< Back to H.R. 1018 (107th Congress, 2001–2002)

Text of the Economic Recovery and Growth Act of 2001

This bill was introduced on March 14, 2001, in a previous session of Congress, but was not enacted. The text of the bill below is as of Mar 14, 2001 (Introduced).

Source: GPO

HR 1018 IH

107th CONGRESS

1st Session

H. R. 1018

To amend the Internal Revenue Code of 1986 to provide for economic growth by providing tax relief.

IN THE HOUSE OF REPRESENTATIVES

March 14, 2001

Mr. TOOMEY (for himself, Mr. RYAN of Wisconsin, Mr. ARMEY, Mr. FLAKE, Mr. SHADEGG, Mr. SAM JOHNSON of Texas, Mr. DEMINT, Mr. PENCE, Mr. BONILLA, Mr. SESSIONS, Mr. DOOLITTLE, Mr. RYUN of Kansas, Mr. SOUDER, Mr. LARGENT, Mr. Otter, Mr. TANCREDO, Mr. CHABOT, Mr. COX, Mrs. MYRICK, Mr. HAYWORTH, Mr. CANTOR, Mr. AKIN, Ms. HART, Mr. SCHAFFER, Mr. GARY MILLER of California, Mr. ISTOOK, Mr. HOSTETTLER, Mr. PITTS, Mr. BARTLETT of Maryland, Mr. HERGER, Mr. ISSA, Mr. HEFLEY, Mr. KIRK, Mr. KELLER, Mr. JONES of North Carolina, Mrs. JO ANN DAVIS of Virginia, and Mr. BARR of Georgia) introduced the following bill; which was referred to the Committee on Ways and Means


A BILL

To amend the Internal Revenue Code of 1986 to provide for economic growth by providing tax relief.

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

SECTION 1. SHORT TITLE.

    (a) SHORT TITLE- This Act may be cited as the ‘Economic Recovery and Growth Act of 2001’.

    (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) SECTION 15 NOT TO APPLY- No amendment made by this Act shall be treated as a change in a rate of tax for purposes of section 15 of the Internal Revenue Code of 1986.

    (d) TABLE OF CONTENTS-

      Sec. 1. Short title.

TITLE I--INDIVIDUAL INCOME TAX RELIEF

      Sec. 101. Reduction in marginal income tax rates for individuals.

      Sec. 102. Repeal of alternative minimum tax on individuals.

TITLE II--INDIVIDUAL SAVINGS AND INVESTMENT TAX RELIEF

Subtitle A--Individual Savings and Investment Tax Relief

      Sec. 201. Reduction in capital gains rates.

      Sec. 202. Phaseout of estate and gift taxes.

Subtitle B--Pension Reform

Chapter 1--Individual Retirement Accounts

      Sec. 211. Modification of IRA contribution limits.

      Sec. 212. Catchup contributions to IRAs by individuals age 50 or over.

      Sec. 213. Modification of income limits on contributions and rollovers to Roth IRAs.

      Sec. 214. Deemed IRAs under employer plans.

Chapter 2--Expanding Coverage

      Sec. 221. Increase in benefit and contribution limits.

      Sec. 222. Plan loans for subchapter S owners, partners, and sole proprietors.

      Sec. 223. Modification of top-heavy rules.

      Sec. 224. Elective deferrals not taken into account for purposes of deduction limits.

      Sec. 225. Repeal of coordination requirements for deferred compensation plans of State and local governments and tax-exempt organizations.

      Sec. 226. Elimination of user fee for requests to IRS regarding pension plans.

      Sec. 227. Deduction limits.

      Sec. 228. Option to treat elective deferrals as after-tax contributions.

Chapter 3--Enhancing Fairness for Women

      Sec. 231. Catch-up contributions for individuals age 50 or over.

      Sec. 232. Equitable treatment for contributions of employees to defined contribution plans.

      Sec. 233. Faster vesting of certain employer matching contributions.

      Sec. 234. Simplify and update the minimum distribution rules.

      Sec. 235. Clarification of tax treatment of division of section 457 plan benefits upon divorce.

      Sec. 236. Modification of safe harbor relief for hardship withdrawals from cash or deferred arrangements.

Chapter 4--Increasing Portability for Participants

      Sec. 241. Rollovers allowed among various types of plans.

      Sec. 242. Rollovers of IRAs into workplace retirement plans.

      Sec. 243. Rollovers of after-tax contributions.

      Sec. 244. Hardship exception to 60-day rule.

      Sec. 245. Treatment of forms of distribution.

      Sec. 246. Rationalization of restrictions on distributions.

      Sec. 247. Purchase of service credit in governmental defined benefit plans.

      Sec. 248. Employers may disregard rollovers for purposes of cash-out amounts.

      Sec. 249. Minimum distribution and inclusion requirements for section 457 plans.

Chapter 5--Strengthening Pension Security and Enforcement

      Sec. 251. Repeal of 150 percent of current liability funding limit.

      Sec. 252. Maximum contribution deduction rules modified and applied to all defined benefit plans.

      Sec. 253. Excise tax relief for sound pension funding.

      Sec. 254. Excise tax on failure to provide notice by defined benefit plans significantly reducing future benefit accruals.

      Sec. 255. Treatment of multiemployer plans under section 415.

      Sec. 256. Prohibited allocations of stock in S corporation ESOP.

Chapter 6--Reducing Regulatory Burdens

      Sec. 261. Modification of timing of plan valuations.

      Sec. 262. ESOP dividends may be reinvested without loss of dividend deduction.

      Sec. 263. Repeal of transition rule relating to certain highly compensated employees.

      Sec. 264. Employees of tax-exempt entities.

      Sec. 265. Clarification of treatment of employer-provided retirement advice.

      Sec. 266. Reporting simplification.

      Sec. 267. Improvement of employee plans compliance resolution system.

      Sec. 268. Repeal of the multiple use test.

      Sec. 269. Flexibility in nondiscrimination, coverage, and line of business rules.

      Sec. 270. Extension to all governmental plans of moratorium on application of certain nondiscrimination rules applicable to State and local plans.

      Sec. 271. Notice and consent period regarding distributions.

Chapter 7--Plan Amendments

      Sec. 281. Provisions relating to plan amendments.

TITLE III--FAMILY TAX RELIEF

      Sec. 301. Elimination of marriage penalty in standard deduction.

      Sec. 302. Phaseout of marriage penalty in income tax rate brackets.

      Sec. 303. Modifications of child tax credit.

      Sec. 304. Expansion of Education IRAs.

      Sec. 305. Eligible educational institutions permitted to maintain qualified tuition programs.

      Sec. 306. Exclusion from gross income of education distributions from qualified tuition programs.

      Sec. 307. Qualified tuition programs included in securities exemption.

      Sec. 308. Expansion of credit for adoption expenses.

TITLE IV--CHARITABLE GIVING TAX RELIEF

      Sec. 401. Deduction for portion of charitable contributions to be allowed to individuals who do not itemize deductions.

      Sec. 402. Tax-free distributions from individual retirement accounts for charitable purposes.

      Sec. 403. Higher limitation on corporate charitable contributions.

TITLE V--MISCELLANEOUS TAX RELIEF

      Sec. 501. Repeal of 1993 income tax increase on social security benefits.

      Sec. 502. Repeal of Federal communications excise tax.

      Sec. 503. Deduction for 100 percent of health insurance costs of self-employed individuals.

      Sec. 504. Increased deduction for meal expenses.

      Sec. 505. Increase in expense treatment for small businesses.

      Sec. 506. Income averaging for farmers and fishermen not to increase alternative minimum tax liability.

      Sec. 507. Repeal of occupational taxes relating to distilled spirits, wine, and beer.

      Sec. 508. Permanent extension of research credit.

      Sec. 509. Farm, fishing, and ranch risk management accounts.

TITLE I--INDIVIDUAL INCOME TAX RELIEF

SEC. 101. REDUCTION IN MARGINAL INCOME TAX RATES FOR INDIVIDUALS.

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

    ‘(i) RATE REDUCTIONS AFTER 2000-

      ‘(1) NEW LOWEST RATE BRACKET-

        ‘(A) IN GENERAL- In the case of taxable years beginning after December 31, 2000--

          ‘(i) the rate of tax under subsections (a), (b), (c), and (d) on taxable income not over the initial bracket amount shall be 12 percent (as modified by paragraph (2)), and

          ‘(ii) the 15 percent rate of tax shall apply only to taxable income over the initial bracket amount.

        ‘(B) INITIAL BRACKET AMOUNT- For purposes of this subsection, the initial bracket amount is--

          ‘(i) $12,000 in the case of subsection (a),

          ‘(ii) $10,000 in the case of subsection (b), and

          ‘(iii) 1/2 the amount applicable under clause (i) in the case of subsections (c) and (d).

        ‘(C) INFLATION ADJUSTMENT- In prescribing the tables under subsection (f) which apply with respect to taxable years beginning in calendar years after 2001--

          ‘(i) the Secretary shall make no adjustment to the initial bracket amount for any taxable year beginning before January 1, 2007,

          ‘(ii) the cost-of-living adjustment used in making adjustments to the initial bracket amount for any taxable year beginning after December 31, 2006, shall be determined under subsection (f)(3) by substituting ‘2005’ for ‘1992’ in subparagraph (B) thereof, and

          ‘(iii) such adjustment shall not apply to the amount referred to in subparagraph (B)(iii).

        If any amount after adjustment under the preceding sentence is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.

      ‘(2) ADDITIONAL REDUCTIONS- In the case of taxable years beginning in a calendar year after 2000, the corresponding percentage specified for such calendar year in the following table shall be substituted for the otherwise applicable tax rate in the tables under subsections (a), (b), (c), (d), and, to the extent applicable, (e).

-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 ‘In the case of taxable years beginning during calendar year: The corresponding percentages shall be substituted for the following percentages:                               
                                                                                                                                             12%   15%   28%   31%   36% 39.6% 
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          2001                                                                               12%   15%   26%   26%   34%   34% 
                                                          2002                                                                               12%   15%   26%   26%   34%   34% 
                                                          2003                                                                               12%   15%   26%   26%   34%   34% 
                                                          2004                                                                               12%   15%   26%   26%   34%   34% 
                                                          2005                                                                               11%   15%   26%   26%   34%   34% 
                                                          2006                                                                               10%   15%   25%   25%   33%   33% 
                                                          2007                                                                               10%   15%   25%   25%   33%   33% 
                                                          2008                                                                               10%   15%   25%   25%   33%   33% 
                                                          2009                                                                               10%   15%   25%   25%   33%   33% 
                                                          2010                                                                              9.5% 14.2% 23.7% 23.7% 31.3% 31.3% 
                                           2011 and thereafter                                                                                9% 13.5% 22.5% 22.5% 29.7% 29.7% 
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

      ‘(3) ADJUSTMENT OF TABLES- The Secretary shall adjust the tables prescribed under subsection (f) to carry out this subsection.’

    (b) REPEAL OF REDUCTION OF REFUNDABLE TAX CREDITS-

      (1) Subsection (d) of section 24 is amended by striking paragraph (2) and redesignating paragraph (3) as paragraph (2).

      (2) Section 32 is amended by striking subsection (h).

    (c) CONFORMING AMENDMENTS-

      (1) Subparagraph (B) of section 1(g)(7) is amended--

        (A) by striking ‘15 percent’ in clause (ii)(II) and inserting ‘the first bracket percentage’, and

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

        ‘For purposes of clause (ii), the first bracket percentage is the percentage applicable to the lowest income bracket in the table under subsection (c).’

      (2) Section 1(h) is amended--

        (A) by striking ‘28 percent’ both places it appears in paragraphs (1)(A)(ii)(I) and (1)(B)(i) and inserting ‘21.2 percent’, and

        (B) by striking paragraph (13).

      (3) Section 15 is amended by adding at the end the following new subsection:

    ‘(f) Rate Reductions Enacted by Economic Recovery and Growth Act of 2001- This section shall not apply to any change in rates under subsection (i) of section 1 (relating to rate reductions after 2000).’

      (4) Section 531 is amended by striking ‘equal to’ and all that follows and inserting ‘equal to the product of the highest rate of tax under section 1(c) and the accumulated taxable income.’.

      (5) Section 541 of such Code is amended by striking ‘equal to’ and all that follows and inserting ‘equal to the product of the highest rate of tax under section 1(c) and the undistributed personal holding company income.’.

      (6) Section 3402(p)(1)(B) is amended by striking ‘7, 15, 28, or 31 percent’ and inserting ‘7 percent, any percentage applicable to any of the 3 lowest income brackets in the table under section 1(c),’.

      (7) Section 3402(p)(2) is amended by striking ‘equal to 15 percent of such payment’ and inserting ‘equal to the product of the lowest rate of tax under section 1(c) and such payment’.

      (8) Section 3402(q)(1) is amended by striking ‘equal to 28 percent of such payment’ and inserting ‘equal to the product of the third to the lowest rate of tax under section 1(c) and such payment’.

      (9) Section 3402(r)(3) is amended by striking ‘31 percent’ and inserting ‘the third to the lowest rate of tax under section 1(c)’.

      (10) Section 3406(a)(1) is amended by striking ‘equal to 31 percent of such payment’ and inserting ‘equal to the product of the third to the lowest rate of tax under section 1(c) and such payment’.

      (11) Section 13273 of the Revenue Reconciliation Act of 1993 is amended by striking ‘28 percent’ and inserting ‘the third to the lowest rate of tax under section 1(c) of the Internal Revenue Code of 1986’.

    (d) EFFECTIVE DATES-

      (1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2000.

      (2) AMENDMENTS TO WITHHOLDING PROVISIONS- The amendments made by paragraphs (6), (7), (8), (9), (10), and (11) of subsection (c) shall apply to amounts paid after the 60th day after the date of the enactment of this Act.

SEC. 102. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDIVIDUALS.

    (a) IN GENERAL- Subsection (a) of section 55 is amended by adding at the end the following new flush sentence:

    ‘For purposes of this title, the tentative minimum tax on any taxpayer other than a corporation for any taxable year beginning after December 31, 2009, shall be zero.’.

    (b) REDUCTION OF TAX ON INDIVIDUALS PRIOR TO REPEAL- Section 55 is amended by adding at the end the following new subsection:

    ‘(f) PHASEOUT OF TAX ON INDIVIDUALS-

      ‘(1) IN GENERAL- The tax imposed by this section on a taxpayer other than a corporation for any taxable year beginning after December 31, 2000, and before January 1, 2010, shall be the applicable percentage of the tax which would be imposed but for this subsection.

      ‘(2) APPLICABLE PERCENTAGE- For purposes of paragraph (1), the applicable percentage shall be determined in accordance with the following table:

      ‘For taxable years beginning

--The applicable

      in calendar year--

--percentage is--

2001, 2002, or 2003

--80

2004, 2005, or 2006

--70

2007 or 2008

--60

2009

--50.’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2000.

TITLE II--INDIVIDUAL SAVINGS AND INVESTMENT TAX RELIEF; PENSION REFORM

Subtitle A--Individual Savings and Investment Tax Relief

SEC. 201. REDUCTION IN CAPITAL GAINS RATES.

    (a) IN GENERAL- Subsection (h) of section 1 is amended--

      (1) by striking ‘10 percent’ in subparagraph (B) and inserting ‘7.5 percent’,

      (2) by striking ‘20 percent’ in subparagraph (C) and inserting ‘15 percent’,

      (3) by striking ‘25 percent’ in subparagraph (D) and inserting ‘20 percent’, and

      (4) by striking paragraph (2).

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 202. PHASEOUT OF ESTATE AND GIFT TAXES.

    (a) REPEAL OF ESTATE AND GIFT TAXES- Subtitle B (relating to estate and gift taxes) is repealed effective with respect to estates of decedents dying, and gifts made, after December 31, 2008.

    (b) PHASEOUT OF TAX- Subsection (c) of section 2001 (relating to imposition and rate of tax) is amended by adding at the end the following new paragraph:

      ‘(3) PHASEOUT OF TAX- In the case of estates of decedents dying, and gifts made, during any calendar year after 2001 and before 2009--

        ‘(A) IN GENERAL- The tentative tax under this subsection shall be determined by using a table prescribed by the Secretary (in lieu of using the table contained in paragraph (1)) which is the same as such table; except that--

          ‘(i) each of the rates of tax shall be reduced (but not below zero) by the number of percentage points determined under subparagraph (B), and

          ‘(ii) the amounts setting forth the tax shall be adjusted to the extent necessary to reflect the adjustments under clause (i).

        ‘(B) PERCENTAGE POINTS OF REDUCTION-

The number of

‘For calendar year:

percentage points is:

2002, 2003, 2004, or 2005

15

2006

20

2007

30

2008

40.

        ‘(C) COORDINATION WITH PARAGRAPH (2)- Paragraph (2) shall be applied by reducing the 55 percent percentage contained therein by the number of percentage points determined for such calendar year under subparagraph (B).’.

    (c) EFFECTIVE DATE- The amendments made by subsection (b) shall apply to estates of decedents dying, and gifts made, after December 31, 2001.

Subtitle B--Pension Reform

CHAPTER 1--INDIVIDUAL RETIREMENT ACCOUNTS

SEC. 211. 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:

2002

$3,000

2003

$4,000

2004 and thereafter

$5,000.

        ‘(B) COST-OF-LIVING ADJUSTMENT-

          ‘(i) IN GENERAL- In the case of any taxable year beginning in a calendar year after 2004, 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 2003’ for

‘calendar year 1992’ in subparagraph (B) thereof.

          ‘(ii) ROUNDING RULES- If any amount after adjustment under clause (i) is not a multiple of $100, such amount shall be rounded to the next lower multiple of $100.’.

    (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, 2001.

SEC. 212. CATCHUP CONTRIBUTIONS TO IRAS BY INDIVIDUALS AGE 50 OR OVER.

    (a) IN GENERAL- Section 219(b) is amended further by adding at the end the following new paragraph:

      ‘(6) CATCHUP CONTRIBUTIONS-

        ‘(A) IN GENERAL- In the case of an individual who has attained the age of 50 before the close of the taxable year, the dollar amount in effect under paragraph (1)(A) for such taxable year shall be equal to the applicable percentage of such amount determined without regard to this paragraph.

        ‘(B) APPLICABLE PERCENTAGE- For purposes of this paragraph, the applicable percentage shall be determined in accordance with the following table:

‘For taxable years

The applicable

beginning in:

percentage is:

2002

110 percent

2003

120 percent

2004

130 percent

2005

140 percent

2006 and thereafter

150 percent.’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to contributions in taxable years beginning after December 31, 2001.

SEC. 213. MODIFICATION OF INCOME LIMITS ON CONTRIBUTIONS AND ROLLOVERS TO ROTH IRAS.

    (a) REPEAL OF AGI LIMIT ON CONTRIBUTIONS- Section 408A(c)(3) (relating to limits based on modified adjusted gross income) is amended--

      (1) by striking clause (ii) of subparagraph (A) and inserting:

          ‘(ii) $10,000.’, and

      (2) by striking clause (ii) of subparagraph (C) and inserting:

          ‘(ii) the applicable dollar amount is--

            ‘(I) $200,000 in the case of a taxpayer filing a joint return, and

            ‘(II) $100,000 in the case of any other taxpayer.’.

    (b) INCREASE IN AGI LIMIT FOR ROLLOVER CONTRIBUTIONS- Section 408A(c)(3)(B) (relating to rollover from IRA) is amended to read as follows:

        ‘(B) ROLLOVER FROM IRA- A taxpayer shall not be allowed to make a qualified rollover contribution from an individual retirement plan other than a Roth IRA during any taxable year if, for the taxable year of the distribution to which the contribution relates, the taxpayer’s adjusted gross income exceeds $100,000 ($200,000 in the case of a taxpayer filing a joint return).’.

    (c) EFFECTIVE DATES- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 214. DEEMED IRAS UNDER EMPLOYER PLANS.

    (a) IN GENERAL- Section 408 (relating to individual retirement accounts) is amended by redesignating subsection (q) as subsection (r) and by inserting after subsection (p) the following new subsection:

    ‘(q) DEEMED IRAS UNDER QUALIFIED EMPLOYER PLANS-

      ‘(1) GENERAL RULE- If--

        ‘(A) a qualified employer plan elects to allow employees to make voluntary employee contributions to a separate account or annuity established under the plan, and

        ‘(B) under the terms of the qualified employer plan, such account or annuity meets the applicable requirements of this section or section 408A for an individual retirement account or annuity,

      then such account or annuity shall be treated for purposes of this title in the same manner as an individual retirement plan (and contributions to such account or annuity as contributions to an individual retirement plan). For purposes of subparagraph (B), the requirements of subsection (a)(5) shall not apply.

      ‘(2) SPECIAL RULES FOR QUALIFIED EMPLOYER PLANS- For purposes of this title--

        ‘(A) a qualified employer plan shall not fail to meet any requirement of this title solely by reason of establishing and maintaining a program described in paragraph (1), and

        ‘(B) any account or annuity described in paragraph (1), and any contribution to the account or annuity, shall not be subject to any requirement of this title applicable to a qualified employer plan or taken into account in applying any such requirement to any other contributions under the plan.

      ‘(3) DEFINITIONS- For purposes of this subsection--

        ‘(A) QUALIFIED EMPLOYER PLAN- The term ‘qualified employer plan’ has the meaning given such term by section 72(p)(4).

        ‘(B) VOLUNTARY EMPLOYEE CONTRIBUTION- The term ‘voluntary employee contribution’ means any contribution (other than a

mandatory contribution within the meaning of section 411(c)(2)(C))--

          ‘(i) which is made by an individual as an employee under a qualified employer plan which allows employees to elect to make contributions described in paragraph (1), and

          ‘(ii) with respect to which the individual has designated the contribution as a contribution to which this subsection applies.’.

    (b) AMENDMENT OF ERISA-

      (1) IN GENERAL- Section 4 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1003) is amended by adding at the end the following new subsection:

    ‘(c) If a pension plan allows an employee to elect to make voluntary employee contributions to accounts and annuities as provided in section 408(q) of the Internal Revenue Code of 1986, such accounts and annuities (and contributions thereto) shall not be treated as part of such plan (or as a separate pension plan) for purposes of any provision of this title other than section 403(c), 404, or 405 (relating to exclusive benefit, and fiduciary and co-fiduciary responsibilities).’.

      (2) CONFORMING AMENDMENT- Section 4(a) of such Act (29 U.S.C. 1003(a)) is amended by inserting ‘or (c)’ after ‘subsection (b)’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to plan years beginning after December 31, 2001.

CHAPTER 2--EXPANDING COVERAGE

SEC. 221. 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, 2001’.

      (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, 2001’.

    (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, 2001’; 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:

          2002

--$11,000

          2003

--$12,000

          2004

--$13,000

          2005

--$14,000

          2006 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, 2006, the Secretary shall adjust the $15,000 amount under paragraph (1)(B) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2005, and any increase under this paragraph which is not a multiple of $500 shall be rounded to the next lowest multiple of $500.’.

      (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:

          2002

--$11,000

          2003

--$12,000

          2004

--$13,000

          2005

--$14,000

          2006 or thereafter

--$15,000.

        ‘(B) COST-OF-LIVING ADJUSTMENTS- In the case of taxable years beginning after December 31, 2006, 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, 2005, 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:

2002

--$7,000

2003

--$8,000

2004

--$9,000

2005 or thereafter

--$10,000.

          ‘(ii) COST-OF-LIVING ADJUSTMENT- In the case of a year beginning after December 31, 2005, 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, 2004, 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, 2001.

SEC. 222. 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, 2001.

SEC. 223. 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, 2001.

SEC. 224. 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, 2001.

SEC. 225. 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, 2001.

SEC. 226. 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, 2001.

SEC. 227. 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, 2001.

SEC. 228. 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, 2001.

CHAPTER 3--ENHANCING FAIRNESS FOR WOMEN

SEC. 231. 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, 2001.

SEC. 232. 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, 2001.

    (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, 2001.

        (B) EXCLUSION ALLOWANCE- Effective for limitation years beginning in 2002, 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, 2001, 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, 2001.

SEC. 233. 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, 2001.

      (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. 234. 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, 2001, 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, 2001.

    (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, 2001.

SEC. 235. 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, 2001.

SEC. 236. 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, 2001.

CHAPTER 4--INCREASING PORTABILITY FOR PARTICIPANTS

SEC. 241. 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, 2001.

      (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. 242. 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, 2001.

      (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. 243. 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, 2001.

SEC. 244. 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, 2001.

SEC. 245. 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, 2001.

    (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, 2002, 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, 2002, or such earlier date as is specified by the Secretary of the Treasury.

SEC. 246. 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, 2001.

SEC. 247. 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, 2001.

SEC. 248. 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, 2001.

SEC. 249. 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, 2001.

CHAPTER 5--STRENGTHENING PENSION SECURITY AND ENFORCEMENT

SEC. 251. 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, 2005, 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--

          2002

--160

          2003

--165

          2004

--170.’.

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to plan years beginning after December 31, 2001.

SEC. 252. 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, 2001.

SEC. 253. 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, 2001.

SEC. 254. 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. 255. 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 a multiemployer 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, 2001.

SEC. 256. 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, 2001.

CHAPTER 6--REDUCING REGULATORY BURDENS

SEC. 261. 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, 2001.

SEC. 262. 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, 2001.

SEC. 263. 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, 2001.

SEC. 264. 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. 265. 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, 2001.

SEC. 266. 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. 267. 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. 268. 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, 2001.

SEC. 269. 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, 2001.

        (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, 2001.

        (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, 2001, 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. 270. 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, 2001.

SEC. 271. 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, 2001.

    (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, 2001.

CHAPTER 7--PLAN AMENDMENTS

SEC. 281. 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 title, or pursuant to any regulation issued under this title, 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.

TITLE III--FAMILY TAX RELIEF

SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION.

    (a) IN GENERAL- Paragraph (2) of section 63(c) (relating to standard deduction) is amended--

      (1) by striking ‘$5,000’ in subparagraph (A) and inserting ‘200 percent of the dollar amount in effect under subparagraph (C) for the taxable year’,

      (2) by adding ‘or’ at the end of subparagraph (B),

      (3) by striking ‘in the case of’ and all that follows in subparagraph (C) and inserting ‘in any other case.’, and

      (4) by striking subparagraph (D).

    (b) PHASE-IN- Subsection (c) of section 63 is amended by adding at the end the following new paragraph:

      ‘(7) PHASE-IN OF INCREASE IN BASIC STANDARD DEDUCTION- In the case of taxable years beginning before January 1, 2009--

        ‘(A) paragraph (2)(A) shall be applied by substituting for ‘200 percent’--

          ‘(i) ‘175 percent’ in the case of taxable years beginning after 2000 and before 2007, and

          ‘(ii) ‘190 percent’ in the case of taxable years beginning after 2006 and before 2009, and

        ‘(B) the basic standard deduction for a married individual filing a separate return shall be one-half of the amount applicable under paragraph (2)(A).

      If any amount determined under subparagraph (A) is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.’.

    (c) TECHNICAL AMENDMENTS-

      (1) Subparagraph (B) of section 1(f)(6) is amended by striking ‘(other than with’ and all that follows through ‘shall be applied’ and inserting ‘(other than with respect to sections 63(c)(4) and 151(d)(4)(A)) shall be applied’.

      (2) Paragraph (4) of section 63(c) is amended by adding at the end the following flush sentence:

      ‘The preceding sentence shall not apply to the amount referred to in paragraph (2)(A).’.

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2000.

SEC. 302. PHASEOUT OF MARRIAGE PENALTY IN INCOME TAX RATE BRACKETS.

    (a) IN GENERAL- Subsection (f) of section 1 (relating to adjustments in tax tables so that inflation will not result in tax increases) is amended by adding at the end the following new paragraph:

      ‘(8) PHASEOUT OF MARRIAGE PENALTY BRACKETS-

        ‘(A) IN GENERAL- With respect to taxable years beginning after December 31, 2000, in prescribing the tables under paragraph (1)--

          ‘(i) the minimum and maximum taxable income amounts in each rate bracket in the table contained in subsection (a) shall be the applicable percentage of the comparable taxable income amounts in the

table contained in subsection (c) (after any other adjustment under this subsection), and

          ‘(ii) the comparable taxable income amounts in the table contained in subsection (d) shall be 1/2 of the amounts determined under clause (i).

        ‘(B) APPLICABLE PERCENTAGE- For purposes of subparagraph (A), the applicable percentage shall be determined in accordance with the following table:

‘For taxable years beginning

--The applicable

in calendar year--

--percentage is--

          2001, 2002, 2003, 2004, 2005, and 2006

--175

          2007 and 2008

--190

          2009 and thereafter

--200.

        ‘(C) ROUNDING- If any amount determined under subparagraph (A)(i) is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.’.

    (b) TECHNICAL AMENDMENTS-

      (1) Subparagraph (A) of section 1(f)(2) is amended by inserting ‘except as provided in paragraph (8),’ before ‘by increasing’.

      (2) The heading for subsection (f) of section 1 is amended by inserting ‘PHASEOUT OF MARRIAGE PENALTY IN RATE BRACKETS;’ before ‘ADJUSTMENTS’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2000.

SEC. 303. MODIFICATIONS OF CHILD TAX CREDIT.

    (a) IN GENERAL- Subsection (a) of section 24 (relating to child tax credit) is amended to read as follows:

    ‘(a) ALLOWANCE OF CREDIT-

      ‘(1) IN GENERAL- There shall be allowed as a credit against the tax imposed by this chapter for the taxable year with respect to each qualifying child of the taxpayer an amount equal to the applicable dollar amount for the calendar year in which such taxable year begins.

      ‘(2) APPLICABLE DOLLAR AMOUNT- For purposes of paragraph (1), the applicable dollar amount for any calendar year shall be determined under the following table:

Applicable

‘Calendar year:

Dollar Amount:

2002

$600

2003

$700

2004

$800

2005

$900

2006 and thereafter

$1,000.’.

    (b) INCREASE IN PHASE-OUT THRESHOLD-

      (1) BEFORE 2006- Section 24(b)(2) is amended--

        (A) by inserting ‘, increased by $18,000 with respect to each taxable year beginning after December 31, 2001’ after ‘return’ in subparagraph (A),

        (B) by inserting ‘, increased by $25,000 with respect to each taxable year beginning after December 31, 2001’ after ‘married’ in subparagraph (B), and

        (C) by inserting ‘, increased by $9,000 with respect to each taxable year beginning after December 31, 2001’ after ‘return’ in subparagraph (C).

      (2) AFTER 2005- Paragraph (2) of section 24(b) is amended to read as follows:

      ‘(2) THRESHOLD AMOUNT- For purposes of paragraph (1), the term ‘threshold amount’ means $200,000 ($100,000 in the case of a married individual (as determined under section 7703) filing a separate return).’.

    (c) REDUCTION IN PHASE-OUT RATE- Section 24(b)(1) is amended by striking ‘$50’ and inserting ‘$20’.

    (d) REPEAL OF REDUCTION OF CREDIT FOR TAXPAYERS SUBJECT TO ALTERNATIVE MINIMUM TAX- Subsection (d) of section 24 is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2).

    (e) EFFECTIVE DATES-

      (1) IN GENERAL- The amendments made by subsections (a), (b)(1), and (d) shall apply to taxable years beginning after December 31, 2001.

      (2) 2006 PHASE-OUT RATE AND AMOUNT- The amendments made by subsections (b)(2) and (c) shall apply to taxable years beginning after December 31, 2005.

SEC. 304. EXPANSION OF EDUCATION IRAS.

    (a) TAX-FREE EXPENDITURES FOR ELEMENTARY AND SECONDARY SCHOOL EXPENSES-

      (1) IN GENERAL- Section 530(b)(2) (defining qualified higher education expenses) is amended to read as follows:

      ‘(2) QUALIFIED EDUCATION EXPENSES-

        ‘(A) IN GENERAL- The term ‘qualified education expenses’ means--

          ‘(i) qualified higher education expenses (as defined in section 529(e)(3)); and

          ‘(ii) qualified elementary and secondary education expenses (as defined in paragraph (4)).

        Such expenses shall be reduced as provided in section 25A(g)(2).

        ‘(B) QUALIFIED STATE TUITION PROGRAMS- Such term shall include amounts paid or incurred to purchase tuition credits or certificates, or to make contributions to an account, under a qualified State tuition program (as defined in section 529(b)) for the benefit of the beneficiary of the account.’.

      (2) QUALIFIED ELEMENTARY AND SECONDARY EDUCATION EXPENSES- Section 530(b) (relating to definitions and special rules) is amended by adding at the end the following new paragraph:

      ‘(4) QUALIFIED ELEMENTARY AND SECONDARY EDUCATION EXPENSES-

        ‘(A) IN GENERAL- The term ‘qualified elementary and secondary education expenses’ means--

          ‘(i) expenses for tuition, fees, academic tutoring, special needs services, books, supplies, computer equipment (including related software and services), and other equipment which are incurred in connection with the enrollment or attendance of the designated beneficiary of the trust as an elementary or secondary school student at a public, private, or religious school, or

          ‘(ii) expenses for room and board, uniforms, transportation, and supplementary items and services (including extended day programs) which are required or provided by a public, private, or religious school in connection with such enrollment or attendance.

        ‘(B) SPECIAL RULE FOR HOMESCHOOLING- Such term shall include expenses described in subparagraph (A)(i) in connection with education provided by homeschooling if the requirements of any applicable State or local law are met with respect to such education.

        ‘(C) SCHOOL- The term ‘school’ means any school which provides elementary education or secondary education (kindergarten through grade 12), as determined under State law.’.

      (3) CONFORMING AMENDMENTS- Subsections (b)(1) and (d)(2) of section 530 are each amended by striking ‘higher’ each place it appears in the text and heading thereof.

    (b) MAXIMUM ANNUAL CONTRIBUTIONS-

      (1) IN GENERAL- Section 530(b)(1)(A)(iii) (defining education individual retirement account) is amended by striking ‘$500’ and inserting ‘the applicable dollar amount for the calendar year in which such taxable year begins’.

      (2) APPLICABLE DOLLAR AMOUNT- Section 530(b) is amended by adding at the end the following new paragraph:

      ‘(4) APPLICABLE DOLLAR AMOUNT- For purposes of paragraph (1)(A)(iii), the applicable dollar amount for any calendar year shall be determined under the following table:

Applicable

‘Calendar year:

Dollar Amount:

2002

$1,000

2003

$2,000

2004

$3,000

2005

$4,000

2006 and thereafter

$5,000.’.

      (3) CONFORMING AMENDMENT- Section 4973(e)(1)(A) is amended by striking ‘$500’ and inserting ‘the applicable dollar amount for the calendar year in which such taxable year begins’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 305. ELIGIBLE EDUCATIONAL INSTITUTIONS PERMITTED TO MAINTAIN QUALIFIED TUITION PROGRAMS.

    (a) IN GENERAL- Section 529(b)(1) (defining qualified State tuition program) is amended by inserting ‘or by 1 or more eligible educational institutions or a consortium that consists solely of eligible educational institutions’ after ‘maintained by a State or agency or instrumentality thereof’.

    (b) PRIVATE QUALIFIED TUITION PROGRAMS LIMITED TO BENEFIT PLANS- Clause (ii) of section 529(b)(1)(A) is amended by inserting ‘in the case of a program established and maintained by a State or agency or instrumentality thereof’ before ‘may make’.

    (c) CONFORMING AMENDMENTS-

      (1) The text and headings of each of the sections 72(e)(9), 135(c)(2(C), 135(d)(1)(D), 529, 530(b)(2)(B), 4973(e), and 6693(a)(2)(C) is amended by striking ‘qualified State tuition’ each place it appears and inserting ‘qualified tuition’.

      (2)(A) The section heading of section 529 is amended to read as follows:

‘SEC. 529. QUALIFIED TUITION PROGRAMS.’.

      (B) The item relating to section 529 in the table of sections for part VIII of subchapter F of chapter 1 is amended by striking ‘State’.

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 306. EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBUTIONS FROM QUALIFIED TUITION PROGRAMS.

    (a) IN GENERAL- Section 529(c)(3)(B) (relating to distributions) is amended to read as follows:

        ‘(B) DISTRIBUTIONS FOR QUALIFIED HIGHER EDUCATION EXPENSES-

          ‘(i) IN GENERAL- If a distributee elects the application of this clause for any taxable year--

            ‘(I) no amount shall be includible in gross income under subparagraph (A) by reason of a distribution which consists of providing a benefit to the distributee which, if paid for by the distributee, would constitute payment of a qualified higher education expense, and

            ‘(II) the amount which (but for the election) would be includible in gross income under subparagraph (A) by reason of any other distribution

shall not be so includible in an amount which bears the same ratio to the amount which would be so includible as such expenses bear to such aggregate distributions.

          ‘(ii) IN-KIND DISTRIBUTIONS- Any benefit furnished to a designated beneficiary under a qualified State tuition program shall be treated as a distribution to the beneficiary for purposes of this paragraph.

          ‘(iii) DISALLOWANCE OF EXCLUDED AMOUNTS AS CREDIT OR DEDUCTION- No deduction or credit shall be allowed to the taxpayer under any other section of this chapter for any qualified higher education expenses to the extent taken into account in determining the amount of the exclusion under this subparagraph.’.

    (b) BENEFICIARY MAY CHANGE PROGRAM- Section 529(c)(3)(C) (relating to change in beneficiaries) is amended--

      (1) in clause (i), by inserting ‘to another qualified tuition program for the benefit of the designated beneficiary or’ after ‘transferred’, and

      (2) in the heading, by inserting ‘OR PROGRAMS’ after ‘BENEFICIARIES’.

    (c) ADDITIONAL TAX ON AMOUNTS NOT USED FOR HIGHER EDUCATION EXPENSES- Section 529(c)(3) (relating to distributions) is amended by adding at the end the following:

        ‘(E) ADDITIONAL TAX ON AMOUNTS NOT USED FOR HIGHER EDUCATION EXPENSES- The tax imposed by section 530(d)(4) shall apply to payments and distributions from qualified tuition programs in the same manner as such tax applies to education individual retirement accounts.’.

    (d) COORDINATION WITH EDUCATION CREDITS- Section 25A(e)(2) (relating to coordination with exclusions) is amended--

      (1) by inserting ‘a qualified tuition program or’ before ‘an education individual retirement account’, and

      (2) by striking ‘section 530(d)(2)’ and inserting ‘section 529(c)(3)(B) or 530(d)(2)’.

    (e) EFFECTIVE DATES-

      (1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to distributions made after December 31, 2001, for education furnished in academic periods beginning after such date.

      (2) PRIVATE PROGRAMS- In the case of a qualified tuition program established and maintained by an entity other than a State or agency or instrumentality thereof, the amendments made by subsections (a), (c), and (d) shall apply to distributions made after December 31, 2005, for education furnished in academic periods beginning after such date.

SEC. 307. QUALIFIED TUITION PROGRAMS INCLUDED IN SECURITIES EXEMPTION.

    (a) EXEMPTED SECURITIES- Section 3(a)(4) of the Securities Act of 1933 (15 U.S.C. 77c(a)(4)) is amended by striking ‘individual;’ and inserting ‘individual or any security issued by a prepaid tuition program described in section 529 of the Internal Revenue Code of 1986;’.

    (b) QUALIFIED TUITION PROGRAMS NOT INVESTMENT COMPANIES- Section 3(c) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)) is amended by adding at the end the following:

      ‘(15) Any prepaid tuition program described in section 529 of the Internal Revenue Code of 1986.’.

SEC. 308. EXPANSION OF CREDIT FOR ADOPTION EXPENSES.

    (a) INCREASE IN EXPENSES ALLOWABLE FOR ADOPTION- Paragraph (1) of section 23(b) (relating to dollar limitation) is amended to read as follows:

      ‘(1) DOLLAR LIMITATION-

        ‘(A) IN GENERAL- The aggregate amount of qualified adoption expenses which may be taken into account under subsection (a) for all taxable years with respect to the adoption of a child by the taxpayer shall not exceed the applicable amount.

        ‘(B) APPLICABLE AMOUNT- For purposes of subparagraph (A)--

          ‘(i) CHILD WITH SPECIAL NEEDS- In the case of a child with special needs, the applicable amount for a taxable year shall be the amount determined in accordance with the following table:

‘For taxable years

--The applicable

beginning in:

--amount is:

          2002

$8,000

          2003

$10,000

          2004 and thereafter

$12,000.

          ‘(ii) OTHER CHILDREN- In the case of a child who is not a child with special needs, the applicable amount for a taxable year shall be the amount determined in accordance with the following table:

‘For taxable years

--The applicable

beginning in:

--amount is:

          2002

$6,000

          2003

$7,000

          2004

$8,000

          2005

$9,000

          2006 and thereafter

$10,000.’.

    (b) INCREASE IN INCOME LIMITATION- Clause (i) of section 23(b)(2)(A) (relating to income limitation) is amended by striking ‘$75,000’ and inserting ‘$150,000’.

    (c) EXTENSION OF SUNSET- Subparagraph (B) of section 23(d)(2) (relating to eligible child) is amended by striking ‘2001’ and inserting ‘2005’.

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

TITLE IV--CHARITABLE GIVING TAX RELIEF

SEC. 401. DEDUCTION FOR PORTION OF CHARITABLE CONTRIBUTIONS TO BE ALLOWED TO INDIVIDUALS WHO DO NOT ITEMIZE DEDUCTIONS.

    (a) IN GENERAL- Subsection (b) of section 63 is amended by striking ‘and’ at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting ‘, and’, and by adding at the end the following:

      ‘(3) the applicable percentage of the deduction provided by section 170 (relating to charitable, etc., contributions and gifts), in an amount not to exceed the standard deduction.

    For purposes of paragraph (3), the applicable percentage shall be determined under the following table:

‘For taxable years beginning in calendar year:

The applicable percentage is:

2002

20

2003

40

2004

60

2005

80

2006 and thereafter

100.’.

    (b) CONFORMING AMENDMENT- Subsection (d) of section 63 is amended by striking ‘and’ at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting ‘, and’, and by adding at the end thereof the following new paragraph:

      ‘(3) the deduction provided by section 170 as determined under subsection (b)(3).’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 402. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS FOR CHARITABLE PURPOSES.

    (a) IN GENERAL- Subsection (d) of section 408 (relating to individual retirement accounts) is amended by adding at the end the following new paragraph:

      ‘(8) DISTRIBUTIONS FOR CHARITABLE PURPOSES-

        ‘(A) IN GENERAL- No amount shall be includible in gross income by reason of a qualified charitable distribution from an individual retirement account to an organization described in section 170(c).

        ‘(B) QUALIFIED CHARITABLE DISTRIBUTION- For purposes of this paragraph, the term ‘qualified charitable distribution’ means any distribution from an individual retirement account--

          ‘(i) which is made on or after the date that the individual for whose benefit the account is maintained has attained age 59 1/2 , and

          ‘(ii) which is made directly from the account to an organization described in section 170(c).

        ‘(C) DENIAL OF DEDUCTION- The amount allowable as a deduction under section 170 to the taxpayer for the taxable year shall be reduced (but not below zero) by the sum of the amounts of the qualified charitable distributions during such year which would be includible in the gross income of the taxpayer for such year but for this paragraph.’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 403. HIGHER LIMITATION ON CORPORATE CHARITABLE CONTRIBUTIONS.

    (a) IN GENERAL- Paragraph (2) of section 170(b) (relating to percentage limitations) is amended by striking ‘10 percent’ and inserting ‘15 percent’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 2001.

TITLE V--MISCELLANEOUS TAX RELIEF

SEC. 501. REPEAL OF 1993 INCOME TAX INCREASE ON SOCIAL SECURITY BENEFITS.

    (a) REDUCTION OF INCREASE- Clause (i) of section 86(a)(2)(A) is amended by striking ‘85 percent’ and inserting ‘85 percent (75 percent in the case of taxable years beginning after 2001 and before 2009 and 50 percent in the case of taxable years beginning before 2010)’.

    (b) Restoration of Prior Law Formula in 2010- Subsection (a) of section 86 is amended to read as follows:

    ‘(a) IN GENERAL- Gross income for the taxable year of any taxpayer described in subsection (b) (notwithstanding section 207 of the Social Security Act) includes Social Security benefits in an amount equal to the lesser of--

      ‘(1) one-half of the Social Security benefits received during the taxable year, or

      ‘(2) one-half of the excess described in subsection (b)(1).’

    (c) REPEAL OF ADJUSTED BASE AMOUNT- Subsection (c) of section 86 is amended to read as follows:

    ‘(c) BASE AMOUNT- For purposes of this section, the term ‘base amount’ means--

      ‘(1) except as otherwise provided in this subsection, $25,000,

      ‘(2) $32,000 in the case of a joint return, and

      ‘(3) zero in the case of a taxpayer who--

        ‘(A) is married as of the close of the taxable year (within the meaning of section 7703) but does not file a joint return for such year, and

        ‘(B) does not live apart from his spouse at all times during the taxable year.’

    (d) CONFORMING AMENDMENTS-

      (1) Subparagraph (A) of section 871(a)(3) is amended by striking ‘85 percent’ and inserting ‘50 percent’.

      (2)(A) Subparagraph (A) of section 121(e)(1) of the Social Security Amendments of 1983 (Public Law 98-21) is amended--

        (i) by striking ‘(A) There’ and inserting ‘There’;

        (ii) by striking ‘(i)’ immediately following ‘amounts equivalent to’; and

        (iii) by striking ‘, less (ii)’ and all that follows and inserting a period.

      (B) Paragraph (1) of section 121(e) of such Act is amended by striking subparagraph (B).

      (C) Paragraph (3) of section 121(e) of such Act is amended by striking subparagraph (B) and by redesignating subparagraph (C) as subparagraph (B).

      (D) Paragraph (2) of section 121(e) of such Act is amended in the first sentence by striking ‘paragraph (1)(A)’ and inserting ‘paragraph (1)’.

    (e) EFFECTIVE DATE-

      (1) IN GENERAL- Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2009.

      (2) SUBSECTION (a)- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2001.

      (3) SUBSECTION (c)(1)- The amendment made by subsection (c)(1) shall apply to benefits paid after December 31, 2009.

      (4) SUBSECTION (c)(2)- The amendments made by subsection (c)(2) shall apply to tax liabilities for taxable years beginning after December 31, 2000.

    (e) MAINTENANCE OF TRANSFERS TO HOSPITAL INSURANCE TRUST FUND-

      (1) IN GENERAL- There are hereby appropriated to the Hospital Insurance Trust Fund established under section 1817 of the Social Security Act amounts equal to the reduction in revenues to the Treasury by reason of the enactment of this section. Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such Trust Fund had this Act not been enacted.

      (2) REPORTS- The Secretary of the Treasury or the Secretary’s delegate shall annually report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate the amounts and timing of the transfers under this section.

SEC. 502. REPEAL OF FEDERAL COMMUNICATIONS EXCISE TAX.

    (a) IN GENERAL- Chapter 33 (relating to facilities and services) is amended by striking subchapter B.

    (b) CONFORMING AMENDMENTS-

      (1) Section 4293 is amended by striking ‘chapter 32 (other than the taxes imposed by sections 4064 and 4121) and subchapter B of chapter 33,’ and inserting ‘and chapter 32 (other than the taxes imposed by sections 4064 and 4121),’.

      (2)(A) Paragraph (1) of section 6302(e) is amended by striking ‘section 4251 or’.

      (B) Paragraph (2) of section 6302(e) is amended by striking ‘imposed by--’ and all that follows through ‘with respect to’ and inserting ‘imposed by section 4261 or 4271 with respect to’.

      (C) The subsection heading for section 6302(e) is amended by striking ‘COMMUNICATIONS SERVICES AND’.

      (3) Section 6415 is amended by striking ‘4251, 4261, or 4271’ each place it appears and inserting ‘4261 or 4271’.

      (4) Paragraph (2) of section 7871(a) is amended by inserting ‘or’ at the end of subparagraph (B), by striking subparagraph (C), and by redesignating subparagraph (D) as subparagraph (C).

      (5) The table of subchapters for chapter 33 is amended by striking the item relating to subchapter B.

    (d) EFFECTIVE DATES- The amendments made by this section shall apply to amounts paid pursuant to bills first rendered after September 30, 2001.

SEC. 503. DEDUCTION FOR 100 PERCENT OF HEALTH INSURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS.

    (a) IN GENERAL- Paragraph (1) of section 162(l) is amended to read as follows:

      ‘(1) ALLOWANCE OF DEDUCTION- In the case of an individual who is an employee within the meaning of section 401(c)(1), there shall be allowed as a deduction under this section an amount equal to 100 percent of the amount paid during the taxable year for insurance which constitutes medical care for the taxpayer and the taxpayer’s spouse and dependents.’.

    (b) CLARIFICATION OF LIMITATIONS ON OTHER COVERAGE- The first sentence of section 162(l)(2)(B) is amended to read as follows: ‘Paragraph (1) shall not apply to any taxpayer for any calendar month for which the taxpayer participates in any subsidized health plan maintained by any employer (other than an employer described in section 401(c)(4)) of the taxpayer or the spouse of the taxpayer.’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 504. INCREASED DEDUCTION FOR MEAL EXPENSES.

    (a) IN GENERAL- Paragraph (1) of section 274(n) (relating to only 50 percent of meal and entertainment expenses allowed as deduction) is amended by striking ‘50 percent’ in the text and inserting ‘the allowable percentage’.

    (b) ALLOWABLE PERCENTAGES- Subsection (n) of section 274 is amended by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively, and by inserting after paragraph (1) the following new paragraph:

      ‘(2) ALLOWABLE PERCENTAGE- For purposes of paragraph (1), the allowable percentage is--

        ‘(A) in the case of amounts for items described in paragraph (1)(B), 50 percent, and

        ‘(B) in the case of expenses for food or beverages, 80 percent (60 percent for taxable years beginning after 2001 and before 2010).’

    (c) CONFORMING AMENDMENT- The heading for subsection (n) of section 274 is amended by striking ‘50 PERCENT’ and inserting ‘LIMITED PERCENTAGES’.

    (d) EFFECTIVE DATE-

      (1) The amendments made by this section shall apply to taxable years beginning after December 31, 2002.

      (2) Section 274(n)(2)(B) of the Internal Revenue Code of 1986 (as added by subsection (b)) shall apply to expenses incurred after the date of the enactment of this Act.

SEC. 505. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.

    (a) IN GENERAL- Paragraph (1) of section 179(b) (relating to dollar limitation) is amended to read as follows:

      ‘(1) DOLLAR LIMITATION- The aggregate cost which may be taken into account under subsection (a) for any taxable year shall not exceed $30,000.’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 2002.

SEC. 506. INCOME AVERAGING FOR FARMERS AND FISHERMEN NOT TO INCREASE ALTERNATIVE MINIMUM TAX LIABILITY.

    (a) IN GENERAL- Section 55(c) (defining regular tax) is amended by redesignating paragraph (2) as paragraph (3) and by inserting after paragraph (1) the following:

      ‘(2) COORDINATION WITH INCOME AVERAGING FOR FARMERS AND FISHERMEN- Solely for purposes of this section, section 1301 (relating to averaging of farm and fishing income) shall not apply in computing the regular tax.’.

    (b) ALLOWING INCOME AVERAGING FOR FISHERMEN-

      (1) IN GENERAL- Section 1301(a) is amended by striking ‘farming business’ and inserting ‘farming business or fishing business,’.

      (2) DEFINITION OF ELECTED FARM INCOME-

        (A) IN GENERAL- Clause (i) of section 1301(b)(1)(A) is amended by inserting ‘or fishing business’ before the semicolon.

        (B) CONFORMING AMENDMENT- Subparagraph (B) of section 1301(b)(1) is amended by inserting ‘or fishing business’ after ‘farming business’ both places it occurs.

      (3) DEFINITION OF FISHING BUSINESS- Section 1301(b) is amended by adding at the end the following new paragraph:

      ‘(4) FISHING BUSINESS- The term ‘fishing business’ means the conduct of commercial fishing as defined in section 3 of the Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. 1802).’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2002.

SEC. 507. REPEAL OF OCCUPATIONAL TAXES RELATING TO DISTILLED SPIRITS, WINE, AND BEER.

    (a) REPEAL OF OCCUPATIONAL TAXES-

      (1) IN GENERAL- The following provisions of part II of subchapter A of chapter 51 of the Internal Revenue Code of 1986 (relating to occupational taxes) are hereby repealed:

        (A) Subpart A (relating to proprietors of distilled spirits plants, bonded wine cellars, etc.).

        (B) Subpart B (relating to brewer).

        (C) Subpart D (relating to wholesale dealers) (other than sections 5114 and 5116).

        (D) Subpart E (relating to retail dealers) (other than section 5124).

        (E) Subpart G (relating to general provisions) (other than sections 5142, 5143, 5145, and 5146).

      (2) NONBEVERAGE DOMESTIC DRAWBACK- Section 5131 is amended by striking ‘, on payment of a special tax per annum,’.

      (3) INDUSTRIAL USE OF DISTILLED SPIRITS- Section 5276 is hereby repealed.

    (b) CONFORMING AMENDMENTS-

      (1)(A) The heading for part II of subchapter A of chapter 51 and the table of subparts for such part are amended to read as follows:

‘PART II--MISCELLANEOUS PROVISIONS

‘Subpart A. Manufacturers of stills.

‘Subpart B. Nonbeverage domestic drawback claimants.

‘Subpart C. Recordkeeping by dealers.

‘Subpart D. Other provisions.’

      (B) The table of parts for such subchapter A is amended by striking the item relating to part II and inserting the following new item:

‘Part II. Miscellaneous provisions.’

      (2) Subpart C of part II of such subchapter (relating to manufacturers of stills) is redesignated as subpart A.

      (3)(A) Subpart F of such part II (relating to nonbeverage domestic drawback claimants) is redesignated as subpart B and sections 5131 through 5134 are redesignated as sections 5111 through 5114, respectively.

      (B) The table of sections for such subpart B, as so redesignated, is amended--

        (i) by redesignating the items relating to sections 5131 through 5134 as relating to sections 5111 through 5114, respectively, and

        (ii) by striking ‘and rate of tax’ in the item relating to section 5111, as so redesignated.

      (C) Section 5111, as redesignated by subparagraph (A), is amended--

        (i) by striking ‘and rate of tax’ in the section heading,

        (ii) by striking ‘(a) ELIGIBILITY FOR DRAWBACK- ’, and

        (iii) by striking subsection (b).

      (4) Part II of subchapter A of chapter 51 is amended by adding after subpart B, as redesignated by paragraph (3), the following new subpart:

‘Subpart C--Recordkeeping by Dealers

‘Sec. 5121. Recordkeeping by wholesale dealers.

‘Sec. 5122. Recordkeeping by retail dealers.

‘Sec. 5123. Preservation and inspection of records, and entry of premises for inspection.’

      (5)(A) Section 5114 (relating to records) is moved to subpart C of such part II and inserted after the table of sections for such subpart.

      (B) Section 5114 is amended--

        (i) by striking the section heading and inserting the following new heading:

‘SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.’,

        and

        (ii) by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:

    ‘(c) WHOLESALE DEALERS- For purposes of this part--

      ‘(1) WHOLESALE DEALER IN LIQUORS- The term ‘wholesale dealer in liquors’ means any dealer (other than a wholesale dealer in beer) who sells, or offers for sale, distilled spirits, wines, or beer, to another dealer.

      ‘(2) WHOLESALE DEALER IN BEER- The term ‘wholesale dealer in beer’ means any dealer who sells, or offers for sale, beer, but not distilled spirits or wines, to another dealer.

      ‘(3) DEALER- The term ‘dealer’ means any person who sells, or offers for sale, any distilled spirits, wines, or beer.

      ‘(4) PRESUMPTION IN CASE OF SALE OF 20 WINE GALLONS OR MORE- The sale, or offer for sale, of distilled spirits, wines, or beer, in quantities of 20 wine gallons or more to the same person at the same time, shall be presumptive evidence that the person making such sale, or offer for sale, is engaged in or carrying on the business of a wholesale dealer in liquors or a wholesale dealer in beer, as the case may be. Such presumption may be overcome by evidence satisfactorily showing that such sale, or offer for sale, was made to a person other than a dealer.’

      (C) Paragraph (3) of section 5121(d), as so redesignated, is amended by striking ‘section 5146’ and inserting ‘section 5123’.

      (6)(A) Section 5124 (relating to records) is moved to subpart C of part II of subchapter A of chapter 51 and inserted after section 5121.

      (B) Section 5124 is amended--

        (i) by striking the section heading and inserting the following new heading:

‘SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.’,

        (ii) by striking ‘section 5146’ in subsection (c) and inserting ‘section 5123’, and

        (iii) by redesignating subsection (c) as subsection (d) and inserting after subsection (b) the following new subsection:

    ‘(c) RETAIL DEALERS- For purposes of this section--

      ‘(1) RETAIL DEALER IN LIQUORS- The term ‘retail dealer in liquors’ means any dealer (other than a retail dealer in beer) who sells, or offers for sale, distilled spirits, wines, or beer, to any person other than a dealer.

      ‘(2) RETAIL DEALER IN BEER- The term ‘retail dealer in beer’ means any dealer who sells, or offers for sale, beer, but not distilled spirits or wines, to any person other than a dealer.

      ‘(3) DEALER- The term ‘dealer’ has the meaning given such term by section 5121(c)(3).’

      (7) Section 5146 is moved to subpart C of part II of subchapter A of chapter 51, inserted after section 5122, and redesignated as section 5123.

      (8) Part II of subchapter A of chapter 51 is amended by inserting after subpart C the following new subpart:

‘Subpart D. Other Provisions

‘Sec. 5131. Packaging distilled spirits for industrial uses.

‘Sec. 5132. Prohibited purchases by dealers.’

      (9) Section 5116 is moved to subpart D of part II of subchapter A of chapter 51, inserted after the table of sections, redesignated as section 5131, and amended by inserting ‘(as defined in section 5121(c))’ after ‘dealer’ in subsection (a).

      (10) Subpart D of part II of subchapter A of chapter 51 is amended by adding at the end thereof the following new section:

‘SEC. 5132. PROHIBITED PURCHASES BY DEALERS.

    ‘(a) IN GENERAL- Except as provided in regulations prescribed by the Secretary, it shall be unlawful for a dealer to purchase distilled spirits from any person other than a wholesale dealer in liquors who is required to keep the records prescribed by section 5121.

    ‘(b) PENALTY AND FORFEITURE-

‘For penalty and forfeiture provisions applicable to violations of subsection (a), see sections 5687 and 7302.’

      (11) Subsection (b) of section 5002 is amended--

        (A) by striking ‘section 5112(a)’ and inserting ‘section 5121(c)(3)’,

        (B) by striking ‘section 5112’ and inserting ‘section 5121(c)’, and

        (C) by striking ‘section 5122’ and inserting ‘section 5122(c)’.

      (12) Subparagraph (A) of section 5010(c)(2) is amended by striking ‘section 5134’ and inserting ‘section 5114’.

      (13) Subsection (d) of section 5052 is amended to read as follows:

    ‘(d) BREWER- For purposes of this chapter, the term ‘brewer’ means any person who brews beer or produces beer for sale. Such term shall not include any person who produces only beer exempt from tax under section 5053(e).’

      (14) The text of section 5182 is amended to read as follows:

‘For provisions requiring recordkeeping by wholesale liquor dealers, see section 5112, and by retail liquor dealers, see section 5122.’

      (15) Subsection (b) of section 5402 is amended by striking ‘section 5092’ and inserting ‘section 5052(d)’.

      (16) Section 5671 is amended by striking ‘or 5091’.

      (17)(A) Part V of subchapter J of chapter 51 is hereby repealed.

      (B) The table of parts for such subchapter J is amended by striking the item relating to part V.

      (18)(A) Sections 5142, 5143, and 5145 are moved to subchapter D of chapter 52, inserted after section 5731, redesignated as sections 5732, 5733, and 5734, respectively, and amended--

        (i) by striking ‘this part’ each place it appears and inserting ‘this subchapter’, and

        (ii) by striking ‘this subpart’ in section 5732(c)(2) (as so redesignated) and inserting ‘this subchapter’.

      (B) Section 5732, as redesignated by subparagraph (A), is amended by striking ‘(except the tax imposed by section 5131)’ each place it appears.

      (C) Subsection (c) of section 5733, as redesignated by subparagraph (A), is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2).

      (D) The table of sections for subchapter D of chapter 52 is amended by adding at the end thereof the following:

‘Sec. 5732. Payment of tax.

‘Sec. 5733. Provisions relating to liability for occupational taxes.

‘Sec. 5734. Application of State laws.’

      (E) Section 5731 is amended by striking subsection (c) and by redesignating subsection (d) as subsection (c).

      (19) Subsection (c) of section 6071 is amended by striking ‘section 5142’ and inserting ‘section 5732’.

      (20) Paragraph (1) of section 7652(g) is amended--

        (A) by striking ‘subpart F’ and inserting ‘subpart B’, and

        (B) by striking ‘section 5131(a)’ and inserting ‘section 5111(a)’.

      (21) The table of sections for subchapter D of chapter 51 is amended by striking the item relating to section 5276.

    (c) EFFECTIVE DATE- The amendments made by this section shall take effect on July 1, 2002, but shall not apply to taxes imposed for periods before such date.

SEC. 508. PERMANENT EXTENSION OF RESEARCH CREDIT.

    (a) IN GENERAL- Section 41 (relating to credit for increasing research activities) is amended by striking subsection (h).

    (b) CONFORMING AMENDMENT- Paragraph (1) of section 45C(b) is amended by striking subparagraph (D).

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to amounts paid or incurred after the date of the enactment of this Act.

SEC. 509. FARM, FISHING, AND RANCH RISK MANAGEMENT ACCOUNTS.

    (a) IN GENERAL- Subpart C of part II of subchapter E of chapter 1 (relating to taxable year for which deductions taken) is amended by inserting after section 468B the following new section:

‘SEC. 468C. FARM, FISHING, AND RANCH RISK MANAGEMENT ACCOUNTS.

    ‘(a) DEDUCTION ALLOWED- In the case of an individual engaged in an eligible farming business or commercial fishing, there shall be allowed as a deduction for any taxable year the amount paid in cash by the taxpayer during the taxable year to a Farm, Fishing, and Ranch Risk Management Account (hereinafter referred to as the ‘FFARRM Account’).

    ‘(b) LIMITATION-

      ‘(1) CONTRIBUTIONS- The amount which a taxpayer may pay into the FFARRM Account for any taxable year shall not exceed 20 percent of so much of the taxable income of the taxpayer (determined without regard to this section) which is attributable (determined in the manner applicable under section 1301) to any eligible farming business or commercial fishing.

      ‘(2) DISTRIBUTIONS- Distributions from a FFARRM Account may not be used to purchase, lease, or finance any new fishing vessel, add capacity to any fishery, or otherwise contribute to the overcapitalization of any fishery. The Secretary of Commerce shall implement regulations to enforce this paragraph.

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

      ‘(1) ELIGIBLE FARMING BUSINESS- The term ‘eligible farming business’ means any farming business (as defined in section 263A(e)(4)) which is not a passive activity (within the meaning of section 469(c)) of the taxpayer.

      ‘(2) COMMERCIAL FISHING- The term ‘commercial fishing’ has the meaning given such term by section (3) of the Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. 1802) but only if such fishing is not a passive activity (within the meaning of section 469(c)) of the taxpayer.

    ‘(d) FFARRM ACCOUNT- For purposes of this section--

      ‘(1) IN GENERAL- The term ‘FFARRM Account’ means a trust created or organized in the United States for the exclusive benefit of the taxpayer, but only if the written governing instrument creating the trust meets the following requirements:

        ‘(A) No contribution will be accepted for any taxable year in excess of the amount allowed as a deduction under subsection (a) for such year.

        ‘(B) The trustee is a bank (as defined in section 408(n)) or another person who demonstrates to the satisfaction of the Secretary that the manner in which such person will administer the trust will be consistent with the requirements of this section.

        ‘(C) The assets of the trust consist entirely of cash or of obligations which have adequate stated interest (as defined in section 1274(c)(2)) and which pay such interest not less often than annually.

        ‘(D) All income of the trust is distributed currently to the grantor.

        ‘(E) The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund.

      ‘(2) ACCOUNT TAXED AS GRANTOR TRUST- The grantor of a FFARRM Account shall be treated for purposes of this title as the owner of such Account and shall be subject to tax thereon in accordance with subpart E of part I of subchapter J of this chapter (relating to grantors and others treated as substantial owners).

    ‘(e) INCLUSION OF AMOUNTS DISTRIBUTED-

      ‘(1) IN GENERAL- Except as provided in paragraph (2), there shall be includible in the gross income of the taxpayer for any taxable year--

        ‘(A) any amount distributed from a FFARRM Account of the taxpayer during such taxable year, and

        ‘(B) any deemed distribution under--

          ‘(i) subsection (f)(1) (relating to deposits not distributed within 5 years),

          ‘(ii) subsection (f)(2) (relating to cessation in eligible farming business), and

          ‘(iii) subparagraph (B) or (C) of subsection (f)(3) (relating to prohibited transactions and pledging account as security).

      ‘(2) EXCEPTIONS- Paragraph (1)(A) shall not apply to--

        ‘(A) any distribution to the extent attributable to income of the Account, and

        ‘(B) the distribution of any contribution paid during a taxable year to a FFARRM Account to the extent that such contribution exceeds the limitation applicable under subsection (b) if requirements similar to the requirements of section 408(d)(4) are met.

      For purposes of subparagraph (A), distributions shall be treated as first attributable to income and then to other amounts.

    ‘(f) SPECIAL RULES-

      ‘(1) TAX ON DEPOSITS IN ACCOUNT WHICH ARE NOT DISTRIBUTED WITHIN 5 YEARS-

        ‘(A) IN GENERAL- If, at the close of any taxable year, there is a nonqualified balance in any FFARRM Account--

          ‘(i) there shall be deemed distributed from such Account during such taxable year an amount equal to such balance, and

          ‘(ii) the taxpayer’s tax imposed by this chapter for such taxable year shall be increased by 10 percent of such deemed distribution.

        The preceding sentence shall not apply if an amount equal to such nonqualified balance is distributed from such Account to the taxpayer before the due date (including extensions) for filing the return of tax imposed by this chapter for such year (or, if earlier, the date the taxpayer files such return for such year).

        ‘(B) NONQUALIFIED BALANCE- For purposes of subparagraph (A), the term ‘nonqualified balance’ means any balance in the Account on the last day of the taxable year which is attributable to amounts deposited in such Account before the 4th preceding taxable year.

        ‘(C) ORDERING RULE- For purposes of this paragraph, distributions from a FFARRM Account (other than distributions of current income) shall be treated as made from deposits in the order in which such deposits were made, beginning with the earliest deposits.

      ‘(2) CESSATION IN ELIGIBLE BUSINESS- At the close of the first disqualification period after a period for which the taxpayer was engaged in an eligible farming business or commercial fishing, there shall be deemed distributed from the FFARRM Account of the taxpayer an amount equal to the balance in such Account (if any) at the close of such disqualification period. For purposes of the preceding sentence, the term ‘disqualification period’ means any period of 2 consecutive taxable years for which the taxpayer is not engaged in an eligible farming business or commercial fishing.

      ‘(3) CERTAIN RULES TO APPLY- Rules similar to the following rules shall apply for purposes of this section:

        ‘(A) Section 220(f)(8) (relating to treatment on death).

        ‘(B) Section 408(e)(2) (relating to loss of exemption of account where individual engages in prohibited transaction).

        ‘(C) Section 408(e)(4) (relating to effect of pledging account as security).

        ‘(D) Section 408(g) (relating to community property laws).

        ‘(E) Section 408(h) (relating to custodial accounts).

      ‘(4) TIME WHEN PAYMENTS DEEMED MADE- For purposes of this section, a taxpayer shall be deemed to have made a payment to a FFARRM Account on the last day of a taxable year if such payment is made on account of such taxable year and is made on or before the due date (without regard to extensions) for filing the return of tax for such taxable year.

      ‘(5) INDIVIDUAL- For purposes of this section, the term ‘individual’ shall not include an estate or trust.

      ‘(6) DEDUCTION NOT ALLOWED FOR SELF-EMPLOYMENT TAX- The deduction allowable by reason of subsection (a) shall not be taken into account in determining an individual’s net earnings from self-employment (within the meaning of section 1402(a)) for purposes of chapter 2.

    ‘(g) REPORTS- The trustee of a FFARRM Account shall make such reports regarding such Account to the Secretary and to the person for whose benefit the Account is maintained with respect to contributions, distributions, and such other matters as the Secretary may require under regulations. The reports required by this subsection shall be filed at such time and in such manner and furnished to such persons at such time and in such manner as may be required by such regulations.’.

    (b) TAX ON EXCESS CONTRIBUTIONS-

      (1) Subsection (a) of section 4973 (relating to tax on excess contributions to certain tax-favored accounts and annuities) is amended by striking ‘or’ at the end of paragraph (3), by redesignating paragraph (4) as paragraph (5), and by inserting after paragraph (3) the following new paragraph:

      ‘(4) a FFARRM Account (within the meaning of section 468C(d)), or’.

      (2) Section 4973 is amended by adding at the end the following new subsection:

    ‘(g) EXCESS CONTRIBUTIONS TO FFARRM ACCOUNTS- For purposes of this section, in the case of a FFARRM Account (within the meaning of section 468C(d)), the term ‘excess contributions’ means the amount by which the amount contributed for the taxable year to the Account exceeds the amount which may be contributed to the Account under section 468C(b) for such taxable year. For purposes of this subsection, any contribution which is distributed out of the FFARRM Account in a distribution to which section 468C(e)(2)(B) applies shall be treated as an amount not contributed.’.

      (3) The section heading for section 4973 is amended to read as follows:

‘SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN ACCOUNTS, ANNUITIES, ETC.’.

      (4) The table of sections for chapter 43 is amended by striking the item relating to section 4973 and inserting the following new item:

‘Sec. 4973. Excess contributions to certain accounts, annuities, etc.’.

    (c) TAX ON PROHIBITED TRANSACTIONS-

      (1) Subsection (c) of section 4975 (relating to tax on prohibited transactions) is amended by adding at the end the following new paragraph:

      ‘(6) SPECIAL RULE FOR FFARRM ACCOUNTS- A person for whose benefit a FFARRM Account (within the meaning of section 468C(d)) is established shall be exempt from the tax imposed by this section with respect to any transaction concerning such account (which would otherwise be taxable under this section) if, with respect to such transaction, the account ceases to be a FFARRM Account by reason of the application of section 468C(f)(3)(A) to such account.’.

      (2) Paragraph (1) of section 4975(e) is amended by redesignating subparagraphs (E) and (F) as subparagraphs (F) and (G), respectively, and by inserting after subparagraph (D) the following new subparagraph:

        ‘(E) a FFARRM Account described in section 468C(d),’.

    (d) FAILURE TO PROVIDE REPORTS ON FFARRM ACCOUNTS- Paragraph (2) of section 6693(a) (relating to failure to provide reports on certain tax-favored accounts or annuities) is amended by redesignating subparagraphs (C) and (D) as subparagraphs (D) and (E), respectively, and by inserting after subparagraph (B) the following new subparagraph:

        ‘(C) section 468C(g) (relating to FFARRM Accounts),’.

    (e) CLERICAL AMENDMENT- The table of sections for subpart C of part II of subchapter E of chapter 1 is amended by inserting after the item relating to section 468B the following new item:

‘Sec. 468C. Farm, Fishing and Ranch Risk Management Accounts.’.

    (f) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.