsection shall not apply to any report which is an information return described in section 6724(d)(1)(C)(i) or a payee statement described in section 6724(d)(2)(U).’

    (e) EFFECTIVE DATE- The amendments made by this section shall apply to returns, reports, and other statements the due date for which (determined without regard to extensions) is after December 31, 1995.

SEC. 515. NATIONAL COMMISSION ON PRIVATE PENSION PLANS.

    (a) IN GENERAL- Chapter 77 is amended by adding at the end the following new section:

‘SEC. 7524. NATIONAL COMMISSION ON PRIVATE PENSION PLANS.

    ‘(a) ESTABLISHMENT- There is hereby established a commission to be known as the National Commission on Private Pension Plans (in this section referred to as the ‘Commission’).

    ‘(b) MEMBERSHIP-

      ‘(1) The Commission shall consist of--

        ‘(A) 6 members to be appointed by the President;

        ‘(B) 6 members to be appointed by the Speaker of the House of Representatives; and

        ‘(C) 6 members to be appointed by the Majority Leader of the Senate.

      ‘(2) The appointments made pursuant to subparagraphs (B) and (C) of paragraph (1) shall be made in consultation with the chairmen of the committees of the House of Representatives and the Senate, respectively, having jurisdiction over relevant Federal pension programs.

    ‘(c) DUTIES AND FUNCTIONS OF COMMISSION; PUBLIC HEARINGS IN DIFFERENT GEOGRAPHICAL AREAS; BROAD SPECTRUM OF WITNESSES AND TESTIMONY-

      ‘(1) It shall be the duty and function of the Commission to conduct the studies and issue the report required by subsection (d).

      ‘(2) The Commission (and any committees that it may form) may conduct public hearings in order to receive the views of a broad spectrum of the public on the status of the Nation’s private retirement system.

    ‘(d) REPORT TO THE PRESIDENT AND CONGRESS; RECOMMENDATIONS- The Commission shall submit to the President, to the Majority Leader and the Minority Leader of the Senate, and to the Majority Leader and the Minority Leader of the House of Representatives a report no later than September 1, 1996, reviewing existing Federal incentives and programs that encourage and protect private retirement savings. The final report shall also set forth recommendations where appropriate for increasing the level and security of private retirement savings.

    ‘(e) TIME OF APPOINTMENT OF MEMBERS; VACANCIES; ELECTION OF CHAIRMAN; QUORUM; CALLING OF MEETINGS; NUMBER OF MEETINGS; VOTING; COMPENSATION AND EXPENSES-

      ‘(1)(A) Members of the Commission shall be appointed for terms ending on September 1, 1996.

      ‘(B) A vacancy in the Commission shall not affect its powers, but shall be filled in the same manner as the vacant position was first filled.

      ‘(2) The Commission shall elect 1 of its members to serve as Chairman of the Commission.

      ‘(3) A majority of the members of the Commission shall constitute a quorum for the transaction of business.

      ‘(4) The Commission shall meet at the call of the Chairman.

      ‘(5) Decisions of the Commission shall be according to the vote of a simple majority of those present and voting at a properly called meeting.

      ‘(6) Members of the Commission shall serve without compensation, but shall be reimbursed for travel, subsistence, and other necessary expenses incurred in the performance of their duties as members of the Commission.

    ‘(f) EXECUTIVE DIRECTOR AND ADDITIONAL PERSONNEL; APPOINTMENT AND COMPENSATION; CONSULTANTS-

      ‘(1) The Commission shall appoint an Executive Director of the Commission. In addition to the Executive Director, the Commission may appoint and fix the compensation of such personnel as it deems advisable. Such appointments and compensation may be made without regard to the provisions of title 5, United States Code, that govern appointments in the competitive service, and the provisions of chapter 51 and subchapter III of chapter 53 of such title that relate to classifications and the General Schedule pay rates.

      ‘(2) The Commission may procure such temporary and intermittent services of consultants under section 3109(b) of title 5, United States Code, as the Commission determines to be necessary to carry out the duties of the Commission.

    ‘(g) TIME AND PLACE OF HEARINGS AND NATURE OF TESTIMONY AUTHORIZED- In carrying out its duties, the Commission, or any duly organized committee thereof, is authorized to hold such hearings, sit and act at such times and places, and take such testimony, with respect to matters for which it has a responsibility under this section, as the Commission or committee may deem advisable.

    ‘(h) DATA AND INFORMATION FROM OTHER AGENCIES AND DEPARTMENTS-

      ‘(1) The Commission may secure directly from any department or agency of the United States such data and information as may be necessary to carry out its responsibilities.

      ‘(2) Upon request of the Commission, any such department or agency shall furnish any such data or information.

    ‘(i) SUPPORT SERVICES BY GENERAL SERVICES ADMINISTRATION- The General Services Administration shall provide to the Commission, on a reimbursable basis, such administrative support services as the Commission may request.

    ‘(j) AUTHORIZATION OF APPROPRIATIONS- There are authorized to be appropriated for each of fiscal years 1995 and 1996, such sums as may be necessary to carry out this section.

    ‘(k) DONATIONS ACCEPTED AND DEPOSITED IN TREASURY IN SEPARATE FUND; EXPENDITURES-

      ‘(1) The Commission is authorized to accept donations of money, property, or personal services. Funds received from donations shall be deposited in the Treasury in a separate fund created for this purpose. Funds appropriated for the Commission and donated funds may be expended for such purposes as official reception and representation expenses, public surveys, public service announcements, preparation of special papers, analyses, and documentaries, and for such other purposes as determined by the Commission to be in furtherance of its mission to review national issues affecting private pension plans.

      ‘(2) Expenditures of appropriated and donated funds shall be subject to such rules and regulations as may be adopted by the Commission and shall not be subject to Federal procurement requirements.

    ‘(l) PUBLIC SURVEYS- The Commission is authorized to conduct such public surveys as it deems necessary in support of its review of national issues affecting private pension plans and, in conducting such surveys, the Commission shall not be deemed to be an ‘agency’ for the purpose of section 3502 of title 44, United States Code.’

    (b) CONFORMING AMENDMENT- The table of sections for chapter 77 is amended by adding at the end the following new item:

      ‘Sec. 7524. National Commission on Private Pension Plans.’

SEC. 516. DATE FOR ADOPTION OF PLAN AMENDMENTS.

    If any amendment made by this Act requires an amendment to any plan, such plan amendment shall not be required to be made before the first day of the first plan year beginning on or after January 1, 1997, if--

      (1) during the period after such amendment takes effect and before such first plan year, the plan is operated in accordance with the requirements of such amendment, and

      (2) such plan amendment applies retroactively to such period.

    In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), this section shall be applied by substituting ‘1999’ for ‘1997’.