[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1018 Introduced in House (IH)]







107th CONGRESS
  1st Session
                                H. R. 1018

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


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             March 14, 2001

 Mr. Toomey (for himself, Mr. Ryan of Wisconsin, Mr. Armey, Mr. Flake, 
   Mr. Shadegg, Mr. Sam Johnson of Texas, Mr. DeMint, Mr. Pence, Mr. 
 Bonilla, Mr. Sessions, Mr. Doolittle, Mr. Ryun of Kansas, Mr. Souder, 
Mr. Largent, Mr. Otter, Mr. Tancredo, Mr. Chabot, Mr. Cox, Mrs. Myrick, 
 Mr. Hayworth, Mr. Cantor, Mr. Akin, Ms. Hart, Mr. Schaffer, Mr. Gary 
   Miller of California, Mr. Istook, Mr. Hostettler, Mr. Pitts, Mr. 
 Bartlett of Maryland, Mr. Herger, Mr. Issa, Mr. Hefley, Mr. Kirk, Mr. 
Keller, Mr. Jones of North Carolina, Mrs. Jo Ann Davis of Virginia, and 
Mr. Barr of Georgia) introduced the following bill; which was referred 
                   to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


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

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

SECTION 1. SHORT TITLE.

    (a) Short Title.--This Act may be cited as the ``Economic Recovery 
and Growth Act of 2001''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Section 15 Not To Apply.--No amendment made by this Act shall 
be treated as a change in a rate of tax for purposes of section 15 of 
the Internal Revenue Code of 1986.
    (d) Table of Contents.--

Sec. 1. Short title.
                 TITLE I--INDIVIDUAL INCOME TAX RELIEF

Sec. 101. Reduction in marginal income tax rates for individuals.
Sec. 102. Repeal of alternative minimum tax on individuals.
         TITLE II--INDIVIDUAL SAVINGS AND INVESTMENT TAX RELIEF

        Subtitle A--Individual Savings and Investment Tax Relief

Sec. 201. Reduction in capital gains rates.
Sec. 202. Phaseout of estate and gift taxes.
                       Subtitle B--Pension Reform

               Chapter 1--Individual Retirement Accounts

Sec. 211. Modification of IRA contribution limits.
Sec. 212. Catchup contributions to IRAs by individuals age 50 or over.
Sec. 213. Modification of income limits on contributions and rollovers 
                            to Roth IRAs.
Sec. 214. Deemed IRAs under employer plans.
                     Chapter 2--Expanding Coverage

Sec. 221. Increase in benefit and contribution limits.
Sec. 222. Plan loans for subchapter S owners, partners, and sole 
                            proprietors.
Sec. 223. Modification of top-heavy rules.
Sec. 224. Elective deferrals not taken into account for purposes of 
                            deduction limits.
Sec. 225. Repeal of coordination requirements for deferred compensation 
                            plans of State and local governments and 
                            tax-exempt organizations.
Sec. 226. Elimination of user fee for requests to IRS regarding pension 
                            plans.
Sec. 227. Deduction limits.
Sec. 228. Option to treat elective deferrals as after-tax 
                            contributions.
                Chapter 3--Enhancing Fairness for Women

Sec. 231. Catch-up contributions for individuals age 50 or over.
Sec. 232. Equitable treatment for contributions of employees to defined 
                            contribution plans.
Sec. 233. Faster vesting of certain employer matching contributions.
Sec. 234. Simplify and update the minimum distribution rules.
Sec. 235. Clarification of tax treatment of division of section 457 
                            plan benefits upon divorce.
Sec. 236. Modification of safe harbor relief for hardship withdrawals 
                            from cash or deferred arrangements.
           Chapter 4--Increasing Portability for Participants

Sec. 241. Rollovers allowed among various types of plans.
Sec. 242. Rollovers of IRAs into workplace retirement plans.
Sec. 243. Rollovers of after-tax contributions.
Sec. 244. Hardship exception to 60-day rule.
Sec. 245. Treatment of forms of distribution.
Sec. 246. Rationalization of restrictions on distributions.
Sec. 247. Purchase of service credit in governmental defined benefit 
                            plans.
Sec. 248. Employers may disregard rollovers for purposes of cash-out 
                            amounts.
Sec. 249. Minimum distribution and inclusion requirements for section 
                            457 plans.
       Chapter 5--Strengthening Pension Security and Enforcement

Sec. 251. Repeal of 150 percent of current liability funding limit.
Sec. 252. Maximum contribution deduction rules modified and applied to 
                            all defined benefit plans.
Sec. 253. Excise tax relief for sound pension funding.
Sec. 254. Excise tax on failure to provide notice by defined benefit 
                            plans significantly reducing future benefit 
                            accruals.
Sec. 255. Treatment of multiemployer plans under section 415.
Sec. 256. Prohibited allocations of stock in S corporation ESOP.
                 Chapter 6--Reducing Regulatory Burdens

Sec. 261. Modification of timing of plan valuations.
Sec. 262. ESOP dividends may be reinvested without loss of dividend 
                            deduction.
Sec. 263. Repeal of transition rule relating to certain highly 
                            compensated employees.
Sec. 264. Employees of tax-exempt entities.
Sec. 265. Clarification of treatment of employer-provided retirement 
                            advice.
Sec. 266. Reporting simplification.
Sec. 267. Improvement of employee plans compliance resolution system.
Sec. 268. Repeal of the multiple use test.
Sec. 269. Flexibility in nondiscrimination, coverage, and line of 
                            business rules.
Sec. 270. Extension to all governmental plans of moratorium on 
                            application of certain nondiscrimination 
                            rules applicable to State and local plans.
Sec. 271. Notice and consent period regarding distributions.
                       Chapter 7--Plan Amendments

Sec. 281. Provisions relating to plan amendments.
                      TITLE III--FAMILY TAX RELIEF

Sec. 301. Elimination of marriage penalty in standard deduction.
Sec. 302. Phaseout of marriage penalty in income tax rate brackets.
Sec. 303. Modifications of child tax credit.
Sec. 304. Expansion of Education IRAs.
Sec. 305. Eligible educational institutions permitted to maintain 
                            qualified tuition programs.
Sec. 306. Exclusion from gross income of education distributions from 
                            qualified tuition programs.
Sec. 307. Qualified tuition programs included in securities exemption.
Sec. 308. Expansion of credit for adoption expenses.
                 TITLE IV--CHARITABLE GIVING TAX RELIEF

Sec. 401. Deduction for portion of charitable contributions to be 
                            allowed to individuals who do not itemize 
                            deductions.
Sec. 402. Tax-free distributions from individual retirement accounts 
                            for charitable purposes.
Sec. 403. Higher limitation on corporate charitable contributions.
                   TITLE V--MISCELLANEOUS TAX RELIEF

Sec. 501. Repeal of 1993 income tax increase on social security 
                            benefits.
Sec. 502. Repeal of Federal communications excise tax.
Sec. 503. Deduction for 100 percent of health insurance costs of self-
                            employed individuals.
Sec. 504. Increased deduction for meal expenses.
Sec. 505. Increase in expense treatment for small businesses.
Sec. 506. Income averaging for farmers and fishermen not to increase 
                            alternative minimum tax liability.
Sec. 507. Repeal of occupational taxes relating to distilled spirits, 
                            wine, and beer.
Sec. 508. Permanent extension of research credit.
Sec. 509. Farm, fishing, and ranch risk management accounts.

                 TITLE I--INDIVIDUAL INCOME TAX RELIEF

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

    (a) In General.--Section 1 is amended by adding at the end the 
following new subsection:
    ``(i) Rate Reductions After 2000.--
            ``(1) New lowest rate bracket.--
                    ``(A) In general.--In the case of taxable years 
                beginning after December 31, 2000--
                            ``(i) the rate of tax under subsections 
                        (a), (b), (c), and (d) on taxable income not 
                        over the initial bracket amount shall be 12 
                        percent (as modified by paragraph (2)), and
                            ``(ii) the 15 percent rate of tax shall 
                        apply only to taxable income over the initial 
                        bracket amount.
                    ``(B) Initial bracket amount.--For purposes of this 
                subsection, the initial bracket amount is--
                            ``(i) $12,000 in the case of subsection 
                        (a),
                            ``(ii) $10,000 in the case of subsection 
                        (b), and
                            ``(iii) \1/2\ the amount applicable under 
                        clause (i) in the case of subsections (c) and 
                        (d).
                    ``(C) Inflation adjustment.--In prescribing the 
                tables under subsection (f) which apply with respect to 
                taxable years beginning in calendar years after 2001--
                            ``(i) the Secretary shall make no 
                        adjustment to the initial bracket amount for 
                        any taxable year beginning before January 1, 
                        2007,
                            ``(ii) the cost-of-living adjustment used 
                        in making adjustments to the initial bracket 
                        amount for any taxable year beginning after 
                        December 31, 2006, shall be determined under 
                        subsection (f)(3) by substituting `2005' for 
                        `1992' in subparagraph (B) thereof, and
                            ``(iii) such adjustment shall not apply to 
                        the amount referred to in subparagraph 
                        (B)(iii).
                If any amount after adjustment under the preceding 
                sentence is not a multiple of $50, such amount shall be 
                rounded to the next lowest multiple of $50.
            ``(2) Additional reductions.--In the case of taxable years 
        beginning in a calendar year after 2000, the corresponding 
        percentage specified for such calendar year in the following 
        table shall be substituted for the otherwise applicable tax 
        rate in the tables under subsections (a), (b), (c), (d), and, 
        to the extent applicable, (e).


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

            ``(3) Adjustment of tables.--The Secretary shall adjust the 
        tables prescribed under subsection (f) to carry out this 
        subsection.''
    (b) Repeal of Reduction of Refundable Tax Credits.--
            (1) Subsection (d) of section 24 is amended by striking 
        paragraph (2) and redesignating paragraph (3) as paragraph (2).
            (2) Section 32 is amended by striking subsection (h).
    (c) Conforming Amendments.--
            (1) Subparagraph (B) of section 1(g)(7) is amended--
                    (A) by striking ``15 percent'' in clause (ii)(II) 
                and inserting ``the first bracket percentage'', and
                    (B) by adding at the end the following flush 
                sentence:
                ``For purposes of clause (ii), the first bracket 
                percentage is the percentage applicable to the lowest 
                income bracket in the table under subsection (c).''
            (2) Section 1(h) is amended--
                    (A) by striking ``28 percent'' both places it 
                appears in paragraphs (1)(A)(ii)(I) and (1)(B)(i) and 
                inserting ``21.2 percent'', and
                    (B) by striking paragraph (13).
            (3) Section 15 is amended by adding at the end the 
        following new subsection:
    ``(f) Rate Reductions Enacted by Economic Recovery and Growth Act 
of 2001.--This section shall not apply to any change in rates under 
subsection (i) of section 1 (relating to rate reductions after 2000).''
            (4) Section 531 is amended by striking ``equal to'' and all 
        that follows and inserting ``equal to the product of the 
        highest rate of tax under section 1(c) and the accumulated 
        taxable income.''.
            (5) Section 541 of such Code is amended by striking ``equal 
        to'' and all that follows and inserting ``equal to the product 
        of the highest rate of tax under section 1(c) and the 
        undistributed personal holding company income.''.
            (6) Section 3402(p)(1)(B) is amended by striking ``7, 15, 
        28, or 31 percent'' and inserting ``7 percent, any percentage 
        applicable to any of the 3 lowest income brackets in the table 
        under section 1(c),''.
            (7) Section 3402(p)(2) is amended by striking ``equal to 15 
        percent of such payment'' and inserting ``equal to the product 
        of the lowest rate of tax under section 1(c) and such 
        payment''.
            (8) Section 3402(q)(1) is amended by striking ``equal to 28 
        percent of such payment'' and inserting ``equal to the product 
        of the third to the lowest rate of tax under section 1(c) and 
        such payment''.
            (9) Section 3402(r)(3) is amended by striking ``31 
        percent'' and inserting ``the third to the lowest rate of tax 
        under section 1(c)''.
            (10) Section 3406(a)(1) is amended by striking ``equal to 
        31 percent of such payment'' and inserting ``equal to the 
        product of the third to the lowest rate of tax under section 
        1(c) and such payment''.
            (11) Section 13273 of the Revenue Reconciliation Act of 
        1993 is amended by striking ``28 percent'' and inserting ``the 
        third to the lowest rate of tax under section 1(c) of the 
        Internal Revenue Code of 1986''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2000.
            (2) Amendments to withholding provisions.--The amendments 
        made by paragraphs (6), (7), (8), (9), (10), and (11) of 
        subsection (c) shall apply to amounts paid after the 60th day 
        after the date of the enactment of this Act.

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

    (a) In General.--Subsection (a) of section 55 is amended by adding 
at the end the following new flush sentence:
``For purposes of this title, the tentative minimum tax on any taxpayer 
other than a corporation for any taxable year beginning after December 
31, 2009, shall be zero.''.
    (b) Reduction of Tax on Individuals Prior to Repeal.--Section 55 is 
amended by adding at the end the following new subsection:
    ``(f) Phaseout of Tax on Individuals.--
            ``(1) In general.--The tax imposed by this section on a 
        taxpayer other than a corporation for any taxable year 
        beginning after December 31, 2000, and before January 1, 2010, 
        shall be the applicable percentage of the tax which would be 
        imposed but for this subsection.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage shall be determined in 
        accordance with the following table:


        ``For taxable years beginning
                                                         The applicable
          in calendar year--
                                                        percentage is--
            2001, 2002, or 2003............................      80    
            2004, 2005, or 2006............................      70    
            2007 or 2008...................................      60    
            2009...........................................  50.''.    
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

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

        Subtitle A--Individual Savings and Investment Tax Relief

SEC. 201. REDUCTION IN CAPITAL GAINS RATES.

    (a) In General.--Subsection (h) of section 1 is amended--
            (1) by striking ``10 percent'' in subparagraph (B) and 
        inserting ``7.5 percent'',
            (2) by striking ``20 percent'' in subparagraph (C) and 
        inserting ``15 percent'',
            (3) by striking ``25 percent'' in subparagraph (D) and 
        inserting ``20 percent'', and
            (4) by striking paragraph (2).
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 202. PHASEOUT OF ESTATE AND GIFT TAXES.

    (a) Repeal of Estate and Gift Taxes.--Subtitle B (relating to 
estate and gift taxes) is repealed effective with respect to estates of 
decedents dying, and gifts made, after December 31, 2008.
    (b) Phaseout of Tax.--Subsection (c) of section 2001 (relating to 
imposition and rate of tax) is amended by adding at the end the 
following new paragraph:
            ``(3) Phaseout of tax.--In the case of estates of decedents 
        dying, and gifts made, during any calendar year after 2001 and 
        before 2009--
                    ``(A) In general.--The tentative tax under this 
                subsection shall be determined by using a table 
                prescribed by the Secretary (in lieu of using the table 
                contained in paragraph (1)) which is the same as such 
                table; except that--
                            ``(i) each of the rates of tax shall be 
                        reduced (but not below zero) by the number of 
                        percentage points determined under subparagraph 
                        (B), and
                            ``(ii) the amounts setting forth the tax 
                        shall be adjusted to the extent necessary to 
                        reflect the adjustments under clause (i).
                    ``(B) Percentage points of reduction.--
                                                          The number of
``For calendar year:                              percentage points is:
    2002, 2003, 2004, or 2005.....................                  15 
    2006..........................................                  20 
    2007..........................................                  30 
    2008..........................................                  40.
                    ``(C) Coordination with paragraph (2).--Paragraph 
                (2) shall be applied by reducing the 55 percent 
                percentage contained therein by the number of 
                percentage points determined for such calendar year 
                under subparagraph (B).''.
    (c) Effective Date.--The amendments made by subsection (b) shall 
apply to estates of decedents dying, and gifts made, after December 31, 
2001.

                       Subtitle B--Pension Reform

               CHAPTER 1--INDIVIDUAL RETIREMENT ACCOUNTS

SEC. 211. MODIFICATION OF IRA CONTRIBUTION LIMITS.

    (a) Increase in Contribution Limit.--
            (1) In general.--Paragraph (1)(A) of section 219(b) 
        (relating to maximum amount of deduction) is amended by 
        striking ``$2,000'' and inserting ``the deductible amount''.
            (2) Deductible amount.--Section 219(b) is amended by adding 
        at the end the following new paragraph:
            ``(5) Deductible amount.--For purposes of paragraph 
        (1)(A)--
                    ``(A) In general.--The deductible amount shall be 
                determined in accordance with the following table:

``For taxable years                                      The deductible
beginning in:                                                amount is:
    2002..........................................              $3,000 
    2003..........................................              $4,000 
    2004 and thereafter...........................              $5,000.
                    ``(B) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of any 
                        taxable year beginning in a calendar year after 
                        2004, the $5,000 amount under subparagraph (A) 
                        shall be increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for the calendar year in which 
                                the taxable year begins, determined by 
                                substituting `calendar year 2003' 
for `calendar year 1992' in subparagraph (B) thereof.
                            ``(ii) Rounding rules.--If any amount after 
                        adjustment under clause (i) is not a multiple 
                        of $100, such amount shall be rounded to the 
                        next lower multiple of $100.''.
    (b) Conforming Amendments.--
            (1) Section 408(a)(1) is amended by striking ``in excess of 
        $2,000 on behalf of any individual'' and inserting ``on behalf 
        of any individual in excess of the amount in effect for such 
        taxable year under section 219(b)(1)(A)''.
            (2) Section 408(b)(2)(B) is amended by striking ``$2,000'' 
        and inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
            (3) Section 408(b) is amended by striking ``$2,000'' in the 
        matter following paragraph (4) and inserting ``the dollar 
        amount in effect under section 219(b)(1)(A)''.
            (4) Section 408(j) is amended by striking ``$2,000''.
            (5) Section 408(p)(8) is amended by striking ``$2,000'' and 
        inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

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

    (a) In General.--Section 219(b) is amended further by adding at the 
end the following new paragraph:
            ``(6) Catchup contributions.--
                    ``(A) In general.--In the case of an individual who 
                has attained the age of 50 before the close of the 
                taxable year, the dollar amount in effect under 
                paragraph (1)(A) for such taxable year shall be equal 
                to the applicable percentage of such amount determined 
                without regard to this paragraph.
                    ``(B) Applicable percentage.--For purposes of this 
                paragraph, the applicable percentage shall be 
                determined in accordance with the following table:

``For taxable years                                      The applicable
beginning in:                                            percentage is:
    2002..........................................         110 percent 
    2003..........................................         120 percent 
    2004..........................................         130 percent 
    2005..........................................         140 percent 
    2006 and thereafter...........................      150 percent.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to contributions in taxable years beginning after December 31, 2001.

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

    (a) Repeal of AGI Limit on Contributions.--Section 408A(c)(3) 
(relating to limits based on modified adjusted gross income) is 
amended--
            (1) by striking clause (ii) of subparagraph (A) and 
        inserting:
                            ``(ii) $10,000.'', and
            (2) by striking clause (ii) of subparagraph (C) and 
        inserting:
                            ``(ii) the applicable dollar amount is--
                                    ``(I) $200,000 in the case of a 
                                taxpayer filing a joint return, and
                                    ``(II) $100,000 in the case of any 
                                other taxpayer.''.
    (b) Increase in AGI Limit for Rollover Contributions.--Section 
408A(c)(3)(B) (relating to rollover from IRA) is amended to read as 
follows:
                    ``(B) Rollover from ira.--A taxpayer shall not be 
                allowed to make a qualified rollover contribution from 
                an individual retirement plan other than a Roth IRA 
                during any taxable year if, for the taxable year of the 
                distribution to which the contribution relates, the 
                taxpayer's adjusted gross income exceeds $100,000 
                ($200,000 in the case of a taxpayer filing a joint 
                return).''.
    (c) Effective Dates.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 214. DEEMED IRAS UNDER EMPLOYER PLANS.

    (a) In General.--Section 408 (relating to individual retirement 
accounts) is amended by redesignating subsection (q) as subsection (r) 
and by inserting after subsection (p) the following new subsection:
    ``(q) Deemed IRAs Under Qualified Employer Plans.--
            ``(1) General rule.--If--
                    ``(A) a qualified employer plan elects to allow 
                employees to make voluntary employee contributions to a 
                separate account or annuity established under the plan, 
                and
                    ``(B) under the terms of the qualified employer 
                plan, such account or annuity meets the applicable 
                requirements of this section or section 408A for an 
                individual retirement account or annuity,
        then such account or annuity shall be treated for purposes of 
        this title in the same manner as an individual retirement plan 
        (and contributions to such account or annuity as contributions 
        to an individual retirement plan). For purposes of subparagraph 
        (B), the requirements of subsection (a)(5) shall not apply.
            ``(2) Special rules for qualified employer plans.--For 
        purposes of this title--
                    ``(A) a qualified employer plan shall not fail to 
                meet any requirement of this title solely by reason of 
                establishing and maintaining a program described in 
                paragraph (1), and
                    ``(B) any account or annuity described in paragraph 
                (1), and any contribution to the account or annuity, 
                shall not be subject to any requirement of this title 
                applicable to a qualified employer plan or taken into 
                account in applying any such requirement to any other 
                contributions under the plan.
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Qualified employer plan.--The term `qualified 
                employer plan' has the meaning given such term by 
                section 72(p)(4).
                    ``(B) Voluntary employee contribution.--The term 
                `voluntary employee contribution' means any 
                contribution (other than a mandatory contribution 
within the meaning of section 411(c)(2)(C))--
                            ``(i) which is made by an individual as an 
                        employee under a qualified employer plan which 
                        allows employees to elect to make contributions 
                        described in paragraph (1), and
                            ``(ii) with respect to which the individual 
                        has designated the contribution as a 
                        contribution to which this subsection 
                        applies.''.
    (b) Amendment of ERISA.--
            (1) In general.--Section 4 of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1003) is amended by 
        adding at the end the following new subsection:
    ``(c) If a pension plan allows an employee to elect to make 
voluntary employee contributions to accounts and annuities as provided 
in section 408(q) of the Internal Revenue Code of 1986, such accounts 
and annuities (and contributions thereto) shall not be treated as part 
of such plan (or as a separate pension plan) for purposes of any 
provision of this title other than section 403(c), 404, or 405 
(relating to exclusive benefit, and fiduciary and co-fiduciary 
responsibilities).''.
            (2) Conforming amendment.--Section 4(a) of such Act (29 
        U.S.C. 1003(a)) is amended by inserting ``or (c)'' after 
        ``subsection (b)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2001.

                     CHAPTER 2--EXPANDING COVERAGE

SEC. 221. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.

    (a) Defined Benefit Plans.--
            (1) Dollar limit.--
                    (A) Subparagraph (A) of section 415(b)(1) (relating 
                to limitation for defined benefit plans) is amended by 
                striking ``$90,000'' and inserting ``$160,000''.
                    (B) Subparagraphs (C) and (D) of section 415(b)(2) 
                are each amended by striking ``$90,000'' each place it 
                appears in the headings and the text and inserting 
                ``$160,000''.
                    (C) Paragraph (7) of section 415(b) (relating to 
                benefits under certain collectively bargained plans) is 
                amended by striking ``the greater of $68,212 or one-
                half the amount otherwise applicable for such year 
                under paragraph (1)(A) for `$90,000''' and inserting 
                ``one-half the amount otherwise applicable for such 
                year under paragraph (1)(A) for `$160,000'''.
            (2) Limit reduced when benefit begins before age 62.--
        Subparagraph (C) of section 415(b)(2) is amended by striking 
        ``the social security retirement age'' each place it appears in 
        the heading and text and inserting ``age 62''.
            (3) Limit increased when benefit begins after age 65.--
        Subparagraph (D) of section 415(b)(2) is amended by striking 
        ``the social security retirement age'' each place it appears in 
        the heading and text and inserting ``age 65''.
            (4) Cost-of-living adjustments.--Subsection (d) of section 
        415 (related to cost-of-living adjustments) is amended--
                    (A) by striking ``$90,000'' in paragraph (1)(A) and 
                inserting ``$160,000''; and
                    (B) in paragraph (3)(A)--
                            (i) by striking ``$90,000'' in the heading 
                        and inserting ``$160,000''; and
                            (ii) by striking ``October 1, 1986'' and 
                        inserting ``July 1, 2001''.
            (5) Conforming amendment.--Section 415(b)(2) is amended by 
        striking subparagraph (F).
    (b) Defined Contribution Plans.--
            (1) Dollar limit.--Subparagraph (A) of section 415(c)(1) 
        (relating to limitation for defined contribution plans) is 
        amended by striking ``$30,000'' and inserting ``$40,000''.
            (2) Cost-of-living adjustments.--Subsection (d) of section 
        415 (related to cost-of-living adjustments) is amended--
                    (A) by striking ``$30,000'' in paragraph (1)(C) and 
                inserting ``$40,000''; and
                    (B) in paragraph (3)(D)--
                            (i) by striking ``$30,000'' in the heading 
                        and inserting ``$40,000''; and
                            (ii) by striking ``October 1, 1993'' and 
                        inserting ``July 1, 2001''.
    (c) Qualified Trusts.--
            (1) Compensation limit.--Sections 401(a)(17), 404(l), 
        408(k), and 505(b)(7) are each amended by striking ``$150,000'' 
        each place it appears and inserting ``$200,000''.
            (2) Base period and rounding of cost-of-living 
        adjustment.--Subparagraph (B) of section 401(a)(17) is 
        amended--
                    (A) by striking ``October 1, 1993'' and inserting 
                ``July 1, 2001''; and
                    (B) by striking ``$10,000'' both places it appears 
                and inserting ``$5,000''.
    (d) Elective Deferrals.--
            (1) In general.--Paragraph (1) of section 402(g) (relating 
        to limitation on exclusion for elective deferrals) is amended 
        to read as follows:
            ``(1) In general.--
                    ``(A) Limitation.--Notwithstanding subsections 
                (e)(3) and (h)(1)(B), the elective deferrals of any 
                individual for any taxable year shall be included in 
                such individual's gross income to the extent the amount 
                of such deferrals for the taxable year exceeds the 
                applicable dollar amount.
                    ``(B) Applicable dollar amount.--For purposes of 
                subparagraph (A), the applicable dollar amount shall be 
                the amount determined in accordance with the following 
                table:

                ``For taxable years
                                                         The applicable
                  beginning in
                                                         dollar amount:
                  calendar year:
                    2002...................................    $11,000 
                    2003...................................    $12,000 
                    2004...................................    $13,000 
                    2005...................................    $14,000 
                    2006 or thereafter..................... $15,000.''.
            (2) Cost-of-living adjustment.--Paragraph (5) of section 
        402(g) is amended to read as follows:
            ``(5) Cost-of-living adjustment.--In the case of taxable 
        years beginning after December 31, 2006, the Secretary shall 
        adjust the $15,000 amount under paragraph (1)(B) at the same 
        time and in the same manner as under section 415(d), except 
        that the base period shall be the calendar quarter beginning 
        July 1, 2005, and any increase under this paragraph which is 
        not a multiple of $500 shall be rounded to the next lowest 
        multiple of $500.''.
            (3) Conforming amendments.--
                    (A) Section 402(g) (relating to limitation on 
                exclusion for elective deferrals), as amended by 
                paragraphs (1) and (2), is further amended by striking 
                paragraph (4) and redesignating paragraphs (5), (6), 
                (7), (8), and (9) as paragraphs (4), (5), (6), (7), and 
                (8), respectively.
                    (B) Paragraph (2) of section 457(c) is amended by 
                striking ``402(g)(8)(A)(iii)'' and inserting 
                ``402(g)(7)(A)(iii)''.
                    (C) Clause (iii) of section 501(c)(18)(D) is 
                amended by striking ``(other than paragraph (4) 
                thereof)''.
    (e) Deferred Compensation Plans of State and Local Governments and 
Tax-Exempt Organizations.--
            (1) In general.--Section 457 (relating to deferred 
        compensation plans of State and local governments and tax-
        exempt organizations) is amended--
                    (A) in subsections (b)(2)(A) and (c)(1) by striking 
                ``$7,500'' each place it appears and inserting ``the 
                applicable dollar amount''; and
                    (B) in subsection (b)(3)(A) by striking ``$15,000'' 
                and inserting ``twice the dollar amount in effect under 
                subsection (b)(2)(A)''.
            (2) Applicable dollar amount; cost-of-living adjustment.--
        Paragraph (15) of section 457(e) is amended to read as follows:
            ``(15) Applicable dollar amount.--
                    ``(A) In general.--The applicable dollar amount 
                shall be the amount determined in accordance with the 
                following table:

                ``For taxable years
                                                         The applicable
                  beginning in
                                                         dollar amount:
                  calendar year:
                    2002...................................    $11,000 
                    2003...................................    $12,000 
                    2004...................................    $13,000 
                    2005...................................    $14,000 
                    2006 or thereafter.....................    $15,000.
                    ``(B) Cost-of-living adjustments.--In the case of 
                taxable years beginning after December 31, 2006, the 
                Secretary shall adjust the $15,000 amount specified in 
                the table in subparagraph (A) at the same time and in 
                the same manner as under section 415(d), except that 
                the base period shall be the calendar quarter beginning 
                July 1, 2005, and any increase under this paragraph 
                which is not a multiple of $500 shall be rounded to the 
                next lowest multiple of $500.''.
    (f) Simple Retirement Accounts.--
            (1) Limitation.--Clause (ii) of section 408(p)(2)(A) 
        (relating to general rule for qualified salary reduction 
        arrangement) is amended by striking ``$6,000'' and inserting 
        ``the applicable dollar amount''.
            (2) Applicable dollar amount.--Subparagraph (E) of 
        408(p)(2) is amended to read as follows:
                    ``(E) Applicable dollar amount; cost-of-living 
                adjustment.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A)(ii), the applicable dollar 
                        amount shall be the amount determined in 
                        accordance with the following table:

                ``For taxable years
                                                         The applicable
                  beginning in
                                                         dollar amount:
                  calendar year:
                            2002...........................     $7,000 
                            2003...........................     $8,000 
                            2004...........................     $9,000 
                            2005 or thereafter.............    $10,000.
                            ``(ii) Cost-of-living adjustment.--In the 
                        case of a year beginning after December 31, 
                        2005, the Secretary shall adjust the $10,000 
                        amount under clause (i) at the same time and in 
                        the same manner as under section 415(d), except 
                        that the base period taken into account shall 
                        be the calendar quarter beginning July 1, 2004, 
                        and any increase under this subparagraph which 
                        is not a multiple of $500 shall be rounded to 
                        the next lower multiple of $500.''.
            (3) Conforming amendments.--
                    (A) Clause (I) of section 401(k)(11)(B)(i) is 
                amended by striking ``$6,000'' and inserting ``the 
                amount in effect under section 408(p)(2)(A)(ii)''.
                    (B) Section 401(k)(11) is amended by striking 
                subparagraph (E).
    (g) Rounding Rule Relating to Defined Benefit Plans and Defined 
Contribution Plans.--Paragraph (4) of section 415(d) is amended to read 
as follows:
            ``(4) Rounding.--
                    ``(A) $160,000 amount.--Any increase under 
                subparagraph (A) of paragraph (1) which is not a 
                multiple of $5,000 shall be rounded to the next lowest 
                multiple of $5,000.
                    ``(B) $40,000 amount.--Any increase under 
                subparagraph (C) of paragraph (1) which is not a 
                multiple of $1,000 shall be rounded to the next lowest 
                multiple of $1,000.''.
    (h) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 222. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND SOLE 
              PROPRIETORS.

    (a) In General.--Subparagraph (B) of section 4975(f)(6) (relating 
to exemptions not to apply to certain transactions) is amended by 
adding at the end the following new clause:
                            ``(iii) Loan exception.--For purposes of 
                        subparagraph (A)(i), the term `owner-employee' 
                        shall only include a person described in 
                        subclause (II) or (III) of clause (i).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to loans made after December 31, 2001.

SEC. 223. MODIFICATION OF TOP-HEAVY RULES.

    (a) Simplification of Definition of Key Employee.--
            (1) In general.--Section 416(i)(1)(A) (defining key 
        employee) is amended--
                    (A) by striking ``or any of the 4 preceding plan 
                years'' in the matter preceding clause (i);
                    (B) by striking clause (i) and inserting the 
                following:
                            ``(i) an officer of the employer having an 
                        annual compensation greater than $150,000,'';
                    (C) by striking clause (ii) and redesignating 
                clauses (iii) and (iv) as clauses (ii) and (iii), 
                respectively; and
                    (D) by striking the second sentence in the matter 
                following clause (iii), as redesignated by subparagraph 
                (C).
            (2) Conforming amendment.--Section 416(i)(1)(B)(iii) is 
        amended by striking ``and subparagraph (A)(ii)''.
    (b) Matching Contributions Taken Into Account for Minimum 
Contribution Requirements.--Section 416(c)(2)(A) (relating to defined 
contribution plans) is amended by adding at the end the following: 
``Employer matching contributions (as defined in section 401(m)(4)(A)) 
shall be taken into account for purposes of this subparagraph.''.
    (c) Distributions During Last Year Before Determination Date Taken 
Into Account.--
            (1) In general.--Paragraph (3) of section 416(g) is amended 
        to read as follows:
            ``(3) Distributions during last year before determination 
        date taken into account.--
                    ``(A) In general.--For purposes of determining--
                            ``(i) the present value of the cumulative 
                        accrued benefit for any employee, or
                            ``(ii) the amount of the account of any 
                        employee,
                such present value or amount shall be increased by the 
                aggregate distributions made with respect to such 
                employee under the plan during the 1-year period ending 
                on the determination date. The preceding sentence shall 
                also apply to distributions under a terminated plan 
                which if it had not been terminated would have been 
                required to be included in an aggregation group.
                    ``(B) 5-year period in case of in-service 
                distribution.--In the case of any distribution made for 
                a reason other than separation from service, death, or 
                disability, subparagraph (A) shall be applied by 
                substituting `5-year period' for `1-year period'.''.
            (2) Benefits not taken into account.--Subparagraph (E) of 
        section 416(g)(4) is amended--
                    (A) by striking ``last 5 years'' in the heading and 
                inserting ``last year before determination date''; and
                    (B) by striking ``5-year period'' and inserting 
                ``1-year period''.
    (d) Definition of Top-Heavy Plans.--Paragraph (4) of section 416(g) 
(relating to other special rules for top-heavy plans) is amended by 
adding at the end the following new subparagraph:
                    ``(H) Cash or deferred arrangements using 
                alternative methods of meeting nondiscrimination 
                requirements.--The term `top-heavy plan' shall not 
                include a plan which consists solely of--
                            ``(i) a cash or deferred arrangement which 
                        meets the requirements of section 401(k)(12), 
                        and
                            ``(ii) matching contributions with respect 
                        to which the requirements of section 401(m)(11) 
                        are met.
                If, but for this subparagraph, a plan would be treated 
                as a top-heavy plan because it is a member of an 
                aggregation group which is a top-heavy group, 
                contributions under the plan may be taken into account 
                in determining whether any other plan in the group 
                meets the requirements of subsection (c)(2).''.
    (e) Frozen Plan Exempt From Minimum Benefit Requirement.--
Subparagraph (C) of section 416(c)(1) (relating to defined benefit 
plans) is amended--
                    (A) by striking ``clause (ii)'' in clause (i) and 
                inserting ``clause (ii) or (iii)''; and
                    (B) by adding at the end the following:
                            ``(iii) Exception for frozen plan.--For 
                        purposes of determining an employee's years of 
                        service with the employer, any service with the 
                        employer shall be disregarded to the extent 
                        that such service occurs during a plan year 
                        when the plan benefits (within the meaning of 
                        section 410(b)) no employee or former 
                        employee.''.
    (f) Elimination of Family Attribution.--Section 416(i)(1)(B) 
(defining 5-percent owner) is amended by adding at the end the 
following new clause:
                            ``(iv) Family attribution disregarded.--
                        Solely for purposes of applying this paragraph 
                        (and not for purposes of any provision of this 
                        title which incorporates by reference the 
                        definition of a key employee or 5-percent owner 
                        under this paragraph), section 318 shall be 
                        applied without regard to subsection (a)(1) 
                        thereof in determining whether any person is a 
                        5-percent owner.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 224. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF 
              DEDUCTION LIMITS.

    (a) In General.--Section 404 (relating to deduction for 
contributions of an employer to an employees' trust or annuity plan and 
compensation under a deferred payment plan) is amended by adding at the 
end the following new subsection:
    ``(n) Elective Deferrals Not Taken Into Account for Purposes of 
Deduction Limits.--Elective deferrals (as defined in section 402(g)(3)) 
shall not be subject to any limitation contained in paragraph (3), (7), 
or (9) of subsection (a), and such elective deferrals shall not be 
taken into account in applying any such limitation to any other 
contributions.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 225. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED COMPENSATION 
              PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT 
              ORGANIZATIONS.

    (a) In General.--Subsection (c) of section 457 (relating to 
deferred compensation plans of State and local governments and tax-
exempt organizations), as amended by section 201, is amended to read as 
follows:
    ``(c) Limitation.--The maximum amount of the compensation of any 
one individual which may be deferred under subsection (a) during any 
taxable year shall not exceed the amount in effect under subsection 
(b)(2)(A) (as modified by any adjustment provided under subsection 
(b)(3)).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to years beginning after December 31, 2001.

SEC. 226. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING PENSION 
              PLANS.

    (a) Elimination of Certain User Fees.--The Secretary of the 
Treasury or the Secretary's delegate shall not require payment of user 
fees under the program established under section 7527 of the Internal 
Revenue Code of 1986 for requests to the Internal Revenue Service for 
determination letters with respect to the qualified status of a pension 
benefit plan maintained solely by one or more eligible employers or any 
trust which is part of the plan. The preceding sentence shall not apply 
to any request--
            (1) made after the fifth plan year the pension benefit plan 
        is in existence; or
            (2) made by the sponsor of any prototype or similar plan 
        which the sponsor intends to market to participating employers.
    (b) Pension Benefit Plan.--For purposes of this section, the term 
``pension benefit plan'' means a pension, profit-sharing, stock bonus, 
annuity, or employee stock ownership plan.
    (c) Eligible Employer.--For purposes of this section, the term 
``eligible employer'' has the same meaning given such term in section 
408(p)(2)(C)(i)(I) of the Internal Revenue Code of 1986. The 
determination of whether an employer is an eligible employer under this 
section shall be made as of the date of the request described in 
subsection (a).
    (d) Effective Date.--The provisions of this section shall apply 
with respect to requests made after December 31, 2001.

SEC. 227. DEDUCTION LIMITS.

    (a) In General.--
            (1) Stock bonus and profit sharing trusts.--Subclause (I) 
        of section 404(a)(3)(A)(i) (relating to stock bonus and profit 
        sharing trusts) is amended by striking ``15 percent'' and 
        inserting ``20 percent''.
            (2) Compensation.--Section 404(a) (relating to general 
        rule) is amended by adding at the end the following:
            ``(12) Definition of compensation.--For purposes of 
        paragraphs (3), (7), (8), and (9), the term `compensation 
        otherwise paid or accrued during the taxable year' shall 
        include amounts treated as `participant's compensation' under 
        subparagraph (C) or (D) of section 415(c)(3).''.
    (b) Conforming Amendments.--
            (1) Subparagraph (B) of section 404(a)(3) is amended by 
        striking the last sentence thereof.
            (2) Subparagraph (C) of section 404(h)(1) is amended by 
        striking ``15 percent'' each place it appears and inserting 
        ``20 percent''.
            (3) Clause (i) of section 4972(c)(6)(B) is amended by 
        striking ``(within the meaning of section 404(a))'' and 
        inserting ``(within the meaning of section 404(a) and as 
        adjusted under section 404(a)(12))''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 228. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX 
              CONTRIBUTIONS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
(relating to deferred compensation, etc.) is amended by inserting after 
section 402 the following new section:

``SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS PLUS 
              CONTRIBUTIONS.

    ``(a) General Rule.--If an applicable retirement plan includes a 
qualified plus contribution program--
            ``(1) any designated plus contribution made by an employee 
        pursuant to the program shall be treated as an elective 
        deferral for purposes of this chapter, except that such 
        contribution shall not be excludable from gross income, and
            ``(2) such plan (and any arrangement which is part of such 
        plan) shall not be treated as failing to meet any requirement 
        of this chapter solely by reason of including such program.
    ``(b) Qualified Plus Contribution Program.--For purposes of this 
section--
            ``(1) In general.--The term `qualified plus contribution 
        program' means a program under which an employee may elect to 
        make designated plus contributions in lieu of all or a portion 
        of elective deferrals the employee is otherwise eligible to 
        make under the applicable retirement plan.
            ``(2) Separate accounting required.--A program shall not be 
        treated as a qualified plus contribution program unless the 
        applicable retirement plan--
                    ``(A) establishes separate accounts (`designated 
                plus accounts') for the designated plus contributions 
                of each employee and any earnings properly allocable to 
                the contributions, and
                    ``(B) maintains separate recordkeeping with respect 
                to each account.
    ``(c) Definitions and Rules Relating to Designated Plus 
Contributions.--For purposes of this section--
            ``(1) Designated plus contribution.--The term `designated 
        plus contribution' means any elective deferral which--
                    ``(A) is excludable from gross income of an 
                employee without regard to this section, and
                    ``(B) the employee designates (at such time and in 
                such manner as the Secretary may prescribe) as not 
                being so excludable.
            ``(2) Designation limits.--The amount of elective deferrals 
        which an employee may designate under paragraph (1) shall not 
        exceed the excess (if any) of--
                    ``(A) the maximum amount of elective deferrals 
                excludable from gross income of the employee for the 
                taxable year (without regard to this section), over
                    ``(B) the aggregate amount of elective deferrals of 
                the employee for the taxable year which the employee 
                does not designate under paragraph (1).
            ``(3) Rollover contributions.--
                    ``(A) In general.--A rollover contribution of any 
                payment or distribution from a designated plus account 
                which is otherwise allowable under this chapter may be 
                made only if the contribution is to--
                            ``(i) another designated plus account of 
                        the individual from whose account the payment 
                        or distribution was made, or
                            ``(ii) a Roth IRA of such individual.
                    ``(B) Coordination with limit.--Any rollover 
                contribution to a designated plus account under 
                subparagraph (A) shall not be taken into account for 
                purposes of paragraph (1).
    ``(d) Distribution Rules.--For purposes of this title--
            ``(1) Exclusion.--Any qualified distribution from a 
        designated plus account shall not be includible in gross 
        income.
            ``(2) Qualified distribution.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified 
                distribution' has the meaning given such term by 
                section 408A(d)(2)(A) (without regard to clause (iv) 
                thereof).
                    ``(B) Distributions within nonexclusion period.--A 
                payment or distribution from a designated plus account 
                shall not be treated as a qualified distribution if 
                such payment or distribution is made within the 5-
                taxable-year period beginning with the earlier of--
                            ``(i) the first taxable year for which the 
                        individual made a designated plus contribution 
                        to any designated plus account established for 
                        such individual under the same applicable 
                        retirement plan, or
                            ``(ii) if a rollover contribution was made 
                        to such designated plus account from a 
                        designated plus account previously established 
                        for such individual under another applicable 
                        retirement plan, the first taxable year for 
                        which the individual made a designated plus 
                        contribution to such previously established 
                        account.
                    ``(C) Distributions of excess deferrals and 
                earnings.--The term `qualified distribution' shall not 
                include any distribution of any excess deferral under 
                section 402(g)(2) and any income on the excess 
                deferral.
            ``(3) Aggregation rules.--Section 72 shall be applied 
        separately with respect to distributions and payments from a 
        designated plus account and other distributions and payments 
        from the plan.
    ``(e) Other Definitions.--For purposes of this section--
            ``(1) Applicable retirement plan.--The term `applicable 
        retirement plan' means--
                    ``(A) an employees' trust described in section 
                401(a) which is exempt from tax under section 501(a), 
                and
                    ``(B) a plan under which amounts are contributed by 
                an individual's employer for an annuity contract 
                described in section 403(b).
            ``(2) Elective deferral.--The term `elective deferral' 
        means any elective deferral described in subparagraph (A) or 
        (C) of section 402(g)(3).''.
    (b) Excess Deferrals.--Section 402(g) (relating to limitation on 
exclusion for elective deferrals) is amended--
            (1) by adding at the end of paragraph (1) the following new 
        sentence: ``The preceding sentence shall not apply to so much 
        of such excess as does not exceed the designated plus 
        contributions of the individual for the taxable year.''; and
            (2) by inserting ``(or would be included but for the last 
        sentence thereof)'' after ``paragraph (1)'' in paragraph 
        (2)(A).
    (c) Rollovers.--Subparagraph (B) of section 402(c)(8) is amended by 
adding at the end the following:
                ``If any portion of an eligible rollover distribution 
                is attributable to payments or distributions from a 
                designated plus account (as defined in section 402A), 
                an eligible retirement plan with respect to such 
                portion shall include only another designated plus 
                account and a Roth IRA.''.
    (d) Reporting Requirements.--
            (1) W-2 information.--Section 6051(a)(8) is amended by 
        inserting ``, including the amount of designated plus 
        contributions (as defined in section 402A)'' before the comma 
        at the end.
            (2) Information.--Section 6047 is amended by redesignating 
        subsection (f) as subsection (g) and by inserting after 
        subsection (e) the following new subsection:
    ``(f) Designated Plus Contributions.--The Secretary shall require 
the plan administrator of each applicable retirement plan (as defined 
in section 402A) to make such returns and reports regarding designated 
plus contributions (as so defined) to the Secretary, participants and 
beneficiaries of the plan, and such other persons as the Secretary may 
prescribe.''.
    (e) Conforming Amendments.--
            (1) Section 408A(e) is amended by adding after the first 
        sentence the following new sentence: ``Such term includes a 
        rollover contribution described in section 402A(c)(3)(A).''.
            (2) The table of sections for subpart A of part I of 
        subchapter D of chapter 1 is amended by inserting after the 
        item relating to section 402 the following new item:

                              ``Sec. 402A. Optional treatment of 
                                        elective deferrals as plus 
                                        contributions.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

                CHAPTER 3--ENHANCING FAIRNESS FOR WOMEN

SEC. 231. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER.

    (a) In General.--Section 414 (relating to definitions and special 
rules) is amended by adding at the end the following new subsection:
    ``(v) Catch-Up Contributions for Individuals Age 50 or Over.--
            ``(1) In general.--An applicable employer plan shall not be 
        treated as failing to meet any requirement of this title solely 
        because the plan permits an eligible participant to make 
        additional elective deferrals in any plan year.
            ``(2) Limitation on amount of additional deferrals.--A plan 
        shall not permit additional elective deferrals under paragraph 
        (1) for any year in an amount greater than the lesser of--
                    ``(A) $5,000, or
                    ``(B) the excess (if any) of--
                            ``(i) the participant's compensation for 
                        the year, over
                            ``(ii) any other elective deferrals of the 
                        participant for such year which are made 
                        without regard to this subsection.
            ``(3) Treatment of contributions.--In the case of any 
        contribution to a plan under paragraph (1), such contribution 
        shall not, with respect to the year in which the contribution 
        is made--
                    ``(A) be subject to any otherwise applicable 
                limitation contained in section 402(g), 402(h)(2), 
                404(a), 404(h), 408(p)(2)(A)(ii), 415, or 457, or
                    ``(B) be taken into account in applying such 
                limitations to other contributions or benefits under 
                such plan or any other such plan.
            ``(4) Eligible participant.--For purposes of this 
        subsection, the term `eligible participant' means, with respect 
        to any plan year, a participant in a plan--
                    ``(A) who has attained the age of 50 before the 
                close of the plan year, and
                    ``(B) with respect to whom no other elective 
                deferrals may (without regard to this subsection) be 
                made to the plan for the plan year by reason of the 
                application of any limitation or other restriction 
                described in paragraph (3) or comparable limitation 
                contained in the terms of the plan.
            ``(5) Other definitions and rules.--For purposes of this 
        subsection--
                    ``(A) Applicable employer plan.--The term 
                `applicable employer plan' means--
                            ``(i) an employees' trust described in 
                        section 401(a) which is exempt from tax under 
                        section 501(a),
                            ``(ii) a plan under which amounts are 
                        contributed by an individual's employer for an 
                        annuity contract described in section 403(b),
                            ``(iii) an eligible deferred compensation 
                        plan under section 457 of an eligible employer 
                        as defined in section 457(e)(1)(A), and
                            ``(iv) an arrangement meeting the 
                        requirements of section 408 (k) or (p).
                    ``(B) Elective deferral.--The term `elective 
                deferral' has the meaning given such term by subsection 
                (u)(2)(C).
                    ``(C) Exception for section 457 plans.--This 
                subsection shall not apply to an applicable employer 
                plan described in subparagraph (A)(iii) for any year to 
                which section 457(b)(3) applies.
                    ``(D) Cost-of-living adjustment.--For years 
                beginning after December 31, 2005, the Secretary shall 
                adjust annually the $5,000 amount in subparagraph (A) 
                for increases in the cost-of-living at the same time 
                and in the same manner as adjustments under section 
                415(d); except that the base period shall be the 
                calendar quarter beginning July 1, 2004, and any 
                increase which is not a multiple of $500 shall be 
                rounded to the next lowest multiple of $500.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to contributions in taxable years beginning after December 31, 2001.

SEC. 232. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO DEFINED 
              CONTRIBUTION PLANS.

    (a) Equitable Treatment.--
            (1) In general.--Subparagraph (B) of section 415(c)(1) 
        (relating to limitation for defined contribution plans) is 
        amended by striking ``25 percent'' and inserting ``100 
        percent''.
            (2) Application to section 403(b).--Section 403(b) is 
        amended--
                    (A) by striking ``the exclusion allowance for such 
                taxable year'' in paragraph (1) and inserting ``the 
                applicable limit under section 415'';
                    (B) by striking paragraph (2); and
                    (C) by inserting ``or any amount received by a 
                former employee after the fifth taxable year following 
                the taxable year in which such employee was 
                terminated'' before the period at the end of the second 
                sentence of paragraph (3).
            (3) Conforming amendments.--
                    (A) Subsection (f) of section 72 is amended by 
                striking ``section 403(b)(2)(D)(iii))'' and inserting 
                ``section 403(b)(2)(D)(iii), as in effect before the 
                enactment of the Comprehensive Retirement Security and 
                Pension Reform Act of 2000)''.
                    (B) Section 404(a)(10)(B) is amended by striking 
                ``, the exclusion allowance under section 403(b)(2),''.
                    (C) Section 415(a)(2) is amended by striking ``, 
                and the amount of the contribution for such portion 
                shall reduce the exclusion allowance as provided in 
                section 403(b)(2)''.
                    (D) Section 415(c)(3) is amended by adding at the 
                end the following new subparagraph:
                    ``(E) Annuity contracts.--In the case of an annuity 
                contract described in section 403(b), the term 
                `participant's compensation' means the participant's 
                includible compensation determined under section 
                403(b)(3).''.
                    (E) Section 415(c) is amended by striking paragraph 
                (4).
                    (F) Section 415(c)(7) is amended to read as 
                follows:
            ``(7) Certain contributions by church plans not treated as 
        exceeding limit.--
                    ``(A) In general.--Notwithstanding any other 
                provision of this subsection, at the election of a 
                participant who is an employee of a church or a 
                convention or association of churches, including an 
                organization described in section 414(e)(3)(B)(ii), 
                contributions and other additions for an annuity 
                contract or retirement income account described in 
                section 403(b) with respect to such participant, when 
                expressed as an annual addition to such participant's 
                account, shall be treated as not exceeding the 
                limitation of paragraph (1) if such annual addition is 
                not in excess of $10,000.
                    ``(B) $40,000 aggregate limitation.--The total 
                amount of additions with respect to any participant 
                which may be taken into account for purposes of this 
                subparagraph for all years may not exceed $40,000.
                    ``(C) Annual addition.--For purposes of this 
                paragraph, the term `annual addition' has the meaning 
                given such term by paragraph (2).''.
                    (G) Subparagraph (B) of section 402(g)(7) (as 
                redesignated by section 211) is amended by inserting 
                before the period at the end the following: ``(as in 
                effect before the enactment of the Comprehensive 
                Retirement Security and Pension Reform Act of 2000)''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to years beginning after December 31, 2001.
    (b) Special Rules for Sections 403(b) and 408.--
            (1) In general.--Subsection (k) of section 415 is amended 
        by adding at the end the following new paragraph:
            ``(4) Special rules for sections 403(b) and 408.--For 
        purposes of this section, any annuity contract described in 
        section 403(b) for the benefit of a participant shall be 
        treated as a defined contribution plan maintained by each 
        employer with respect to which the participant has the control 
        required under subsection (b) or (c) of section 414 (as 
        modified by subsection (h)). For purposes of this section, any 
        contribution by an employer to a simplified employee pension 
        plan for an individual for a taxable year shall be treated as 
        an employer contribution to a defined contribution plan for 
        such individual for such year.''.
            (2) Effective date.--
                    (A) In general.--The amendment made by paragraph 
                (1) shall apply to limitation years beginning after 
                December 31, 2001.
                    (B) Exclusion allowance.--Effective for limitation 
                years beginning in 2002, in the case of any annuity 
                contract described in section 403(b) of the Internal 
                Revenue Code of 1986, the amount of the contribution 
                disqualified by reason of section 415(g) of such Code 
                shall reduce the exclusion allowance as provided in 
                section 403(b)(2) of such Code.
            (3) Modification of 403(b) exclusion allowance to conform 
        to 415 modification.--The Secretary of the Treasury shall 
        modify the regulations regarding the exclusion allowance under 
        section 403(b)(2) of the Internal Revenue Code of 1986 to 
        render void the requirement that contributions to a defined 
        benefit pension plan be treated as previously excluded amounts 
        for purposes of the exclusion allowance. For taxable years 
        beginning after December 31, 2001, such regulations shall be 
        applied as if such requirement were void.
    (c) Deferred Compensation Plans of State and Local Governments and 
Tax-Exempt Organizations.--
            (1) In general.--Subparagraph (B) of section 457(b)(2) 
        (relating to salary limitation on eligible deferred 
        compensation plans) is amended by striking ``33\1/3\ percent'' 
        and inserting ``100 percent''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to years beginning after December 31, 2001.

SEC. 233. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.

    (a) In General.--Section 411(a) (relating to minimum vesting 
standards) is amended--
            (1) in paragraph (2), by striking ``A plan'' and inserting 
        ``Except as provided in paragraph (12), a plan''; and
            (2) by adding at the end the following:
            ``(12) Faster vesting for matching contributions.--In the 
        case of matching contributions (as defined in section 
        401(m)(4)(A)), paragraph (2) shall be applied--
                    ``(A) by substituting `3 years' for `5 years' in 
                subparagraph (A), and
                    ``(B) by substituting the following table for the 
                table contained in subparagraph (B):

                  
                                                     The nonforfeitable
                ``Years of service:
                                                       percentage is:  
                    2......................................         20 
                    3......................................         40 
                    4......................................         60 
                    5......................................         80 
                    6......................................     100.''.
    (b) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to contributions 
        for plan years beginning after December 31, 2001.
            (2) Collective bargaining agreements.--In the case of a 
        plan maintained pursuant to one or more collective bargaining 
        agreements between employee representatives and one or more 
        employers ratified by the date of the enactment of this Act, 
        the amendments made by this section shall not apply to 
        contributions on behalf of employees covered by any such 
        agreement for plan years beginning before the earlier of--
                    (A) the later of--
                            (i) the date on which the last of such 
                        collective bargaining agreements terminates 
                        (determined without regard to any extension 
                        thereof on or after such date of the 
                        enactment); or
                            (ii) January 1, 2001; or
                    (B) January 1, 2005.
            (3) Service required.--With respect to any plan, the 
        amendments made by this section shall not apply to any employee 
        before the date that such employee has 1 hour of service under 
        such plan in any plan year to which the amendments made by this 
        section apply.

SEC. 234. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBUTION RULES.

    (a) Simplification and Finalization of Minimum Distribution 
Requirements.--
            (1) In general.--The Secretary of the Treasury shall--
                    (A) simplify and finalize the regulations relating 
                to minimum distribution requirements under sections 
                401(a)(9), 408 (a)(6) and (b)(3), 403(b)(10), and 
                457(d)(2) of the Internal Revenue Code of 1986; and
                    (B) modify such regulations to--
                            (i) reflect current life expectancy; and
                            (ii) revise the required distribution 
                        methods so that, under reasonable assumptions, 
                        the amount of the required minimum distribution 
                        does not decrease over a participant's life 
                        expectancy.
            (2) Fresh start.--Notwithstanding subparagraph (D) of 
        section 401(a)(9) of such Code, during the first year that 
        regulations are in effect under this subsection, required 
        distributions for future years may be redetermined to reflect 
        changes under such regulations. Such redetermination shall 
        include the opportunity to choose a new designated beneficiary 
        and to elect a new method of calculating life expectancy.
            (3) Effective date for regulations.--Regulations referred 
        to in paragraph (1) shall be effective for years beginning 
        after December 31, 2001, and shall apply in such years without 
        regard to whether an individual had previously begun receiving 
        minimum distributions.
    (b) Repeal of Rule Where Distributions Had Begun Before Death 
Occurs.--
            (1) In general.--Subparagraph (B) of section 401(a)(9) is 
        amended by striking clause (i) and redesignating clauses (ii), 
        (iii), and (iv) as clauses (i), (ii), and (iii), respectively.
            (2) Conforming changes.--
                    (A) Clause (i) of section 401(a)(9)(B) (as so 
                redesignated) is amended--
                            (i) by striking ``for other cases'' in the 
                        heading; and
                            (ii) by striking ``the distribution of the 
                        employee's interest has begun in accordance 
                        with subparagraph (A)(ii)'' and inserting ``his 
                        entire interest has been distributed to him''.
                    (B) Clause (ii) of section 401(a)(9)(B) (as so 
                redesignated) is amended by striking ``clause (ii)'' 
                and inserting ``clause (i)''.
                    (C) Clause (iii) of section 401(a)(9)(B) (as so 
                redesignated) is amended--
                            (i) by striking ``clause (iii)(I)'' and 
                        inserting ``clause (ii)(I)'';
                            (ii) by striking ``clause (iii)(III)'' in 
                        subclause (I) and inserting ``clause 
                        (ii)(III)'';
                            (iii) by striking ``the date on which the 
                        employee would have attained age 70\1/2\,'' in 
                        subclause (I) and inserting ``April 1 of the 
                        calendar year following the calendar year in 
                        which the spouse attains 70\1/2\,''; and
                            (iv) by striking ``the distributions to 
                        such spouse begin,'' in subclause (II) and 
                        inserting ``his entire interest has been 
                        distributed to him,''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to years beginning after December 31, 2001.
    (c) Reduction in Excise Tax.--
            (1) In general.--Subsection (a) of section 4974 is amended 
        by striking ``50 percent'' and inserting ``10 percent''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to years beginning after December 31, 2001.

SEC. 235. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SECTION 457 
              PLAN BENEFITS UPON DIVORCE.

    (a) In General.--Section 414(p)(11) (relating to application of 
rules to governmental and church plans) is amended--
            (1) by inserting ``or an eligible deferred compensation 
        plan (within the meaning of section 457(b))'' after 
        ``subsection (e))''; and
            (2) in the heading, by striking ``governmental and church 
        plans'' and inserting ``certain other plans''.
    (b) Waiver of Certain Distribution Requirements.--Paragraph (10) of 
section 414(p) is amended by striking ``and section 409(d)'' and 
inserting ``section 409(d), and section 457(d)''.
    (c) Tax Treatment of Payments From a Section 457 Plan.--Subsection 
(p) of section 414 is amended by redesignating paragraph (12) as 
paragraph (13) and inserting after paragraph (11) the following new 
paragraph:
            ``(12) Tax treatment of payments from a section 457 plan.--
        If a distribution or payment from an eligible deferred 
        compensation plan described in section 457(b) is made pursuant 
        to a qualified domestic relations order, rules similar to the 
        rules of section 402(e)(1)(A) shall apply to such distribution 
        or payment.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transfers, distributions, and payments made after December 31, 
2001.

SEC. 236. MODIFICATION OF SAFE HARBOR RELIEF FOR HARDSHIP WITHDRAWALS 
              FROM CASH OR DEFERRED ARRANGEMENTS.

    (a) In General.--The Secretary of the Treasury shall revise the 
regulations relating to hardship distributions under section 
401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986 to provide 
that the period an employee is prohibited from making elective and 
employee contributions in order for a distribution to be deemed 
necessary to satisfy financial need shall be equal to 6 months.
    (b) Effective Date.--The revised regulations under subsection (a) 
shall apply to years beginning after December 31, 2001.

           CHAPTER 4--INCREASING PORTABILITY FOR PARTICIPANTS

SEC. 241. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.

    (a) Rollovers From and to Section 457 Plans.--
            (1) Rollovers from section 457 plans.--
                    (A) In general.--Section 457(e) (relating to other 
                definitions and special rules) is amended by adding at 
                the end the following:
            ``(16) Rollover amounts.--
                    ``(A) General rule.--In the case of an eligible 
                deferred compensation plan established and maintained 
                by an employer described in subsection (e)(1)(A), if--
                            ``(i) any portion of the balance to the 
                        credit of an employee in such plan is paid to 
                        such employee in an eligible rollover 
                        distribution (within the meaning of section 
                        402(c)(4) without regard to subparagraph (C) 
                        thereof),
                            ``(ii) the employee transfers any portion 
                        of the property such employee receives in such 
                        distribution to an eligible retirement plan 
                        described in section 402(c)(8)(B), and
                            ``(iii) in the case of a distribution of 
                        property other than money, the amount so 
                        transferred consists of the property 
                        distributed,
                then such distribution (to the extent so transferred) 
                shall not be includible in gross income for the taxable 
                year in which paid.
                    ``(B) Certain rules made applicable.--The rules of 
                paragraphs (2) through (7) (other than paragraph 
                (4)(C)) and (9) of section 402(c) and section 402(f) 
                shall apply for purposes of subparagraph (A).
                    ``(C) Reporting.--Rollovers under this paragraph 
                shall be reported to the Secretary in the same manner 
                as rollovers from qualified retirement plans (as 
                defined in section 4974(c)).''.
                    (B) Deferral limit determined without regard to 
                rollover amounts.--Section 457(b)(2) (defining eligible 
                deferred compensation plan) is amended by inserting 
                ``(other than rollover amounts)'' after ``taxable 
                year''.
                    (C) Direct rollover.--Paragraph (1) of section 
                457(d) is amended by striking ``and'' at the end of 
                subparagraph (A), by striking the period at the end of 
                subparagraph (B) and inserting ``, and'', and by 
                inserting after subparagraph (B) the following:
                    ``(C) in the case of a plan maintained by an 
                employer described in subsection (e)(1)(A), the plan 
                meets requirements similar to the requirements of 
                section 401(a)(31).
        Any amount transferred in a direct trustee-to-trustee transfer 
        in accordance with section 401(a)(31) shall not be includible 
        in gross income for the taxable year of transfer.''.
                    (D) Withholding.--
                            (i) Paragraph (12) of section 3401(a) is 
                        amended by adding at the end the following:
                    ``(E) under or to an eligible deferred compensation 
                plan which, at the time of such payment, is a plan 
                described in section 457(b) maintained by an employer 
                described in section 457(e)(1)(A); or''.
                            (ii) Paragraph (3) of section 3405(c) is 
                        amended to read as follows:
            ``(3) Eligible rollover distribution.--For purposes of this 
        subsection, the term `eligible rollover distribution' has the 
        meaning given such term by section 402(f)(2)(A).''.
                            (iii) Liability for withholding.--
                        Subparagraph (B) of section 3405(d)(2) is 
                        amended by striking ``or'' at the end of clause 
                        (ii), by striking the period at the end of 
                        clause (iii) and inserting ``, or'', and by 
                        adding at the end the following:
                            ``(iv) section 457(b).''.
            (2) Rollovers to section 457 plans.--
                    (A) In general.--Section 402(c)(8)(B) (defining 
                eligible retirement plan) is amended by striking 
                ``and'' at the end of clause (iii), by striking the 
                period at the end of clause (iv) and inserting ``, 
                and'', and by inserting after clause (iv) the following 
                new clause:
                            ``(v) an eligible deferred compensation 
                        plan described in section 457(b) of an employer 
                        described in section 457(e)(1)(A).''.
                    (B) Separate accounting.--Section 402(c) is amended 
                by adding at the end the following new paragraph:
            ``(11) Separate accounting.--Unless a plan described in 
        clause (v) of paragraph (8)(B) agrees to separately account for 
        amounts rolled into such plan from eligible retirement plans 
        not described in such clause, the plan described in such clause 
        may not accept transfers or rollovers from such retirement 
        plans.''.
                    (C) 10 percent additional tax.--Subsection (t) of 
                section 72 (relating to 10-percent additional tax on 
                early distributions from qualified retirement plans) is 
                amended by adding at the end the following new 
                paragraph:
            ``(9) Special rule for rollovers to section 457 plans.--For 
        purposes of this subsection, a distribution from an eligible 
        deferred compensation plan (as defined in section 457(b)) of an 
        employer described in section 457(e)(1)(A) shall be treated as 
        a distribution from a qualified retirement plan described in 
        4974(c)(1) to the extent that such distribution is attributable 
        to an amount transferred to an eligible deferred compensation 
        plan from a qualified retirement plan (as defined in section 
        4974(c)).''.
    (b) Allowance of Rollovers From and to 403(b) Plans.--
            (1) Rollovers from section 403(b) plans.--Section 
        403(b)(8)(A)(ii) (relating to rollover amounts) is amended by 
        striking ``such distribution'' and all that follows and 
        inserting ``such distribution to an eligible retirement plan 
        described in section 402(c)(8)(B), and''.
            (2) Rollovers to section 403(b) plans.--Section 
        402(c)(8)(B) (defining eligible retirement plan), as amended by 
        subsection (a), is amended by striking ``and'' at the end of 
        clause (iv), by striking the period at the end of clause (v) 
        and inserting ``, and'', and by inserting after clause (v) the 
        following new clause:
                            ``(vi) an annuity contract described in 
                        section 403(b).''.
    (c) Expanded Explanation to Recipients of Rollover Distributions.--
Paragraph (1) of section 402(f) (relating to written explanation to 
recipients of distributions eligible for rollover treatment) is amended 
by striking ``and'' at the end of subparagraph (C), by striking the 
period at the end of subparagraph (D) and inserting ``, and'', and by 
adding at the end the following new subparagraph:
                    ``(E) of the provisions under which distributions 
                from the eligible retirement plan receiving the 
                distribution may be subject to restrictions and tax 
                consequences which are different from those applicable 
                to distributions from the plan making such 
                distribution.''.
    (d) Spousal Rollovers.--Section 402(c)(9) (relating to rollover 
where spouse receives distribution after death of employee) is amended 
by striking ``; except that'' and all that follows up to the end 
period.
    (e) Conforming Amendments.--
            (1) Section 72(o)(4) is amended by striking ``and 
        408(d)(3)'' and inserting ``403(b)(8), 408(d)(3), and 
        457(e)(16)''.
            (2) Section 219(d)(2) is amended by striking ``or 
        408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
            (3) Section 401(a)(31)(B) is amended by striking ``and 
        403(a)(4)'' and inserting ``, 403(a)(4), 403(b)(8), and 
        457(e)(16)''.
            (4) Subparagraph (A) of section 402(f)(2) is amended by 
        striking ``or paragraph (4) of section 403(a)'' and inserting 
        ``, paragraph (4) of section 403(a), subparagraph (A) of 
        section 403(b)(8), or subparagraph (A) of section 457(e)(16)''.
            (5) Paragraph (1) of section 402(f) is amended by striking 
        ``from an eligible retirement plan''.
            (6) Subparagraphs (A) and (B) of section 402(f)(1) are 
        amended by striking ``another eligible retirement plan'' and 
        inserting ``an eligible retirement plan''.
            (7) Subparagraph (B) of section 403(b)(8) is amended to 
        read as follows:
                    ``(B) Certain rules made applicable.--The rules of 
                paragraphs (2) through (7) and (9) of section 402(c) 
                and section 402(f) shall apply for purposes of 
                subparagraph (A), except that section 402(f) shall be 
                applied to the payor in lieu of the plan 
                administrator.''.
            (8) Section 408(a)(1) is amended by striking ``or 
        403(b)(8),'' and inserting ``403(b)(8), or 457(e)(16)''.
            (9) Subparagraphs (A) and (B) of section 415(b)(2) are each 
        amended by striking ``and 408(d)(3)'' and inserting 
        ``403(b)(8), 408(d)(3), and 457(e)(16)''.
            (10) Section 415(c)(2) is amended by striking ``and 
        408(d)(3)'' and inserting ``408(d)(3), and 457(e)(16)''.
            (11) Section 4973(b)(1)(A) is amended by striking ``or 
        408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
    (f) Effective Date; Special Rule.--
            (1) Effective date.--The amendments made by this section 
        shall apply to distributions after December 31, 2001.
            (2) Special rule.--Notwithstanding any other provision of 
        law, subsections (h)(3) and (h)(5) of section 1122 of the Tax 
        Reform Act of 1986 shall not apply to any distribution from an 
        eligible retirement plan (as defined in clause (iii) or (iv) of 
        section 402(c)(8)(B) of the Internal Revenue Code of 1986) on 
        behalf of an individual if there was a rollover to such plan on 
        behalf of such individual which is permitted solely by reason 
        of any amendment made by this section.

SEC. 242. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.

    (a) In General.--Subparagraph (A) of section 408(d)(3) (relating to 
rollover amounts) is amended by adding ``or'' at the end of clause (i), 
by striking clauses (ii) and (iii), and by adding at the end the 
following:
                            ``(ii) the entire amount received 
                        (including money and any other property) is 
                        paid into an eligible retirement plan for the 
                        benefit of such individual not later than the 
                        60th day after the date on which the payment or 
                        distribution is received, except that the 
                        maximum amount which may be paid into such plan 
                        may not exceed the portion of the amount 
                        received which is includible in gross income 
                        (determined without regard to this paragraph).
                For purposes of clause (ii), the term `eligible 
                retirement plan' means an eligible retirement plan 
                described in clause (iii), (iv), (v), or (vi) of 
                section 402(c)(8)(B).''.
    (b) Conforming Amendments.--
            (1) Paragraph (1) of section 403(b) is amended by striking 
        ``section 408(d)(3)(A)(iii)'' and inserting ``section 
        408(d)(3)(A)(ii)''.
            (2) Clause (i) of section 408(d)(3)(D) is amended by 
        striking ``(i), (ii), or (iii)'' and inserting ``(i) or (ii)''.
            (3) Subparagraph (G) of section 408(d)(3) is amended to 
        read as follows:
                    ``(G) Simple retirement accounts.--In the case of 
                any payment or distribution out of a simple retirement 
                account (as defined in subsection (p)) to which section 
                72(t)(6) applies, this paragraph shall not apply unless 
                such payment or distribution is paid into another 
                simple retirement account.''.
    (c) Effective Date; Special Rule.--
            (1) Effective date.--The amendments made by this section 
        shall apply to distributions after December 31, 2001.
            (2) Special rule.--Notwithstanding any other provision of 
        law, subsections (h)(3) and (h)(5) of section 1122 of the Tax 
        Reform Act of 1986 shall not apply to any distribution from an 
        eligible retirement plan (as defined in clause (iii) or (iv) of 
        section 402(c)(8)(B) of the Internal Revenue Code of 1986) on 
        behalf of an individual if there was a rollover to such plan on 
        behalf of such individual which is permitted solely by reason 
        of the amendments made by this section.

SEC. 243. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

    (a) Rollovers From Exempt Trusts.--Paragraph (2) of section 402(c) 
(relating to maximum amount which may be rolled over) is amended by 
adding at the end the following: ``The preceding sentence shall not 
apply to such distribution to the extent--
                    ``(A) such portion is transferred in a direct 
                trustee-to-trustee transfer to a qualified trust which 
                is part of a plan which is a defined contribution plan 
                and which agrees to separately account for amounts so 
                transferred, including separately accounting for the 
                portion of such distribution which is includible in 
                gross income and the portion of such distribution which 
                is not so includible, or
                    ``(B) such portion is transferred to an eligible 
                retirement plan described in clause (i) or (ii) of 
                paragraph (8)(B).''.
    (b) Optional Direct Transfer of Eligible Rollover Distributions.--
Subparagraph (B) of section 401(a)(31) (relating to limitation) is 
amended by adding at the end the following: ``The preceding sentence 
shall not apply to such distribution if the plan to which such 
distribution is transferred--
                            ``(i) agrees to separately account for 
                        amounts so transferred, including separately 
                        accounting for the portion of such distribution 
                        which is includible in gross income and the 
                        portion of such distribution which is not so 
                        includible, or
                            ``(ii) is an eligible retirement plan 
                        described in clause (i) or (ii) of section 
                        402(c)(8)(B).''.
    (c) Rules for Applying Section 72 to IRAs.--Paragraph (3) of 
section 408(d) (relating to special rules for applying section 72) is 
amended by inserting at the end the following:
                    ``(H) Application of section 72.--
                            ``(i) In general.--If--
                                    ``(I) a distribution is made from 
                                an individual retirement plan, and
                                    ``(II) a rollover contribution is 
                                made to an eligible retirement plan 
                                described in section 402(c)(8)(B)(iii), 
                                (iv), (v), or (vi) with respect to all 
                                or part of such distribution,
                        then, notwithstanding paragraph (2), the rules 
                        of clause (ii) shall apply for purposes of 
                        applying section 72.
                            ``(ii) Applicable rules.--In the case of a 
                        distribution described in clause (i)--
                                    ``(I) section 72 shall be applied 
                                separately to such distribution,
                                    ``(II) notwithstanding the pro rata 
                                allocation of income on, and investment 
                                in, the contract to distributions under 
                                section 72, the portion of such 
                                distribution rolled over to an eligible 
                                retirement plan described in clause (i) 
                                shall be treated as from income on the 
                                contract (to the extent of the 
                                aggregate income on the contract from 
                                all individual retirement plans of the 
                                distributee), and
                                    ``(III) appropriate adjustments 
                                shall be made in applying section 72 to 
                                other distributions in such taxable 
                                year and subsequent taxable years.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to distributions made after December 31, 2001.

SEC. 244. HARDSHIP EXCEPTION TO 60-DAY RULE.

    (a) Exempt Trusts.--Paragraph (3) of section 402(c) (relating to 
transfer must be made within 60 days of receipt) is amended to read as 
follows:
            ``(3) Transfer must be made within 60 days of receipt.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), paragraph (1) shall not apply to any 
                transfer of a distribution made after the 60th day 
                following the day on which the distributee received the 
                property distributed.
                    ``(B) Hardship exception.--The Secretary may waive 
                the 60-day requirement under subparagraph (A) where the 
                failure to waive such requirement would be against 
                equity or good conscience, including casualty, 
                disaster, or other events beyond the reasonable control 
                of the individual subject to such requirement.''.
    (b) IRAs.--Paragraph (3) of section 408(d) (relating to rollover 
contributions), as amended by section 403, is amended by adding after 
subparagraph (H) the following new subparagraph:
                    ``(I) Waiver of 60-day requirement.--The Secretary 
                may waive the 60-day requirement under subparagraphs 
                (A) and (D) where the failure to waive such requirement 
                would be against equity or good conscience, including 
                casualty, disaster, or other events beyond the 
                reasonable control of the individual subject to such 
                requirement.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2001.

SEC. 245. TREATMENT OF FORMS OF DISTRIBUTION.

    (a) Plan Transfers.--
            (1) In general.--Paragraph (6) of section 411(d) (relating 
        to accrued benefit not to be decreased by amendment) is amended 
        by adding at the end the following:
                    ``(D) Plan transfers.--
                            ``(i) In general.--A defined contribution 
                        plan (in this subparagraph referred to as the 
                        `transferee plan') shall not be treated as 
                        failing to meet the requirements of this 
                        subsection merely because the transferee plan 
                        does not provide some or all of the forms of 
                        distribution previously available under another 
                        defined contribution plan (in this subparagraph 
                        referred to as the `transferor plan') to the 
                        extent that--
                                    ``(I) the forms of distribution 
                                previously available under the 
                                transferor plan applied to the account 
                                of a participant or beneficiary under 
                                the transferor plan that was 
                                transferred from the transferor plan to 
                                the transferee plan pursuant to a 
                                direct transfer rather than pursuant to 
                                a distribution from the transferor 
                                plan,
                                    ``(II) the terms of both the 
                                transferor plan and the transferee plan 
                                authorize the transfer described in 
                                subclause (I),
                                    ``(III) the transfer described in 
                                subclause (I) was made pursuant to a 
                                voluntary election by the participant 
                                or beneficiary whose account was 
                                transferred to the transferee plan,
                                    ``(IV) the election described in 
                                subclause (III) was made after the 
                                participant or beneficiary received a 
                                notice describing the consequences of 
                                making the election,
                                    ``(V) if the transferor plan 
                                provides for an annuity as the normal 
                                form of distribution under the plan in 
                                accordance with section 417, the 
                                transfer is made with the consent of 
                                the participant's spouse (if any), and 
                                such consent meets requirements similar 
                                to the requirements imposed by section 
                                417(a)(2), and
                                    ``(VI) the transferee plan allows 
                                the participant or beneficiary 
                                described in subclause (III) to receive 
                                any distribution to which the 
                                participant or beneficiary is entitled 
                                under the transferee plan in the form 
of a single sum distribution.
                            ``(ii) Exception.--Clause (i) shall apply 
                        to plan mergers and other transactions having 
                        the effect of a direct transfer, including 
                        consolidations of benefits attributable to 
                        different employers within a multiple employer 
                        plan.
                    ``(E) Elimination of form of distribution.--Except 
                to the extent provided in regulations, a defined 
                contribution plan shall not be treated as failing to 
                meet the requirements of this section merely because of 
                the elimination of a form of distribution previously 
                available thereunder. This subparagraph shall not apply 
                to the elimination of a form of distribution with 
                respect to any participant unless--
                            ``(i) a single sum payment is available to 
                        such participant at the same time or times as 
                        the form of distribution being eliminated, and
                            ``(ii) such single sum payment is based on 
                        the same or greater portion of the 
                        participant's account as the form of 
                        distribution being eliminated.''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to years beginning after December 31, 2001.
    (b) Regulations.--
            (1) In general.--The last sentence of paragraph (6)(B) of 
        section 411(d) (relating to accrued benefit not to be decreased 
        by amendment) is amended to read as follows: ``The Secretary 
        shall by regulations provide that this subparagraph shall not 
        apply to any plan amendment that does not adversely affect the 
        rights of participants in a material manner.''.
            (2) Secretary directed.--Not later than December 31, 2002, 
        the Secretary of the Treasury is directed to issue final 
        regulations under section 411(d)(6) of the Internal Revenue 
        Code of 1986, including the regulations required by the 
        amendments made by this subsection. Such regulations shall 
        apply to plan years beginning after December 31, 2002, or such 
        earlier date as is specified by the Secretary of the Treasury.

SEC. 246. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.

    (a) Modification of Same Desk Exception.--
            (1) Section 401(k).--
                    (A) Section 401(k)(2)(B)(i)(I) (relating to 
                qualified cash or deferred arrangements) is amended by 
                striking ``separation from service'' and inserting 
                ``severance from employment''.
                    (B) Subparagraph (A) of section 401(k)(10) 
                (relating to distributions upon termination of plan or 
                disposition of assets or subsidiary) is amended to read 
                as follows:
                    ``(A) In general.--An event described in this 
                subparagraph is the termination of the plan without 
                establishment or maintenance of another defined 
                contribution plan (other than an employee stock 
                ownership plan as defined in section 4975(e)(7)).''.
                    (C) Section 401(k)(10) is amended--
                            (i) in subparagraph (B)--
                                    (I) by striking ``An event'' in 
                                clause (i) and inserting ``A 
                                termination''; and
                                    (II) by striking ``the event'' in 
                                clause (i) and inserting ``the 
                                termination'';
                            (ii) by striking subparagraph (C); and
                            (iii) by striking ``or disposition of 
                        assets or subsidiary'' in the heading.
            (2) Section 403(b).--
                    (A) Paragraphs (7)(A)(ii) and (11)(A) of section 
                403(b) are each amended by striking ``separates from 
                service'' and inserting ``has a severance from 
                employment''.
                    (B) The heading for paragraph (11) of section 
                403(b) is amended by striking ``separation from 
                service'' and inserting ``severance from employment''.
            (3) Section 457.--Clause (ii) of section 457(d)(1)(A) is 
        amended by striking ``is separated from service'' and inserting 
        ``has a severance from employment''.
    (b) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2001.

SEC. 247. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED BENEFIT 
              PLANS.

    (a) 403(b) Plans.--Subsection (b) of section 403 is amended by 
adding at the end the following new paragraph:
            ``(13) Trustee-to-trustee transfers to purchase permissive 
        service credit.--No amount shall be includible in gross income 
        by reason of a direct trustee-to-trustee transfer to a defined 
        benefit governmental plan (as defined in section 414(d)) if 
        such transfer is--
                    ``(A) for the purchase of permissive service credit 
                (as defined in section 415(n)(3)(A)) under such plan, 
                or
                    ``(B) a repayment to which section 415 does not 
                apply by reason of subsection (k)(3) thereof.''.
    (b) 457 Plans.--Subsection (e) of section 457 is amended by adding 
after paragraph (16) the following new paragraph:
            ``(17) Trustee-to-trustee transfers to purchase permissive 
        service credit.--No amount shall be includible in gross income 
        by reason of a direct trustee-to-trustee transfer to a defined 
        benefit governmental plan (as defined in section 414(d)) if 
        such transfer is--
                    ``(A) for the purchase of permissive service credit 
                (as defined in section 415(n)(3)(A)) under such plan, 
                or
                    ``(B) a repayment to which section 415 does not 
                apply by reason of subsection (k)(3) thereof.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to trustee-to-trustee transfers after December 31, 2001.

SEC. 248. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF CASH-OUT 
              AMOUNTS.

    (a) Qualified Plans.--Section 411(a)(11) (relating to restrictions 
on certain mandatory distributions) is amended by adding at the end the 
following:
                    ``(D) Special rule for rollover contributions.--A 
                plan shall not fail to meet the requirements of this 
                paragraph if, under the terms of the plan, the present 
                value of the nonforfeitable accrued benefit is 
                determined without regard to that portion of such 
                benefit which is attributable to rollover contributions 
                (and earnings allocable thereto). For purposes of this 
                subparagraph, the term `rollover contributions' means 
                any rollover contribution under sections 402(c), 
                403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 
                457(e)(16).''.
    (b) Eligible Deferred Compensation Plans.--Clause (i) of section 
457(e)(9)(A) is amended by striking ``such amount'' and inserting ``the 
portion of such amount which is not attributable to rollover 
contributions (as defined in section 411(a)(11)(D))''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2001.

SEC. 249. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR SECTION 
              457 PLANS.

    (a) Minimum Distribution Requirements.--Paragraph (2) of section 
457(d) (relating to distribution requirements) is amended to read as 
follows:
            ``(2) Minimum distribution requirements.--A plan meets the 
        minimum distribution requirements of this paragraph if such 
        plan meets the requirements of section 401(a)(9).''.
    (b) Inclusion in Gross Income.--
            (1) Year of inclusion.--Subsection (a) of section 457 
        (relating to year of inclusion in gross income) is amended to 
        read as follows:
    ``(a) Year of inclusion in gross income.--
            ``(1) In general.--Any amount of compensation deferred 
        under an eligible deferred compensation plan, and any income 
        attributable to the amounts so deferred, shall be includible in 
        gross income only for the taxable year in which such 
        compensation or other income--
                    ``(A) is paid to the participant or other 
                beneficiary, in the case of a plan of an eligible 
                employer described in subsection (e)(1)(A), and
                    ``(B) is paid or otherwise made available to the 
                participant or other beneficiary, in the case of a plan 
                of an eligible employer described in subsection 
                (e)(1)(B).
            ``(2) Special rule for rollover amounts.--To the extent 
        provided in section 72(t)(9), section 72(t) shall apply to any 
        amount includible in gross income under this subsection.''.
            (2) Conforming amendments.--
                    (A) So much of paragraph (9) of section 457(e) as 
                precedes subparagraph (A) is amended to read as 
                follows:
            ``(9) Benefits of tax exempt organization plans not treated 
        as made available by reason of certain elections, etc.--In the 
        case of an eligible deferred compensation plan of an employer 
        described in subsection (e)(1)(B)--''.
                    (B) Section 457(d) is amended by adding at the end 
                the following new paragraph:
            ``(3) Special rule for government plan.--An eligible 
        deferred compensation plan of an employer described in 
        subsection (e)(1)(A) shall not be treated as failing to meet 
        the requirements of this subsection solely by reason of making 
        a distribution described in subsection (e)(9)(A).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2001.

       CHAPTER 5--STRENGTHENING PENSION SECURITY AND ENFORCEMENT

SEC. 251. REPEAL OF 150 PERCENT OF CURRENT LIABILITY FUNDING LIMIT.

    (a) In General.--Section 412(c)(7) (relating to full-funding 
limitation) is amended--
            (1) by striking ``the applicable percentage'' in 
        subparagraph (A)(i)(I) and inserting ``in the case of plan 
        years beginning before January 1, 2005, the applicable 
        percentage''; and
            (2) by amending subparagraph (F) to read as follows:
                    ``(F) Applicable percentage.--For purposes of 
                subparagraph (A)(i)(I), the applicable percentage shall 
                be determined in accordance with the following table:

                ``In the case of any plan year
                                                         The applicable
                  beginning in--
                                                        percentage is--
                    2002...................................        160 
                    2003...................................        165 
                    2004...................................     170.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2001.

SEC. 252. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND APPLIED TO 
              ALL DEFINED BENEFIT PLANS.

    (a) In General.--Subparagraph (D) of section 404(a)(1) (relating to 
special rule in case of certain plans) is amended to read as follows:
                    ``(D) Special rule in case of certain plans.--
                            ``(i) In general.--In the case of any 
                        defined benefit plan, except as provided in 
                        regulations, the maximum amount deductible 
                        under the limitations of this paragraph shall 
                        not be less than the unfunded termination 
                        liability (determined as if the proposed 
                        termination date referred to in section 
                        4041(b)(2)(A)(i)(II) of the Employee Retirement 
                        Income Security Act of 1974 were the last day 
                        of the plan year).
                            ``(ii) Plans with less than 100 
                        participants.--For purposes of this 
                        subparagraph, in the case of a plan which has 
                        less than 100 participants for the plan year, 
termination liability shall not include the liability attributable to 
benefit increases for highly compensated employees (as defined in 
section 414(q)) resulting from a plan amendment which is made or 
becomes effective, whichever is later, within the last 2 years before 
the termination date.
                            ``(iii) Rule for determining number of 
                        participants.--For purposes of determining 
                        whether a plan has more than 100 participants, 
                        all defined benefit plans maintained by the 
                        same employer (or any member of such employer's 
                        controlled group (within the meaning of section 
                        412(l)(8)(C))) shall be treated as one plan, 
                        but only employees of such member or employer 
                        shall be taken into account.
                            ``(iv) Plans established and maintained by 
                        professional service employers.--Clause (i) 
                        shall not apply to a plan described in section 
                        4021(b)(13) of the Employee Retirement Income 
                        Security Act of 1974.''.
    (b) Conforming Amendment.--Paragraph (6) of section 4972(c) is 
amended to read as follows:
            ``(6) Exceptions.--In determining the amount of 
        nondeductible contributions for any taxable year, there shall 
        not be taken into account so much of the contributions to one 
        or more defined contribution plans which are not deductible 
        when contributed solely because of section 404(a)(7) as does 
        not exceed the greater of--
                    ``(A) the amount of contributions not in excess of 
                6 percent of compensation (within the meaning of 
                section 404(a)) paid or accrued (during the taxable 
                year for which the contributions were made) to 
                beneficiaries under the plans, or
                    ``(B) the sum of--
                            ``(i) the amount of contributions described 
                        in section 401(m)(4)(A), plus
                            ``(ii) the amount of contributions 
                        described in section 402(g)(3)(A).
        For purposes of this paragraph, the deductible limits under 
        section 404(a)(7) shall first be applied to amounts contributed 
        to a defined benefit plan and then to amounts described in 
        subparagraph (B).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2001.

SEC. 253. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.

    (a) In General.--Subsection (c) of section 4972 (relating to 
nondeductible contributions) is amended by adding at the end the 
following new paragraph:
            ``(7) Defined benefit plan exception.--In determining the 
        amount of nondeductible contributions for any taxable year, an 
        employer may elect for such year not to take into account any 
        contributions to a defined benefit plan except to the extent 
        that such contributions exceed the full-funding limitation (as 
        defined in section 412(c)(7), determined without regard to 
        subparagraph (A)(i)(I) thereof). For purposes of this 
        paragraph, the deductible limits under section 404(a)(7) shall 
        first be applied to amounts contributed to defined contribution 
        plans and then to amounts described in this paragraph. If an 
        employer makes an election under this paragraph for a taxable 
        year, paragraph (6) shall not apply to such employer for such 
        taxable year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 254. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED BENEFIT 
              PLANS SIGNIFICANTLY REDUCING FUTURE BENEFIT ACCRUALS.

    (a) In General.--Chapter 43 (relating to qualified pension, etc., 
plans) is amended by adding at the end the following new section:

``SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO 
              SATISFY NOTICE REQUIREMENTS.

    ``(a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of any applicable pension plan to meet the requirements of 
subsection (e) with respect to any applicable individual.
    ``(b) Amount of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure with respect to any applicable 
        individual shall be $100 for each day in the noncompliance 
        period with respect to such failure.
            ``(2) Noncompliance period.--For purposes of this section, 
        the term `noncompliance period' means, with respect to any 
        failure, the period beginning on the date the failure first 
        occurs and ending on the date the failure is corrected.
    ``(c) Limitations on Amount of Tax.--
            ``(1) Overall limitation for unintentional failures.--In 
        the case of failures that are due to reasonable cause and not 
        to willful neglect, the tax imposed by subsection (a) for 
        failures during the taxable year of the employer (or, in the 
        case of a multiemployer plan, the taxable year of the trust 
        forming part of the plan) shall not exceed $500,000. For 
        purposes of the preceding sentence, all multiemployer plans of 
        which the same trust forms a part shall be treated as one plan. 
        For purposes of this paragraph, if not all persons who are 
        treated as a single employer for purposes of this section have 
        the same taxable year, the taxable years taken into account 
        shall be determined under principles similar to the principles 
        of section 1561.
            ``(2) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive relative to the failure involved.
    ``(d) Liability for Tax.--The following shall be liable for the tax 
imposed by subsection (a):
            ``(1) In the case of a plan other than a multiemployer 
        plan, the employer.
            ``(2) In the case of a multiemployer plan, the plan.
    ``(e) Notice Requirements for Plans Significantly Reducing Benefit 
Accruals.--
            ``(1) In general.--If an applicable pension plan is amended 
        to provide for a significant reduction in the rate of future 
        benefit accrual, the plan administrator shall provide written 
        notice to each applicable individual (and to each employee 
        organization representing applicable individuals).
            ``(2) Notice.--The notice required by paragraph (1) shall 
        be written in a manner calculated to be understood by the 
        average plan participant and shall provide sufficient 
        information (as determined in accordance with regulations 
        prescribed by the Secretary) to allow applicable individuals to 
        understand the effect of the plan amendment.
            ``(3) Timing of notice.--Except as provided in regulations, 
        the notice required by paragraph (1) shall be provided within a 
        reasonable time before the effective date of the plan 
        amendment.
            ``(4) Designees.--Any notice under paragraph (1) may be 
        provided to a person designated, in writing, by the person to 
        which it would otherwise be provided.
            ``(5) Notice before adoption of amendment.--A plan shall 
        not be treated as failing to meet the requirements of paragraph 
        (1) merely because notice is provided before the adoption of 
        the plan amendment if no material modification of the amendment 
        occurs before the amendment is adopted.
    ``(f) Applicable Individual; Applicable Pension Plan.--For purposes 
of this section--
            ``(1) Applicable individual.--The term `applicable 
        individual' means, with respect to any plan amendment--
                    ``(A) any participant in the plan, and
                    ``(B) any beneficiary who is an alternate payee 
                (within the meaning of section 414(p)(8)) under an 
                applicable qualified domestic relations order (within 
                the meaning of section 414(p)(1)(A)),
        who may reasonably be expected to be affected by such plan 
        amendment.
            ``(2) Applicable pension plan.--The term `applicable 
        pension plan' means--
                    ``(A) any defined benefit plan, or
                    ``(B) an individual account plan which is subject 
                to the funding standards of section 412,
        which had 100 or more participants who had accrued a benefit, 
        or with respect to whom contributions were made, under the plan 
        (whether or not vested) as of the last day of the plan year 
        preceding the plan year in which the plan amendment becomes 
        effective. Such term shall not include a governmental plan 
        (within the meaning of section 414(d)) or a church plan (within 
        the meaning of section 414(e)) with respect to which the 
        election provided by section 410(d) has not been made.''.
    (b) Clerical Amendment.--The table of sections for chapter 43 is 
amended by adding at the end the following new item:

                               ``Sec. 4980F. Failure of applicable 
                                        plans reducing benefit accruals 
                                        to satisfy notice 
                                        requirements.''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to plan amendments taking effect on or after the date of 
        the enactment of this Act.
            (2) Transition.--Until such time as the Secretary of the 
        Treasury issues regulations under sections 4980F(e)(2) and (3) 
        of the Internal Revenue Code of 1986 (as added by the 
        amendments made by this section), a plan shall be treated as 
        meeting the requirements of such sections if it makes a good 
        faith effort to comply with such requirements.
            (3) Special rule.--The period for providing any notice 
        required by the amendments made by this section shall not end 
        before the date which is 3 months after the date of the 
        enactment of this Act.
    (d) Study.--The Secretary of the Treasury shall prepare a report on 
the effects of conversions of traditional defined benefit plans to cash 
balance or hybrid formula plans. Such study shall examine the effect of 
such conversions on longer service participants, including the 
incidence and effects of ``wear away'' provisions under which 
participants earn no additional benefits for a period of time after the 
conversion. As soon as practicable, but not later than 60 days after 
the date of the enactment of this Act, the Secretary shall submit such 
report, together with recommendations thereon, to the Committee on Ways 
and Means of the House of Representatives and the Committee on Finance 
of the Senate.

SEC. 255. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

    (a) Compensation Limit.--Paragraph (11) of section 415(b) (relating 
to limitation for defined benefit plans) is amended to read as follows:
            ``(11) Special limitation rule for governmental and 
        multiemployer plans.--In the case of a governmental plan (as 
        defined in section 414(d)) or a multiemployer plan (as defined 
        in section 414(f)), subparagraph (B) of paragraph (1) shall not 
        apply.''.
    (b) Combining and Aggregation of Plans.--
            (1) Combining of plans.--Subsection (f) of section 415 
        (relating to combining of plans) is amended by adding at the 
        end the following:
            ``(3) Exception for multiemployer plans.--Notwithstanding 
        paragraph (1) and subsection (g), a multiemployer plan (as 
        defined in section 414(f)) shall not be combined or aggregated 
        with any other plan maintained by an employer for purposes of 
        applying the limitations established in this section, except 
        that such plan shall be combined or aggregated with another 
        plan which is not such a multiemployer plan solely for purposes 
        of determining whether such other plan meets the requirements 
        of subsections (b)(1)(A) and (c).''.
            (2) Conforming amendment for aggregation of plans.--
        Subsection (g) of section 415 (relating to aggregation of 
        plans) is amended by striking ``The Secretary'' and inserting 
        ``Except as provided in subsection (f)(3), the Secretary''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 256. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION ESOP.

    (a) In General.--Section 409 (relating to qualifications for tax 
credit employee stock ownership plans) is amended by redesignating 
subsection (p) as subsection (q) and by inserting after subsection (o) 
the following new subsection:
    ``(p) Prohibited Allocations of Securities in an S Corporation.--
            ``(1) In general.--An employee stock ownership plan holding 
        employer securities consisting of stock in an S corporation 
        shall provide that no portion of the assets of the plan 
        attributable to (or allocable in lieu of) such employer 
        securities may, during a nonallocation year, accrue (or be 
        allocated directly or indirectly under any plan of the employer 
        meeting the requirements of section 401(a)) for the benefit of 
        any disqualified person.
            ``(2) Failure to meet requirements.--
                    ``(A) In general.--If a plan fails to meet the 
                requirements of paragraph (1), the plan shall be 
                treated as having distributed to any disqualified 
                person the amount allocated to the account of such 
                person in violation of paragraph (1) at the time of 
                such allocation.
                    ``(B) Cross reference.--

                                ``For excise tax relating to violations 
of paragraph (1) and ownership of synthetic equity, see section 4979A.
            ``(3) Nonallocation year.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `nonallocation year' 
                means any plan year of an employee stock ownership plan 
                if, at any time during such plan year--
                            ``(i) such plan holds employer securities 
                        consisting of stock in an S corporation, and
                            ``(ii) disqualified persons own at least 50 
                        percent of the number of shares of stock in the 
                        S corporation.
                    ``(B) Attribution rules.--For purposes of 
                subparagraph (A)--
                            ``(i) In general.--The rules of section 
                        318(a) shall apply for purposes of determining 
                        ownership, except that--
                                    ``(I) in applying paragraph (1) 
                                thereof, the members of an individual's 
                                family shall include members of the 
                                family described in paragraph (4)(D), 
                                and
                                    ``(II) paragraph (4) thereof shall 
                                not apply.
                            ``(ii) Deemed-owned shares.--
                        Notwithstanding the employee trust exception in 
                        section 318(a)(2)(B)(i), individual shall be 
                        treated as owning deemed-owned shares of the 
                        individual.
                Solely for purposes of applying paragraph (5), this 
                subparagraph shall be applied after the attribution 
                rules of paragraph (5) have been applied.
            ``(4) Disqualified person.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `disqualified person' 
                means any person if--
                            ``(i) the aggregate number of deemed-owned 
                        shares of such person and the members of such 
                        person's family is at least 20 percent of the 
                        number of deemed-owned shares of stock in the S 
                        corporation, or
                            ``(ii) in the case of a person not 
                        described in clause (i), the number of deemed-
                        owned shares of such person is at least 10 
                        percent of the number of deemed-owned shares of 
                        stock in such corporation.
                    ``(B) Treatment of family members.--In the case of 
                a disqualified person described in subparagraph (A)(i), 
                any member of such person's family with deemed-owned 
                shares shall be treated as a disqualified person if not 
                otherwise treated as a disqualified person under 
                subparagraph (A).
                    ``(C) Deemed-owned shares.--
                            ``(i) In general.--The term `deemed-owned 
                        shares' means, with respect to any person--
                                    ``(I) the stock in the S 
                                corporation constituting employer 
                                securities of an employee stock 
                                ownership plan which is allocated to 
                                such person under the plan, and
                                    ``(II) such person's share of the 
                                stock in such corporation which is held 
                                by such plan but which is not allocated 
                                under the plan to participants.
                            ``(ii) Person's share of unallocated 
                        stock.--For purposes of clause (i)(II), a 
                        person's share of unallocated S corporation 
                        stock held by such plan is the amount of the 
                        unallocated stock which would be allocated to 
                        such person if the unallocated stock were 
                        allocated to all participants in the same 
                        proportions as the most recent stock allocation 
                        under the plan.
                    ``(D) Member of family.--For purposes of this 
                paragraph, the term `member of the family' means, with 
                respect to any individual--
                            ``(i) the spouse of the individual,
                            ``(ii) an ancestor or lineal descendant of 
                        the individual or the individual's spouse,
                            ``(iii) a brother or sister of the 
                        individual or the individual's spouse and any 
                        lineal descendant of the brother or sister, and
                            ``(iv) the spouse of any individual 
                        described in clause (ii) or (iii).
                A spouse of an individual who is legally separated from 
                such individual under a decree of divorce or separate 
                maintenance shall not be treated as such individual's 
                spouse for purposes of this subparagraph.
            ``(5) Treatment of synthetic equity.--For purposes of 
        paragraphs (3) and (4), in the case of a person who owns 
        synthetic equity in the S corporation, except to the extent 
        provided in regulations, the shares of stock in such 
        corporation on which such synthetic equity is based shall be 
        treated as outstanding stock in such corporation and deemed-
        owned shares of such person if such treatment of synthetic 
        equity of 1 or more such persons results in--
                    ``(A) the treatment of any person as a disqualified 
                person, or
                    ``(B) the treatment of any year as a nonallocation 
                year.
        For purposes of this paragraph, synthetic equity shall be 
        treated as owned by a person in the same manner as stock is 
        treated as owned by a person under the rules of paragraphs (2) 
        and (3) of section 318(a). If, without regard to this 
        paragraph, a person is treated as a disqualified person or a 
        year is treated as a nonallocation year, this paragraph shall 
        not be construed to result in the person or year not being so 
        treated.
            ``(6) Definitions.--For purposes of this subsection--
                    ``(A) Employee stock ownership plan.--The term 
                `employee stock ownership plan' has the meaning given 
                such term by section 4975(e)(7).
                    ``(B) Employer securities.--The term `employer 
                security' has the meaning given such term by section 
                409(l).
                    ``(C) Synthetic equity.--The term `synthetic 
                equity' means any stock option, warrant, restricted 
                stock, deferred issuance stock right, or similar 
                interest or right that gives the holder the right to 
                acquire or receive stock of the S corporation in the 
                future. Except to the extent provided in regulations, 
                synthetic equity also includes a stock appreciation 
                right, phantom stock unit, or similar right to a future 
                cash payment based on the value of such stock or 
                appreciation in such value.
            ``(7) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the purposes of 
        this subsection.''.
    (b) Coordination With Section 4975(e)(7).--The last sentence of 
section 4975(e)(7) (defining employee stock ownership plan) is amended 
by inserting ``, section 409(p),'' after ``409(n)''.
    (c) Excise Tax.--
            (1) Application of tax.--Subsection (a) of section 4979A 
        (relating to tax on certain prohibited allocations of employer 
        securities) is amended--
                    (A) by striking ``or'' at the end of paragraph (1), 
                and
                    (B) by striking all that follows paragraph (2) and 
                inserting the following:
            ``(3) there is any allocation of employer securities which 
        violates the provisions of section 409(p), or a nonallocation 
        year described in subsection (e)(2)(C) with respect to an 
        employee stock ownership plan, or
            ``(4) any synthetic equity is owned by a disqualified 
        person in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership equal to 
50 percent of the amount involved.''.
            (2) Liability.--Section 4979A(c) (defining liability for 
        tax) is amended to read as follows:
    ``(c) Liability for Tax.--The tax imposed by this section shall be 
paid--
            ``(1) in the case of an allocation referred to in paragraph 
        (1) or (2) of subsection (a), by--
                    ``(A) the employer sponsoring such plan, or
                    ``(B) the eligible worker-owned cooperative,
        which made the written statement described in section 
        664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be), 
        and
            ``(2) in the case of an allocation or ownership referred to 
        in paragraph (3) or (4) of subsection (a), by the S corporation 
        the stock in which was so allocated or owned.''.
            (3) Definitions.--Section 4979A(e) (relating to 
        definitions) is amended to read as follows:
    ``(e) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Definitions.--Except as provided in paragraph (2), 
        terms used in this section have the same respective meanings as 
        when used in sections 409 and 4978.
            ``(2) Special rules relating to tax imposed by reason of 
        paragraph (3) or (4) of subsection (a).--
                    ``(A) Prohibited allocations.--The amount involved 
                with respect to any tax imposed by reason of subsection 
                (a)(3) is the amount allocated to the account of any 
                person in violation of section 409(p)(1).
                    ``(B) Synthetic equity.--The amount involved with 
                respect to any tax imposed by reason of subsection 
                (a)(4) is the value of the shares on which the 
                synthetic equity is based.
                    ``(C) Special rule during first nonallocation 
                year.--For purposes of subparagraph (A), the amount 
                involved for the first nonallocation year of any 
                employee stock ownership plan shall be determined by 
                taking into account the total value of all the deemed-
                owned shares of all disqualified persons with respect 
                to such plan.
                    ``(D) Statute of limitations.--The statutory period 
                for the assessment of any tax imposed by this section 
                by reason of paragraph (3) or (4) of subsection (a) 
                shall not expire before the date which is 3 years from 
                the later of--
                            ``(i) the allocation or ownership referred 
                        to in such paragraph giving rise to such tax, 
                        or
                            ``(ii) the date on which the Secretary is 
                        notified of such allocation or ownership.''.
    (d) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 2001.
            (2) Exception for certain plans.--In the case of any--
                    (A) employee stock ownership plan established after 
                July 11, 2000, or
                    (B) employee stock ownership plan established on or 
                before such date if employer securities held by the 
                plan consist of stock in a corporation with respect to 
                which an election under section 1362(a) of the Internal 
                Revenue Code of 1986 is not in effect on such date,
        the amendments made by this section shall apply to plan years 
        ending after July 11, 2001.

                 CHAPTER 6--REDUCING REGULATORY BURDENS

SEC. 261. MODIFICATION OF TIMING OF PLAN VALUATIONS.

    (a) In General.--Paragraph (9) of section 412(c)(9) (relating to 
annual valuation) is amended to read as follows:
            ``(9) Annual valuation.--
                    ``(A) In general.--For purposes of this section, a 
                determination of experience gains and losses and a 
                valuation of the plan's liability shall be made not 
                less frequently than once every year, except that such 
                determination shall be made more frequently to the 
                extent required in particular cases under regulations 
                prescribed by the Secretary.
                    ``(B) Valuation date.--
                            ``(i) Current year.--Except as provided in 
                        clause (ii), the valuation referred to in 
                        subparagraph (A) shall be made as of a date 
                        within the plan year to which the valuation 
                        refers or within one month prior to the 
                        beginning of such year.
                            ``(ii) Election to use prior year 
                        valuation.--The valuation referred to in 
                        subparagraph (A) may be made as of a date 
                        within the plan year prior to the year to which 
                        the valuation refers if--
                                    ``(I) an election is in effect 
                                under this clause with respect to the 
                                plan, and
                                    ``(II) as of such date, the value 
                                of the assets of the plan are not less 
                                than 125 percent of the plan's current 
                                liability (as defined in paragraph 
                                (7)(B)).
                            ``(iii) Adjustments.--Information under 
                        clause (ii) shall, in accordance with 
                        regulations, be actuarially adjusted to reflect 
                        significant differences in participants.
                            ``(iv) Election.--An election under clause 
                        (ii), once made, shall be irrevocable without 
                        the consent of the Secretary.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2001.

SEC. 262. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND 
              DEDUCTION.

    (a) In General.--Section 404(k)(2)(A) (defining applicable 
dividends) is amended by striking ``or'' at the end of clause (ii), by 
redesignating clause (iii) as clause (iv), and by inserting after 
clause (ii) the following new clause:
                            ``(iii) is, at the election of such 
                        participants or their beneficiaries--
                                    ``(I) payable as provided in clause 
                                (i) or (ii), or
                                    ``(II) paid to the plan and 
                                reinvested in qualifying employer 
                                securities, or''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 263. REPEAL OF TRANSITION RULE RELATING TO CERTAIN HIGHLY 
              COMPENSATED EMPLOYEES.

    (a) In General.--Paragraph (4) of section 1114(c) of the Tax Reform 
Act of 1986 is hereby repealed.
    (b) Effective Date.--The repeal made by subsection (a) shall apply 
to plan years beginning after December 31, 2001.

SEC. 264. EMPLOYEES OF TAX-EXEMPT ENTITIES.

    (a) In General.--The Secretary of the Treasury shall modify 
Treasury Regulations section 1.410(b)-6(g) to provide that employees of 
an organization described in section 403(b)(1)(A)(i) of the Internal 
Revenue Code of 1986 who are eligible to make contributions under 
section 403(b) of such Code pursuant to a salary reduction agreement 
may be treated as excludable with respect to a plan under section 
401(k) or (m) of such Code that is provided under the same general 
arrangement as a plan under such section 401(k), if--
            (1) no employee of an organization described in section 
        403(b)(1)(A)(i) of such Code is eligible to participate in such 
        section 401(k) plan or section 401(m) plan; and
            (2) 95 percent of the employees who are not employees of an 
        organization described in section 403(b)(1)(A)(i) of such Code 
        are eligible to participate in such plan under such section 
        401(k) or (m).
    (b) Effective Date.--The modification required by subsection (a) 
shall apply as of the same date set forth in section 1426(b) of the 
Small Business Job Protection Act of 1996.

SEC. 265. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT 
              ADVICE.

    (a) In General.--Subsection (a) of section 132 (relating to 
exclusion from gross income) is amended by striking ``or'' at the end 
of paragraph (5), by striking the period at the end of paragraph (6) 
and inserting ``, or'', and by adding at the end the following new 
paragraph:
            ``(7) qualified retirement planning services.''.
    (b) Qualified Retirement Planning Services Defined.--Section 132 is 
amended by redesignating subsection (m) as subsection (n) and by 
inserting after subsection (l) the following:
    ``(m) Qualified Retirement Planning Services.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified retirement planning services' means any retirement 
        planning service provided to an employee and his spouse by an 
        employer maintaining a qualified employer plan.
            ``(2) Nondiscrimination rule.--Subsection (a)(7) shall 
        apply in the case of highly compensated employees only if such 
        services are available on substantially the same terms to each 
        member of the group of employees normally provided education 
        and information regarding the employer's qualified employer 
        plan.
            ``(3) Qualified employer plan.--For purposes of this 
        subsection, the term `qualified employer plan' means a plan, 
        contract, pension, or account described in section 
        219(g)(5).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 266. REPORTING SIMPLIFICATION.

    (a) Simplified Annual Filing Requirement for Owners and Their 
Spouses.--
            (1) In general.--The Secretary of the Treasury shall modify 
        the requirements for filing annual returns with respect to one-
        participant retirement plans to ensure that such plans with 
        assets of $250,000 or less as of the close of the plan year 
        need not file a return for that year.
            (2) One-participant retirement plan defined.--For purposes 
        of this subsection, the term ``one-participant retirement 
        plan'' means a retirement plan that--
                    (A) on the first day of the plan year--
                            (i) covered only the employer (and the 
                        employer's spouse) and the employer owned the 
                        entire business (whether or not incorporated); 
                        or
                            (ii) covered only one or more partners (and 
                        their spouses) in a business partnership 
                        (including partners in an S or C corporation);
                    (B) meets the minimum coverage requirements of 
                section 410(b) of the Internal Revenue Code of 1986 
                without being combined with any other plan of the 
                business that covers the employees of the business;
                    (C) does not provide benefits to anyone except the 
                employer (and the employer's spouse) or the partners 
                (and their spouses);
                    (D) does not cover a business that is a member of 
                an affiliated service group, a controlled group of 
                corporations, or a group of businesses under common 
                control; and
                    (E) does not cover a business that leases 
                employees.
            (3) Other definitions.--Terms used in paragraph (2) which 
        are also used in section 414 of the Internal Revenue Code of 
        1986 shall have the respective meanings given such terms by 
        such section.
    (b) Simplified Annual Filing Requirement for Plans With Fewer Than 
25 Employees.--In the case of a retirement plan which covers less than 
25 employees on the first day of the plan year and meets the 
requirements described in subparagraphs (B), (D), and (E) of subsection 
(a)(2), the Secretary of the Treasury shall provide for the filing of a 
simplified annual return that is substantially similar to the annual 
return required to be filed by a one-participant retirement plan.
    (c) Effective Date.--The provisions of this section shall take 
effect on January 1, 2001.

SEC. 267. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.

    The Secretary of the Treasury shall continue to update and improve 
the Employee Plans Compliance Resolution System (or any successor 
program) giving special attention to--
            (1) increasing the awareness and knowledge of small 
        employers concerning the availability and use of the program;
            (2) taking into account special concerns and circumstances 
        that small employers face with respect to compliance and 
        correction of compliance failures;
            (3) extending the duration of the self-correction period 
        under the Administrative Policy Regarding Self-Correction for 
        significant compliance failures;
            (4) expanding the availability to correct insignificant 
        compliance failures under the Administrative Policy Regarding 
        Self-Correction during audit; and
            (5) assuring that any tax, penalty, or sanction that is 
        imposed by reason of a compliance failure is not excessive and 
        bears a reasonable relationship to the nature, extent, and 
        severity of the failure.

SEC. 268. REPEAL OF THE MULTIPLE USE TEST.

    (a) In General.--Paragraph (9) of section 401(m) is amended to read 
as follows:
            ``(9) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the purposes of 
        this subsection and subsection (k), including regulations 
        permitting appropriate aggregation of plans and 
        contributions.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 269. FLEXIBILITY IN NONDISCRIMINATION, COVERAGE, AND LINE OF 
              BUSINESS RULES.

    (a) Nondiscrimination.--
            (1) In general.--The Secretary of the Treasury shall, by 
        regulation, provide that a plan shall be deemed to satisfy the 
        requirements of section 401(a)(4) of the Internal Revenue Code 
        of 1986 if such plan satisfies the facts and circumstances test 
        under section 401(a)(4) of such Code, as in effect before 
        January 1, 1994, but only if--
                    (A) the plan satisfies conditions prescribed by the 
                Secretary to appropriately limit the availability of 
                such test; and
                    (B) the plan is submitted to the Secretary for a 
                determination of whether it satisfies such test.
        Subparagraph (B) shall only apply to the extent provided by the 
        Secretary.
            (2) Effective dates.--
                    (A) Regulations.--The regulation required by 
                paragraph (1) shall apply to years beginning after 
                December 31, 2001.
                    (B) Conditions of availability.--Any condition of 
                availability prescribed by the Secretary under 
                paragraph (1)(A) shall not apply before the first year 
                beginning not less than 120 days after the date on 
                which such condition is prescribed.
    (b) Coverage Test.--
            (1) In general.--Section 410(b)(1) (relating to minimum 
        coverage requirements) is amended by adding at the end the 
        following:
                    ``(D) In the case that the plan fails to meet the 
                requirements of subparagraphs (A), (B) and (C), the 
                plan--
                            ``(i) satisfies subparagraph (B), as in 
                        effect immediately before the enactment of the 
                        Tax Reform Act of 1986,
                            ``(ii) is submitted to the Secretary for a 
                        determination of whether it satisfies the 
                        requirement described in clause (i), and
                            ``(iii) satisfies conditions prescribed by 
                        the Secretary by regulation that appropriately 
                        limit the availability of this subparagraph.
                Clause (ii) shall apply only to the extent provided by 
                the Secretary.''.
            (2) Effective dates.--
                    (A) In general.--The amendment made by paragraph 
                (1) shall apply to years beginning after December 31, 
                2001.
                    (B) Conditions of availability.--Any condition of 
                availability prescribed by the Secretary under 
                regulations prescribed by the Secretary under section 
                410(b)(1)(D) of the Internal Revenue Code of 1986 shall 
                not apply before the first year beginning not less than 
                120 days after the date on which such condition is 
                prescribed.
    (c) Line of Business Rules.--The Secretary of the Treasury shall, 
on or before December 31, 2001, modify the existing regulations issued 
under section 414(r) of the Internal Revenue Code of 1986 in order to 
expand (to the extent that the Secretary determines appropriate) the 
ability of a pension plan to demonstrate compliance with the line of 
business requirements based upon the facts and circumstances 
surrounding the design and operation of the plan, even though the plan 
is unable to satisfy the mechanical tests currently used to determine 
compliance.

SEC. 270. EXTENSION TO ALL GOVERNMENTAL PLANS OF MORATORIUM ON 
              APPLICATION OF CERTAIN NONDISCRIMINATION RULES APPLICABLE 
              TO STATE AND LOCAL PLANS.

    (a) In General.--
            (1) Subparagraph (G) of section 401(a)(5) and subparagraph 
        (H) of section 401(a)(26) are each amended by striking 
        ``section 414(d))'' and all that follows and inserting 
        ``section 414(d)).''.
            (2) Subparagraph (G) of section 401(k)(3) and paragraph (2) 
        of section 1505(d) of the Taxpayer Relief Act of 1997 are each 
        amended by striking ``maintained by a State or local government 
        or political subdivision thereof (or agency or instrumentality 
        thereof)''.
    (b) Conforming Amendments.--
            (1) The heading for subparagraph (G) of section 401(a)(5) 
        is amended to read as follows: ``Governmental plans''.
            (2) The heading for subparagraph (H) of section 401(a)(26) 
        is amended to read as follows: ``Exception for governmental 
        plans''.
            (3) Subparagraph (G) of section 401(k)(3) is amended by 
        inserting ``Governmental plans.--'' after ``(G)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 271. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.

    (a) Expansion of Period.--
            (1) In general.--Subparagraph (A) of section 417(a)(6) is 
        amended by striking ``90-day'' and inserting ``180-day''.
            (2) Modification of regulations.--The Secretary of the 
        Treasury shall modify the regulations under sections 402(f), 
        411(a)(11), and 417 of the Internal Revenue Code of 1986 to 
        substitute ``180 days'' for ``90 days'' each place it appears 
        in Treasury Regulations sections 1.402(f)-1, 1.411(a)-11(c), 
        and 1.417(e)-1(b).
            (3) Effective date.--The amendment made by paragraph (1) 
        and the modifications required by paragraph (2) shall apply to 
        years beginning after December 31, 2001.
    (b) Consent Regulation Inapplicable to Certain Distributions.--
            (1) In general.--The Secretary of the Treasury shall modify 
        the regulations under section 411(a)(11) of the Internal 
        Revenue Code of 1986 to provide that the description of a 
        participant's right, if any, to defer receipt of a distribution 
        shall also describe the consequences of failing to defer such 
        receipt.
            (2) Effective date.--The modifications required by 
        paragraph (1) shall apply to years beginning after December 31, 
        2001.

                       CHAPTER 7--PLAN AMENDMENTS

SEC. 281. PROVISIONS RELATING TO PLAN AMENDMENTS.

    (a) In General.--If this section applies to any plan or contract 
amendment--
            (1) such plan or contract shall be treated as being 
        operated in accordance with the terms of the plan during the 
        period described in subsection (b)(2)(A); and
            (2) such plan shall not fail to meet the requirements of 
        section 411(d)(6) of the Internal Revenue Code of 1986 by 
        reason of such amendment.
    (b) Amendments to Which Section Applies.--
            (1) In general.--This section shall apply to any amendment 
        to any plan or annuity contract which is made--
                    (A) pursuant to any amendment made by this title, 
                or pursuant to any regulation issued under this title, 
                and
                    (B) on or before the last day of the first plan 
                year beginning on or after January 1, 2003.
        In the case of a governmental plan (as defined in section 
        414(d) of the Internal Revenue Code of 1986), this paragraph 
        shall be applied by substituting ``2005'' for ``2003''.
            (2) Conditions.--This section shall not apply to any 
        amendment unless--
                    (A) during the period--
                            (i) beginning on the date the legislative 
                        or regulatory amendment described in paragraph 
                        (1)(A) takes effect (or in the case of a plan 
                        or contract amendment not required by such 
                        legislative or regulatory amendment, the 
                        effective date specified by the plan); and
                            (ii) ending on the date described in 
                        paragraph (1)(B) (or, if earlier, the date the 
                        plan or contract amendment is adopted),
                the plan or contract is operated as if such plan or 
                contract amendment were in effect; and
                    (B) such plan or contract amendment applies 
                retroactively for such period.

                      TITLE III--FAMILY TAX RELIEF

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

    (a) In General.--Paragraph (2) of section 63(c) (relating to 
standard deduction) is amended--
            (1) by striking ``$5,000'' in subparagraph (A) and 
        inserting ``200 percent of the dollar amount in effect under 
        subparagraph (C) for the taxable year'',
            (2) by adding ``or'' at the end of subparagraph (B),
            (3) by striking ``in the case of'' and all that follows in 
        subparagraph (C) and inserting ``in any other case.'', and
            (4) by striking subparagraph (D).
    (b) Phase-In.--Subsection (c) of section 63 is amended by adding at 
the end the following new paragraph:
            ``(7) Phase-in of increase in basic standard deduction.--In 
        the case of taxable years beginning before January 1, 2009--
                    ``(A) paragraph (2)(A) shall be applied by 
                substituting for `200 percent'--
                            ``(i) `175 percent' in the case of taxable 
                        years beginning after 2000 and before 2007, and
                            ``(ii) `190 percent' in the case of taxable 
                        years beginning after 2006 and before 2009, and
                    ``(B) the basic standard deduction for a married 
                individual filing a separate return shall be one-half 
                of the amount applicable under paragraph (2)(A).
        If any amount determined under subparagraph (A) is not a 
        multiple of $50, such amount shall be rounded to the next 
        lowest multiple of $50.''.
    (c) Technical Amendments.--
            (1) Subparagraph (B) of section 1(f)(6) is amended by 
        striking ``(other than with'' and all that follows through 
        ``shall be applied'' and inserting ``(other than with respect 
        to sections 63(c)(4) and 151(d)(4)(A)) shall be applied''.
            (2) Paragraph (4) of section 63(c) is amended by adding at 
        the end the following flush sentence:
        ``The preceding sentence shall not apply to the amount referred 
        to in paragraph (2)(A).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

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

    (a) In General.--Subsection (f) of section 1 (relating to 
adjustments in tax tables so that inflation will not result in tax 
increases) is amended by adding at the end the following new paragraph:
            ``(8) Phaseout of marriage penalty brackets.--
                    ``(A) In general.--With respect to taxable years 
                beginning after December 31, 2000, in prescribing the 
                tables under paragraph (1)--
                            ``(i) the minimum and maximum taxable 
                        income amounts in each rate bracket in the 
                        table contained in subsection (a) shall be the 
                        applicable percentage of the comparable taxable 
                        income amounts in the table contained in 
subsection (c) (after any other adjustment under this subsection), and
                            ``(ii) the comparable taxable income 
                        amounts in the table contained in subsection 
                        (d) shall be \1/2\ of the amounts determined 
                        under clause (i).
                    ``(B) Applicable percentage.--For purposes of 
                subparagraph (A), the applicable percentage shall be 
                determined in accordance with the following table:

                ``For taxable years beginning
                                                         The applicable
                  in calendar year--
                                                        percentage is--
                    2001, 2002, 2003, 2004, 2005, and 2006.        175 
                    2007 and 2008..........................        190 
                    2009 and thereafter....................        200.
                    ``(C) Rounding.--If any amount determined under 
                subparagraph (A)(i) is not a multiple of $50, such 
                amount shall be rounded to the next lowest multiple of 
                $50.''.
    (b) Technical Amendments.--
            (1) Subparagraph (A) of section 1(f)(2) is amended by 
        inserting ``except as provided in paragraph (8),'' before ``by 
        increasing''.
            (2) The heading for subsection (f) of section 1 is amended 
        by inserting ``Phaseout of Marriage Penalty in Rate Brackets;'' 
        before ``Adjustments''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

SEC. 303. MODIFICATIONS OF CHILD TAX CREDIT.

    (a) In General.--Subsection (a) of section 24 (relating to child 
tax credit) is amended to read as follows:
    ``(a) Allowance of Credit.--
            ``(1) In general.--There shall be allowed as a credit 
        against the tax imposed by this chapter for the taxable year 
        with respect to each qualifying child of the taxpayer an amount 
        equal to the applicable dollar amount for the calendar year in 
        which such taxable year begins.
            ``(2) Applicable dollar amount.--For purposes of paragraph 
        (1), the applicable dollar amount for any calendar year shall 
        be determined under the following table:
                                                             Applicable
``Calendar year:                                         Dollar Amount:
    2002..........................................                $600 
    2003..........................................                $700 
    2004..........................................                $800 
    2005..........................................                $900 
    2006 and thereafter...........................           $1,000.''.
    (b) Increase in Phase-Out Threshold.--
            (1) Before 2006.--Section 24(b)(2) is amended--
                    (A) by inserting ``, increased by $18,000 with 
                respect to each taxable year beginning after December 
                31, 2001'' after ``return'' in subparagraph (A),
                    (B) by inserting ``, increased by $25,000 with 
                respect to each taxable year beginning after December 
                31, 2001'' after ``married'' in subparagraph (B), and
                    (C) by inserting ``, increased by $9,000 with 
                respect to each taxable year beginning after December 
                31, 2001'' after ``return'' in subparagraph (C).
            (2) After 2005.--Paragraph (2) of section 24(b) is amended 
        to read as follows:
            ``(2) Threshold amount.--For purposes of paragraph (1), the 
        term `threshold amount' means $200,000 ($100,000 in the case of 
        a married individual (as determined under section 7703) filing 
        a separate return).''.
    (c) Reduction in Phase-Out Rate.--Section 24(b)(1) is amended by 
striking ``$50'' and inserting ``$20''.
    (d) Repeal of Reduction of Credit for Taxpayers Subject to 
Alternative Minimum Tax.--Subsection (d) of section 24 is amended by 
striking paragraph (2) and by redesignating paragraph (3) as paragraph 
(2).
    (e) Effective Dates.--
            (1) In general.--The amendments made by subsections (a), 
        (b)(1), and (d) shall apply to taxable years beginning after 
        December 31, 2001.
            (2) 2006 phase-out rate and amount.--The amendments made by 
        subsections (b)(2) and (c) shall apply to taxable years 
        beginning after December 31, 2005.

SEC. 304. EXPANSION OF EDUCATION IRAS.

    (a) Tax-Free Expenditures for Elementary and Secondary School 
Expenses.--
            (1) In general.--Section 530(b)(2) (defining qualified 
        higher education expenses) is amended to read as follows:
            ``(2) Qualified education expenses.--
                    ``(A) In general.--The term `qualified education 
                expenses' means--
                            ``(i) qualified higher education expenses 
                        (as defined in section 529(e)(3)); and
                            ``(ii) qualified elementary and secondary 
                        education expenses (as defined in paragraph 
                        (4)).
                Such expenses shall be reduced as provided in section 
                25A(g)(2).
                    ``(B) Qualified state tuition programs.--Such term 
                shall include amounts paid or incurred to purchase 
                tuition credits or certificates, or to make 
                contributions to an account, under a qualified State 
                tuition program (as defined in section 529(b)) for the 
                benefit of the beneficiary of the account.''.
            (2) Qualified elementary and secondary education 
        expenses.--Section 530(b) (relating to definitions and special 
        rules) is amended by adding at the end the following new 
        paragraph:
            ``(4) Qualified elementary and secondary education 
        expenses.--
                    ``(A) In general.--The term `qualified elementary 
                and secondary education expenses' means--
                            ``(i) expenses for tuition, fees, academic 
                        tutoring, special needs services, books, 
                        supplies, computer equipment (including related 
                        software and services), and other equipment 
                        which are incurred in connection with the 
                        enrollment or attendance of the designated 
                        beneficiary of the trust as an elementary or 
                        secondary school student at a public, private, 
                        or religious school, or
                            ``(ii) expenses for room and board, 
                        uniforms, transportation, and supplementary 
                        items and services (including extended day 
                        programs) which are required or provided by a 
                        public, private, or religious school in 
                        connection with such enrollment or attendance.
                    ``(B) Special rule for homeschooling.--Such term 
                shall include expenses described in subparagraph (A)(i) 
                in connection with education provided by homeschooling 
                if the requirements of any applicable State or local 
                law are met with respect to such education.
                    ``(C) School.--The term `school' means any school 
                which provides elementary education or secondary 
                education (kindergarten through grade 12), as 
                determined under State law.''.
            (3) Conforming amendments.--Subsections (b)(1) and (d)(2) 
        of section 530 are each amended by striking ``higher'' each 
        place it appears in the text and heading thereof.
    (b) Maximum Annual Contributions.--
            (1) In general.--Section 530(b)(1)(A)(iii) (defining 
        education individual retirement account) is amended by striking 
        ``$500'' and inserting ``the applicable dollar amount for the 
        calendar year in which such taxable year begins''.
            (2) Applicable dollar amount.--Section 530(b) is amended by 
        adding at the end the following new paragraph:
            ``(4) Applicable dollar amount.--For purposes of paragraph 
        (1)(A)(iii), the applicable dollar amount for any calendar year 
        shall be determined under the following table:
                                                             Applicable
``Calendar year:                                         Dollar Amount:
    2002..........................................              $1,000 
    2003..........................................              $2,000 
    2004..........................................              $3,000 
    2005..........................................              $4,000 
    2006 and thereafter...........................           $5,000.''.
            (3) Conforming amendment.--Section 4973(e)(1)(A) is amended 
        by striking ``$500'' and inserting ``the applicable dollar 
        amount for the calendar year in which such taxable year 
        begins''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

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

    (a) In General.--Section 529(b)(1) (defining qualified State 
tuition program) is amended by inserting ``or by 1 or more eligible 
educational institutions or a consortium that consists solely of 
eligible educational institutions'' after ``maintained by a State or 
agency or instrumentality thereof''.
    (b) Private Qualified Tuition Programs Limited to Benefit Plans.--
Clause (ii) of section 529(b)(1)(A) is amended by inserting ``in the 
case of a program established and maintained by a State or agency or 
instrumentality thereof'' before ``may make''.
    (c) Conforming Amendments.--
            (1) The text and headings of each of the sections 72(e)(9), 
        135(c)(2(C), 135(d)(1)(D), 529, 530(b)(2)(B), 4973(e), and 
        6693(a)(2)(C) is amended by striking ``qualified State 
        tuition'' each place it appears and inserting ``qualified 
        tuition''.
            (2)(A) The section heading of section 529 is amended to 
        read as follows:

``SEC. 529. QUALIFIED TUITION PROGRAMS.''.

            (B) The item relating to section 529 in the table of 
        sections for part VIII of subchapter F of chapter 1 is amended 
        by striking ``State''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

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

    (a) In General.--Section 529(c)(3)(B) (relating to distributions) 
is amended to read as follows:
                    ``(B) Distributions for qualified higher education 
                expenses.--
                            ``(i) In general.--If a distributee elects 
                        the application of this clause for any taxable 
                        year--
                                    ``(I) no amount shall be includible 
                                in gross income under subparagraph (A) 
                                by reason of a distribution which 
                                consists of providing a benefit to the 
                                distributee which, if paid for by the 
                                distributee, would constitute payment 
                                of a qualified higher education 
                                expense, and
                                    ``(II) the amount which (but for 
                                the election) would be includible in 
                                gross income under subparagraph (A) by 
                                reason of any other distribution shall 
not be so includible in an amount which bears the same ratio to the 
amount which would be so includible as such expenses bear to such 
aggregate distributions.
                            ``(ii) In-kind distributions.--Any benefit 
                        furnished to a designated beneficiary under a 
                        qualified State tuition program shall be 
                        treated as a distribution to the beneficiary 
                        for purposes of this paragraph.
                            ``(iii) Disallowance of excluded amounts as 
                        credit or deduction.--No deduction or credit 
                        shall be allowed to the taxpayer under any 
                        other section of this chapter for any qualified 
                        higher education expenses to the extent taken 
                        into account in determining the amount of the 
                        exclusion under this subparagraph.''.
    (b) Beneficiary May Change Program.--Section 529(c)(3)(C) (relating 
to change in beneficiaries) is amended--
            (1) in clause (i), by inserting ``to another qualified 
        tuition program for the benefit of the designated beneficiary 
        or'' after ``transferred'', and
            (2) in the heading, by inserting ``or programs'' after 
        ``beneficiaries''.
    (c) Additional Tax on Amounts Not Used for Higher Education 
Expenses.--Section 529(c)(3) (relating to distributions) is amended by 
adding at the end the following:
                    ``(E) Additional tax on amounts not used for higher 
                education expenses.--The tax imposed by section 
                530(d)(4) shall apply to payments and distributions 
                from qualified tuition programs in the same manner as 
                such tax applies to education individual retirement 
                accounts.''.
    (d) Coordination With Education Credits.--Section 25A(e)(2) 
(relating to coordination with exclusions) is amended--
            (1) by inserting ``a qualified tuition program or'' before 
        ``an education individual retirement account'', and
            (2) by striking ``section 530(d)(2)'' and inserting 
        ``section 529(c)(3)(B) or 530(d)(2)''.
    (e) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to distributions 
        made after December 31, 2001, for education furnished in 
        academic periods beginning after such date.
            (2) Private programs.--In the case of a qualified tuition 
        program established and maintained by an entity other than a 
        State or agency or instrumentality thereof, the amendments made 
        by subsections (a), (c), and (d) shall apply to distributions 
        made after December 31, 2005, for education furnished in 
        academic periods beginning after such date.

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

    (a) Exempted Securities.--Section 3(a)(4) of the Securities Act of 
1933 (15 U.S.C. 77c(a)(4)) is amended by striking ``individual;'' and 
inserting ``individual or any security issued by a prepaid tuition 
program described in section 529 of the Internal Revenue Code of 
1986;''.
    (b) Qualified Tuition Programs Not Investment Companies.--Section 
3(c) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)) is 
amended by adding at the end the following:
            ``(15) Any prepaid tuition program described in section 529 
        of the Internal Revenue Code of 1986.''.

SEC. 308. EXPANSION OF CREDIT FOR ADOPTION EXPENSES.

    (a) Increase in Expenses Allowable for Adoption.--Paragraph (1) of 
section 23(b) (relating to dollar limitation) is amended to read as 
follows:
            ``(1) Dollar limitation.--
                    ``(A) In general.--The aggregate amount of 
                qualified adoption expenses which may be taken into 
                account under subsection (a) for all taxable years with 
                respect to the adoption of a child by the taxpayer 
                shall not exceed the applicable amount.
                    ``(B) Applicable amount.--For purposes of 
                subparagraph (A)--
                            ``(i) Child with special needs.--In the 
                        case of a child with special needs, the 
                        applicable amount for a taxable year shall be 
                        the amount determined in accordance with the 
                        following table:

                ``For taxable years
                                                         The applicable
                  beginning in:
                                                           amount is:  
                    2002...................................     $8,000 
                    2003...................................    $10,000 
                    2004 and thereafter....................    $12,000.
                            ``(ii) Other children.--In the case of a 
                        child who is not a child with special needs, 
                        the applicable amount for a taxable year shall 
                        be the amount determined in accordance with the 
                        following table:

                ``For taxable years
                                                         The applicable
                  beginning in:
                                                           amount is:  
                    2002...................................     $6,000 
                    2003...................................     $7,000 
                    2004...................................     $8,000 
                    2005...................................     $9,000 
                    2006 and thereafter.................... $10,000.''.
    (b) Increase in Income Limitation.--Clause (i) of section 
23(b)(2)(A) (relating to income limitation) is amended by striking 
``$75,000'' and inserting ``$150,000''.
    (c) Extension of Sunset.--Subparagraph (B) of section 23(d)(2) 
(relating to eligible child) is amended by striking ``2001'' and 
inserting ``2005''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

                 TITLE IV--CHARITABLE GIVING TAX RELIEF

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

    (a) In General.--Subsection (b) of section 63 is amended by 
striking ``and'' at the end of paragraph (1), by striking the period at 
the end of paragraph (2) and inserting ``, and'', and by adding at the 
end the following:
            ``(3) the applicable percentage of the deduction provided 
        by section 170 (relating to charitable, etc., contributions and 
        gifts), in an amount not to exceed the standard deduction.
For purposes of paragraph (3), the applicable percentage shall be 
determined under the following table:

``For taxable years beginning in          The applicable percentage is:
        calendar year:
    2002..........................................                  20 
    2003..........................................                  40 
    2004..........................................                  60 
    2005..........................................                  80 
    2006 and thereafter...........................              100.''.
    (b) Conforming Amendment.--Subsection (d) of section 63 is amended 
by striking ``and'' at the end of paragraph (1), by striking the period 
at the end of paragraph (2) and inserting ``, and'', and by adding at 
the end thereof the following new paragraph:
            ``(3) the deduction provided by section 170 as determined 
        under subsection (b)(3).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

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

    (a) In General.--Subsection (d) of section 408 (relating to 
individual retirement accounts) is amended by adding at the end the 
following new paragraph:
            ``(8) Distributions for charitable purposes.--
                    ``(A) In general.--No amount shall be includible in 
                gross income by reason of a qualified charitable 
                distribution from an individual retirement account to 
                an organization described in section 170(c).
                    ``(B) Qualified charitable distribution.--For 
                purposes of this paragraph, the term `qualified 
                charitable distribution' means any distribution from an 
                individual retirement account--
                            ``(i) which is made on or after the date 
                        that the individual for whose benefit the 
                        account is maintained has attained age 59\1/2\, 
                        and
                            ``(ii) which is made directly from the 
                        account to an organization described in section 
                        170(c).
                    ``(C) Denial of deduction.--The amount allowable as 
                a deduction under section 170 to the taxpayer for the 
                taxable year shall be reduced (but not below zero) by 
                the sum of the amounts of the qualified charitable 
                distributions during such year which would be 
                includible in the gross income of the taxpayer for such 
                year but for this paragraph.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2001.

SEC. 403. HIGHER LIMITATION ON CORPORATE CHARITABLE CONTRIBUTIONS.

    (a) In General.--Paragraph (2) of section 170(b) (relating to 
percentage limitations) is amended by striking ``10 percent'' and 
inserting ``15 percent''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2001.

                   TITLE V--MISCELLANEOUS TAX RELIEF

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

    (a) Reduction of Increase.--Clause (i) of section 86(a)(2)(A) is 
amended by striking ``85 percent'' and inserting ``85 percent (75 
percent in the case of taxable years beginning after 2001 and before 
2009 and 50 percent in the case of taxable years beginning before 
2010)''.
    (b) Restoration of Prior Law Formula in 2010.--Subsection (a) of 
section 86 is amended to read as follows:
    ``(a) In General.--Gross income for the taxable year of any 
taxpayer described in subsection (b) (notwithstanding section 207 of 
the Social Security Act) includes Social Security benefits in an amount 
equal to the lesser of--
            ``(1) one-half of the Social Security benefits received 
        during the taxable year, or
            ``(2) one-half of the excess described in subsection 
        (b)(1).''
    (c) Repeal of Adjusted Base Amount.--Subsection (c) of section 86 
is amended to read as follows:
    ``(c) Base Amount.--For purposes of this section, the term `base 
amount' means--
            ``(1) except as otherwise provided in this subsection, 
        $25,000,
            ``(2) $32,000 in the case of a joint return, and
            ``(3) zero in the case of a taxpayer who--
                    ``(A) is married as of the close of the taxable 
                year (within the meaning of section 7703) but does not 
                file a joint return for such year, and
                    ``(B) does not live apart from his spouse at all 
                times during the taxable year.''
    (d) Conforming Amendments.--
            (1) Subparagraph (A) of section 871(a)(3) is amended by 
        striking ``85 percent'' and inserting ``50 percent''.
            (2)(A) Subparagraph (A) of section 121(e)(1) of the Social 
        Security Amendments of 1983 (Public Law 98-21) is amended--
                    (i) by striking ``(A) There'' and inserting 
                ``There'';
                    (ii) by striking ``(i)'' immediately following 
                ``amounts equivalent to''; and
                    (iii) by striking ``, less (ii)'' and all that 
                follows and inserting a period.
            (B) Paragraph (1) of section 121(e) of such Act is amended 
        by striking subparagraph (B).
            (C) Paragraph (3) of section 121(e) of such Act is amended 
        by striking subparagraph (B) and by redesignating subparagraph 
        (C) as subparagraph (B).
            (D) Paragraph (2) of section 121(e) of such Act is amended 
        in the first sentence by striking ``paragraph (1)(A)'' and 
        inserting ``paragraph (1)''.
    (e) Effective Date.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        taxable years beginning after December 31, 2009.
            (2) Subsection (a).--The amendment made by subsection (a) 
        shall apply to taxable years beginning after December 31, 2001.
            (3) Subsection (c)(1).--The amendment made by subsection 
        (c)(1) shall apply to benefits paid after December 31, 2009.
            (4) Subsection (c)(2).--The amendments made by subsection 
        (c)(2) shall apply to tax liabilities for taxable years 
        beginning after December 31, 2000.
    (e) Maintenance of Transfers to Hospital Insurance Trust Fund.--
            (1) In general.--There are hereby appropriated to the 
        Hospital Insurance Trust Fund established under section 1817 of 
        the Social Security Act amounts equal to the reduction in 
        revenues to the Treasury by reason of the enactment of this 
        section. Amounts appropriated by the preceding sentence shall 
        be transferred from the general fund at such times and in such 
        manner as to replicate to the extent possible the transfers 
        which would have occurred to such Trust Fund had this Act not 
        been enacted.
            (2) Reports.--The Secretary of the Treasury or the 
        Secretary's delegate shall annually report to the Committee on 
        Ways and Means of the House of Representatives and the 
        Committee on Finance of the Senate the amounts and timing of 
        the transfers under this section.

SEC. 502. REPEAL OF FEDERAL COMMUNICATIONS EXCISE TAX.

    (a) In General.--Chapter 33 (relating to facilities and services) 
is amended by striking subchapter B.
    (b) Conforming Amendments.--
            (1) Section 4293 is amended by striking ``chapter 32 (other 
        than the taxes imposed by sections 4064 and 4121) and 
        subchapter B of chapter 33,'' and inserting ``and chapter 32 
        (other than the taxes imposed by sections 4064 and 4121),''.
            (2)(A) Paragraph (1) of section 6302(e) is amended by 
        striking ``section 4251 or''.
            (B) Paragraph (2) of section 6302(e) is amended by striking 
        ``imposed by--'' and all that follows through ``with respect 
        to'' and inserting ``imposed by section 4261 or 4271 with 
        respect to''.
            (C) The subsection heading for section 6302(e) is amended 
        by striking ``Communications Services and''.
            (3) Section 6415 is amended by striking ``4251, 4261, or 
        4271'' each place it appears and inserting ``4261 or 4271''.
            (4) Paragraph (2) of section 7871(a) is amended by 
        inserting ``or'' at the end of subparagraph (B), by striking 
        subparagraph (C), and by redesignating subparagraph (D) as 
        subparagraph (C).
            (5) The table of subchapters for chapter 33 is amended by 
        striking the item relating to subchapter B.
    (d) Effective Dates.--The amendments made by this section shall 
apply to amounts paid pursuant to bills first rendered after September 
30, 2001.

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

    (a) In General.--Paragraph (1) of section 162(l) is amended to read 
as follows:
            ``(1) Allowance of deduction.--In the case of an individual 
        who is an employee within the meaning of section 401(c)(1), 
        there shall be allowed as a deduction under this section an 
        amount equal to 100 percent of the amount paid during the 
        taxable year for insurance which constitutes medical care for 
        the taxpayer and the taxpayer's spouse and dependents.''.
    (b) Clarification of Limitations on Other Coverage.--The first 
sentence of section 162(l)(2)(B) is amended to read as follows: 
``Paragraph (1) shall not apply to any taxpayer for any calendar month 
for which the taxpayer participates in any subsidized health plan 
maintained by any employer (other than an employer described in section 
401(c)(4)) of the taxpayer or the spouse of the taxpayer.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 504. INCREASED DEDUCTION FOR MEAL EXPENSES.

    (a) In General.--Paragraph (1) of section 274(n) (relating to only 
50 percent of meal and entertainment expenses allowed as deduction) is 
amended by striking ``50 percent'' in the text and inserting ``the 
allowable percentage''.
    (b) Allowable Percentages.--Subsection (n) of section 274 is 
amended by redesignating paragraphs (2) and (3) as paragraphs (3) and 
(4), respectively, and by inserting after paragraph (1) the following 
new paragraph:
            ``(2) Allowable percentage.--For purposes of paragraph (1), 
        the allowable percentage is--
                    ``(A) in the case of amounts for items described in 
                paragraph (1)(B), 50 percent, and
                    ``(B) in the case of expenses for food or 
                beverages, 80 percent (60 percent for taxable years 
                beginning after 2001 and before 2010).''
    (c) Conforming Amendment.--The heading for subsection (n) of 
section 274 is amended by striking ``50 Percent'' and inserting 
``Limited Percentages''.
    (d) Effective Date.--
            (1) The amendments made by this section shall apply to 
        taxable years beginning after December 31, 2002.
            (2) Section 274(n)(2)(B) of the Internal Revenue Code of 
        1986 (as added by subsection (b)) shall apply to expenses 
        incurred after the date of the enactment of this Act.

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

    (a) In General.--Paragraph (1) of section 179(b) (relating to 
dollar limitation) is amended to read as follows:
            ``(1) Dollar limitation.--The aggregate cost which may be 
        taken into account under subsection (a) for any taxable year 
        shall not exceed $30,000.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2002.

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

    (a) In General.--Section 55(c) (defining regular tax) is amended by 
redesignating paragraph (2) as paragraph (3) and by inserting after 
paragraph (1) the following:
            ``(2) Coordination with income averaging for farmers and 
        fishermen.--Solely for purposes of this section, section 1301 
        (relating to averaging of farm and fishing income) shall not 
        apply in computing the regular tax.''.
    (b) Allowing Income Averaging for Fishermen.--
            (1) In general.--Section 1301(a) is amended by striking 
        ``farming business'' and inserting ``farming business or 
        fishing business,''.
            (2) Definition of elected farm income.--
                    (A) In general.--Clause (i) of section 
                1301(b)(1)(A) is amended by inserting ``or fishing 
                business'' before the semicolon.
                    (B) Conforming amendment.--Subparagraph (B) of 
                section 1301(b)(1) is amended by inserting ``or fishing 
                business'' after ``farming business'' both places it 
                occurs.
            (3) Definition of fishing business.--Section 1301(b) is 
        amended by adding at the end the following new paragraph:
            ``(4) Fishing business.--The term `fishing business' means 
        the conduct of commercial fishing as defined in section 3 of 
        the Magnuson-Stevens Fishery Conservation and Management Act 
        (16 U.S.C. 1802).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

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

    (a) Repeal of Occupational Taxes.--
            (1) In general.--The following provisions of part II of 
        subchapter A of chapter 51 of the Internal Revenue Code of 1986 
        (relating to occupational taxes) are hereby repealed:
                    (A) Subpart A (relating to proprietors of distilled 
                spirits plants, bonded wine cellars, etc.).
                    (B) Subpart B (relating to brewer).
                    (C) Subpart D (relating to wholesale dealers) 
                (other than sections 5114 and 5116).
                    (D) Subpart E (relating to retail dealers) (other 
                than section 5124).
                    (E) Subpart G (relating to general provisions) 
                (other than sections 5142, 5143, 5145, and 5146).
            (2) Nonbeverage domestic drawback.--Section 5131 is amended 
        by striking ``, on payment of a special tax per annum,''.
            (3) Industrial use of distilled spirits.--Section 5276 is 
        hereby repealed.
    (b) Conforming Amendments.--
            (1)(A) The heading for part II of subchapter A of chapter 
        51 and the table of subparts for such part are amended to read 
        as follows:

                  ``PART II--MISCELLANEOUS PROVISIONS

                              ``Subpart A. Manufacturers of stills.
                              ``Subpart B. Nonbeverage domestic 
                                        drawback claimants.
                              ``Subpart C. Recordkeeping by dealers.
                              ``Subpart D. Other provisions.''
            (B) The table of parts for such subchapter A is amended by 
        striking the item relating to part II and inserting the 
        following new item:

                              ``Part II. Miscellaneous provisions.''
            (2) Subpart C of part II of such subchapter (relating to 
        manufacturers of stills) is redesignated as subpart A.
            (3)(A) Subpart F of such part II (relating to nonbeverage 
        domestic drawback claimants) is redesignated as subpart B and 
        sections 5131 through 5134 are redesignated as sections 5111 
        through 5114, respectively.
            (B) The table of sections for such subpart B, as so 
        redesignated, is amended--
                    (i) by redesignating the items relating to sections 
                5131 through 5134 as relating to sections 5111 through 
                5114, respectively, and
                    (ii) by striking ``and rate of tax'' in the item 
                relating to section 5111, as so redesignated.
            (C) Section 5111, as redesignated by subparagraph (A), is 
        amended--
                    (i) by striking ``and rate of tax'' in the section 
                heading,
                    (ii) by striking ``(a) Eligibility for Drawback.--
                '', and
                    (iii) by striking subsection (b).
            (4) Part II of subchapter A of chapter 51 is amended by 
        adding after subpart B, as redesignated by paragraph (3), the 
        following new subpart:

                 ``Subpart C--Recordkeeping by Dealers

                              ``Sec. 5121. Recordkeeping by wholesale 
                                        dealers.
                              ``Sec. 5122. Recordkeeping by retail 
                                        dealers.
                              ``Sec. 5123. Preservation and inspection 
                                        of records, and entry of 
                                        premises for inspection.''
            (5)(A) Section 5114 (relating to records) is moved to 
        subpart C of such part II and inserted after the table of 
        sections for such subpart.
            (B) Section 5114 is amended--
                    (i) by striking the section heading and inserting 
                the following new heading:

``SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.'',

                and
                    (ii) by redesignating subsection (c) as subsection 
                (d) and by inserting after subsection (b) the following 
                new subsection:
    ``(c) Wholesale Dealers.--For purposes of this part--
            ``(1) Wholesale dealer in liquors.--The term `wholesale 
        dealer in liquors' means any dealer (other than a wholesale 
        dealer in beer) who sells, or offers for sale, distilled 
        spirits, wines, or beer, to another dealer.
            ``(2) Wholesale dealer in beer.--The term `wholesale dealer 
        in beer' means any dealer who sells, or offers for sale, beer, 
        but not distilled spirits or wines, to another dealer.
            ``(3) Dealer.--The term `dealer' means any person who 
        sells, or offers for sale, any distilled spirits, wines, or 
        beer.
            ``(4) Presumption in case of sale of 20 wine gallons or 
        more.--The sale, or offer for sale, of distilled spirits, 
        wines, or beer, in quantities of 20 wine gallons or more to the 
        same person at the same time, shall be presumptive evidence 
        that the person making such sale, or offer for sale, is engaged 
        in or carrying on the business of a wholesale dealer in liquors 
        or a wholesale dealer in beer, as the case may be. Such 
        presumption may be overcome by evidence satisfactorily showing 
        that such sale, or offer for sale, was made to a person other 
        than a dealer.''
            (C) Paragraph (3) of section 5121(d), as so redesignated, 
        is amended by striking ``section 5146'' and inserting ``section 
        5123''.
            (6)(A) Section 5124 (relating to records) is moved to 
        subpart C of part II of subchapter A of chapter 51 and inserted 
        after section 5121.
            (B) Section 5124 is amended--
                    (i) by striking the section heading and inserting 
                the following new heading:

``SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.'',

                    (ii) by striking ``section 5146'' in subsection (c) 
                and inserting ``section 5123'', and
                    (iii) by redesignating subsection (c) as subsection 
                (d) and inserting after subsection (b) the following 
                new subsection:
    ``(c) Retail Dealers.--For purposes of this section--
            ``(1) Retail dealer in liquors.--The term `retail dealer in 
        liquors' means any dealer (other than a retail dealer in beer) 
        who sells, or offers for sale, distilled spirits, wines, or 
        beer, to any person other than a dealer.
            ``(2) Retail dealer in beer.--The term `retail dealer in 
        beer' means any dealer who sells, or offers for sale, beer, but 
        not distilled spirits or wines, to any person other than a 
        dealer.
            ``(3) Dealer.--The term `dealer' has the meaning given such 
        term by section 5121(c)(3).''
            (7) Section 5146 is moved to subpart C of part II of 
        subchapter A of chapter 51, inserted after section 5122, and 
        redesignated as section 5123.
            (8) Part II of subchapter A of chapter 51 is amended by 
        inserting after subpart C the following new subpart:

                     ``Subpart D. Other Provisions

                              ``Sec. 5131. Packaging distilled spirits 
                                        for industrial uses.
                              ``Sec. 5132. Prohibited purchases by 
                                        dealers.''
            (9) Section 5116 is moved to subpart D of part II of 
        subchapter A of chapter 51, inserted after the table of 
        sections, redesignated as section 5131, and amended by 
        inserting ``(as defined in section 5121(c))'' after ``dealer'' 
        in subsection (a).
            (10) Subpart D of part II of subchapter A of chapter 51 is 
        amended by adding at the end thereof the following new section:

``SEC. 5132. PROHIBITED PURCHASES BY DEALERS.

    ``(a) In General.--Except as provided in regulations prescribed by 
the Secretary, it shall be unlawful for a dealer to purchase distilled 
spirits from any person other than a wholesale dealer in liquors who is 
required to keep the records prescribed by section 5121.
    ``(b) Penalty and Forfeiture.--

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

            (11) Subsection (b) of section 5002 is amended--
                    (A) by striking ``section 5112(a)'' and inserting 
                ``section 5121(c)(3)'',
                    (B) by striking ``section 5112'' and inserting 
                ``section 5121(c)'', and
                    (C) by striking ``section 5122'' and inserting 
                ``section 5122(c)''.
            (12) Subparagraph (A) of section 5010(c)(2) is amended by 
        striking ``section 5134'' and inserting ``section 5114''.
            (13) Subsection (d) of section 5052 is amended to read as 
        follows:
    ``(d) Brewer.--For purposes of this chapter, the term `brewer' 
means any person who brews beer or produces beer for sale. Such term 
shall not include any person who produces only beer exempt from tax 
under section 5053(e).''
            (14) The text of section 5182 is amended to read as 
        follows:

                                ``For provisions requiring 
recordkeeping by wholesale liquor dealers, see section 5112, and by 
retail liquor dealers, see section 5122.''
            (15) Subsection (b) of section 5402 is amended by striking 
        ``section 5092'' and inserting ``section 5052(d)''.
            (16) Section 5671 is amended by striking ``or 5091''.
            (17)(A) Part V of subchapter J of chapter 51 is hereby 
        repealed.
            (B) The table of parts for such subchapter J is amended by 
        striking the item relating to part V.
            (18)(A) Sections 5142, 5143, and 5145 are moved to 
        subchapter D of chapter 52, inserted after section 5731, 
        redesignated as sections 5732, 5733, and 5734, respectively, 
        and amended--
                    (i) by striking ``this part'' each place it appears 
                and inserting ``this subchapter'', and
                    (ii) by striking ``this subpart'' in section 
                5732(c)(2) (as so redesignated) and inserting ``this 
                subchapter''.
            (B) Section 5732, as redesignated by subparagraph (A), is 
        amended by striking ``(except the tax imposed by section 
        5131)'' each place it appears.
            (C) Subsection (c) of section 5733, as redesignated by 
        subparagraph (A), is amended by striking paragraph (2) and by 
        redesignating paragraph (3) as paragraph (2).
            (D) The table of sections for subchapter D of chapter 52 is 
        amended by adding at the end thereof the following:

                              ``Sec. 5732. Payment of tax.
                              ``Sec. 5733. Provisions relating to 
                                        liability for occupational 
                                        taxes.
                              ``Sec. 5734. Application of State laws.''
            (E) Section 5731 is amended by striking subsection (c) and 
        by redesignating subsection (d) as subsection (c).
            (19) Subsection (c) of section 6071 is amended by striking 
        ``section 5142'' and inserting ``section 5732''.
            (20) Paragraph (1) of section 7652(g) is amended--
                    (A) by striking ``subpart F'' and inserting 
                ``subpart B'', and
                    (B) by striking ``section 5131(a)'' and inserting 
                ``section 5111(a)''.
            (21) The table of sections for subchapter D of chapter 51 
        is amended by striking the item relating to section 5276.
    (c) Effective Date.--The amendments made by this section shall take 
effect on July 1, 2002, but shall not apply to taxes imposed for 
periods before such date.

SEC. 508. PERMANENT EXTENSION OF RESEARCH CREDIT.

    (a) In General.--Section 41 (relating to credit for increasing 
research activities) is amended by striking subsection (h).
    (b) Conforming Amendment.--Paragraph (1) of section 45C(b) is 
amended by striking subparagraph (D).
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after the date of the enactment of 
this Act.

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

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

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

    ``(a) Deduction Allowed.--In the case of an individual engaged in 
an eligible farming business or commercial fishing, there shall be 
allowed as a deduction for any taxable year the amount paid in cash by 
the taxpayer during the taxable year to a Farm, Fishing, and Ranch Risk 
Management Account (hereinafter referred to as the `FFARRM Account').
    ``(b) Limitation.--
            ``(1) Contributions.--The amount which a taxpayer may pay 
        into the FFARRM Account for any taxable year shall not exceed 
        20 percent of so much of the taxable income of the taxpayer 
        (determined without regard to this section) which is 
        attributable (determined in the manner applicable under section 
        1301) to any eligible farming business or commercial fishing.
            ``(2) Distributions.--Distributions from a FFARRM Account 
        may not be used to purchase, lease, or finance any new fishing 
        vessel, add capacity to any fishery, or otherwise contribute to 
        the overcapitalization of any fishery. The Secretary of 
        Commerce shall implement regulations to enforce this paragraph.
    ``(c) Eligible Businesses.--For purposes of this section--
            ``(1) Eligible farming business.--The term `eligible 
        farming business' means any farming business (as defined in 
        section 263A(e)(4)) which is not a passive activity (within the 
        meaning of section 469(c)) of the taxpayer.
            ``(2) Commercial fishing.--The term `commercial fishing' 
        has the meaning given such term by section (3) of the Magnuson-
        Stevens Fishery Conservation and Management Act (16 U.S.C. 
        1802) but only if such fishing is not a passive activity 
        (within the meaning of section 469(c)) of the taxpayer.
    ``(d) FFARRM Account.--For purposes of this section--
            ``(1) In general.--The term `FFARRM Account' means a trust 
        created or organized in the United States for the exclusive 
        benefit of the taxpayer, but only if the written governing 
        instrument creating the trust meets the following requirements:
                    ``(A) No contribution will be accepted for any 
                taxable year in excess of the amount allowed as a 
                deduction under subsection (a) for such year.
                    ``(B) The trustee is a bank (as defined in section 
                408(n)) or another person who demonstrates to the 
                satisfaction of the Secretary that the manner in which 
                such person will administer the trust will be 
                consistent with the requirements of this section.
                    ``(C) The assets of the trust consist entirely of 
                cash or of obligations which have adequate stated 
                interest (as defined in section 1274(c)(2)) and which 
                pay such interest not less often than annually.
                    ``(D) All income of the trust is distributed 
                currently to the grantor.
                    ``(E) The assets of the trust will not be 
                commingled with other property except in a common trust 
                fund or common investment fund.
            ``(2) Account taxed as grantor trust.--The grantor of a 
        FFARRM Account shall be treated for purposes of this title as 
        the owner of such Account and shall be subject to tax thereon 
        in accordance with subpart E of part I of subchapter J of this 
        chapter (relating to grantors and others treated as substantial 
        owners).
    ``(e) Inclusion of Amounts Distributed.--
            ``(1) In general.--Except as provided in paragraph (2), 
        there shall be includible in the gross income of the taxpayer 
        for any taxable year--
                    ``(A) any amount distributed from a FFARRM Account 
                of the taxpayer during such taxable year, and
                    ``(B) any deemed distribution under--
                            ``(i) subsection (f)(1) (relating to 
                        deposits not distributed within 5 years),
                            ``(ii) subsection (f)(2) (relating to 
                        cessation in eligible farming business), and
                            ``(iii) subparagraph (B) or (C) of 
                        subsection (f)(3) (relating to prohibited 
                        transactions and pledging account as security).
            ``(2) Exceptions.--Paragraph (1)(A) shall not apply to--
                    ``(A) any distribution to the extent attributable 
                to income of the Account, and
                    ``(B) the distribution of any contribution paid 
                during a taxable year to a FFARRM Account to the extent 
                that such contribution exceeds the limitation 
                applicable under subsection (b) if requirements similar 
                to the requirements of section 408(d)(4) are met.
        For purposes of subparagraph (A), distributions shall be 
        treated as first attributable to income and then to other 
        amounts.
    ``(f) Special Rules.--
            ``(1) Tax on deposits in account which are not distributed 
        within 5 years.--
                    ``(A) In general.--If, at the close of any taxable 
                year, there is a nonqualified balance in any FFARRM 
                Account--
                            ``(i) there shall be deemed distributed 
                        from such Account during such taxable year an 
                        amount equal to such balance, and
                            ``(ii) the taxpayer's tax imposed by this 
                        chapter for such taxable year shall be 
                        increased by 10 percent of such deemed 
                        distribution.
                The preceding sentence shall not apply if an amount 
                equal to such nonqualified balance is distributed from 
                such Account to the taxpayer before the due date 
                (including extensions) for filing the return of tax 
                imposed by this chapter for such year (or, if earlier, 
                the date the taxpayer files such return for such year).
                    ``(B) Nonqualified balance.--For purposes of 
                subparagraph (A), the term `nonqualified balance' means 
                any balance in the Account on the last day of the 
                taxable year which is attributable to amounts deposited 
                in such Account before the 4th preceding taxable year.
                    ``(C) Ordering rule.--For purposes of this 
                paragraph, distributions from a FFARRM Account (other 
                than distributions of current income) shall be treated 
                as made from deposits in the order in which such 
                deposits were made, beginning with the earliest 
                deposits.
            ``(2) Cessation in eligible business.--At the close of the 
        first disqualification period after a period for which the 
        taxpayer was engaged in an eligible farming business or 
        commercial fishing, there shall be deemed distributed from the 
        FFARRM Account of the taxpayer an amount equal to the balance 
        in such Account (if any) at the close of such disqualification 
        period. For purposes of the preceding sentence, the term 
        `disqualification period' means any period of 2 consecutive 
        taxable years for which the taxpayer is not engaged in an 
        eligible farming business or commercial fishing.
            ``(3) Certain rules to apply.--Rules similar to the 
        following rules shall apply for purposes of this section:
                    ``(A) Section 220(f)(8) (relating to treatment on 
                death).
                    ``(B) Section 408(e)(2) (relating to loss of 
                exemption of account where individual engages in 
                prohibited transaction).
                    ``(C) Section 408(e)(4) (relating to effect of 
                pledging account as security).
                    ``(D) Section 408(g) (relating to community 
                property laws).
                    ``(E) Section 408(h) (relating to custodial 
                accounts).
            ``(4) Time when payments deemed made.--For purposes of this 
        section, a taxpayer shall be deemed to have made a payment to a 
        FFARRM Account on the last day of a taxable year if such 
        payment is made on account of such taxable year and is made on 
        or before the due date (without regard to extensions) for 
        filing the return of tax for such taxable year.
            ``(5) Individual.--For purposes of this section, the term 
        `individual' shall not include an estate or trust.
            ``(6) Deduction not allowed for self-employment tax.--The 
        deduction allowable by reason of subsection (a) shall not be 
        taken into account in determining an individual's net earnings 
        from self-employment (within the meaning of section 1402(a)) 
        for purposes of chapter 2.
    ``(g) Reports.--The trustee of a FFARRM Account shall make such 
reports regarding such Account to the Secretary and to the person for 
whose benefit the Account is maintained with respect to contributions, 
distributions, and such other matters as the Secretary may require 
under regulations. The reports required by this subsection shall be 
filed at such time and in such manner and furnished to such persons at 
such time and in such manner as may be required by such regulations.''.
    (b) Tax on Excess Contributions.--
            (1) Subsection (a) of section 4973 (relating to tax on 
        excess contributions to certain tax-favored accounts and 
        annuities) is amended by striking ``or'' at the end of 
        paragraph (3), by redesignating paragraph (4) as paragraph (5), 
        and by inserting after paragraph (3) the following new 
        paragraph:
            ``(4) a FFARRM Account (within the meaning of section 
        468C(d)), or''.
            (2) Section 4973 is amended by adding at the end the 
        following new subsection:
    ``(g) Excess Contributions to FFARRM Accounts.--For purposes of 
this section, in the case of a FFARRM Account (within the meaning of 
section 468C(d)), the term `excess contributions' means the amount by 
which the amount contributed for the taxable year to the Account 
exceeds the amount which may be contributed to the Account under 
section 468C(b) for such taxable year. For purposes of this subsection, 
any contribution which is distributed out of the FFARRM Account in a 
distribution to which section 468C(e)(2)(B) applies shall be treated as 
an amount not contributed.''.
            (3) The section heading for section 4973 is amended to read 
        as follows:

``SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN ACCOUNTS, ANNUITIES, 
              ETC.''.

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

                              ``Sec. 4973. Excess contributions to 
                                        certain accounts, annuities, 
                                        etc.''.
    (c) Tax on Prohibited Transactions.--
            (1) Subsection (c) of section 4975 (relating to tax on 
        prohibited transactions) is amended by adding at the end the 
        following new paragraph:
            ``(6) Special rule for ffarrm accounts.--A person for whose 
        benefit a FFARRM Account (within the meaning of section 
        468C(d)) is established shall be exempt from the tax imposed by 
        this section with respect to any transaction concerning such 
        account (which would otherwise be taxable under this section) 
        if, with respect to such transaction, the account ceases to be 
        a FFARRM Account by reason of the application of section 
        468C(f)(3)(A) to such account.''.
            (2) Paragraph (1) of section 4975(e) is amended by 
        redesignating subparagraphs (E) and (F) as subparagraphs (F) 
        and (G), respectively, and by inserting after subparagraph (D) 
        the following new subparagraph:
                    ``(E) a FFARRM Account described in section 
                468C(d),''.
    (d) Failure To Provide Reports on FFARRM Accounts.--Paragraph (2) 
of section 6693(a) (relating to failure to provide reports on certain 
tax-favored accounts or annuities) is amended by redesignating 
subparagraphs (C) and (D) as subparagraphs (D) and (E), respectively, 
and by inserting after subparagraph (B) the following new subparagraph:
                    ``(C) section 468C(g) (relating to FFARRM 
                Accounts),''.
    (e) Clerical Amendment.--The table of sections for subpart C of 
part II of subchapter E of chapter 1 is amended by inserting after the 
item relating to section 468B the following new item:

                              ``Sec. 468C. Farm, Fishing and Ranch Risk 
                                        Management Accounts.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.
                                 <all>