[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 83 Introduced in House (IH)]







105th CONGRESS
  1st Session
                                 H. R. 83

               To enhance and protect retirement savings.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 7, 1997

 Mr. Schumer introduced the following bill; which was referred to the 
   Committee on Ways and Means, and in addition to the Committee on 
Education and the Workforce, for a period to be subsequently determined 
 by the Speaker, in each case for consideration of such provisions as 
        fall within the jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
               To enhance and protect retirement savings.

    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 ``Comprehensive 
Pension and Retirement Security Act of 1997''.
    (b) Table of Contents.--

Sec. 1. Short title.
     TITLE I--RESTRICTIONS ON LOANS FROM QUALIFIED RETIREMENT PLANS

Sec. 101. Qualified employer plans prohibited from making loans through 
                            credit cards and other intermediaries.
Sec. 102. Loans from qualified employer plans treated as distributions 
                            unless used to purchase a first home, to 
                            pay higher education or financially 
                            devastating medical expenses, or during 
                            periods of unemployment.
TITLE II--PROMOTION OF AVAILABILITY OF PRIVATE PENSIONS UPON RETIREMENT

Sec. 201. Availability of defined contribution plan option for 
                            participants in defined benefit plans.
Sec. 202. Timely investment of plan contributions.
Sec. 203. Increase in penalty for early distributions from pension 
                            plans.
             TITLE III--HEALTH COVERAGE FOR RETIRED WORKERS

Sec. 301. Advance notice of material reductions in covered services 
                            under group health plans.
Sec. 302. Continuation of coverage for persons 55 and older until 
                            eligible for Medicare.
Sec. 303. Protections under the Medicare program for retired workers 
                            who lose retiree health benefits.
  TITLE IV--APPLICATION OF CERTAIN PROHIBITED TRANSACTIONS RULES FOR 
                              401(K) PLANS

Sec. 401. Certain prohibited transactions applied to 401(k) plans.
                TITLE V--RETIREMENT SAVINGS AND SECURITY

Sec. 500. Amendment of ERISA.
        Subtitle A--Expanded Pension Coverage and Simplification

Sec. 501. Elimination of requirement for plan descriptions and the 
                            filing requirement for summary plan 
                            descriptions and descriptions of material 
                            modifications to a plan; technical 
                            corrections.
Sec. 502. Conforming amendment relating to investments in qualified 
                            State prepaid tuition programs.
                        Subtitle B--Portability

Sec. 511. Missing participants.
Sec. 512. Elimination of special vesting rule for multiemployer plans.
Sec. 513. Treatment of loans during military service.
                     Subtitle C--Enhanced Security

                     Chapter 1--General Provisions

Sec. 521. Multiemployer plan benefits guaranteed.
Sec. 522. Reversion report.
Sec. 523. Full funding limitation for multiemployer plans.
Sec. 524. Prohibited transactions.
Sec. 525. Substantial owner benefits.
                      Chapter 2--ERISA Enforcement

Sec. 531. Short title.
Sec. 532. Repeal of limited scope audit.
Sec. 533. Reporting and enforcement requirements for employee benefit 
                            plans.
Sec. 534. Additional requirements for qualified public accountants.
Sec. 535. Clarification of fiduciary penalties.
TITLE VI--EXPANDED INDIVIDUAL RETIREMENT ACCOUNTS TO INCREASE COVERAGE 
                            AND PORTABILITY

               Subtitle A--Retirement Savings Incentives

Sec. 601. Increase in income limitations.
Sec. 602. Inflation adjustment for deductible amount and income 
                            limitations.
Sec. 603. Coordination of IRA deduction limit with elective deferral 
                            limit.
Sec. 604. Establishment of nondeductible tax-free individual retirement 
                            accounts.
               Subtitle B--Distributions and Investments

Sec. 611. Distributions from IRAs may be used without additional tax to 
                            purchase first homes, to pay higher 
                            education or financially devastating 
                            medical expenses, or by the unemployed.
Sec. 612. Contributions must be held at least 5 years in certain cases.
Sec. 613. Investments in qualified State prepaid tuition programs.

     TITLE I--RESTRICTIONS ON LOANS FROM QUALIFIED RETIREMENT PLANS

SEC. 101. QUALIFIED EMPLOYER PLANS PROHIBITED FROM MAKING LOANS THROUGH 
              CREDIT CARDS AND OTHER INTERMEDIARIES.

    (a) In General.--Subsection (a) of section 401 of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
paragraph:
            ``(35) Prohibition of loans through credit cards and other 
        intermediaries.--A trust shall not constitute a qualified trust 
        under this section if the plan makes any loan to any 
        beneficiary under the plan through the use of any credit card 
        or any other intermediary.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to plan years beginning after the date of the enactment of this 
Act.

SEC. 102. LOANS FROM QUALIFIED EMPLOYER PLANS TREATED AS DISTRIBUTIONS 
              UNLESS USED TO PURCHASE A FIRST HOME, TO PAY HIGHER 
              EDUCATION OR FINANCIALLY DEVASTATING MEDICAL EXPENSES, OR 
              DURING PERIODS OF UNEMPLOYMENT.

    (a) In General.--Subsection (p) of section 72 of the Internal 
Revenue Code of 1986 (relating to loans treated as distributions) is 
amended by redesignating paragraphs (3), (4), and (5) as paragraphs 
(4), (5), and (6), respectively, and by inserting after paragraph (2) 
the following new paragraph:
            ``(3) Exception only to apply to certain loans.--Paragraph 
        (2) shall apply to any loan only if such loan is--
                    ``(A) a qualified first-time homebuyer loan (as 
                defined in paragraph (7)),
                    ``(B) a qualified higher education loan (as defined 
                in paragraph (8)),
                    ``(C) a qualified medical expense loan (as defined 
                in paragraph (9)), or
                    ``(D) a qualified unemployment loan (as defined in 
                paragraph (10)).''.
    (b) Definitions.--Subsection (p) of section 72 of such Code is 
amended by adding at the end the following new paragraphs:
            ``(7) Qualified first-time homebuyer loan.--
                    ``(A) In general.--For purposes of paragraph (3), 
                the term `qualified first-time homebuyer loan' means 
                any loan received by an individual to the extent the 
                amount of the loan is used within a reasonable period 
                to pay qualified acquisition costs with respect to a 
                principal residence of a first-time homebuyer who is 
                such individual, the spouse of such individual, or any 
                child, grandchild, or ancestor of such individual or 
                the individual's spouse.
                    ``(B) Qualified acquisition costs.--For purposes of 
                this paragraph, the term `qualified acquisition costs' 
                means the costs of acquiring, constructing, or 
                reconstructing a residence. Such term includes any 
                usual or reasonable settlement, financing, or other 
                closing costs.
                    ``(C) First-time homebuyer; other definitions.--For 
                purposes of this paragraph--
                            ``(i) First-time homebuyer.--The term 
                        `first-time homebuyer' means any individual 
                        if--
                                    ``(I) such individual (and if 
                                married, such individual's spouse) had 
                                no present ownership interest in a 
                                principal residence during the 2-year 
                                period ending on the date of 
                                acquisition of the principal residence 
                                to which this paragraph applies, and
                                    ``(II) subsection (h) or (k) of 
                                section 1034 did not suspend the 
                                running of any period of time specified 
                                in section 1034 with respect to such 
                                individual on the day before the date 
                                the loan is received.
                            ``(ii) Principal residence.--The term 
                        `principal residence' has the same meaning as 
                        when used in section 1034.
                            ``(iii) Date of acquisition.--The term 
                        `date of acquisition' means the date--
                                    ``(I) on which a binding contract 
                                to acquire the principal residence to 
                                which subparagraph (A) applies is 
                                entered into, or
                                    ``(II) on which construction or 
                                reconstruction of such a principal 
                                residence is commenced.
            ``(8) Qualified higher education loan.--For purposes of 
        paragraph (3)--
                    ``(A) In general.--The term `qualified higher 
                education loan' means any loan received by an 
                individual to the extent the amount of the loan is used 
                within a reasonable period to pay expenses for tuition, 
                fees, books, supplies, and equipment required for the 
                enrollment or attendance of--
                            ``(i) the individual,
                            ``(ii) the individual's spouse, or
                            ``(iii) any child (as defined in section 
                        151(c)(3)), grandchild, or ancestor of the 
                        individual or the individual's spouse,
                at an eligible educational institution (as defined in 
                section 135(c)(3)).
                    ``(B) Coordination with savings bond provisions.--
                The amount of qualified higher education expenses for 
                any taxable year shall be reduced by any amount 
                excludable from gross income under section 135.
            ``(9) Qualified medical expense loan.--The term `qualified 
        medical expense loan' means any loan received by an individual 
        to the extent the amount of the loan does not exceed the amount 
        allowable as a deduction under section 213 to the individual 
        for amounts paid during the taxable year for medical care 
        (determined without regard to whether the taxpayer itemizes 
        deductions for such taxable year).
            ``(10) Qualified unemployment loan.--The term `qualified 
        unemployment loan' means any loan to an individual after 
        separation from employment, if--
                    ``(A) such individual has received unemployment 
                compensation for 12 consecutive weeks under any Federal 
                or State unemployment compensation law by reason of 
                such separation, and
                    ``(B) such loan is received during any taxable year 
                during which such unemployment compensation is paid or 
                the succeeding taxable year.
        To the extent provided in regulations, a self-employed 
        individual shall be treated as meeting the requirements of 
        subparagraph (A) if, under Federal or State law, the individual 
        would have received unemployment compensation but for the fact 
        the individual was self-employed.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to loans made after the date of the enactment of this Act.

TITLE II--PROMOTION OF AVAILABILITY OF PRIVATE PENSIONS UPON RETIREMENT

SEC. 201. AVAILABILITY OF DEFINED CONTRIBUTION PLAN OPTION FOR 
              PARTICIPANTS IN DEFINED BENEFIT PLANS.

    (a) Amendment to the Employee Retirement Income Security Act of 
1974.--Section 206 of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1056) is amended by adding at the end the following new 
subsection:
    ``(g) Availability of Defined Contribution Plan Option for 
Participants in Defined Benefit Plans.--
            ``(1) In general.--Each defined benefit plan to which an 
        employer makes contributions shall provide (in such form and 
        manner as may be provided in regulations prescribed jointly by 
        the Secretary and the Secretary of the Treasury) for an 
        opportunity for each participant employed by such employer to 
        elect, in lieu of coverage under the defined benefit plan and 
        before any election made by the employer under such plan 
        pursuant to subsection (c), coverage under a defined 
        contribution plan maintained in whole or in part by the 
        participant's employer. An employer making contributions to a 
        defined benefit plan shall maintain for his employees a defined 
        contribution plan to the extent necessary to provide for 
        coverage under such defined contribution plan pursuant to 
        elections under this subsection.
            ``(2) Required level of contributions.--The requirements of 
        paragraph (1) shall not be treated as met unless the defined 
        contribution plan with respect to which an election is made 
        under paragraph (1) provides for contributions (other than 
        employee contributions (if any)) at least equivalent to the 
        contributions (other than employee contributions (if any)) 
        provided for under the terms of the defined benefit plan.
            ``(3) Required election period.--The requirements of 
        paragraph (1) shall not be treated as met unless the defined 
        benefit plan provides that an election under paragraph (1) may 
        be made at any time during the 90-day period beginning with the 
        later of--
                    ``(A) the commencement of the first plan year to 
                which this subsection applies, or
                    ``(B) the commencement of the employee's service 
                under the plan.''.
    (b) Amendments to the Internal Revenue Code of 1986.--Subsection 
(a) of section 401 of the Internal Revenue Code of 1986 (relating to 
requirements for qualification) is amended by inserting after paragraph 
(34) the following new paragraph:
            ``(35) Availability of defined contribution plan option for 
        participants in defined benefit plans.--
                    ``(A) In general.--A trust forming a part of a 
                defined benefit plan to which an employer makes 
                contributions shall not constitute a qualified trust 
                under this section unless--
                            ``(i) the plan provides (in such form and 
                        manner as may be provided in regulations 
                        prescribed jointly by the Secretary and the 
                        Secretary of Labor) for an opportunity for each 
                        participant employed by such employer to elect, 
                        in lieu of coverage under the defined benefit 
                        plan and before any election made by the 
                        employer under such plan pursuant to section 
                        417, coverage under a defined contribution plan 
                        maintained in whole or in part by the 
                        participant's employer, and
                            ``(ii) the defined benefit plan provides 
                        that each employer making contributions to the 
                        plan maintains for his employees a defined 
                        contribution plan to the extent necessary to 
                        provide for coverage under such defined 
                        contribution plan pursuant to elections under 
                        this paragraph.
                    ``(B) Required level of contributions.--The 
                requirements of subparagraph (A) shall not be treated 
                as met unless the defined contribution plan with 
                respect to which an election is made under subparagraph 
                (A) provides for contributions (other than employee 
                contributions (if any)) at least equivalent to the 
                contributions (other than employee contributions (if 
                any)) provided for under the terms of the defined 
                benefit plan.
                    ``(C) Required election period.--The requirements 
                of subparagraph (A) shall not be treated as met unless 
                the defined benefit plan provides that an election 
                under subparagraph (A) may be made at any time during 
                the 90-day period beginning with the later of--
                            ``(i) the commencement of the first plan 
                        year to which this paragraph applies, or
                            ``(ii) the commencement of the employee's 
                        service under the plan.''.
    (c) Effective Dates.--
            (1) General rule.--The amendments made by this section 
        shall apply to plan years beginning after December 31, 1997.
            (2) Special rule for collective bargaining agreements.--In 
        the case of a defined benefit plan maintained pursuant to one 
        or more collective bargaining agreements between employee 
        organizations and one or more employers ratified before the 
        date of the enactment of this Act, the amendments made by this 
        section shall not apply to plan years beginning before the 
        later of--
                    (A) the date on which the last of the collective 
                bargaining agreements relating to the plan terminates 
                (determined without regard to any extension thereof 
                agreed to after the date of the enactment of this Act), 
                or
                    (B) January 1, 1999.
        For purposes of subparagraph (A), any plan amendment made 
        pursuant to a collective bargaining agreement relating to the 
        plan which amends the plan solely to conform to any requirement 
        added by this section shall not be treated as a termination of 
        such collective bargaining agreement.

SEC. 202. TIMELY INVESTMENT OF PLAN CONTRIBUTIONS.

    (a) In General.--Section 404 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1104) is amended by adding at the end 
the following new subsection:
    ``(e) Any failure, by a person who is a fiduciary with respect to a 
pension plan and who has discretionary authority respecting investment 
of amounts contributed to the plan, to ensure that amounts contributed 
to the plan are invested, in accordance with the terms of the plan and 
this title, before 15 days after the calendar month in which such 
amounts are received by the plan, shall be treated as a breach of 
fiduciary duties under the plan.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply with respect to plan years beginning on December 31, 1997.

SEC. 203. INCREASE IN PENALTY FOR EARLY DISTRIBUTIONS FROM PENSION 
              PLANS.

    (a) In General.--Paragraph (1) of section 72(t) of the Internal 
Revenue Code of 1986 (relating to imposition of additional tax) is 
amended by striking ``10 percent'' and all that follows and inserting 
``100 percent of the portion of such distribution which would (but for 
the following sentence) be includible in gross income. A distribution 
on which tax is imposed by the preceding sentence shall not be 
includible in gross income.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to distributions after December 31, 1997.

             TITLE III--HEALTH COVERAGE FOR RETIRED WORKERS

SEC. 301. ADVANCE NOTICE OF MATERIAL REDUCTIONS IN COVERED SERVICES 
              UNDER GROUP HEALTH PLANS.

    (a) Advance Notice.--
            (1) In general.--Section 104(b)(1) of the Employee 
        Retirement Income Security Act of 1974 (as amended by section 
        101(c)(1)(B) of the Health Insurance Portability and 
        Accountability Act of 1996 (Public Law 104-191)) is amended--
                    (A) by redesignating subparagraphs (A) and (B) as 
                clauses (i) and (ii), respectively;
                    (B) by striking ``(1) The administrator'' and 
                inserting ``(1)(A) The administrator'';
                    (C) by striking ``The administrator'' the second 
                place it appears and inserting the following:
    ``(B) The administrator'';
                    (D) by striking ``If there is a modification'' and 
                inserting the following:
    ``(C) If there is a modification''; and
                    (E) by adding at the end the following new 
                subparagraph:
    ``(D) Notwithstanding subparagraph (C), a modification or change 
described in section 102(a)(1) in covered services or benefits provided 
in the case of a group health plan (as defined in section 706(a)(1)) 
relating to retiree health benefits, a summary description of such 
modification or change shall be furnished to participants and 
beneficiaries not later than 180 days before the effective date of the 
modification or change. In any case in which an individual first 
becomes a participant under a group health plan during any such 180-day 
period with respect to such a modification or change or (in the case of 
any other beneficiary under the plan) first receives benefits under the 
plan during such 180-day period, the requirements of the preceding 
sentence may be met by providing the summary description of such 
modification or change not later than the date on which such individual 
first becomes a participant or such other beneficiary first receives 
benefits under the plan.''.
            (2) Determination by secretary.--Section 104 of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1024) is further amended by redesignating subsection (d) as 
        subsection (e) and by inserting after subsection (c) the 
        following new subsection:
    ``(d) A change or modification in covered services or benefits 
provided in the case of a group health plan relating to retiree health 
benefits that is subject to the requirements of subsection (b)(1)(D) 
may not take effect until after the Secretary determines that such 
change or modification does not violate the plan, including collective 
bargaining agreements.''.
            (3) Advance notice to secretary.--Section 104(a)(1)(D) of 
        the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1024(a)(1)(D)) is amended by inserting before the period the 
        following: ``, or in the case of any such modifications and 
        changes in covered services or benefits provided in the case of 
        a group health plan relating to retiree health benefits, not 
        later than 180 days before the effective date of such 
        modification or change.''.
            (4) Civil penalty.--Section 502(c)(1) of such Act (29 
        U.S.C. 1132(c)(1)) is amended by striking ``or section 
        101(e)(1)'' and inserting ``, section 101(e)(1), or section 
        104(b)(1)(D)''.
    (b) Enforcement.--
            (1) Requirements.--Section 4980B of the Internal Revenue 
        Code of 1986 is amended by redesignating subsection (g) as 
        subsection (h) and by inserting after subsection (f) the 
        following new subsection:
    ``(g) Notice of Change or Modification in Health Benefits.--
            ``(1) In general.--A group health plan meets the 
        requirements of this subsection if--
                    ``(A) the plan sponsor complies with section 
                104(b)(1)(D) of the Employee Retirement Income Security 
                Act of 1974 (relating to providing advance notice of 
                modification or change in retiree health benefits 
                provided under a group health plan); and
                    ``(B) such modification or change in retiree health 
                benefits in a group health plan takes effect after the 
                Secretary of Labor makes the determination required by 
                section 104(d) of such Act that such change or 
                modification does not violate the plan, including 
                collective bargaining agreements.
            ``(2) Noncompliance period.--For the purposes of subsection 
        (b), the noncompliance period with respect to this subsection 
        shall be determined without regard to paragraph (2)(B)(ii) of 
        subsection (b).''.
            (2) Conforming amendments.--
                    (A) Subsection (a) of section 4980B of such Code is 
                amended by striking ``subsection (f)'' and inserting 
                ``subsections (f) and (g)''.
                    (B) Clause (iv)(II) of section 4980B(f)(2)(B) of 
                such Code is amended by striking ``subsection 
                (g)(1)(D)'' and inserting ``subsection (h)(1)(D)''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to plan years ending after January 1, 1997.

SEC. 302. CONTINUATION OF COVERAGE FOR PERSONS 55 AND OLDER UNTIL 
              ELIGIBLE FOR MEDICARE.

    (a) In General.--Section 4980B(f)(2) of the Internal Revenue Code 
of 1986 is amended by adding at the end the following:
                    ``(F) Coverage for persons 55 and older until 
                eligible for medicare.--In the case of a covered 
                employee who has attained the age of 55 before a 
                qualifying event described in paragraph (3)(B)--
                            ``(i) in no event shall the period of 
                        continued coverage under subparagraph (B)(i) 
                        with respect to such event end before the 
                        applicable date under subparagraph (B)(iv), and
                            ``(ii) the premium requirements for any 
                        period of continuation of coverage solely by 
                        reason of clause (i) shall be determined by 
                        substituting `110 percent' for `102 percent' in 
                        subparagraph (C)(i), unless the last sentence 
                        of subparagraph (C) otherwise applies.''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to plan years ending after January 1, 1997.

SEC. 303. PROTECTIONS UNDER THE MEDICARE PROGRAM FOR RETIRED WORKERS 
              WHO LOSE RETIREE HEALTH BENEFITS.

    (a) No Premium Penalty for Late Enrollment.--The second sentence of 
section 1839(b) of the Social Security Act (42 U.S.C. 1395r(b)) is 
amended by inserting ``and not pursuant to a special enrollment period 
under section 1837(i)(4)'' after ``section 1837)''.
    (b) Special Medicare Enrollment Period.--
            (1) In general.--Section 1837(i) of such Act (42 U.S.C. 
        1395p(i)) is amended by adding at the end the following new 
        paragraph:
    ``(4)(A) In the case of an individual who--
            ``(i) at the time the individual first satisfies paragraph 
        (1) or (2) of section 1836--
                    ``(I) is enrolled in a group health plan described 
                in section 1862(b)(1)(A)(v) by reason of the 
                individual's (or the individual's spouse's) current 
                employment or otherwise, and
                    ``(II) has elected not to enroll (or to be deemed 
                enrolled) under this section during the individual's 
                initial enrollment period; and
            ``(ii) whose continuous enrollment under such group health 
        plan is involuntarily terminated at a time when the enrollment 
        under the plan is not by reason of the individual's (or the 
        individual's spouse's) current employment,
there shall be a special enrollment period described in subparagraph 
(B).
    ``(B) The special enrollment period referred to in subparagraph (A) 
is the 6-month period beginning on the date of the enrollment 
termination described in subparagraph (A)(ii).''.
            (2) Coverage period.--Section 1838(e) of such Act (42 
        U.S.C. 1395q(e)) is amended--
                    (A) by inserting ``or 1837(i)(4)(B)'' after 
                ``1837(i)(3)'' the first place it appears, and
                    (B) by inserting ``or specified in section 
                1837(i)(4)(A)(i)'' after ``1837(i)(3)'' the second 
                place it appears''.
    (c) Providing for Medigap Open Enrollment Period.--Section 
1882(s)(2)(A) of such Act (42 U.S.C. 1395ss(s)(2)(A)) is amended--
            (1) by inserting ``(i)'' after ``during'', and
            (2) by inserting before the period at the end the 
        following: ``or (ii) in the case of an individual who enrolls 
        in part B pursuant to a special enrollment period provided 
        under section 1837(i)(4), the 6-month period beginning with the 
        first month as of the first day of which the individual is 
enrolled under part B pursuant to such enrollment''.
    (d) Effective Date.--
            (1) In general.--Subject to paragraph (2), the amendments 
        made by this section shall take effect on the date of the 
        enactment of this Act and apply to involuntary terminations of 
        coverage under a group health plan occurring on or after 
        January 1, 1997.
            (2) Transition.--In the case of an involuntary termination 
        of coverage under a group health plan that occurred during the 
        period beginning on January 1, 1997, and ending on the date of 
        the enactment of this Act, the special enrollment period under 
        section 1837(i)(4)(B) of the Social Security Act (as amended by 
        subsection (b)) is deemed to begin as of the date of the 
        enactment of this Act.

  TITLE IV--APPLICATION OF CERTAIN PROHIBITED TRANSACTIONS RULES FOR 
                              401(k) PLANS

SEC. 401. CERTAIN PROHIBITED TRANSACTIONS APPLIED TO 401(k) PLANS.

    (a) In General.--Paragraph (3) of section 407(d) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1107(d)) is amended 
by adding at the end the following new sentence: ``Such term also 
excludes an individual account plan that includes a qualified cash or 
deferred arrangement described in section 401(k) of the Internal 
Revenue Code of 1986, if such plan, together with all other individual 
account plans maintained by the employer, owns more than 10 percent of 
the assets owned by all pension plans maintained by the employer. For 
purposes of the preceding sentence, the assets of such plan subject to 
participant control (within the meaning of section 404(c)) shall not be 
taken into account.''.
    (b) Effective Date; Transition Rule.--
            (1) Effective date.--Except as provided in paragraph (2), 
        the amendment made by this section shall apply to plans on and 
        after the date of the enactment of this Act.
            (2) Transition rule for plans holding excess securities or 
        property.--In the case of a plan which on the date of the 
        enactment of this Act has holdings of employer securities and 
        employer real property (as defined in section 407(d) of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1107(d)) in excess of the amount specified in such section 407, 
        the amendment made by this section shall apply to any 
        acquisition of such securities and property on or after such 
        date of enactment, but shall not apply to the specific holdings 
        which constitute such excess during the period of such excess.

                TITLE V--RETIREMENT SAVINGS AND SECURITY

SEC. 500. AMENDMENT OF ERISA.

    Except as otherwise expressly provided, whenever in this title 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 Employee Retirement 
Income Security Act of 1974.

        Subtitle A--Expanded Pension Coverage and Simplification

SEC. 501. ELIMINATION OF REQUIREMENT FOR PLAN DESCRIPTIONS AND THE 
              FILING REQUIREMENT FOR SUMMARY PLAN DESCRIPTIONS AND 
              DESCRIPTIONS OF MATERIAL MODIFICATIONS TO A PLAN; 
              TECHNICAL CORRECTIONS.

    (a) Filing Requirements.--Section 101(b) (29 U.S.C. 1021(b)) is 
amended by striking paragraphs (1), (2), and (3) and by redesignating 
paragraphs (4) and (5) as paragraphs (1) and (2), respectively.
    (b) Plan Description.--
            (1) In general.--Section 102(a) (29 U.S.C. 1022(a)) is 
        amended--
                    (A) by striking paragraph (2), and
                    (B) by striking ``(a)(1)'' and inserting ``(a)''.
            (2) Conforming amendments.--
                    (A) Section 102(b) (29 U.S.C. 1022(b)) is amended 
                by striking ``The plan description and summary plan 
                description shall contain'' and inserting ``The summary 
                plan description shall contain''.
                    (B) The heading for section 102 is amended by 
                striking ``plan description and''.
    (c) Furnishing of Reports.--
            (1) In general.--Section 104(a)(1) (29 U.S.C. 1024(a)(1)) 
        is amended to read as follows:
    ``Sec. 104. (a)(1) The administrator of any employee benefit plan 
subject to this part shall file with the Secretary the annual report 
for a plan year within 210 days after the close of such year (or within 
such time as may be required by regulations promulgated by the 
Secretary in order to reduce duplicative filing). The Secretary shall 
make copies of such annual reports available for inspection in the 
public document room of the Department of Labor.''
            (2) Secretary may request documents.--
                    (A) In general.--Section 104(a) (29 U.S.C. 1024(a)) 
                is amended by adding at the end the following new 
                paragraph:
    ``(6) The administrator of any employee benefit plan subject to 
this part shall furnish to the Secretary, upon request, any documents 
relating to the employee benefit plan, including but not limited to, 
the latest summary plan description (including any summaries of plan 
changes not contained in the summary plan description), and the 
bargaining agreement, trust agreement, contract, or other instrument 
under which the plan is established or operated.''.
                    (B) Penalty.--Section 502(c) (29 U.S.C. 1132(c)) is 
                amended by adding at the end the following new 
                paragraph:
    ``(5) If, within 30 days of a request by the Secretary to a plan 
administrator for documents under section 104(a)(6), the plan 
administrator fails to furnish the material requested to the Secretary, 
the Secretary may assess a civil penalty against the plan administrator 
of up to $100 a day from the date of such failure (but in no event in 
excess of $1,000 per request). No penalty shall be imposed under this 
paragraph for any failure resulting from matters reasonably beyond the 
control of the plan administrator.''.
    (d) Conforming Amendments.--
            (1) Section 104(b)(1) (29 U.S.C. 1024(b)(1)) is amended by 
        striking ``section 102(a)(1)'' each place it appears and 
        inserting ``section 102(a)''.
            (2) Section 104(b)(2) (29 U.S.C. 1024(b)(2)) is amended by 
        striking ``the plan description and'' and inserting ``the 
        latest updated summary plan description and''.
            (3) Section 104(b)(4) (29 U.S.C. 1024(b)(4)) is amended by 
        striking ``plan description''.
            (4) Section 106(a) (29 U.S.C. 1026(a)) is amended by 
        striking ``descriptions,''.
            (5) Section 107 (29 U.S.C. 1027) is amended by striking 
        ``description or''.
            (6) Paragraph (2)(B) of section 108 (29 U.S.C. 1028) is 
        amended to read as follows: ``(B) after publishing or filing 
        the annual reports,''.
            (7) Section 502(a)(6) (29 U.S.C. 1132(a)(6)) is amended by 
        striking ``subsection (c)(2) or (i) or (l)'' and inserting 
        ``paragraph (2), (4), or (5) of subsection (c) or subsection 
        (i) or (l)''.
    (e) Technical Corrections to ERISA.--
            (1) Section 502(c)(1) (29 U.S.C. 1132(c)(1)) is amended by 
        adding at the end the following new sentence: ``For purposes of 
        this paragraph, each violation described in subparagraph (A) 
        with respect to any single participant, and each violation 
        described in subparagraph (B) with respect to any single 
        participant or beneficiary, shall be treated as a separate 
        violation.''
            (2) Section 502(c) (29 U.S.C. 1132(c)) is amended--
                    (A) by striking the last two sentences of paragraph 
                (4), and
                    (B) by adding at the end the following new 
                paragraph:
    ``(5) The Secretary and the Secretary of Health and Human Services 
shall maintain such ongoing consultation as may be necessary and 
appropriate to coordinate enforcement under this subsection with 
enforcement under section 1144(c)(9) of the Social Security Act.''.
    (f) Effective Date.--The provisions of this section shall take 
effect on the date of the enactment of this Act.

SEC. 502. CONFORMING AMENDMENT RELATING TO INVESTMENTS IN QUALIFIED 
              STATE PREPAID TUITION PROGRAMS.

    (a) In General.--Subsection (b) of section 408 is amended by adding 
at the end the following new paragraph:
            ``(14) any purchase of a qualified State prepaid tuition 
        program instrument to which section 408(q) of the Internal 
        Revenue Code of 1986 applies.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1996.

                        Subtitle B--Portability

SEC. 511. MISSING PARTICIPANTS.

    (a) In General.--Section 4050 (29 U.S.C. 1350) is amended by 
redesignating subsection (c) as subsection (e) and by inserting after 
subsection (b) the following new subsections:
    ``(c) Multiemployer Plans.--The corporation shall prescribe rules 
similar to the rules in subsection (a) for multiemployer plans covered 
by this title that terminate under section 4041A.
    ``(d) Plans Not Otherwise Subject to Title.--
            ``(1) Transfer to corporation.--The plan administrator of a 
        plan described in paragraph (4) may elect to transfer a missing 
        participant's benefits to the corporation upon termination of 
        the plan.
            ``(2) Information to the corporation.--To the extent 
        provided in regulations, the plan administrator of a plan 
        described in paragraph (4) shall, upon termination of the plan, 
        provide the corporation information with respect to benefits of 
        a missing participant if the plan transfers such benefits--
                    ``(A) to the corporation, or
                    ``(B) to an entity other than the corporation or a 
                plan described in paragraph (4)(B)(ii).
            ``(3) Payment by the corporation.--If benefits of a missing 
        participant were transferred to the corporation under paragraph 
        (1), the corporation shall, upon location of the participant or 
        beneficiary, pay to the participant or beneficiary the amount 
        transferred (or the appropriate survivor benefit) either--
                    ``(A) in a single sum (plus interest), or
                    ``(B) in such other form as is specified in 
                regulations of the corporation.
            ``(4) Plans described.--A plan is described in this 
        paragraph if--
                    ``(A) the plan is a pension plan (within the 
                meaning of section 3(2))--
                            ``(i) to which the provisions of this 
                        section do not apply (without regard to this 
                        subsection), and
                            ``(ii) which is not a plan described in 
                        paragraphs (2) through (11) of section 4021(b), 
                        and
                    ``(B) at the time the assets are to be distributed 
                upon termination, the plan--
                            ``(i) has missing participants, and
                            ``(ii) has not provided for the transfer of 
                        assets to pay the benefits of all missing 
                        participants to another pension plan (within 
                        the meaning of section 3(2)).
            ``(5) Certain provisions not to apply.--Subsections (a)(1) 
        and (a)(3) shall not apply to a plan described in paragraph 
        (4).''.
    (b) Conforming Amendments.--Section 206(f) (29 U.S.C. 1056(f)) is 
amended--
            (1) by striking ``title IV'' and inserting ``section 
        4050'', and
            (2) by striking ``the plan shall provide that''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions made after final regulations implementing 
subsections (c) and (d) of section 4050 of the Employee Retirement 
Income Security Act of 1974 (as added by subsection (a)), respectively, 
are prescribed.

SEC. 512. ELIMINATION OF SPECIAL VESTING RULE FOR MULTIEMPLOYER PLANS.

    (a) In General.--Paragraph (2) of section 203(a) (29 U.S.C. 
1053(a)) is amended--
            (1) by striking ``subparagraph (A), (B), or (C)'' and 
        inserting ``subparagraph (A) or (B)''; and
            (2) by striking subparagraph (C).
    (b) Effective Date.--The amendments made by this section shall 
apply to plan years beginning on or after the earlier of--
            (1) the later of--
                    (A) January 1, 1997, or
                    (B) the date on which the last of the collective 
                bargaining agreements pursuant to which the plan is 
                maintained terminates (determined without regard to any 
                extension thereof after the date of the enactment of 
                this Act), or
            (2) January 1, 1999.
Such amendments shall not apply to any individual who does not have 
more than 1 hour of service under the plan on or after the 1st day of 
the 1st plan year to which such amendments apply.

SEC. 513. TREATMENT OF LOANS DURING MILITARY SERVICE.

    (a) In General.--Section 408(b)(1) (29 U.S.C. 1148(b)) is amended 
by adding at the end the following new sentence: ``A loan made by a 
plan shall not fail to meet the requirements of the preceding sentence 
by reason of a loan repayment suspension described under section 
414(u)(4) of the Internal Revenue Code of 1986.''.
    (b) Effective Date.--The amendment made by this section shall be 
effective as of December 12, 1994.

                     Subtitle C--Enhanced Security

                     CHAPTER 1--GENERAL PROVISIONS

SEC. 521. MULTIEMPLOYER PLAN BENEFITS GUARANTEED.

    (a) In General.--Section 4022A(c) (29 U.S.C. 1322a(c)) is amended--
            (1) by striking ``$5'' each place it appears in paragraph 
        (1) and inserting ``$11'',
            (2) by striking ``$15'' in paragraph (1) and inserting 
        ``$33'', and
            (3) by striking paragraphs (2), (5), and (6) and by 
        redesignating paragraphs (3) and (4) as paragraphs (2) and (3), 
        respectively.
    (b) Effective Date.--The amendments made by this section shall 
apply to any multiemployer plan that has not received financial 
assistance (within the meaning of section 4261 of the Employee 
Retirement Income Security Act of 1974) within the 1-year period ending 
on the date of the enactment of this Act.

SEC. 522. REVERSION REPORT.

    (a) In General.--Section 4008 (29 U.S.C. 1308) is amended by adding 
at the end the following new subsection:
    ``(b) Reversion Report.--As soon as practicable after the close of 
each fiscal year, the Secretary of Labor (acting in the Secretary's 
capacity as chairman of the corporation's board) shall transmit to the 
President and the Congress a report providing information on plans from 
which residual assets were distributed to employers pursuant to section 
4044(d).''
    (b) Conforming Amendment.--Section 4008 (29 U.S.C. 1308) is amended 
by striking ``Sec. 4008.'' and inserting ``Sec. 4008. (a) Annual 
Report.--''.
    (c) Effective Date.--The amendments made by this section shall 
apply to fiscal years beginning after September 30, 1997.

SEC. 523. FULL FUNDING LIMITATION FOR MULTIEMPLOYER PLANS.

    (a) Full-Funding Limitation.--Section 302(c)(7)(C) (29 U.S.C. 
1082(c)(7)(C)) is amended--
            (1) by inserting ``or in the case of a multiemployer 
        plan,'' after ``paragraph (6)(B),'', and
            (2) by inserting ``and multiemployer plans'' after 
        ``paragraph (6)(b)'' in the heading thereof.
    (b) Valuation.--Section 302(c)(9) (29 U.S.C. 1082(c)(9)) is 
amended--
            (1) by inserting ``(3 years in the case of a multiemployer 
        plan)'' after ``year'', and
            (2) by striking ``Annual valuation'' in the heading and 
        inserting ``Valuation''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 1996.

SEC. 524. PROHIBITED TRANSACTIONS.

    (a) In General.--Section 502(i) (29 U.S.C. 1132(i)) is amended by 
striking ``5 percent'' and inserting ``10 percent''.
    (b) Effective Date.--The amendments made by this section shall 
apply to prohibited transactions occurring after the date of enactment 
of this Act.

SEC. 525. SUBSTANTIAL OWNER BENEFITS.

    (a) Modification of Phase-in of Guarantee.--Subparagraphs (B) and 
(C) of section 4022(b)(5) (29 U.S.C. 1322(b)(5)) are amended to read as 
follows:
    ``(B) For purposes of this title, the term `majority owner' has the 
same meaning as substantial owner under subparagraph (A), except that 
subparagraph (A) shall be applied by substituting `50 percent or more' 
for `more than 10 percent' each place it appears.
    ``(C) In the case of a participant who is a majority owner, the 
amount of benefits guaranteed under this section shall not exceed the 
product of--
            ``(i) a fraction (not to exceed 1) the numerator of which 
        is the number of years from the later of the effective date or 
        the adoption date of the plan to the termination date, and the 
        denominator of which is 30, and
            ``(ii) the amount of the majority owner's monthly benefits 
        guaranteed under subsection (a) (as limited by paragraph (3) of 
        this subsection).''.
    (b) Modification of Allocation of Assets.--
            (1) Section 4044(a)(4)(B) (29 U.S.C. 1344(a)(4)(B)) is 
        amended by striking ``section 4022(b)(5)'' and inserting 
        ``section 4022(b)(5)(C)''.
            (2) Section 4044(b) (29 U.S.C. 1344(b)) is amended--
                    (A) by striking ``(5)'' in paragraph (2) and 
                inserting ``(4), (5),'', and
                    (B) by redesignating paragraphs (3) through (6) as 
                paragraphs (4) through (7), respectively, and by 
                inserting after paragraph (2) the following new 
                paragraph:
            ``(3) If assets available for allocation under paragraph 
        (4) of subsection (a) are insufficient to satisfy in full the 
        benefits of all individuals who are described in that 
        paragraph, the assets shall be allocated first to benefits 
        described in subparagraph (A) of that paragraph. Any remaining 
        assets shall then be allocated to subparagraph (B). If assets 
        allocated to subparagraph (B) are insufficient to satisfy in 
        full the benefits in that subparagraph, the assets shall be 
        allocated pro rata among individuals on the basis of the 
        present value (as of the termination date) of their respective 
        benefits described in that subparagraph.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan terminations--
            (1) under section 4041(c) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1341(c)) with respect to which 
        notices of intent to terminate are provided under section 
        4041(a)(2) of such Act (29 U.S.C. 1341(a)(2)) on or after the 
        date of the enactment of this Act, or
            (2) under section 4042 of such Act (29 U.S.C. 1342) with 
        respect to which proceedings are instituted by the corporation 
        on or after such date.

                      CHAPTER 2--ERISA ENFORCEMENT

SEC. 531. SHORT TITLE.

    This chapter may be cited as the ``Pension Audit Improvement Act of 
1997''.

SEC. 532. REPEAL OF LIMITED SCOPE AUDIT.

    (a) In General.--Section 103(a)(3) (29 U.S.C. 1023(a)(3)) is 
amended by striking subparagraph (C) and by redesignating subparagraph 
(D) as subparagraph (C).
    (b) Conforming Amendments.--
            (1) Section 103(a)(3)(A) (29 U.S.C. 1023(a)(3)(A)) is 
        amended by striking ``Except as provided in subparagraph (C), 
        the'' and inserting ``The''.
            (2) Section 104(a)(5)(A) (29 U.S.C. 1024(a)(5)(A)) is 
        amended by striking ``section 103(a)(3)(D)'' and inserting 
        ``section 103(a)(3)(C)''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to opinions required under section 103(a)(3)(A) of 
the Employee Retirement Income Security Act of 1974 for plan years 
beginning on or after January 1 of the calendar year following the date 
of the enactment of this Act.

SEC. 533. REPORTING AND ENFORCEMENT REQUIREMENTS FOR EMPLOYEE BENEFIT 
              PLANS.

    (a) In General.--Part 1 of subtitle B of title I (29 U.S.C. 1021 et 
seq.) is amended--
            (1) by redesignating section 111 as section 112, and
            (2) by inserting after section 110 the following new 
        section:

                  ``direct reporting of certain events

    ``Sec. 111. (a) Required Notifications.--
            ``(1) Notifications by plan administrator.--The 
        administrator of an employee benefit plan shall, within 5 
        business days after the administrator determines that there is 
        evidence (or after the administrator is notified under 
        paragraph (2)) that an irregularity may have occurred with 
        respect to the plan--
                    ``(A) notify the Secretary of the irregularity in 
                writing; and
                    ``(B) furnish a copy of such notification to the 
                accountant who is currently engaged under section 
                103(a)(3)(A).
            ``(2) Notifications by accountant.--
                    ``(A) In general.--An accountant engaged by the 
                administrator of an employee benefit plan under section 
                103(a)(3)(A) shall, within 5 business days after the 
                accountant in connection with such engagement 
                determines that there is evidence that an irregularity 
                may have occurred with respect to the plan--
                            ``(i) notify the plan administrator of the 
                        irregularity in writing, or
                            ``(ii) if the accountant determines that 
                        there is evidence that the irregularity may 
                        have involved an individual who is the plan 
                        administrator or who is a senior official of 
                        the plan administrator, notify the Secretary of 
                        the irregularity in writing.
                    ``(B) Notification upon failure of plan 
                administrator to notify.--If an accountant who has 
                provided notification to the plan administrator 
                pursuant to subparagraph (A)(i) does not receive a copy 
of the administrator's notification to the Secretary required under 
paragraph (1)(B) within the 5-business day period specified therein, 
the accountant shall furnish to the Secretary a copy of the 
accountant's notification made to the plan administrator on the next 
business day following such period.
            ``(3) Irregularity defined.--
                    ``(A) For purposes of this subsection, the term 
                `irregularity' means--
                            ``(i) a theft, embezzlement, or a violation 
                        of section 664 of title 18, United States Code 
                        (relating to theft or embezzlement from an 
                        employee benefit plan);
                            ``(ii) an extortion or a violation of 
                        section 1951 of such title 18 (relating to 
                        interference with commerce by threats or 
                        violence);
                            ``(iii) a bribery, a kickback, or a 
                        violation of section 1954 of such title 18 
                        (relating to offer, acceptance, or solicitation 
                        to influence operations of an employee benefit 
                        plan);
                            ``(iv) a violation of section 1027 of such 
                        title 18 (relating to false statements and 
                        concealment of facts in relation to employer 
                        benefit plan records); or
                            ``(v) a violation of section 411, 501, or 
                        511 of this title (relating to criminal 
                        violations).
                    ``(B) The term `irregularity' shall not include any 
                act or omission described in this paragraph involving 
                less than $1,000 unless there is reason to believe that 
                the act or omission may bear on the integrity of plan 
                management.
    ``(b) Notification Upon Termination of Engagement of Accountant.--
            ``(1) Notification by plan administrator.--Within 5 
        business days after the termination of an engagement for 
        auditing services under section 103(a)(3)(A) with respect to an 
        employee benefit plan, the administrator of such plan shall--
                    ``(A) notify the Secretary in writing of such 
                termination, giving the reasons for such termination, 
                and
                    ``(B) furnish the accountant whose engagement was 
                terminated with a copy of the notification sent to the 
                Secretary.
            ``(2) Notification by accountant.--If the accountant 
        referred to in paragraph (1)(B) has not received a copy of the 
        administrator's notification to the Secretary as required under 
        paragraph (1)(B), or if the accountant disagrees with the 
        reasons given in the notification of termination of the 
        engagement for auditing services, the accountant shall notify 
        the Secretary in writing of the termination, giving the reasons 
        for the termination, within 10 business days after the 
        termination of the engagement.
    ``(c) Determination of Periods Required for Notification.--In 
determining whether a notification required under this section with 
respect to any act or omission has been made within the required number 
of business days--
            ``(1) the day on which such act or omission begins shall 
        not be included; and
            ``(2) Saturdays, Sundays, and legal holidays shall not be 
        included.
For purposes of this subsection, the term `legal holiday' means any 
Federal legal holiday and any other day appointed as a holiday by the 
State in which the person responsible for making the notification 
principally conducts his business.
    ``(d) Immunity for Good Faith Notification.--Except as provided in 
this Act, no accountant or plan administrator shall be liable to any 
person for any finding, conclusion, or statement made in any 
notification made pursuant to subsection (a)(2) or (b)(2), or pursuant 
to any regulations issued thereunder, if such finding, conclusion, or 
statement is made in good faith.''.
    (b) Civil Penalty.--
            (1) In general.--Section 502(c) (29 U.S.C. 1132(c)), as 
        amended by section 2002, is amended by redesignating paragraph 
        (6) as paragraph (7) and by inserting after paragraph (5) the 
        following new paragraph:
    ``(6)(A) The Secretary may assess a civil penalty of up to $100,000 
against any administrator who fails to provide the Secretary with any 
notification as required under section 111.
    ``(B) The Secretary may assess a civil penalty of up to $100,000 
against any accountant who knowingly and willfully fails to provide the 
Secretary with any notification as required under section 111.''.
            (2) Conforming amendment.--Section 502(a)(6) (29 U.S.C. 
        1132(a)(6)), as amended by section 2002, is amended by striking 
        ``or (5)'' and inserting ``(5), or (6)''.
    (c) Clerical Amendments.--
            (1) Section 514(d) (29 U.S.C. 1144(d)) is amended by 
        striking ``111'' and inserting ``112''.
            (2) The table of contents in section 1 is amended by 
        striking the item relating to section 111 and inserting the 
        following new items:

``Sec. 111. Direct reporting of certain events.
``Sec. 112. Repeal and effective date.''.
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to any irregularity or termination of engagement 
described in such amendments only if the 5-day period described in such 
amendments in connection with such irregularity or termination 
commences at least 90 days after the date of the enactment of this Act.

SEC. 534. ADDITIONAL REQUIREMENTS FOR QUALIFIED PUBLIC ACCOUNTANTS.

    (a) In General.--Section 103(a)(3)(C) (29 U.S.C. 1023(a)(3)(C)), as 
redesignated by section 2032, is amended--
            (1) by inserting ``(i)'' after ``(C)'';
            (2) by inserting ``, with respect to any engagement of an 
        accountant under subparagraph (A)'' after ``means'';
            (3) by redesignating clauses (i), (ii), and (iii) as 
        subclauses (I), (II), and (III), respectively;
            (4) by striking the period at the end of subclause (III) 
        (as so redesignated) and inserting a comma;
            (5) by adding after subclause (III) (as so redesignated), 
        and flush with clause (i), the following:
``but only if such person meets the requirements of clauses (ii) and 
(iii) with respect to such engagement.''; and
            (6) by adding at the end the following new clauses:
    ``(ii) A person meets the requirements of this clause with respect 
to an engagement of such person as an accountant under subparagraph (A) 
if such person--
            ``(I) has in operation an appropriate internal quality 
        control system;
            ``(II) has undergone a qualified external quality control 
        review of the person's accounting and auditing practices, 
        including such practices relevant to employee benefit plans (if 
        any), during the 3-year period immediately preceding such 
        engagement; and
            ``(III) has completed, within the 2-year period immediately 
        preceding such engagement, at least 80 hours of continuing 
        education or training which contributes to the accountant's 
        professional proficiency, at least 20 hours of which have been 
        completed during the 1-year period immediately preceding the 
        engagement, and at least 16 hours of which relate to employee 
        benefit plan matters.
    ``(iii) A person meets the requirements of this clause with respect 
to an engagement of such person as an accountant under subparagraph (A) 
if such person meets such additional requirements and qualifications of 
regulations which the Secretary deems necessary to ensure the quality 
of plan audits.
    ``(iv) For purposes of clause (ii)(II), an external quality control 
review shall be treated as qualified with respect to a person referred 
to in clause (ii) if--
            ``(I) such review is performed in accordance with the 
        requirements of external quality control review programs of 
        recognized auditing standard-setting bodies, as determined 
        under regulations of the Secretary, and
            ``(II) in the case of any such person who has, during the 
        peer review period, conducted one or more previous audits of 
        employee benefit plans, such review includes the review of an 
        appropriate number (determined as provided in such regulations, 
        but in no case less than one) of plan audits in relation to the 
        scale of such person's auditing practice.
The Secretary shall issue the regulations under subclause (I) no later 
than December 31, 1997.''.
    (b) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply with respect to 
        plan years beginning on or after the date which is 3 years 
        after the date of the enactment of this Act.
            (2) Restrictions on conducting examinations.--Clause (iii) 
        of section 103(a)(3)(C) of the Employee Retirement Income 
        Security Act of 1974 (as added by subsection (a)(6)) shall take 
        effect on the date of enactment of this Act.

SEC. 535. CLARIFICATION OF FIDUCIARY PENALTIES.

    (a) Modification of Prohibition of Assignment or Alienation.--
            (1) Amendment to erisa.--Section 206(d) (29 U.S.C. 1056(d)) 
        is amended by adding at the end the following new paragraphs:
    ``(4) Paragraph (1) shall not apply to any offset of a 
participant's accrued benefit in an employee pension benefit plan 
against an amount that the participant is ordered or required to pay to 
the plan if--
            ``(A) the order or requirement to pay arises--
                    ``(i) under a judgment of conviction for a crime 
                involving such plan,
                    ``(ii) under a civil judgment (including a consent 
                order or decree) entered by a court in an action 
                brought in connection with a violation (or alleged 
                violation) of part 4 of this subtitle, or
                    ``(iii) pursuant to a settlement agreement between 
                the Secretary and the participant, or a settlement 
                agreement between the Pension Benefit Guaranty 
                Corporation and the participant, in connection with a 
                violation (or alleged violation) of part 4 of this 
                subtitle,
            ``(B) the judgment, order, decree, or settlement agreement 
        expressly provides for the offset of all or part of the amount 
        ordered or required to be paid to the plan against the 
        participant's accrued benefit in the plan, and
            ``(C) if the participant has a spouse at the time at which 
        the offset is to be made--
                    ``(i) such spouse has consented in writing to such 
                offset and such consent is witnessed by a notary public 
                or representative of the plan,
                    ``(ii) such spouse is ordered or required in such 
                judgment, order, decree, or settlement to pay an amount 
                to the plan in connection with a violation of part 4 of 
                this title, or
                    ``(iii) in such judgment, order, decree, or 
                settlement, such spouse retains the right to receive 
                the value of the survivor annuity under a qualified 
                joint and survivor annuity provided pursuant to section 
                205(a)(1) and under a qualified preretirement survivor 
                annuity provided pursuant to section 205(a)(2), 
                determined in accordance with paragraph (5).
    ``(5)(A) The value of the survivor annuity described in paragraph 
(4)(C)(iii) shall be determined as if--
            ``(i) the participant terminated employment on the date of 
        the offset,
            ``(ii) there was no offset,
            ``(iii) the plan permitted retirement only on or after 
        normal retirement age,
            ``(iv) the plan provided only the minimum-required 
        qualified joint and survivor annuity, and
            ``(v) the amount of the qualified preretirement survivor 
        annuity under the plan is equal to the amount of the survivor 
        annuity payable under the minimum-required qualified joint and 
        survivor annuity.
    ``(B) For purposes of this paragraph, the term `minimum-required 
qualified joint and survivor annuity' means the qualified joint and 
survivor annuity which is the actuarial equivalent of a single annuity 
for the life of the participant and under which the survivor annuity is 
50 percent of the amount of the annuity which is payable during the 
joint lives of the participant and the spouse.''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to judgments, orders, and decrees issued, and 
settlement agreements entered into, on or after the date of enactment 
of this Act.
    (b) Civil Penalties for Breach of Fiduciary Responsibility.--
            (1) Imposition and amount of penalty made discretionary.--
        Section 502(l)(1) (29 U.S.C. 1132(l)(1)) is amended--
                    (A) by striking ``shall'' and inserting ``may'', 
                and
                    (B) by striking ``equal to'' and inserting ``not 
                greater than''.
            (2) Applicable recovery amount.--Section 502(l)(2) (29 
        U.S.C. 1132(l)(2)) is amended to read as follows:
    ``(2) For purposes of paragraph (1), the term `applicable recovery 
amount' means any amount which is recovered from (or on behalf of) any 
fiduciary or other person with respect to a breach or violation 
described in paragraph (1) on or after the 30th day following receipt 
by such fiduciary or other person of written notice from the Secretary 
of the violation, whether paid voluntarily or by order of a court in a 
judicial proceeding instituted by the Secretary under subsection (a)(2) 
or (a)(5). The Secretary may, in the Secretary's sole discretion, 
extend the 30-day period described in the preceding sentence.''.
            (3) Other rules.--Section 502(l) (29 U.S.C. 1132(l)) is 
        amended by adding at the end the following new paragraphs:
    ``(5) A person shall be jointly and severally liable for the 
penalty described in paragraph (1) to the same extent that such person 
is jointly and severally liable for the applicable recovery amount on 
which the penalty is based.
    ``(6) No penalty shall be assessed under this subsection unless the 
person against whom the penalty is assessed is given notice and 
opportunity for a hearing with respect to the violation and applicable 
recovery amount.''.
            (4) Effective dates.--
                    (A) In general.--The amendments made by this 
                subsection shall apply to any breach of fiduciary 
                responsibility or other violation of part 4 of subtitle 
                B of title I of the Employee Retirement Income Security 
                Act of 1974 occurring on or after the date of enactment 
                of this Act.
                    (B) Transition rule.--In applying the amendment 
                made by paragraph (2) (relating to applicable recovery 
                amount), a breach or other violation occurring before 
                the date of the enactment of this Act which continues 
                after the 180th day after such date (and which may have 
                been discontinued at any time during its existence) 
                shall be treated as having occurred after such date of 
                enactment.

TITLE VI--EXPANDED INDIVIDUAL RETIREMENT ACCOUNTS TO INCREASE COVERAGE 
                            AND PORTABILITY

               Subtitle A--Retirement Savings Incentives

SEC. 601. INCREASE IN INCOME LIMITATIONS.

    (a) In General.--Subparagraph (B) of section 219(g)(3) is amended--
            (1) by striking ``$40,000'' in clause (i) and inserting 
        ``$80,000 ($70,000 in the case of taxable years beginning in 
        1997, 1998, or 1999)'', and
            (2) by striking ``$25,000'' in clause (ii) and inserting 
        ``$50,000 ($45,000 in the case of taxable years beginning in 
        1997, 1998, or 1999)''.
    (b) Phaseout of Limitations.--Clause (ii) of section 219(g)(2)(A) 
is amended by striking ``$10,000'' and inserting ``an amount equal to 
10 times the dollar amount applicable for the taxable year under 
subsection (b)(1)(A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 602. INFLATION ADJUSTMENT FOR DEDUCTIBLE AMOUNT AND INCOME 
              LIMITATIONS.

    (a) In General.--Section 219 is amended by redesignating subsection 
(h) as subsection (i) and by inserting after subsection (g) the 
following new subsection:
    ``(h) Cost-of-Living Adjustments.--
            ``(1) Deductible amounts.--In the case of any taxable year 
        beginning in a calendar year after 1997, the $2,000 amounts 
        under subsections (b)(1)(A) and (c)(2) shall be increased by an 
        amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting 
                `calendar year 1996' for `calendar year 1992' in 
                subparagraph (B) thereof.
            ``(2) Applicable dollar amount.--In the case of any taxable 
        year beginning in a calendar year after 1999, the applicable 
        dollar amounts under subsection (g)(3)(B) shall be increased by 
        an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting 
                `calendar year 1998' for `calendar year 1992' in 
                subparagraph (B) thereof.
            ``(3) Rounding rules.--
                    ``(A) Deduction amounts.--If any amount after 
                adjustment under paragraph (1) is not a multiple of 
                $500, such amount shall be rounded to the next lowest 
                multiple of $500.
                    ``(B) Applicable dollar amounts.--If any amount 
                after adjustment under paragraph (2) is not a multiple 
                of $5,000, such amount shall be rounded to the next 
                lowest multiple of $5,000.''.
    (b) Conforming Amendments.--
            (1) Clause (i) of section 219(c)(2)(A) is amended to read 
        as follows:
                            ``(i) the sum of $250 and the dollar amount 
                        in effect for the taxable year under subsection 
                        (b)(1)(A), or''.
            (2) 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)''.
            (3) Section 408(b)(2)(B) is amended by striking ``$2,000'' 
        and inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
            (4) Subparagraph (A) of section 408(d)(5) is amended by 
        striking ``$2,250'' and inserting ``the dollar amount in effect 
        for the taxable year under section 219(c)(2)(A)(i)''.
            (5) Section 408(j) is amended by striking ``$2,000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 603. COORDINATION OF IRA DEDUCTION LIMIT WITH ELECTIVE DEFERRAL 
              LIMIT.

    (a) In General.--Section 219(b) (relating to maximum amount of 
deduction) is amended by adding at the end the following new paragraph:
            ``(4) Coordination with elective deferral limit.--The 
        amount determined under paragraph (1) or subsection (c)(2) with 
        respect to any individual for any taxable year shall not exceed 
        the excess (if any) of--
                    ``(A) the limitation applicable for the taxable 
                year under section 402(g)(1), over
                    ``(B) the elective deferrals (as defined in section 
                402(g)(3)) of such individual for such taxable year.''.
    (b) Conforming Amendment.--Section 219(c) is amended by adding at 
the end the following new paragraph:
    ``(3) Cross reference.--

                                ``For reduction in paragraph (2) 
amount, see subsection (b)(4).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 604. ESTABLISHMENT OF NONDEDUCTIBLE TAX-FREE INDIVIDUAL RETIREMENT 
              ACCOUNTS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
(relating to pension, profit-sharing, stock bonus plans, etc.) is 
amended by inserting after section 408 the following new section:

``SEC. 408A. SPECIAL INDIVIDUAL RETIREMENT ACCOUNTS.

    ``(a) General Rule.--Except as provided in this chapter, a special 
individual retirement account shall be treated for purposes of this 
title in the same manner as an individual retirement plan.
    ``(b) Special Individual Retirement Account.--For purposes of this 
title, the term `special individual retirement account' means an 
individual retirement plan which is designated at the time of 
establishment of the plan as a special individual retirement account.
    ``(c) Treatment of Contributions.--
            ``(1) No deduction allowed.--No deduction shall be allowed 
        under section 219 for a contribution to a special individual 
        retirement account.
            ``(2) Contribution limit.--The aggregate amount of 
        contributions for any taxable year to all special individual 
        retirement accounts maintained for the benefit of an individual 
        shall not exceed the excess (if any) of--
                    ``(A) the maximum amount allowable as a deduction 
                under section 219 with respect to such individual for 
                such taxable year, over
                    ``(B) the aggregate amount of contributions for 
                such taxable year to all individual retirement plans 
                (other than special individual retirement accounts) 
                maintained for the benefit of the individual.
            ``(3) Special rules for qualified transfers.--
                    ``(A) In general.--No rollover contribution may be 
                made to a special individual retirement account unless 
                it is a qualified transfer.
                    ``(B) Limit not to apply.--The limitation under 
                paragraph (2) shall not apply to a qualified transfer 
                to a special individual retirement account.
    ``(d) Tax Treatment of Distributions.--
            ``(1) In general.--Except as provided in this subsection, 
        any amount paid or distributed out of a special individual 
        retirement account shall not be included in the gross income of 
        the distributee.
            ``(2) Exception for earnings on contributions held less 
        than 5 years.--
                    ``(A) In general.--Any amount distributed out of a 
                special individual retirement account which consists of 
                earnings allocable to contributions made to the account 
                during the 5-year period ending on the day before such 
                distribution shall be included in the gross income of 
                the distributee for the taxable year in which the 
                distribution occurs.
                    ``(B) Ordering rule.--
                            ``(i) First-in, first-out rule.--
                        Distributions from a special individual 
                        retirement account shall be treated as having 
                        been made--
                                    ``(I) first from the earliest 
                                contribution (and earnings allocable 
                                thereto) remaining in the account at 
                                the time of the distribution, and
                                    ``(II) then from other 
                                contributions (and earnings allocable 
                                thereto) in the order in which made.
                            ``(ii) Allocations between contributions 
                        and earnings.--Any portion of a distribution 
                        allocated to a contribution (and earnings 
                        allocable thereto) shall be treated as 
                        allocated first to the earnings and then to the 
                        contribution.
                            ``(iii) Allocation of earnings.--Earnings 
                        shall be allocated to a contribution in such 
                        manner as the Secretary may prescribe.
                            ``(iv) Aggregations of contributions.--
                        Except as provided by the Secretary, for 
                        purposes of this subparagraph--
                                    ``(I) all contributions made during 
                                the same taxable year may be treated as 
                                1 contribution, and
                                    ``(II) all contributions made 
                                before the first day of the 5-year 
                                period ending on the day before any 
                                distribution may be treated as 1 
                                contribution.
                    ``(C) Cross reference.--

                                ``For additional tax for early 
withdrawal, see section 72(t).
            ``(3) Qualified transfer.--
                    ``(A) In general.--Paragraph (2) shall not apply to 
                any distribution which is transferred in a qualified 
                transfer to another special individual retirement 
                account.
                    ``(B) Contribution period.--For purposes of 
                paragraph (2), the special individual retirement 
                account to which any contributions are transferred 
                shall be treated as having held such contributions 
                during any period such contributions were held (or are 
                treated as held under this subparagraph) by the special 
                individual retirement account from which transferred.
            ``(4) Special rules relating to certain transfers.--
                    ``(A) In general.--Notwithstanding any other 
                provision of law, in the case of a qualified transfer 
                to a special individual retirement account from an 
                individual retirement plan which is not a special 
                individual retirement account--
                            ``(i) there shall be included in gross 
                        income any amount which, but for the qualified 
                        transfer, would be includible in gross income, 
                        but
                            ``(ii) section 72(t) shall not apply to 
                        such amount.
                    ``(B) Time for inclusion.--In the case of any 
                qualified transfer which occurs before January 1, 1998, 
                any amount includible in gross income under 
                subparagraph (A) with respect to such contribution 
                shall be includible ratably over the 4-taxable year 
                period beginning in the taxable year in which the 
                amount was paid or distributed out of the individual 
                retirement plan. The amount of such qualified transfer 
                taken into account for purposes of section 4980A(c) 
                shall be taken into account ratably over such period.
                    ``(C) Additional reporting.--A trustee of an 
                individual retirement plan shall include such 
                additional information in any report required under 
                section 408(i) as the Secretary may require to insure 
                that amounts described in subparagraph (B) are included 
                in gross income for the appropriate taxable year.
    ``(e) Qualified Transfer.--For purposes of this section--
            ``(1) In general.--The term `qualified transfer' means a 
        transfer to a special individual retirement account from 
        another such account or from an individual retirement plan but 
        only if such transfer meets the requirements of section 
        408(d)(3).
            ``(2) Limitation.--
                    ``(A) In general.--A transfer otherwise described 
                in paragraph (1) shall not be treated as a qualified 
                transfer if the taxpayer's adjusted gross income for 
                the taxable year of the transfer exceeds the sum of--
                            ``(i) the applicable dollar amount, plus
                            ``(ii) the dollar amount applicable for the 
                        taxable year under section 219(g)(2)(A)(ii).
                This subparagraph shall not apply to a transfer from a 
                special individual retirement account to another 
                special individual retirement account.
                    ``(B) Transition rule.--In the case of a transfer 
                before January 1, 1999, the dollar limitation under 
                subparagraph (A) shall be $100,000 in the case of a 
                married individual filing a joint return, zero in the 
                case of a married individual filing a separate return, 
                and $70,000 in any other case.
            ``(3) Definitions.--For purposes of this subsection, the 
        terms `adjusted gross income' and `applicable dollar amount' 
        have the meanings given such terms by section 219(g)(3), except 
        that adjusted gross income shall be determined by taking into 
        account the deduction under section 219 and not taking into 
        account any transfer to which paragraph (2) applies.''.
    (b) Additional Tax on Early Distributions.--Section 72(t) is 
amended by adding at the end the following new paragraph:
            ``(6) Rules relating to special individual retirement 
        accounts.--In the case of a special individual retirement 
        account under section 408A--
                    ``(A) this subsection shall only apply to 
                distributions out of such account which consist of 
                earnings allocable to contributions made to the account 
                during the 5-year period ending on the day before such 
                distribution, and
                    ``(B) paragraph (2)(A)(i) shall not apply to any 
                distribution described in subparagraph (A).''.
    (c) Excess Contributions.--Section 4973(b) is amended--
            (1) by inserting ``, or a qualified transfer described in 
        section 408A(e)'' after ``408(d)(3)'' in paragraph (1)(A), and
            (2) by adding at the end the following new sentence: ``For 
        purposes of paragraphs (1)(B) and (2)(C), the amount allowable 
        as a deduction under section 219 shall be computed without 
        regard to section 408A.''
    (d) Reporting.--Section 408(i) is amended by striking ``under 
regulations'' and ``in such regulations'' each place such terms appear.
    (e) Conforming Amendment.--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 408 the following new item:

                              ``Sec. 408A. Special individual 
                                        retirement accounts.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

               Subtitle B--Distributions and Investments

SEC. 611. DISTRIBUTIONS FROM IRAS MAY BE USED WITHOUT ADDITIONAL TAX TO 
              PURCHASE FIRST HOMES, TO PAY HIGHER EDUCATION OR 
              FINANCIALLY DEVASTATING MEDICAL EXPENSES, OR BY THE 
              UNEMPLOYED.

    (a) In General.--Paragraph (2) of section 72(t) (relating to 
exceptions to 10-percent additional tax on early distributions from 
qualified retirement plans) is amended by adding at the end the 
following new subparagraph:
                    ``(D) Distributions from certain plans for first 
                home purchases or educational expenses.--Distributions 
                to an individual from an individual retirement plan--
                            ``(i) which are qualified first-time 
                        homebuyer distributions (as defined in 
                        paragraph (7)); or
                            ``(ii) to the extent such distributions do 
                        not exceed the qualified higher education 
                        expenses (as defined in paragraph (8)) of the 
                        taxpayer for the taxable year.''.
    (b) Financially Devastating Medical Expenses.--
            (1) In general.--Section 72(t)(3)(A) is amended by striking 
        ``(B),''.
            (2) Certain lineal descendants and ancestors treated as 
        dependents and long-term care services treated as medical 
        care.--Subparagraph (B) of section 72(t)(2) is amended by 
        striking ``medical care'' and all that follows and inserting 
        ``medical care determined--
                            ``(i) without regard to whether the 
                        employee itemizes deductions for such taxable 
                        year, and
                            ``(ii) in the case of an individual 
                        retirement plan--
                                    ``(I) by treating such employee's 
                                dependents as including all children, 
                                grandchildren, and ancestors of the 
                                employee or such employee's spouse and
                                    ``(II) by treating qualified long-
                                term care services (as defined in 
                                paragraph (9)) as medical care for 
                                purposes of this subparagraph.''.
            (3) Conforming amendment.--Subparagraph (B) of section 
        72(t)(2) is amended by striking ``or (C)'' and inserting ``, 
        (C), or (D)''.
    (c) Definitions.--Section 72(t), as amended by this Act, is amended 
by adding at the end the following new paragraphs:
            ``(7) Qualified first-time homebuyer distributions.--For 
        purposes of paragraph (2)(D)(i)--
                    ``(A) In general.--The term `qualified first-time 
                homebuyer distribution' means any payment or 
                distribution received by an individual to the extent 
                such payment or distribution is used by the individual 
                before the close of the 60th day after the day on which 
                such payment or distribution is received to pay 
                qualified acquisition costs with respect to a principal 
                residence of a first-time homebuyer who is such 
                individual or the spouse, child (as defined in section 
                151(c)(3)), or grandchild of such individual.
                    ``(B) Qualified acquisition costs.--For purposes of 
                this paragraph, the term `qualified acquisition costs' 
                means the costs of acquiring, constructing, or 
                reconstructing a residence. Such term includes any 
                usual or reasonable settlement, financing, or other 
                closing costs.
                    ``(C) First-time homebuyer; other definitions.--For 
                purposes of this paragraph--
                            ``(i) First-time homebuyer.--The term 
                        `first-time homebuyer' means any individual 
                        if--
                                    ``(I) such individual (and if 
                                married, such individual's spouse) had 
                                no present ownership interest in a 
                                principal residence during the 3-year 
                                period ending on the date of 
                                acquisition of the principal residence 
                                to which this paragraph applies, and
                                    ``(II) subsection (h) or (k) of 
                                section 1034 did not suspend the 
                                running of any period of time specified 
                                in section 1034 with respect to such 
                                individual on the day before the date 
                                the distribution is applied pursuant to 
                                subparagraph (A).
                        In the case of an individual described in 
                        section 143(i)(1)(C) for any year, an ownership 
                        interest shall not include any interest under a 
                        contract of deed described in such section. An 
                        individual who loses an ownership interest in a 
                        principal residence incident to a divorce or 
                        legal separation is deemed for purposes of this 
                        subparagraph to have had no ownership interest 
                        in such principal residence within the period 
                        referred to in subclause (II).
                            ``(ii) Principal residence.--The term 
                        `principal residence' has the same meaning as 
                        when used in section 1034.
                            ``(iii) Date of acquisition.--The term 
                        `date of acquisition' means the date--
                                    ``(I) on which a binding contract 
                                to acquire the principal residence to 
                                which subparagraph (A) applies is 
                                entered into, or
                                    ``(II) on which construction or 
                                reconstruction of such a principal 
                                residence is commenced.
                    ``(D) Special rule where delay in acquisition.--Any 
                portion of any distribution from any individual 
                retirement plan which fails to meet the requirements of 
                subparagraph (A) solely by reason of a delay or 
                cancellation of the purchase or construction of the 
                residence may be contributed to an individual 
                retirement plan as provided in section 408(d)(3)(A)(i) 
(determined by substituting `120 days' for `60 days' in such section), 
except that--
                            ``(i) section 408(d)(3)(B) shall not be 
                        applied to such portion, and
                            ``(ii) such portion shall not be taken into 
                        account in determining whether section 
                        408(d)(3)(B) applies to any other amount.
            ``(8) Qualified higher education expenses.--For purposes of 
        paragraph (2)(D)(ii)--
                    ``(A) In general.--The term `qualified higher 
                education expenses' means tuition and fees required for 
                the enrollment or attendance of--
                            ``(i) the taxpayer,
                            ``(ii) the taxpayer's spouse,
                            ``(iii) a dependent of the taxpayer with 
                        respect to whom the taxpayer is allowed a 
                        deduction under section 151, or
                            ``(iv) the taxpayer's child (as defined in 
                        section 151(c)(3)) or grandchild,
                as an eligible student at an institution of higher 
                education.
                    ``(B) Exceptions.--The term `qualified higher 
                education expenses' does not include--
                            ``(i) expenses with respect to any course 
                        or other education involving sports, games, or 
                        hobbies, unless such expenses--
                                    ``(I) are part of a degree program, 
                                or
                                    ``(II) are deductible under this 
                                chapter without regard to this section; 
                                or
                            ``(ii) any student activity fees, athletic 
                        fees, insurance expenses, or other expenses 
                        unrelated to a student's academic course of 
                        instruction.
                    ``(C) Coordination with savings bond provisions.--
                The amount of qualified higher education expenses for 
                any taxable year shall be reduced by any amount 
                excludable from gross income under section 135.
                    ``(D) Eligible student.--For purposes of 
                subparagraph (A), the term `eligible student' means a 
                student who--
                            ``(i) meets the requirements of section 
                        484(a)(1) of the Higher Education Act of 1965 
                        (20 U.S.C. 1091(a)(1)), as in effect on the 
                        date of the enactment of this section, and
                            ``(ii)(I) is carrying at least one-half the 
                        normal full-time work load for the course of 
                        study the student is pursuing, as determined by 
                        the institution of higher education, or
                            ``(II) is enrolled in a course which 
                        enables the student to improve the student's 
                        job skills or to acquire new job skills.
                    ``(E) Institution of higher education.--The term 
                `institution of higher education' means an institution 
                which--
                            ``(i) is described in section 481 of the 
                        Higher Education Act of 1965 (20 U.S.C. 1088), 
                        as in effect on the date of the enactment of 
                        this section, and
                            ``(ii) is eligible to participate in 
                        programs under title IV of such Act.
            ``(9) Qualified long-term care services.--For purposes of 
        paragraph (2)(B)--
                    ``(A) In general.--The term `qualified long-term 
                care services' means necessary diagnostic, curing, 
                mitigating, treating, preventive, therapeutic, and 
                rehabilitative services, and maintenance and personal 
                care services (whether performed in a residential or 
                nonresidential setting) which--
                            ``(i) are required by an individual during 
                        any period the individual is an incapacitated 
                        individual (as defined in subparagraph (B)),
                            ``(ii) have as their primary purpose--
                                    ``(I) the provision of needed 
                                assistance with 1 or more activities of 
                                daily living (as defined in 
                                subparagraph (C)), or
                                    ``(II) protection from threats to 
                                health and safety due to severe 
                                cognitive impairment, and
                            ``(iii) are provided pursuant to a 
                        continuing plan of care prescribed by a 
                        licensed professional (as defined in 
                        subparagraph (D)).
                    ``(B) Incapacitated individual.--The term 
                `incapacitated individual' means any individual who--
                            ``(i) is unable to perform, without 
                        substantial assistance from another individual 
                        (including assistance involving cueing or 
                        substantial supervision), at least 2 activities 
                        of daily living as defined in subparagraph (C), 
                        or
                            ``(ii) has severe cognitive impairment as 
                        defined by the Secretary in consultation with 
                        the Secretary of Health and Human Services.
                Such term shall not include any individual otherwise 
                meeting the requirements of the preceding sentence 
                unless, within the preceding 12-month period, a 
                licensed professional has certified that such 
                individual meets such requirements.
                    ``(C) Activities of daily living.--Each of the 
                following is an activity of daily living:
                            ``(i) Eating.
                            ``(ii) Toileting.
                            ``(iii) Transferring.
                            ``(iv) Bathing.
                            ``(v) Dressing.
                    ``(D) Licensed professional.--The term `licensed 
                professional' means--
                            ``(i) a physician or registered 
                        professional nurse, or
                            ``(ii) any other individual who meets such 
                        requirements as may be prescribed by the 
                        Secretary after consultation with the Secretary 
                        of Health and Human Services.
                    ``(E) Certain services not included.--The term 
                `qualified long-term care services' shall not include 
                any services provided to an individual--
                            ``(i) by a relative (directly or through a 
                        partnership, corporation, or other entity) 
                        unless the relative is a licensed professional 
                        with respect to such services, or
                            ``(ii) by a corporation or partnership 
                        which is related (within the meaning of section 
                        267(b) or 707(b)) to the individual.
                For purposes of this subparagraph, the term `relative' 
                means an individual bearing a relationship to the 
                individual which is described in paragraphs (1) through 
                (8) of section 152(a).''.
    (d) Distributions for Certain Unemployed Individuals.--Paragraph 
(2) of section 72(t) is amended by adding at the end the following new 
subparagraph:
                    ``(E) Distributions to unemployed individuals.--A 
                distribution from an individual retirement plan to an 
                individual after separation from employment, if--
                            ``(i) such individual has received 
                        unemployment compensation for 12 consecutive 
                        weeks under any Federal or State unemployment 
                        compensation law by reason of such separation, 
                        and
                            ``(ii) such distributions are made during 
                        any taxable year during which such unemployment 
                        compensation is paid or the succeeding taxable 
                        year.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to payments and distributions after December 31, 1996.

SEC. 612. CONTRIBUTIONS MUST BE HELD AT LEAST 5 YEARS IN CERTAIN CASES.

    (a) In General.--Section 72(t), as amended by this Act, is amended 
by adding at the end the following new paragraph:
            ``(10) Certain contributions must be held 5 years.--
                    ``(A) In general.--Paragraph (2)(A)(i) shall not 
                apply to any amount distributed out of an individual 
                retirement plan (other than a special individual 
                retirement account) which is allocable to contributions 
                made to the plan during the 5-year period ending on the 
                date of such distribution (and earnings on such 
                contributions).
                    ``(B) Ordering rule.--For purposes of this 
                paragraph--
                            ``(i) First-in, first-out rule.--
                        Distributions shall be treated as having been 
                        made--
                                    ``(I) first from the earliest 
                                contribution (and earnings allocable 
                                thereto) remaining in the account at 
                                the time of the distribution, and
                                    ``(II) then from other 
                                contributions (and earnings allocable 
                                thereto) in the order in which made.
                            ``(ii) Allocation of earnings.--Earnings 
                        shall be allocated to contributions in such 
                        manner as the Secretary may prescribe.
                            ``(iii) Aggregations of contributions.--
                        Except as provided by the Secretary, for 
                        purposes of this subparagraph--
                                    ``(I) all contributions made during 
                                the same taxable year may be treated as 
                                1 contribution, and
                                    ``(II) all contributions made 
                                before the first day of the 5-year 
                                period ending on the day before any 
                                distribution may be treated as 1 
                                contribution.
                    ``(C) Special rule for rollovers.--
                            ``(i) Pension plans.--Subparagraph (A) 
                        shall not apply to distributions out of an 
                        individual retirement plan which are allocable 
                        to rollover contributions to which section 
                        402(c), 403(a)(4), or 403(b)(8) applied.
                            ``(ii) Contribution period.--For purposes 
                        of subparagraph (A), amounts shall be treated 
                        as having been held by a plan during any period 
                        such contributions were held (or are treated as 
                        held under this clause) by any individual 
                        retirement plan from which transferred.
                    ``(D) Special accounts.--For rules applicable to 
                special individual retirement accounts under section 
                408A, see paragraph (8).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to contributions (and earnings allocable thereto) which are made after 
December 31, 1996.

SEC. 613. INVESTMENTS IN QUALIFIED STATE PREPAID TUITION PROGRAMS.

    (a) In General.--Section 408, as amended by section 1101, is 
amended by redesignating subsection (q) as subsection (r) and by 
inserting after subsection (p) the following new subsection:
    ``(q) Special Rules for Qualified State Prepaid Tuition Program 
Instruments.--
            ``(1) In general.--In the case of a qualified State prepaid 
        tuition program instrument to which this subsection applies--
                    ``(A) the use of all or part of the assets of an 
                individual retirement plan to purchase such an 
                instrument shall be treated for purposes of this 
                section as for the exclusive benefit of the individual 
                for whom the plan was established or the individual's 
                beneficiaries, and
                    ``(B) to the extent such instrument is converted 
                into tuition and fees as provided in paragraph 
                (3)(B)(i), such individual (or such beneficiaries) 
                shall be treated--
                            ``(i) for purposes of subsection (d) as 
                        having received a distribution in an amount 
                        equal to such tuition and fees (as of the time 
                        of the conversion), and
                            ``(ii) for purposes of section 
                        72(t)(2)(D)(ii), as having incurred qualified 
                        higher education expenses to the extent such 
                        tuition and fees otherwise constitute such 
                        expenses.
            ``(2) Instruments to which subsection applies.--To the 
        extent provided by the Secretary, this subsection shall apply 
        to any qualified State prepaid tuition program instrument if--
                    ``(A) the instrument is purchased by the individual 
                retirement plan directly from the State or an 
                instrumentality thereof, and
                    ``(B) the beneficiary designated under the 
                instrument is the taxpayer, the taxpayer's spouse, a 
                dependent of the taxpayer with respect to whom the 
                taxpayer is allowed a deduction under section 151, or 
                the taxpayer's child (as defined in section 151(c)(3)) 
                or grandchild.
            ``(3) Qualified state prepaid tuition program instrument.--
        For purposes of this subsection, the term `qualified State 
        prepaid tuition program instrument' means an instrument which--
                    ``(A) is issued under a program established and 
                maintained by a State, and
                    ``(B) which may only be--
                            ``(i) converted into a percentage 
                        (determined as of the time of purchase) of 
                        tuition and fees which would constitute 
                        qualified higher education expenses (within the 
                        meaning of section 72(t)(8)) if the beneficiary 
                        designated under the instrument enrolls in or 
                        attends an institution of higher education 
                        specified in the instrument as an eligible 
                        student, or
                            ``(ii) redeemed for an amount not less than 
                        the purchase price (less any reasonable 
                        administrative fees) if the instrument is not 
                        converted as provided in clause (i).
            ``(4) Definitions.--For purposes of this subsection, the 
        terms `institution of higher education' and `eligible student' 
        have the meanings given such terms by section 72(t)(8).''.
    (b) Exemption From Prohibited Transactions.--Section 4975(d) is 
amended by striking ``or'' at the end of paragraph (14), by striking 
the period at the end of paragraph (15) and inserting ``; or'', and by 
inserting after paragraph (15) the following new paragraph:
            ``(16) any purchase of a qualified State prepaid tuition 
        program instrument to which section 408(q) applies.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.
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