[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 154 Introduced in House (IH)]

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105th CONGRESS
  1st Session
                                H. R. 154

  To amend the Internal Revenue Code of 1986 to require governmental 
 deferred compensation plans to maintain set asides for the exclusive 
                        benefit of participants.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 7, 1997

  Mr. Engel 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 require governmental 
 deferred compensation plans to maintain set asides for the exclusive 
                        benefit of participants.

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

SECTION 1. TRUST REQUIREMENT FOR DEFERRED COMPENSATION PLANS OF STATE 
              AND LOCAL GOVERNMENTS.

    (a) In General.--Section 457 of the Internal Revenue Code of 1986 
(relating to deferred compensation plans of State and local governments 
and tax-exempt organizations) is amended by adding at the end the 
following new subsection:
    ``(g) Governmental Plans Must Maintain Set Asides for Exclusive 
Benefit of Participants.--
            ``(1) In general.--A plan maintained by an eligible 
        employer described in subsection (e)(1)(A) shall not be treated 
        as an eligible deferred compensation plan unless all assets and 
        income of the plan described in subsection (b)(6) are held in 
        trust for the exclusive benefit of participants and their 
        beneficiaries.
            ``(2) Taxability of trusts and participants.--For purposes 
        of this title--
                    ``(A) a trust described in paragraph (1) shall be 
                treated as an organization exempt from taxation under 
                section 501(a), and 
                    ``(B) notwithstanding any other provision of this 
                title, amounts in the trust shall be includable in the 
                gross income of participants and beneficiaries only to 
                the extent, and at the time, provided in this section.
            ``(3) Custodial accounts and contracts.--For purposes of 
        this subsection, custodial accounts and contracts described in 
        section 401(f) shall be treated as trusts under rules similar 
        to the rules under section 401(f).''
    (b) Conforming Amendment.--Paragraph (6) of section 457(b) is 
amended by inserting ``except as provided in subsection (g),'' before 
``which provides that''.

SEC. 2. EFFECTIVE DATES.

    (a) In General.--Except as provided in subsection (b), the 
amendments made by this Act shall apply to assets and income described 
in section 457(b)(6) of the Internal Revenue Code of 1986 held by a 
plan on and after the date of the enactment of this Act.
    (b) Transition Rule.--In the case of assets and income described in 
subsection (a) held by a plan before the first day of the first 
calendar quarter beginning after the close of the first regular session 
of the State legislature of the State in which the governmental entity 
maintaining the plan is located beginning after the date of the 
enactment of this Act, a trust need not be established by reason of the 
amendments made by this section before such first day. For purposes of 
the preceding sentence, in the case of a State that has a 2-year 
legislative session, each year of such session shall be deemed to be a 
separate regular session of the State legislature.