[Congressional Record Volume 141, Number 109 (Friday, June 30, 1995)]
[Senate]
[Pages S9517-S9540]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

  By Mr. PRYOR (for himself, Mr. Hatch, Mr. Breaux and Mr. Leahy): S. 
1006. A bill to amend the Internal Revenue Code of 1986 to simplify the 
pension laws, and for other purposes; to the Committee on Finance.


                 THE PENSION SIMPLIFICATION ACT OF 1995

  Mr. PRYOR. Mr. President, today I rise to introduce the Pension 
Simplification Act of 1995. This very important legislation is designed 
to simplify the tax laws governing our Nation's private retirement 
system.
  This legislation is the result of the efforts of many, and these 
efforts date back to March of 1990 when I first held hearings in the 
Finance subcommittee on private retirement plans.
  Later, in the summer of 1990, I introduced the Employee Benefits 
Simplification Act, S. 2901. As a matter of history, many experts, 
including pension planners for small and large businesses, logged 
countless hours to help me develop this legislation, and many 
organizations pushed to get this legislation enacted into law.
  In the 102d Congress, I reintroduced this legislation as the Employee 
Benefits Simplification and Expansion Act of 1991. In early 1992, this 
legislation was included in the Tax Fairness and Economic Growth Act of 
1992, which was H.R. 4210, and which was passed by the Congress, but it 
was vetoed by President Bush for reasons not associated with this 
particular piece of the overall tax bill.
  During the summer of 1992, portions of the simplification effort were 
passed as part of the 1992 Unemployment Compensation Act. This 
legislation was then designed to liberalize the rollover rules which 
allow the worker the ability to take his pension benefits with him or 
her when they change jobs.
  Later that year, the remainder of the simplification bill was 
included as part of the Revenue Act of 1992, which was H.R. 11, also 
passed by Congress, also vetoed by President Bush for reasons not 
related to the substance of this legislation.
  Since that time, there has been no tax bill which could include the 
as-yet-unpassed provisions of the simplification effort.
  Today, Mr. President, I am very happy to be joined by Senator Orrin 
Hatch of Utah, Senator Breaux of Louisiana, and Senator Leahy of 
Vermont in introducing this legislation as the Pension Simplification 
Act of 1995. This bill includes many of the provisions passed two times 
by Congress in 1992, but it also includes some very new and important 
provisions, which evidences our continuing effort to simplify the very 
complex and arcane pension rules. To some, this in itself is an 
extremely arcane issue, but to small businesses across our great 
country it is a critical part of doing business. And it is that part of 
business which provides for savings and retirement funds ultimately for 
millions of employees.
  This act is the next significant step toward reducing the costs 
associated with providing pension benefits. The legislation achieves 
this result by eliminating many of the complexities and the 
inconsistencies in the private pension system which will in turn 
promote the establishment of new pension plans by both large and small 
companies.
  While this legislation affects both small and large businesses, who 
provide retirement plans for their workers, new provisions in this bill 
specifically target complex and costly rules affecting small business, 
and there is very good reason for this action in this legislation.
  In 1993, 83 percent of the companies with 100 or more employees 
offered some type of retirement plan. In contrast, in businesses with 
fewer than 25 employees, only 19 percent of those firms had an 
employer-provided pension plan available to them, and only 15 percent 
of these employees even participated in those plans.
  The major factor contributing to this dismal statistic is the sky-
high per-participant cost of establishing and maintaining a pension 
plan for small business. The Pension Simplification Act alleviates the 
high-cost barriers for small business by creating a tax credit which 
can be applied toward the start-up costs of providing a new plan for 
employers with 50 or fewer employees. Of course, this is geared toward 
and focused on small business.
  Next, the legislation slashes extensive annual nondiscrimination 
testing requirements for firms where no employee is highly compensated. 
These provisions, Mr. President, combined with the broad simplification 
provisions for all plans, will significantly reduce the costs of 
starting up and maintaining a retirement plan. Thus, this bill we are 
introducing today encourages private retirement savings for our 
Nation's small business worker.
  Mr. President, rather than continuing a discussion of the many 
detailed provisions of the Pension Simplification Act of 1995, I ask 
unanimous consent that a 5-page summary of the legislation and a copy 
of the Pension Simplification Act of 1995 be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:
                                S. 1006

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

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

       (a) Short Title.--This Act may be cited as the ``Pension 
     Simplification Act of 1995''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--The table of contents of this Act 
     is as follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents.

        TITLE I--SIMPLIFICATION OF NONDISCRIMINATION PROVISIONS

Sec. 101. Definition of highly compensated employees; repeal of family 
              aggregation.
Sec. 102. Definition of compensation for section 415 purposes.
Sec. 103. Modification of additional participation requirements.
Sec. 104. Nondiscrimination rules for qualified cash or deferred 
              arrangements and matching contributions.

                TITLE II--SIMPLIFIED DISTRIBUTION RULES

Sec. 201. Repeal of 5-year income averaging for lump-sum distributions.
Sec. 202. Repeal of $5,000 exclusion of employees' death benefits.
Sec. 203. Simplified method for taxing annuity distributions under 
              certain employer plans.
Sec. 204. Required distributions.

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

Sec. 301. Credit for pension plan start-up costs of small employers.
Sec. 302. Modifications of simplified employee pensions.
Sec. 303. Exemption from top-heavy plan requirements.

[[Page S9518]]

Sec. 304. Tax-exempt organizations eligible under section 401(k).
Sec. 305. Regulatory treatment of small employers.

                     TITLE IV--PAPERWORK REDUCTION

Sec. 401. Repeal of combined section 415 limit.
Sec. 402. Duties of sponsors of certain prototype plans.

                 TITLE V--MISCELLANEOUS SIMPLIFICATION

Sec. 501. Treatment of leased employees.
Sec. 502. Plans covering self-employed individuals.
Sec. 503. Elimination of special vesting rule for multiemployer plans.
Sec. 504. Full-funding limitation of multiemployer plans.
Sec. 505. Alternative full-funding limitation.
Sec. 506. Affiliated employers.
Sec. 507. Treatment of governmental plans under section 415.
Sec. 508. Treatment of deferred compensation plans of State and local 
              governments and tax-exempt organizations.
Sec. 509. Contributions on behalf of disabled employees.
Sec. 510. Distributions under rural cooperative plans.
Sec. 511. Special rules for plans covering pilots.
Sec. 512. Tenured faculty.
Sec. 513. Uniform retirement age.
Sec. 514. Uniform penalty provisions to apply to certain pension 
              reporting requirements.
Sec. 515. National Commission on Private Pension Plans.
Sec. 516. Date for adoption of plan amendments.
        TITLE I--SIMPLIFICATION OF NONDISCRIMINATION PROVISIONS

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

       (a) In General.--Paragraph (1) of section 414(q) (defining 
     highly compensated employee) is amended to read as follows:
       ``(1) In general.--The term `highly compensated employee' 
     means any employee who--
       ``(A) was a 5-percent owner at any time during the year or 
     the preceding year,
       ``(B) had compensation for the preceding year from the 
     employer in excess of $80,000, or
       ``(C) was the most highly compensated officer of the 
     employer for the preceding year.

     The Secretary shall adjust the $80,000 amount under 
     subparagraph (B) at the same time and in the same manner as 
     under section 415(d), except that the base period shall be 
     the calendar quarter beginning October 1, 1995.''
       (b) Special Rule Where No Employee Has Compensation Over 
     Specified Amount.--Paragraph (2) of section 414(q) is amended 
     to read as follows:
       ``(2) Special rule if no employee has compensation over 
     specified amount.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     if a defined benefit plan or a defined contribution plan 
     meets the requirements of sections 401(a)(4) and 410(b) with 
     respect to the availability of contributions, benefits, and 
     other plan features, then for all other purposes, 
     subparagraphs (A) and (C) of paragraph (1) shall not apply to 
     such plan.
       ``(B) Exception.--Subparagraph (A) shall not apply to a 
     plan to the extent provided in regulations that are 
     prescribed by the Secretary to prevent the evasion of the 
     purposes of this paragraph.''
       (c) Repeal of Family Aggregation Rules.--
       (1) In general.--Paragraph (6) of section 414(q) is hereby 
     repealed.
       (2) Compensation limit.--Paragraph (17)(A) of section 
     401(a) is amended by striking the last sentence.
       (3) Deduction.--Subsection (l) of section 404 is amended by 
     striking the last sentence.
       (d) Conforming Amendments.--
       (1) Paragraphs (4), (5), (8), and (12) of section 414(q) 
     are hereby repealed.
       (2)(A) Section 414(r) is amended by adding at the end the 
     following new paragraph:
       ``(9) Excluded employees.--For purposes of this subsection, 
     the following employees shall be excluded:
       ``(A) Employees who have not completed 6 months of service.
       ``(B) Employees who normally work less than 17\1/2\ hours 
     per week.
       ``(C) Employees who normally work not more than 6 months 
     during any year.
       ``(D) Employees who have not attained the age of 21.
       ``(E) Except to the extent provided in regulations, 
     employees who are included in a unit of employees covered by 
     an agreement which the Secretary of Labor finds to be a 
     collective bargaining agreement between employee 
     representatives and the employer.

     Except as provided by the Secretary, the employer may elect 
     to apply subparagraph (A), (B), (C), or (D) by substituting a 
     shorter period of service, smaller number of hours or months, 
     or lower age for the period of service, number of hours or 
     months, or age (as the case may be) specified in such 
     subparagraph.''
       (B) Subparagraph (A) of section 414(r)(2) is amended by 
     striking ``subsection (q)(8)'' and inserting ``paragraph 
     (9)''.
       (3) Section 1114(c)(4) of the Tax Reform Act of 1986 is 
     amended by adding at the end the following new sentence: 
     ``Any reference in this paragraph to section 414(q) shall be 
     treated as a reference to such section as in effect before 
     the Pension Simplification Act of 1995.''
       (e) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1995, 
     except that in determining whether an employee is a highly 
     compensated employee for years beginning in 1996, such 
     amendments shall be treated as having been in effect for 
     years beginning in 1995.

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

       (a) General Rule.--Section 415(c)(3) (defining 
     participant's compensation) is amended by adding at the end 
     the following new subparagraph:
       ``(D) Certain deferrals included.--For purposes of this 
     section, the terms `compensation' and `earned income' shall 
     include--
       ``(i) any elective deferral (as defined in section 
     402(g)(3)), and
       ``(ii) any amount which is contributed by the employer of 
     the election of the employee and which is not includible in 
     the gross income of the employee under section 125 or 457.''
       (b) Conforming Amendments.--
       (1) Section 414(q)(7) is amended to read as follows:
       ``(7) Compensation.--For purposes of this subsection, the 
     term `compensation' has the meaning given such term by 
     section 415(c)(3).''
       (2) Section 414(s)(2) is amended by inserting ``not'' after 
     ``elect'' in the text and heading thereof.
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1995.

     SEC. 103. MODIFICATION OF ADDITIONAL PARTICIPATION 
                   REQUIREMENTS.

       (a) General Rule.--Section 401(a)(26)(A) (relating to 
     additional participation requirements) is amended to read as 
     follows:
       ``(A) In general.--In the case of a trust which is a part 
     of a defined benefit plan, such trust shall not constitute a 
     qualified trust under this subsection unless on each day of 
     the plan year such trust benefits at least the lesser of--
       ``(i) 50 employees of the employer, or
       ``(ii) the greater of--
       ``(I) 40 percent of all employees of the employer, or
       ``(II) 2 employees (or if there is only 1 employee, such 
     employee).''
       (b) Separate Line of Business Test.--Section 401(a)(26)(G) 
     (relating to separate line of business) is amended by 
     striking ``paragraph (7)'' and inserting ``paragraph (2)(A) 
     or (7)''.
       (c) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 1995.

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

       (a) Alternative Methods of Satisfying Section 401(k) 
     Nondiscrimination Tests.--Section 401(k) (relating to cash or 
     deferred arrangements) is amended by adding at the end the 
     following new paragraph:
       ``(11) Alternative methods of meeting nondiscrimination 
     requirements.--
       ``(A) In general.--A cash or deferred arrangement shall be 
     treated as meeting the requirements of paragraph (3)(A)(ii) 
     if such arrangement--
       ``(i) meets the contribution requirements of subparagraph 
     (B) or (C), and
       ``(ii) meets the notice requirements of subparagraph (D).
       ``(B) Matching contributions.--
       ``(i) In general.--The requirements of this subparagraph 
     are met if, under the arrangement, the employer makes 
     matching contributions on behalf of each employee who is not 
     a highly compensated employee in an amount equal to--

       ``(I) 100 percent of the elective contributions of the 
     employee to the extent such elective contributions do not 
     exceed 3 percent of the employee's compensation, and
       ``(II) 50 percent of the elective contributions of the 
     employee to the extent that such elective contributions 
     exceed 3 percent but do not exceed 5 percent of the 
     employee's compensation.

       ``(ii) Rate for highly compensated employees.--The 
     requirements of this subparagraph are not met if, under the 
     arrangement, the matching contribution with respect to any 
     elective contribution of a highly compensated employee at any 
     level of compensation is greater than that with respect to an 
     employee who is not a highly compensated employee.
       ``(iii) Alternative plan designs.--If the matching 
     contribution with respect to any elective contribution at any 
     specific level of compensation is not equal to the percentage 
     required under clause (i), an arrangement shall not be 
     treated as failing to meet the requirements of clause (i) 
     if--

       ``(I) the level of an employer's matching contribution does 
     not increase as an employee's elective contributions 
     increase, and
       ``(II) the aggregate amount of matching contributions with 
     respect to elective contributions not in excess of such level 
     of compensation is at least equal to the amount of matching 
     contributions which would be made if matching contributions 
     were made on the basis of the percentages described in clause 
     (i).

       ``(C) Nonelective contributions.--The requirements of this 
     subparagraph are met if, 

[[Page S9519]]
     under the arrangement, the employer is required, without regard to 
     whether the employee makes an elective contribution or 
     employee contribution, to make a contribution to a defined 
     contribution plan on behalf of each employee who is not a 
     highly compensated employee and who is eligible to 
     participate in the arrangement in an amount equal to at least 
     3 percent of the employee's compensation.
       ``(D) Notice requirement.--An arrangement meets the 
     requirements of this paragraph if, under the arrangement, 
     each employee eligible to participate is, within a reasonable 
     period before any year, given written notice of the 
     employee's rights and obligations under the arrangement 
     which--
       ``(i) is sufficiently accurate and comprehensive to 
     appraise the employee of such rights and obligations, and
       ``(ii) is written in a manner calculated to be understood 
     by the average employee eligible to participate.
       ``(E) Other requirements.--
       ``(i) Withdrawal and vesting restrictions.--An arrangement 
     shall not be treated as meeting the requirements of 
     subparagraph (B) or (C) unless the requirements of 
     subparagraphs (B) and (C) of paragraph (2) are met with 
     respect to all employer contributions (including matching 
     contributions).
       ``(ii) Social security and similar contributions not taken 
     into account.--An arrangement shall not be treated as meeting 
     the requirements of subparagraph (B) or (C) unless such 
     requirements are met without regard to subsection (l), and, 
     for purposes of subsection (l), employer contributions under 
     subparagraph (B) or (C) shall not be taken into account.
       ``(F) Other plans.--An arrangement shall be treated as 
     meeting the requirements under subparagraph (A)(i) if any 
     other plan maintained by the employer meets such requirements 
     with respect to employees eligible under the arrangement.''
       (b) Alternative Methods of Satisfying Section 401(m) 
     Nondiscrimination Tests.--Section 401(m) (relating to 
     nondiscrimination test for matching contributions and 
     employee contributions) is amended by redesignating paragraph 
     (10) as paragraph (11) and by adding after paragraph (9) the 
     following new paragraph:
       ``(10) Alternative method of satisfying tests.--
       ``(A) In general.--A defined contribution plan shall be 
     treated as meeting the requirements of paragraph (2) with 
     respect to matching contributions if the plan--
       ``(i) meets the contribution requirements of subparagraph 
     (B) or (C) of subsection (k)(11),
       ``(ii) meets the notice requirements of subsection 
     (k)(11)(D), and
       ``(iii) meets the requirements of subparagraph (B).
       ``(B) Limitation on matching contributions.--The 
     requirements of this subparagraph are met if--
       ``(i) matching contributions on behalf of any employee may 
     not be made with respect to an employee's contributions or 
     elective deferrals in excess of 6 percent of the employee's 
     compensation,
       ``(ii) the level of an employer's matching contribution 
     does not increase as an employee's contributions or elective 
     deferrals increase, and
       ``(iii) the matching contribution with respect to any 
     highly compensated employee at a specific level of 
     compensation is not greater than that with respect to an 
     employee who is not a highly compensated employee.''
       (c) Year for Computing Nonhighly Compensated Employee 
     Percentage.--
       (1) Cash or deferred arrangements.--Clause (ii) of section 
     401(k)(3)(A) is amended--
       (A) by striking ``such year'' and inserting ``the plan 
     year'', and
       (B) by striking ``for such plan year'' and inserting ``the 
     preceding plan year''.
       (2) Matching and employee contributions.--Section 
     401(m)(2)(A) is amended--
       (A) by inserting ``for such plan year'' after ``highly 
     compensated employee'', and
       (B) by inserting ``for the preceding plan year'' after 
     ``eligible employees'' each place it appears in clause (i) 
     and clause (ii).
       (d) Special Rule for Determining Average Deferral 
     Percentage for First Plan Year, Etc.--
       (1) Paragraph (3) of section 401(k) is amended by adding at 
     the end the following new subparagraph:
       ``(E) For purposes of this paragraph, in the case of the 
     first plan year of any plan, the amount taken into account as 
     the actual deferral percentage of nonhighly compensated 
     employees for the preceding plan year shall be--
       ``(i) 3 percent, or
       ``(ii) if the employer makes an election under this 
     subclause, the actual deferral percentage of nonhighly 
     compensated employees determined for such first plan year.''
       (2) Paragraph (3) of section 401(m) is amended by adding at 
     the end thereof the following: ``Rules similar to the rules 
     of subsection (k)(3)(E) shall apply for purposes of this 
     subsection.''
       (e) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1995.
                TITLE II--SIMPLIFIED DISTRIBUTION RULES

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

       (a) In General.--Subsection (d) of section 402 (relating to 
     taxability of beneficiary of employees' trust) is amended to 
     read as follows:
       ``(d) Taxability of Beneficiary of Certain Foreign Situs 
     Trusts.--For purposes of subsections (a), (b), and (c), a 
     stock bonus, pension, or profit-sharing trust which would 
     qualify for exemption from tax under section 501(a) except 
     for the fact that it is a trust created or organized outside 
     the United States shall be treated as if it were a trust 
     exempt from tax under section 501(a).''
       (b) Conforming Amendments.--
       (1) Subparagraph (D) of section 402(e)(4) (relating to 
     other rules applicable to exempt trusts) is amended to read 
     as follows:
       ``(D) Lump-sum distribution.--For purposes of this 
     paragraph--
       ``(i) In general.--The term `lump sum distribution' means 
     the distribution or payment within one taxable year of the 
     recipient of the balance to the credit of an employee which 
     becomes payable to the recipient--

       ``(I) on account of the employee's death,
       ``(II) after the employee attains age 59\1/2\,
       ``(III) on account of the employee's separation from 
     service, or
       ``(IV) after the employee has become disabled (within the 
     meaning of section 72(m)(7)),

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

       ``(I) all trusts which are part of a plan shall be treated 
     as a single trust, all pension plans maintained by the 
     employer shall be treated as a single plan, all profit-
     sharing plans maintained by the employer shall be treated as 
     a single plan, and all stock bonus plans maintained by the 
     employer shall be treated as a single plan, and
       ``(II) trusts which are not qualified trusts under section 
     401(a) and annuity contracts which do not satisfy the 
     requirements of section 404(a)(2) shall not be taken into 
     account.

       ``(iii) Community property laws.--The provisions of this 
     paragraph shall be applied without regard to community 
     property laws.
       ``(iv) Amounts subject to penalty.--This paragraph shall 
     not apply to amounts described in subparagraph (A) of section 
     72(m)(5) to the extent that section 72(m)(5) applies to such 
     amounts.
       ``(v) Balance to credit of employee not to include amounts 
     payable under qualified domestic relations order.--For 
     purposes of this paragraph, the balance to the credit of an 
     employee shall not include any amount payable to an alternate 
     payee under a qualified domestic relations order (within the 
     meaning of section 414(p)).
       ``(vi) Transfers to cost-of-living arrangement not treated 
     as distribution.--For purposes of this paragraph, the balance 
     to the credit of an employee under a defined contribution 
     plan shall not include any amount transferred from such 
     defined contribution plan to a qualified cost-of-living 
     arrangement (within the meaning of section 415(k)(2)) under a 
     defined benefit plan.
       ``(vii) Lump-sum distributions of alternate payees.--If any 
     distribution or payment of the balance to the credit of an 
     employee would be treated as a lump-sum distribution, then, 
     for purposes of this paragraph, the payment under a qualified 
     domestic relations order (within the meaning of section 
     414(p)) of the balance to the credit of an alternate payee 
     who is the spouse or former spouse of the employee shall be 
     treated as a lump-sum distribution. For purposes of this 
     clause, the balance to the credit of the alternate payee 
     shall not include any amount payable to the employee.''
       (2) Section 402(c) (relating to rules applicable to 
     rollovers from exempt trusts) is amended by striking 
     paragraph (10).
       (3) Paragraph (1) of section 55(c) (defining regular tax) 
     is amended by striking ``shall not include any tax imposed by 
     section 402(d) and''.
       (4) Paragraph (8) of section 62(a) (relating to certain 
     portion of lump-sum distributions from pension plans taxed 
     under section 402(d)) is hereby repealed.
       (5) Section 401(a)(28)(B) (relating to coordination with 
     distribution rules) is amended by striking clause (v).
       (6) Subparagraph (B)(ii) of section 401(k)(10) (relating to 
     distributions that must be lump-sum distributions) is amended 
     to read as follows:
       ``(ii) Lump-sum distribution.--For purposes of this 
     subparagraph, the term `lump-sum distribution' means any 
     distribution of the balance to the credit of an employee 
     immediately before the distribution.''
       (7) Section 406(c) (relating to termination of status as 
     deemed employee not to be treated as separation from service 
     for purposes of limitation of tax) is hereby repealed.

[[Page S9520]]

       (8) Section 407(c) (relating to termination of status as 
     deemed employee not to be treated as separation from service 
     for purposes of limitation of tax) is hereby repealed.
       (9) Section 691(c) (relating to deduction for estate tax) 
     is amended by striking paragraph (5).
       (10) Paragraph (1) of section 871(b) (relating to 
     imposition of tax) is amended by striking ``section 1, 55, or 
     402(d)(1)'' and inserting ``section 1 or 55''.
       (11) Subsection (b) of section 877 (relating to alternative 
     tax) is amended by striking ``section 1, 55, or 402(d)(1)'' 
     and inserting ``section 1 or 55''.
       (12) Section 4980A(c)(4) is amended--
       (A) by striking ``to which an election under section 
     402(d)(4)(B) applies'' and inserting ``(as defined in section 
     402(e)(4)(D)) with respect to which the individual elects to 
     have this paragraph apply'',
       (B) by adding at the end the following new flush sentence:

     ``An individual may elect to have this paragraph apply to 
     only one lump-sum distribution.'', and
       (C) by striking the heading and inserting:
       ``(4) Special one-time election.--''.
       (13) Section 402(e) is amended by striking paragraph (5).
       (c) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years beginning after December 31, 1995.
       (2) Retention of certain transition rules.--Notwithstanding 
     any other provision of this section, the amendments made by 
     this section shall not apply to any distribution for which 
     the taxpayer elects the benefits of section 1122 (h)(3) or 
     (h)(5) of the Tax Reform Act of 1986. For purposes of the 
     preceding sentence, the rules of sections 402(c)(10) and 
     402(d) of the Internal Revenue Code of 1986 (as in effect 
     before the amendments made by this Act) shall apply.

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

       (a) In General.--Subsection (b) of section 101 is hereby 
     repealed.
       (b) Conforming Amendment.--Subsection (c) of section 101 is 
     amended by striking ``subsection (a) or (b)'' and inserting 
     ``subsection (a)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

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

       (a) General Rule.--Subsection (d) of section 72 (relating 
     to annuities; certain proceeds of endowment and life 
     insurance contracts) is amended to read as follows:
       ``(d) Special Rules for Qualified Employer Retirement 
     Plans.--
       ``(1) Simplified method of taxing annuity payments.--
       ``(A) In general.--In the case of any amount received as an 
     annuity under a qualified employer retirement plan--
       ``(i) subsection (b) shall not apply, and
       ``(ii) the investment in the contract shall be recovered as 
     provided in this paragraph.
       ``(B) Method of recovering investment in contract.--
       ``(i) In general.--Gross income shall not include so much 
     of any monthly annuity payment under a qualified employer 
     retirement plan as does not exceed the amount obtained by 
     dividing--

       ``(I) the investment in the contract (as of the annuity 
     starting date), by
       ``(II) the number of anticipated payments determined under 
     the table contained in clause (iii) (or, in the case of a 
     contract to which subsection (c)(3)(B) applies, the number of 
     monthly annuity payments under such contract).

       ``(ii) Certain rules made applicable.--Rules similar to the 
     rules of paragraphs (2) and (3) of subsection (b) shall apply 
     for purposes of this paragraph.
       ``(iii) Number of anticipated payments.--

``If the age of the primary annuiThe number of anticipated payments is:
    Not more than 55..............................................300  
    More than 55 but not more than 60.............................260  
    More than 60 but not more than 65.............................240  
    More than 65 but not more than 70.............................170  
    More than 70..................................................120  

       ``(C) Adjustment for refund feature not applicable.--For 
     purposes of this paragraph, investment in the contract shall 
     be determined under subsection (c)(1) without regard to 
     subsection (c)(2).
       ``(D) Special rule where lump sum paid in connection with 
     commencement of annuity payments.--If, in connection with the 
     commencement of annuity payments under any qualified employer 
     retirement plan, the taxpayer receives a lump sum payment--
       ``(i) such payment shall be taxable under subsection (e) as 
     if received before the annuity starting date, and
       ``(ii) the investment in the contract for purposes of this 
     paragraph shall be determined as if such payment had been so 
     received.
       ``(E) Exception.--This paragraph shall not apply in any 
     case where the primary annuitant has attained age 75 on the 
     annuity starting date unless there are fewer than 5 years of 
     guaranteed payments under the annuity.
       ``(F) Adjustment where annuity payments not on monthly 
     basis.--In any case where the annuity payments are not made 
     on a monthly basis, appropriate adjustments in the 
     application of this paragraph shall be made to take into 
     account the period on the basis of which such payments are 
     made.
       ``(G) Qualified employer retirement plan.--For purposes of 
     this paragraph, the term `qualified employer retirement plan' 
     means any plan or contract described in paragraph (1), (2), 
     or (3) of section 4974(c).
       ``(2) Treatment of employee contributions under defined 
     contribution plans.--For purposes of this section, employee 
     contributions (and any income allocable thereto) under a 
     defined contribution plan may be treated as a separate 
     contract.''
       (b) Effective Date.--The amendment made by this section 
     shall apply in cases where the annuity starting date is after 
     December 31, 1995.

     SEC. 204. REQUIRED DISTRIBUTIONS.

       (a) In General.--Section 401(a)(9)(C) (defining required 
     beginning date) is amended to read as follows:
       ``(C) Required beginning date.--For purposes of this 
     paragraph--
       ``(i) In general.--The term `required beginning date' means 
     April 1 of the calendar year following the later of--

       ``(I) the calendar year in which the employee attains age 
     70\1/2\, or
       ``(II) the calendar year in which the employee retires.

       ``(ii) Exception.--Subclause (II) of clause (i) shall not 
     apply--

       ``(I) except as provided in section 409(d), in the case of 
     an employee who is a 5-percent owner (as defined in section 
     416) with respect to the plan year ending in the calendar 
     year in which the employee attains age 70\1/2\, or
       ``(II) for purposes of section 408 (a)(6) or (b)(3).

       ``(iii) Actuarial adjustment.--In the case of an employee 
     to whom clause (i)(II) applies who retires in a calendar year 
     after the calendar year in which the employee attains age 
     70\1/2\, the employee's accrued benefit shall be actuarially 
     increased to take into account the period after age 70\1/2\ 
     in which the employee was not receiving any benefits under 
     the plan.
       ``(iv) Exception for governmental and church plans.--
     Clauses (ii) and (iii) shall not apply in the case of a 
     governmental plan or church plan. For purposes of this 
     clause, the term `church plan' means a plan maintained by a 
     church for church employees, and the term `church' means any 
     church (as defined in section 3121(w)(3)(A)) or qualified 
     church-controlled organization (as defined in section 
     3121(w)(3)(B)).''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to years beginning after December 31, 1995.
    TITLE III--TARGETED ACCESS TO PENSION PLANS FOR SMALL EMPLOYERS

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

       (a) Allowance of Credit.--Section 38(b) (defining current 
     year business credit) is amended by striking ``plus'' at the 
     end of paragraph (10), by striking the period at the end of 
     paragraph (11) and inserting ``, plus'', and by adding at the 
     end the following new paragraph:
       ``(12) the small employer pension plan start-up cost 
     credit.''
       (b) Small Employer Pension Plan Start-Up Cost Credit.--
     Subpart D of part IV of subchapter A of chapter 1 (relating 
     to business related credits) is amended by adding at the end 
     the following new section:

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

       ``(a) Amount of Credit.--For purposes of section 38--
       ``(1) In general.--The small employer pension plan start-up 
     cost credit for any taxable year is an amount equal to the 
     qualified start-up costs of an eligible employer in 
     establishing a qualified pension plan.
       ``(2) Aggregate limitation.--The amount of the credit under 
     paragraph (1) for any taxable year shall not exceed $1,000, 
     reduced by the aggregate amount determined under this section 
     for all preceding taxable years of the taxpayer.
       ``(b) Qualified Start-Up Costs; Qualified Pension Plan.--
     For purposes of this section--
       ``(1) Qualified start-up costs.--The term `qualified start-
     up costs' means any ordinary and necessary expenses of an 
     eligible employer which--
       ``(A) are paid or incurred in connection with the 
     establishment of a qualified pension plan, and
       ``(B) are of a nonrecurring nature.
       ``(2) Qualified pension plan.--The term `qualified pension 
     plan' means--
       ``(A) a plan described in section 401(a) which includes a 
     trust exempt from tax under section 501(a), or
       ``(B) a simplified employee pension (as defined in section 
     408(k)).
       ``(c) Eligible Employer.--For purposes of this section--
       ``(1) In general.--The term `eligible employer' means an 
     employer which--
       ``(A) had an average daily number of employees during the 
     preceding taxable year not in excess of 50, and
       ``(B) did not make any contributions on behalf of any 
     employee to a qualified pension plan during the 2 taxable 
     years immediately preceding the taxable year.
       ``(2) Professional service employers excluded.--Such term 
     shall not include an employer substantially all of the 
     activities of which involve the performance of services in 

[[Page S9521]]
     the fields of health, law, engineering, architecture, accounting, 
     actuarial science, performing arts, or consulting.
       ``(d) Special Rules.--For purposes of this section--
       ``(1) Aggregation rules.--All persons treated as a single 
     employer under subsection (a) or (b) of section 52 or 
     subsection (n) or (o) of section 414 shall be treated as one 
     person.
       ``(2) Disallowance of deduction.--No deduction shall be 
     allowable under this chapter for any qualified start-up costs 
     for which a credit is allowable under subsection (a).''
       (c) Conforming Amendments.--
       (1) Section 39(d) is amended by adding at the end the 
     following new paragraph:
       ``(7) No carryback of pension credit.--No portion of the 
     unused business credit for any taxable year which is 
     attributable to the small employer pension plan start-up cost 
     credit determined under section 45C may be carried back to a 
     taxable year ending before the date of the enactment of 
     section 45C.''
       (2) The table of sections for subpart D of part IV of 
     subchapter A of chapter 1 is amended by adding at the end the 
     following new item:

``Sec. 45C. Small employer pension plan start-up cost credit.''

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

     SEC. 302. MODIFICATIONS OF SIMPLIFIED EMPLOYEE PENSIONS.

       (a) Increase in Number of Allowable Participants for Salary 
     Reduction Arrangements.--Section 408(k)(6)(B) is amended by 
     striking ``25'' each place it appears in the text and heading 
     thereof and inserting ``100''.
       (b) Repeal of Participation Requirement.--
       (1) In general.--Section 408(k)(6)(A) is amended by 
     striking clause (ii) and by redesignating clauses (iii) and 
     (iv) as clauses (ii) and (iii), respectively.
       (2) Conforming amendments.--Clause (ii) of section 
     408(k)(6)(C) and clause (ii) of section 408(k)(6)(F) are each 
     amended by striking ``subparagraph (A)(iii)'' and inserting 
     ``subparagraph (A)(ii)''.
       (c) Alternative Test.--Clause (ii) of section 408(k)(6)(A), 
     as redesignated by subsection (b)(1), is amended by adding at 
     the end the following new flush sentence:

     ``The requirements of the preceding sentence are met if the 
     employer makes contributions to the simplified employee 
     pension meeting the requirements of sections 401(k)(11) (B) 
     or (C), 401(k)(11)(D), and 401(m)(10)(B).''
       (d) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1995.

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

       (a) Exemption From Top-Heavy Plan Requirements.--Section 
     416(g) (defining top-heavy plans) is amended by adding at the 
     end the following new paragraph:
       ``(3) Exemption for certain plans.--A plan shall not be 
     treated as a top-heavy plan if, for such plan year, the 
     employer has no highly compensated employees (as defined in 
     section 414(q)) by reason of section 414(q)(2).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 1995.

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

       (a) General Rule.--Clause (ii) of section 401(k)(4)(B) is 
     amended to read as follows:
       ``(ii) any organization described in section 501(c)(3) 
     which is exempt from tax under section 501(a).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to plan years beginning after December 31, 1995, 
     but shall not apply to any cash or deferred arrangement to 
     which clause (i) of section 1116(f)(2)(B) of the Tax Reform 
     Act of 1986 applies.

     SEC. 305. REGULATORY TREATMENT OF SMALL EMPLOYERS.

       (a) In General.--Section 7805(f) (relating to review of 
     impact of regulations on small business) is amended by adding 
     at the end the following new subparagraph:
       ``(4) Special rule for pension regulations.--
       ``(A) In general.--Any regulation proposed to be issued by 
     the Secretary which relates to qualified pension plans shall 
     not take effect unless the Secretary includes provisions to 
     address any special needs of the small employers.
       ``(B) Qualified pension plan.--For purposes of this 
     paragraph, the term `qualified pension plan' means--
       ``(i) any plan which includes a trust described in section 
     401(a) which is exempt from tax under section 501(a), or
       ``(ii) any simplified employee pension (as defined in 
     section 408(k)).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to regulations issued after the date of the 
     enactment of this Act.
                     TITLE IV--PAPERWORK REDUCTION

     SEC. 401. REPEAL OF COMBINED SECTION 415 LIMIT.

       (a) In General.--Section 415(e) (relating to limitation in 
     case of defined benefit plan and defined contribution plan 
     for same employee) is hereby repealed.
       (b) Conforming Amendments.--
       (1) Subparagraph (B) of section 415(b)(5) is amended by 
     striking ``and subsection (e)''.
       (2) Section 415(f)(1) is amended by striking ``, (c), and 
     (e)'' and inserting ``and (c)''.
       (3) Section 415(g) is amended by striking ``subsections (e) 
     and (f)'' and inserting ``subsection (f)''.
       (4) Section 415(k)(2)(A) is amended--
       (A) by striking clause (i) and inserting:
       ``(i) any contribution made directly by an employee under 
     such arrangement shall not be treated as an annual addition 
     for purposes of subsection (c), and'', and
       (B) by striking ``subsections (c) and (e)'' in clause (ii) 
     and inserting ``subsection (c)''.
       (5) Section 416(h) is hereby repealed.
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1995.

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

       (a) In General.--The Secretary of the Treasury may, as a 
     condition of sponsorship, prescribe rules defining the duties 
     and responsibilities of sponsors of master and prototype 
     plans, regional prototype plans, and other Internal Revenue 
     Service preapproved plans.
       (b) Duties Relating to Plan Amendment, Notification of 
     Adopters, and Plan Administration.--The duties and 
     responsibilities referred to in subsection (a) may include--
       (1) the maintenance of lists of persons adopting the 
     sponsor's plans, including the updating of such lists not 
     less frequently than annually,
       (2) the furnishing of notices at least annually to such 
     persons and to the Secretary or the Secretary's delegate, in 
     such form and at such time as the Secretary shall prescribe,
       (3) duties relating to administrative services to such 
     persons in the operation of their plans, and
       (4) other duties that the Secretary considers necessary to 
     ensure that--
       (A) the master and prototype, regional prototype, and other 
     preapproved plans of adopting employers are timely amended to 
     meet the requirements of the Internal Revenue Code of 1986 or 
     of any rule or regulation of the Secretary, and
       (B) adopting employers receive timely notification of 
     amendments and other actions taken by sponsors with respect 
     to their plans.
                 TITLE V--MISCELLANEOUS SIMPLIFICATION

     SEC. 501. TREATMENT OF LEASED EMPLOYEES.

       (a) General Rule.--Subparagraph (C) of section 414(n)(2) 
     (defining leased employee) is amended to read as follows:
       ``(C) such services are performed under significant 
     direction or control by the recipient.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to years beginning after December 31, 1995, but 
     shall not apply to any relationship determined under an 
     Internal Revenue Service ruling issued before the date of the 
     enactment of this Act pursuant to section 414(n)(2)(C) of the 
     Internal Revenue Code of 1986 (as in effect on the day before 
     such date) not to involve a leased employee.

     SEC. 502. PLANS COVERING SELF-EMPLOYED INDIVIDUALS.

       (a) Aggregation Rules.--Section 401(d) (relating to 
     additional requirements for qualification of trusts and plans 
     benefiting owner-employees) is amended to read as follows:
       ``(d) Contribution Limit on Owner-Employees.--A trust 
     forming part of a pension or profit-sharing plan which 
     provides contributions or benefits for employees some or all 
     of whom are owner-employees shall constitute a qualified 
     trust under this section only if, in addition to meeting the 
     requirements of subsection (a), the plan provides that 
     contributions on behalf of any owner-employee may be made 
     only with respect to the earned income of such owner-employee 
     which is derived from the trade or business with respect to 
     which such plan is established.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1995.

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

       (a) In General.--Paragraph (2) of section 411(a) (relating 
     to minimum vesting standards) is amended--
       (1) by striking ``subparagraph (A), (B), or (C)'' and 
     inserting ``subparagraph (A) or (B)''; and
       (2) by striking subparagraph (C).
       (b) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning on or after the earlier 
     of--
       (1) the later of--
       (A) January 1, 1996, or
       (B) the date on which the last of the collective bargaining 
     agreements pursuant to which the plan is maintained 
     terminates (determined without regard to any extension 
     thereof after the date of the enactment of this Act), or
       (2) January 1, 1998.

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

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

       (a) Full-Funding Limitation.--Section 412(c)(7)(C) 
     (relating to full-funding limitation) is amended--
       (1) by inserting ``or in the case of a multiemployer 
     plan,'' after ``paragraph (6)(B),'', and
       (2) by inserting ``and multiemployer plans'' after 
     ``paragraph (6)(b)'' in the heading thereof.

[[Page S9522]]

       (b) Valuation.--Section 412(c)(9) is amended--
       (1) by inserting ``(3 years in the case of a multiemployer 
     plan)'' after ``year'', and
       (2) by striking ``Annual valuation'' in the heading and 
     inserting ``Valuation''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1995.

     SEC. 505. ALTERNATIVE FULL-FUNDING LIMITATION.

       (a) In General.--Subsection (c) of section 412 (relating to 
     minimum funding standards) is amended by redesignating 
     paragraphs (8) through (12) as paragraphs (9) through (13), 
     respectively, and by adding after paragraph (7) the following 
     new paragraph:
       ``(8) Alternative full-funding limitation.--
       ``(A) General rule.--An employer may elect the full-funding 
     limitation under this paragraph with respect to any defined 
     benefit plan of the employer in lieu of the full-funding 
     limitation determined under paragraph (7) if the requirements 
     of subparagraphs (C) and (D) are met.
       ``(B) Alternative full-funding limitation.--The full-
     funding limitation under this paragraph is the full-funding 
     limitation determined under paragraph (7) without regard to 
     subparagraph (A)(i)(I) thereof.
       ``(C) Requirements relating to plan eligibility.--
       ``(i) In general.--The requirements of this subparagraph 
     are met with respect to a defined benefit plan if--

       ``(I) as of the 1st day of the election period, the average 
     accrued liability of participants accruing benefits under the 
     plan for the 5 immediately preceding plan years is at least 
     80 percent of the plan's total accrued liability,
       ``(II) the plan is not a top-heavy plan (as defined in 
     section 416(g)) for the 1st plan year of the election period 
     or either of the 2 preceding plan years, and
       ``(III) each defined benefit plan of the employer (and each 
     defined benefit plan of each employer who is a member of any 
     controlled group which includes such employer) meets the 
     requirements of subclauses (I) and (II).

       ``(ii) Failure to continue to meet requirements.--

       ``(I) If any plan fails to meet the requirement of clause 
     (i)(I) for any plan year during an election period, the 
     benefits of the election under this paragraph shall be phased 
     out under regulations prescribed by the Secretary.
       ``(II) If any plan fails to meet the requirement of clause 
     (i)(II) for any plan year during an election period, such 
     plan shall be treated as not meeting the requirements of 
     clause (i) for the remainder of the election period.

     If there is a failure described in subclause (I) or (II) with 
     respect to any plan, such plan (and each plan described in 
     clause (i)(III) with respect to such plan) shall be treated 
     as not meeting the requirements of clause (i) for any of the 
     10 plan years beginning after the election period.
       ``(D) Requirements relating to election.--The requirements 
     of this subparagraph are met with respect to an election if--
       ``(i) Filing date.--Notice of such election is filed with 
     the Secretary (in such form and manner and containing such 
     information as the Secretary may provide) by January 1 of any 
     calendar year, and is effective as of the 1st day of the 
     election period beginning on or after January 1 of the 
     following calendar year.
       ``(ii) Consistent election.--Such an election is made for 
     all defined benefit plans maintained by the employer or by 
     any member of a controlled group which includes the employer.
       ``(E) Term of election.--Any election made under this 
     paragraph shall apply for the election period.
       ``(F) Other consequences of election.--
       ``(i) No funding waivers.--In the case of a plan with 
     respect to which an election is made under this paragraph, no 
     waiver may be granted under subsection (d) for any plan year 
     beginning after the date the election was made and ending at 
     the close of the election period with respect thereto.
       ``(ii) Failure to make successive elections.--If an 
     election is made under this paragraph with respect to any 
     plan and such an election does not apply for each successive 
     plan year of such plan, such plan shall be treated as not 
     meeting the requirements of subparagraph (C) for the period 
     of 10 plan years beginning after the close of the last 
     election period for such plan.
       ``(G) Definitions.--For purposes of this paragraph--
       ``(i) Election period.--The term `election period' means 
     the period of 5 consecutive plan years beginning with the 1st 
     plan year for which the election is made.
       ``(ii) Controlled group.--The term `controlled group' means 
     all persons who are treated as a single employer under 
     subsection (b), (c), (m), or (o) of section 414.''
       (b) Alteration of Discretionary Regulatory Authority.--
     Subparagraph (D) of section 412(c)(7) is amended by striking 
     ``provide--'' and all that follows through ``(iii) for'' and 
     inserting ``provide for''.
       (c) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     take effect on January 1, 1997.
       (2) Transition period.--In the case of a plan with respect 
     to which a transition period election is made under section 
     412(c)(8)(D)(ii) of the Internal Revenue Code of 1986 (as 
     added by this section), the amendments made by this section 
     shall take effect on July 1, 1996.

     SEC. 506. AFFILIATED EMPLOYERS.

       (a) In General.--For purposes of Treasury Regulations 
     section 1.501(c)(9)-2(a)(1), a group of employers shall be 
     deemed to be affiliated if they are substantially all section 
     501(c)(12) organizations which perform services (or with 
     respect to which their members perform services) which are 
     the same or are directly related to each other.
       (b) Section 501(c)(12) Organization.--For purposes of this 
     section, the term ``section 501(c)(12) organization'' means--
       (1) any organization described in section 501(c)(12) of the 
     Internal Revenue Code of 1986,
       (2) any organization providing a service which is the same 
     as a service which is (or could be) provided by an 
     organization described in paragraph (1),
       (3) any organization described in paragraph (4) or (6) of 
     section 501(c) of such Code, but only if at least 80 percent 
     of the members of the organization are organizations 
     described in paragraph (1) or (2), and
       (4) any organization which is a national association of 
     organizations described in paragraph (1), (2), or (3).

     An organization described in paragraph (2) (but not in 
     paragraph (1)) shall not be treated as a section 501(c)(12) 
     organization with respect to a voluntary employees' 
     beneficiary association unless a substantial number of 
     employers maintaining such association are described in 
     paragraph (1).
       (c) Effective Date.--The provisions of this section shall 
     apply to years beginning after December 31, 1995.

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

       (a) Compensation Limit.--Subsection (b) of section 415 is 
     amended by adding immediately after paragraph (10) the 
     following new paragraph:
       ``(11) Special limitation rule for governmental plans.--In 
     the case of a governmental plan (as defined in section 
     414(d)), subparagraph (B) of paragraph (1) shall not apply.''
       (b) Treatment of Certain Excess Benefit Plans.--
       (1) In general.--Section 415 is amended by adding at the 
     end the following new subsection:
       ``(m) Treatment of Qualified Governmental Excess Benefit 
     Arrangements.--
       ``(1) Governmental plan not affected.--In determining 
     whether a governmental plan (as defined in section 414(d)) 
     meets the requirements of this section, benefits provided 
     under a qualified governmental excess benefit arrangement 
     shall not be taken into account. Income accruing to a 
     governmental plan (or to a trust that is maintained solely 
     for the purpose of providing benefits under a qualified 
     governmental excess benefit arrangement) in respect of a 
     qualified governmental excess benefit arrangement shall 
     constitute income derived from the exercise of an essential 
     governmental function upon which such governmental plan (or 
     trust) shall be exempt from tax under section 115.
       ``(2) Taxation of participant.--For purposes of this 
     chapter--
       ``(A) the taxable year or years for which amounts in 
     respect of a qualified governmental excess benefit 
     arrangement are includible in gross income by a participant, 
     and
       ``(B) the treatment of such amounts when so includible by 
     the participant,

     shall be determined as if such qualified governmental excess 
     benefit arrangement were treated as a plan for the deferral 
     of compensation which is maintained by a corporation not 
     exempt from tax under this chapter and which does not meet 
     the requirements for qualification under section 401.
       ``(3) Qualified governmental excess benefit arrangement.--
     For purposes of this subsection, the term `qualified 
     governmental excess benefit arrangement' means a portion of a 
     governmental plan if--
       ``(A) such portion is maintained solely for the purpose of 
     providing to participants in the plan that part of the 
     participant's annual benefit otherwise payable under the 
     terms of the plan that exceeds the limitations on benefits 
     imposed by this section,
       ``(B) under such portion no election is provided at any 
     time to the participant (directly or indirectly) to defer 
     compensation, and
       ``(C) benefits described in subparagraph (A) are not paid 
     from a trust forming a part of such governmental plan unless 
     such trust is maintained solely for the purpose of providing 
     such benefits.''
       (2) Coordination with section 457.--Subsection (e) of 
     section 457 is amended by adding at the end the following new 
     paragraph:
       ``(14) Treatment of qualified governmental excess benefit 
     arrangements.--Subsections (b)(2) and (c)(1) shall not apply 
     to any qualified governmental excess benefit arrangement (as 
     defined in section 415(m)(3)), and benefits provided under 
     such an arrangement shall not be taken into account in 
     determining whether any other plan is an eligible deferred 
     compensation plan.''
       (3) Conforming amendment.--Paragraph (2) of section 457(f) 
     is amended by striking the word ``and'' at the end of 
     subparagraph (C), by striking the period after subparagraph 
     (D) and inserting ``, and'', and by adding at the end the 
     following new subparagraph:
       ``(E) a qualified governmental excess benefit arrangement 
     described in section 415(m).''

[[Page S9523]]

       (c) Exemption for Survivor and Disability Benefits.--
     Paragraph (2) of section 415(b) is amended by adding at the 
     end the following new subparagraph:
       ``(I) Exemption for survivor and disability benefits 
     provided under governmental plans.--Subparagraph (B) of 
     paragraph (1), subparagraph (C) of this paragraph, and 
     paragraph (5) shall not apply to--
       ``(i) income received from a governmental plan (as defined 
     in section 414(d)) as a pension, annuity, or similar 
     allowance as the result of the recipient becoming disabled by 
     reason of personal injuries or sickness, or
       ``(ii) amounts received from a governmental plan by the 
     beneficiaries, survivors, or the estate of an employee as the 
     result of the death of the employee.''
       (d) Revocation of Grandfather Election.--
       (1) In general.--Subparagraph (C) of section 415(b)(10) is 
     amended by adding at the end the following new clause:
       ``(ii) Revocation of election.--An election under clause 
     (i) may be revoked not later than the last day of the third 
     plan year beginning after the date of the enactment of this 
     clause. The revocation shall apply to all plan years to which 
     the election applied and to all subsequent plan years. Any 
     amount paid by a plan in a taxable year ending after the 
     revocation shall be includible in income in such taxable year 
     under the rules of this chapter in effect for such taxable 
     year, except that, for purposes of applying the limitations 
     imposed by this section, any portion of such amount which is 
     attributable to any taxable year during which the election 
     was in effect shall be treated as received in such taxable 
     year.''
       (2) Conforming amendment.--Subparagraph (C) of section 
     415(b)(10) is amended by striking ``This'' and inserting:
       ``(i) In general.--This''.
       (e) Effective Date.--
       (1) In general.--The amendments made by subsections (a), 
     (b), (c), and (d) shall apply to taxable years beginning on 
     or after the date of the enactment of this Act. The 
     amendments made by subsection (e) shall apply with respect to 
     revocations adopted after the date of the enactment of this 
     Act.
       (2) Treatment for years beginning before date of 
     enactment.--A governmental plan (as defined in section 414(d) 
     of the Internal Revenue Code of 1986) shall be treated as 
     satisfying the requirements of section 415 of such Code for 
     all taxable years beginning before the date of the enactment 
     of this Act.

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

       (a) Special Rules for Plan Distributions.--Paragraph (9) of 
     section 457(e) (relating to other definitions and special 
     rules) is amended to read as follows:
       ``(9) Benefits not treated as made available by reason of 
     certain elections, etc.--
       ``(A) Total amount payable is $3,500 or less.--The total 
     amount payable to a participant under the plan shall not be 
     treated as made available merely because the participant may 
     elect to receive such amount (or the plan may distribute such 
     amount without the participant's consent) if--
       ``(i) such amount does not exceed $3,500, and
       ``(ii) such amount may be distributed only if--

       ``(I) no amount has been deferred under the plan with 
     respect to such participant during the 2-year period ending 
     on the date of the distribution, and
       ``(II) there has been no prior distribution under the plan 
     to such participant to which this subparagraph applied.

     A plan shall not be treated as failing to meet the 
     distribution requirements of subsection (d) by reason of a 
     distribution to which this subparagraph applies.
       ``(B) Election to defer commencement of distributions.--The 
     total amount payable to a participant under the plan shall 
     not be treated as made available merely because the 
     participant may elect to defer commencement of distributions 
     under the plan if--
       ``(i) such election is made after amounts may be available 
     under the plan in accordance with subsection (d)(1)(A) and 
     before commencement of such distributions, and
       ``(ii) the participant may make only 1 such election.''
       (b) Cost-of-Living Adjustment of Maximum Deferral Amount.--
     Subsection (e) of section 457, as amended by section 
     507(c)(2), is amended by adding at the end the following new 
     paragraph:
       ``(15) Cost-of-living adjustment of maximum deferral 
     amount.--The Secretary shall adjust the $7,500 amount 
     specified in subsections (b)(2) and (c)(1) at the same time 
     and in the same manner as under section 415(d), except that 
     the base period shall be the calendar quarter beginning 
     October 1, 1994.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 509. CONTRIBUTIONS ON BEHALF OF DISABLED EMPLOYEES.

       (a) All Disabled Participants Receiving Contributions.--
     Section 415(c)(3)(C) is amended by adding at the end the 
     following: ``If a defined contribution plan provides for the 
     continuation of contributions on behalf of all participants 
     described in clause (i) for a fixed or determinable period, 
     this subparagraph shall be applied without regard to clauses 
     (ii) and (iii).''
       (b) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1995.

     SEC. 510. DISTRIBUTIONS UNDER RURAL COOPERATIVE PLANS.

       (a) Distributions for Hardship or After a Certain Age.--
     Section 401(k)(7) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Special rule for certain distributions.--A rural 
     cooperative plan which includes a qualified cash or deferred 
     arrangement shall not be treated as violating the 
     requirements of section 401(a) or of paragraph (2) merely by 
     reason of a hardship distribution or a distribution to a 
     participant after attainment of age 59\1/2\. For purposes of 
     this section, the term `hardship distribution' means a 
     distribution described in paragraph (2)(B)(i)(IV) (without 
     regard to the limit of its application to profit-sharing or 
     stock bonus plans).''
       (b) Definition of Rural Cooperative Plans.--
       (1) Public utility districts.--Clause (i) of section 
     401(k)(7)(B) (defining rural cooperative) is amended to read 
     as follows:
       ``(i) any organization which--

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

       (2) Related organizations.--Subparagraph (B) of section 
     401(k)(7), as amended by paragraph (1), is amended by 
     striking clause (iv) and inserting the following new clauses:
       ``(iv) an organization which is a national association of 
     organizations described in any other clause of this 
     subparagraph, or
       ``(v) any other organization which provides services which 
     are related to the activities or operations of an 
     organization described in clause (i), (ii), (iii), or (iv), 
     but only in the case of a plan with respect to which 
     substantially all of the organizations maintaining it are 
     described in clause (i), (ii), (iii), or (iv).''
       (c) Effective Dates.--
       (1) Distributions.--The amendments made by subsection (a) 
     shall apply to distributions after the date of the enactment 
     of this Act.
       (2) Rural cooperative.--The amendments made by subsection 
     (b) shall apply to plan years beginning after December 31, 
     1984.

     SEC. 511. SPECIAL RULES FOR PLANS COVERING PILOTS.

       (a) General Rule.--
       (1) Subparagraph (B) of section 410(b)(3) is amended to 
     read as follows:
       ``(B) in the case of a plan established or maintained by 
     one or more employers to provide contributions or benefits 
     for air pilots employed by one or more common carriers 
     engaged in interstate or foreign commerce or air pilots 
     employed by carriers transporting mail for or under contract 
     with the United States Government, all employees who are not 
     air pilots.''
       (2) Paragraph (3) of section 410(b) is amended by striking 
     the last sentence and inserting the following new sentence: 
     ``Subparagraph (B) shall not apply in the case of a plan 
     which provides contributions or benefits for employees who 
     are not air pilots or for air pilots whose principal duties 
     are not customarily performed aboard aircraft in flight.''
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to years beginning after December 31, 1995.

     SEC. 512. TENURED FACULTY.

       (a) In General.--Section 457(e)(11) is amended by inserting 
     ``eligible faculty voluntary retirement incentive pay,'' 
     after ``disability pay,''.
       (b) Definition.--Section 457(e), as amended by sections 
     507(c)(2) and 508(b), is amended by adding at the end the 
     following new paragraph:
       ``(16) Definition of eligible faculty voluntary retirement 
     incentive pay.--For purposes of this section, the term 
     `eligible faculty voluntary retirement incentive pay' means 
     payments under a plan established for employees serving under 
     contracts of unlimited tenure (or similar arrangements 
     providing for unlimited tenure) at an institution of higher 
     education (as defined in section 1201(a) of the Higher 
     Education Act of 1965 (20 U.S.C. 1141(a))) which--
       ``(A) provides--
       ``(i) payment to employees electing to retire during a 
     specified period of time of limited duration, or
       ``(ii) payment to employees who elect to retire prior to 
     normal retirement age,
       ``(B) provides that the total amount of payments to an 
     employee does not exceed the equivalent of twice the 
     employee's annual compensation (within the meaning of section 
     415(c)(3)) during the year immediately preceding the 
     employee's termination of service, and
       ``(C) provides that all payments to an employee must be 
     completed within 5 years after the employee's termination of 
     service.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1995.

     SEC. 513. UNIFORM RETIREMENT AGE.

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

[[Page S9524]]

       ``(F) Social security retirement age.--For purposes of 
     testing for discrimination under paragraph (4)--
       ``(i) the social security retirement age (as defined in 
     section 415(b)(8)) shall be treated as a uniform retirement 
     age, and
       ``(ii) subsidized early retirement benefits and joint and 
     survivor annuities shall not be treated as being unavailable 
     to employees on the same terms merely because such benefits 
     or annuities are based in whole or in part on an employee's 
     social security retirement age (as so defined).''
       (b) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1995.

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

       (a) In General.--
       (1) Paragraph (1) of section 6724(d) is amended by striking 
     ``and'' at the end of subparagraph (A), by striking the 
     period at the end of subparagraph (B) and inserting ``, 
     and'', and by inserting after subparagraph (B) the following 
     new subparagraph:
       ``(C) any statement of the amount of payments to another 
     person required to be made to the Secretary under--
       ``(i) section 408(i) (relating to reports with respect to 
     individual retirement accounts or annuities), or
       ``(ii) section 6047(d) (relating to reports by employers, 
     plan administrators, etc.).''
       (2) Paragraph (2) of section 6724(d) is amended by striking 
     ``or'' at the end of subparagraph (S), by striking the period 
     at the end of subparagraph (T) and inserting a comma, and by 
     inserting after subparagraph (T) the following new 
     subparagraphs:
       ``(U) section 408(i) (relating to reports with respect to 
     individual retirement plans) to any person other than the 
     Secretary with respect to the amount of payments made to such 
     person, or
       ``(V) section 6047(d) (relating to reports by plan 
     administrators) to any person other than the Secretary with 
     respect to the amount of payments made to such person.''
       (b) Modification of Reportable Designated Distributions.--
       (1) Section 408.--Subsection (i) of section 408 (relating 
     to individual retirement account reports) is amended by 
     inserting ``aggregating $10 or more in any calendar year'' 
     after ``distributions''.
       (2) Section 6047.--Paragraph (1) of section 6047(d) 
     (relating to reports by employers, plan administrators, etc.) 
     is amended by adding at the end thereof the following new 
     sentence: ``No return or report may be required under the 
     preceding sentence with respect to distributions to any 
     person during any year unless such distributions aggregate 
     $10 or more.''
       (c) Qualifying Rollover Distributions.--Section 6652(i) is 
     amended--
       (1) by striking ``the $10'' and inserting ``$100'', and
       (2) by striking ``$5,000'' and inserting ``$50,000''.
       (d) Conforming Amendments.--
       (1) Paragraph (1) of section 6047(f) is amended to read as 
     follows:
       ``(1) For provisions relating to penalties for failures to 
     file returns and reports required under this section, see 
     sections 6652(e), 6721, and 6722.''
       (2) Subsection (e) of section 6652 is amended by adding at 
     the end the following new sentence: ``This subsection shall 
     not apply to any return or statement which is an information 
     return described in section 6724(d)(1)(C)(ii) or a payee 
     statement described in section 6724(d)(2)(V).''
       (3) Subsection (a) of section 6693 is amended by adding at 
     the end the following new sentence: ``This subsection shall 
     not apply to any report which is an information return 
     described in section 6724(d)(1)(C)(i) or a payee statement 
     described in section 6724(d)(2)(U).''
       (e) Effective Date.--The amendments made by this section 
     shall apply to returns, reports, and other statements the due 
     date for which (determined without regard to extensions) is 
     after December 31, 1995.

     SEC. 515. NATIONAL COMMISSION ON PRIVATE PENSION PLANS.

       (a) In General.--Chapter 77 is amended by adding at the end 
     the following new section:

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

       ``(a) Establishment.--There is hereby established a 
     commission to be known as the National Commission on Private 
     Pension Plans (in this section referred to as the 
     `Commission').
       ``(b) Membership.--
       ``(1) The Commission shall consist of--
       ``(A) 6 members to be appointed by the President;
       ``(B) 6 members to be appointed by the Speaker of the House 
     of Representatives; and
       ``(C) 6 members to be appointed by the Majority Leader of 
     the Senate.
       ``(2) The appointments made pursuant to subparagraphs (B) 
     and (C) of paragraph (1) shall be made in consultation with 
     the chairmen of the committees of the House of 
     Representatives and the Senate, respectively, having 
     jurisdiction over relevant Federal pension programs.
       ``(c) Duties and Functions of Commission; Public Hearings 
     in Different Geographical Areas; Broad Spectrum of Witnesses 
     and Testimony.--
       ``(1) It shall be the duty and function of the Commission 
     to conduct the studies and issue the report required by 
     subsection (d).
       ``(2) The Commission (and any committees that it may form) 
     may conduct public hearings in order to receive the views of 
     a broad spectrum of the public on the status of the Nation's 
     private retirement system.
       ``(d) Report to the President and Congress; 
     Recommendations.--The Commission shall submit to the 
     President, to the Majority Leader and the Minority Leader of 
     the Senate, and to the Majority Leader and the Minority 
     Leader of the House of Representatives a report no later than 
     September 1, 1996, reviewing existing Federal incentives and 
     programs that encourage and protect private retirement 
     savings. The final report shall also set forth 
     recommendations where appropriate for increasing the level 
     and security of private retirement savings.
       ``(e) Time of Appointment of Members; Vacancies; Election 
     of Chairman; Quorum; Calling of Meetings; Number of Meetings; 
     Voting; Compensation and Expenses.--
       ``(1)(A) Members of the Commission shall be appointed for 
     terms ending on September 1, 1996.
       ``(B) A vacancy in the Commission shall not affect its 
     powers, but shall be filled in the same manner as the vacant 
     position was first filled.
       ``(2) The Commission shall elect 1 of its members to serve 
     as Chairman of the Commission.
       ``(3) A majority of the members of the Commission shall 
     constitute a quorum for the transaction of business.
       ``(4) The Commission shall meet at the call of the 
     Chairman.
       ``(5) Decisions of the Commission shall be according to the 
     vote of a simple majority of those present and voting at a 
     properly called meeting.
       ``(6) Members of the Commission shall serve without 
     compensation, but shall be reimbursed for travel, 
     subsistence, and other necessary expenses incurred in the 
     performance of their duties as members of the Commission.
       ``(f) Executive Director and Additional Personnel; 
     Appointment and Compensation; Consultants.--
       ``(1) The Commission shall appoint an Executive Director of 
     the Commission. In addition to the Executive Director, the 
     Commission may appoint and fix the compensation of such 
     personnel as it deems advisable. Such appointments and 
     compensation may be made without regard to the provisions of 
     title 5, United States Code, that govern appointments in the 
     competitive service, and the provisions of chapter 51 and 
     subchapter III of chapter 53 of such title that relate to 
     classifications and the General Schedule pay rates.
       ``(2) The Commission may procure such temporary and 
     intermittent services of consultants under section 3109(b) of 
     title 5, United States Code, as the Commission determines to 
     be necessary to carry out the duties of the Commission.
       ``(g) Time and Place of Hearings and Nature of Testimony 
     Authorized.--In carrying out its duties, the Commission, or 
     any duly organized committee thereof, is authorized to hold 
     such hearings, sit and act at such times and places, and take 
     such testimony, with respect to matters for which it has a 
     responsibility under this section, as the Commission or 
     committee may deem advisable.
       ``(h) Data and Information From Other Agencies and 
     Departments.--
       ``(1) The Commission may secure directly from any 
     department or agency of the United States such data and 
     information as may be necessary to carry out its 
     responsibilities.
       ``(2) Upon request of the Commission, any such department 
     or agency shall furnish any such data or information.
       ``(i) Support Services by General Services 
     Administration.--The General Services Administration shall 
     provide to the Commission, on a reimbursable basis, such 
     administrative support services as the Commission may 
     request.
       ``(j) Authorization of Appropriations.--There are 
     authorized to be appropriated for each of fiscal years 1995 
     and 1996, such sums as may be necessary to carry out this 
     section.
       ``(k) Donations Accepted and Deposited in Treasury in 
     Separate Fund; Expenditures.--
       ``(1) The Commission is authorized to accept donations of 
     money, property, or personal services. Funds received from 
     donations shall be deposited in the Treasury in a separate 
     fund created for this purpose. Funds appropriated for the 
     Commission and donated funds may be expended for such 
     purposes as official reception and representation expenses, 
     public surveys, public service announcements, preparation of 
     special papers, analyses, and documentaries, and for such 
     other purposes as determined by the Commission to be in 
     furtherance of its mission to review national issues 
     affecting private pension plans.
       ``(2) Expenditures of appropriated and donated funds shall 
     be subject to such rules and regulations as may be adopted by 
     the Commission and shall not be subject to Federal 
     procurement requirements.
       ``(l) Public Surveys.--The Commission is authorized to 
     conduct such public surveys as it deems necessary in support 
     of its review of national issues affecting private pension 
     plans and, in conducting such surveys, the Commission shall 
     not be deemed to be an ``agency'' for the purpose of section 
     3502 of title 44, United States Code.''
       (b) Conforming Amendment.--The table of sections for 
     chapter 77 is amended by adding at the end the following new 
     item:

``Sec. 7524. National Commission on Private Pension Plans.''

[[Page S9525]]


     SEC. 516. DATE FOR ADOPTION OF PLAN AMENDMENTS.

       If any amendment made by this Act requires an amendment to 
     any plan, such plan amendment shall not be required to be 
     made before the first day of the first plan year beginning on 
     or after January 1, 1997, if--
       (1) during the period after such amendment takes effect and 
     before such first plan year, the plan is operated in 
     accordance with the requirements of such amendment, and
       (2) such plan amendment applies retroactively to such 
     period.

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

                   Pension Simplification Act of 1995

       The Pension Simplification Act will provide greater access 
     to our private pension system by reducing the costs of 
     providing pension benefits. The Act achieves this result by 
     eliminating many of the unnecessary complexities in the Tax 
     Code. While the Act affects both large and small employers, 
     special provisions target small business where sponsorship of 
     a plan by an employer, and employee participation, is 
     historically very low.
       1. Simplification of the Definition of ``Highly Compensated 
     Employee''. Current law requires an employer to identify HCEs 
     using a 7-part test in order to ensure that HCEs do not 
     disproportionately benefit under the plan. The bill proposes 
     a simpler 3-part test to achieve this goal. Under the 
     proposal, an employee is an HCE if the employee (1) was a 5-
     percent owner at any time during the year or preceding year, 
     (2) has compensation for the preceding year in excess of 
     $80,000 (indexed), or (3) was the highest-paid officer during 
     the year (see #10 below which provides an exception to this 
     rule for certain small businesses).
       2. Repeal of the Family Aggregation Rules. The family 
     aggregation rules greatly complicate the application of the 
     nondiscrimination tests, particularly for family-owned or 
     operated businesses, and may unfairly reduce retirement 
     benefits for the family members who are not HCEs. The bill 
     eliminates the rule that requires certain HCEs and their 
     family members to be treated as a single employee.
       3. Simplify the Definition of ``Compensation'' under 
     Section 415. The general limit on a participant's annual 
     contributions is based on that individuals's taxable 
     compensation. The result is that pre-tax employee 
     contributions (e.g., to cafeteria plans) reduce the 
     participant's taxable compensation, and in turn, their 
     section 415 contribution limit. This rule makes it difficult 
     to communicate in advance the section 415 limit and it leads 
     to many inadvertent violations. Under the bill, pre-tax 
     employee contributions would be counted as compensation under 
     section 415.
       4. Exempt Defined Contribution Plans from the Minimum 
     Participation Rule. Every qualified plan currently must cover 
     at least 50 employee or, in smaller companies, 40% of all 
     employees of the employer. This rule is intended to prevent 
     the use of individual defined benefit plans to give high paid 
     employees better benefits than those provided to others under 
     a separate plan. Because the abuses addressed by the rule are 
     unlikely to arise in the context of defined contribution 
     plans, the rule adds unnecessary administrative burden and 
     complexity for defined contribution plans; therefore, the 
     bill repeals the rule for these plans.
       5. Section 401(k) Safe Harbor. Current law requires 
     complicated, annual comparisons between the level of 
     contributions to 401(k) plans made by HCEs and non-highly 
     compensated employees. First, the Act will eliminate end-of-
     year adjustments caused by employee population changes during 
     the year by providing a rule that the maximum contribution 
     for HCEs is determined by reference to NHCEs for the 
     preceding, rather than the current year. Second, the bill 
     provides two 401(k) plan designs which if offered by the 
     employer, will qualify the employer for a special safe 
     harbor, thus eliminating the need to do several annual, 
     complex discrimination tests that apply to traditional plans.
       6. Simplify Taxation of Annuity Distributions. A simplified 
     method for determining the nontaxable portion of an annuity 
     payment, similar to the current simplified alternative, would 
     become the required method. Taxpayers would no longer be 
     compelled to do calculations under multiple methods in order 
     to determine the most advantageous approach. Under the 
     simplified method, the portion of an annuity payment that 
     would be nontaxable is generally equal to the employees's 
     total after-tax contributions, divided by the number of 
     anticipated payments listed in a table (based on the 
     employee's age as of the annuity starting date).
       7. Repeal Rule Requiring Employer Plans to Commence Minimum 
     Distributions before Retirement. The Act repeals the current 
     law rule requiring distribution of benefits after a 
     participant reaches age 70\1/2\, even if he or she does not 
     retire. However, the current law rule will continue to apply 
     to 5% owners.
       8. Eliminate the Section 415(e) Combined Plan Limit. 
     Section 415(e) applies an overall limit on benefits and 
     contributions with respect to an individual who participates 
     in both a defined contribution plan and defined benefit plan 
     maintained by the same employer. These rules are extremely 
     complicated, and very burdensome to administer because they 
     require maintaining compensation and contribution records for 
     all employees for all years of service. Further, the test is 
     duplicative in that there are other provisions in the Code 
     which safeguard against an individual accruing excessive 
     retirement benefits on a tax-favored basis.
       9. Repeal 5-year Income Averaging for Lump-Sum 
     Distributions. The bill repeals the special rule that allows 
     a plan participant to calculate the current year tax on a 
     lump-sum pension distribution as if the amount were received 
     over a 5-year period. This special rule, designed to prevent 
     unfair ``bunching'' of income, is no longer needed because of 
     liberalized rollover rules enacted in 1992 (originally part 
     of the Pension Simplification Act) which allow for partial 
     distributions from a plan.
       10. Targeting Small Business. Retirement plan coverage 
     among employees of small employers is dismally low. The cost 
     of establishing a retirement plan is, in a significant way, 
     disproportionately high for small employers. The following 
     provisions will help to alleviate these barriers:
       Tax Credit for Start-Up Costs. Employers with less than 50 
     employees that have not maintained a qualified retirement 
     plan at any time during the immediately preceding two years, 
     would be eligible for an income tax credit (up to $1000) 
     equal to the cost of establishing a qualified plan.
       Elimination of the One-High-Paid Officer Rule. The highest 
     paid officer of an employer is considered an HCE under 
     current law. This rule is unfair for small employers with 
     low-wage workforces. For example, the highest paid officer of 
     a small employer may earn an amount less than $66,000 yet 
     that employee must be treated as highly compensated. The 
     result is that the nondiscrimination rules severely limit his 
     or her benefits. Thus many small employers decide not to 
     offer plans. The bill provides that no owners or employees 
     would be treated as highly compensated unless they received 
     compensation in excess of $80,000.
       Salary Reduction Simplified Employee Pensions (SEPs). The 
     Act adds the two design-based safe harbors, discussed in #5 
     above, as methods of satisfying the nondiscrimination 
     requirements for SEPs. Further, the Act provides that SEPs 
     may be established by employers with 100 or fewer employees, 
     instead of current law (25 or fewer employees), and the Act 
     repeals the requirement that at least half of eligible 
     employees actually participate in a salary reduction SEP.
       Exemption from Top Heavy Plan Requirements. Under the Act, 
     if no employee makes over $80,000 (indexed) in the preceding 
     year, the top heavy plan requirements do not apply for that 
     year.
       11. Permit Tax Exempt Organizations to Maintain 401(k) 
     Plans. Except for certain plans established before July 2, 
     1986, an organization exempt from income tax is not allowed 
     to maintain a 401(k) plan. This rule prevents many tax-exempt 
     organizations from offering their employees retirement 
     benefits on a salary reduction basis. The bill provides that 
     tax exempt organizations (except section 501(c)(3)s which may 
     currently provide 403(b) plans) may provide 401(k) plans to 
     their employees.
       12. Leased Employees. Generally, the bill defines an 
     employee as a ``leased employee'' of a service recipient only 
     if the services are performed by the individual under the 
     control of the recipient. This simplified ``control test'' 
     replaces the complicated, 4-part ``historically performed 
     test.''
       13. Vesting for Multi-Employer Plans. The bill conforms 
     vesting requirements for multi-employer plans to vesting 
     requirements for all other qualified plans. Thus, the current 
     law 10-year vesting rule for collectively bargained plans 
     would be repealed and such plans would be required to comply 
     with general vesting rules.
       14. Full-Funding Limitations for Multi-Employer Plans. The 
     bill simplifies the calculation of the full funding 
     limitation for multi-employer plans, and requires actuarial 
     valuations be performed at least every 3 years, instead of 
     every year.
       15. Alternative Full-Funding Limitation. current law 
     provides a formula which limits pension contributions an 
     employer may make to a plan, in order to prevent overfunding. 
     The bill provides the Secretary of Treasury authority to 
     allow employers some flexibility in determining the full-
     funding limitation.
       16. Volunteer Employees' Beneficiary Association (VEBA). 
     Current regulations require that employees eligible to 
     participate in a VEBA share an employment-related common 
     bond. The bill clarifies this requirement by specifying that 
     an employment-related common bond includes employer 
     affiliation where employers are in the same line of business; 
     they act jointly to perform tasks that are integral to the 
     activities of each of them; and that such joint activities 
     are sufficiently extensive that the maintenance of a common 
     VEBA is not a major part of such joint activities.
       17. Government Plans. The limitations on contributions and 
     benefits present special problems for plans maintained by 
     State and local governments due to the special nature of the 
     involvement and operation of such governments. The Act 
     addresses these problems by providing (1) section 457 does 
     not apply to excess benefit plans maintained by State or 
     local governments, (2) the compensation limit on benefits 
     under a defined benefit plan does not apply to plans 
     maintained by a State or local government, and (3) the 
     defined benefit pension plan limits do 

[[Page S9526]]
     not apply to certain disability and survivor benefits provided under 
     State and local government plans.
       Further, because of the unique characteristics of the State 
     and local government employee plans, many long-tenured and 
     relatively low-paid employees may be eligible to receive 
     benefits in excess of their average compensation. Therefore, 
     the Act provides that the current law 100% of compensation 
     limit does not apply to plans maintained by State and local 
     governments.
       18. State and Local Government Deferred Compensation 
     (Section 457) Plans. The Act makes 3 changes to Section 457 
     plan rules: (1) it indexes the dollar limit on deferrals; (2) 
     it permits in-service distributions from accounts of less 
     than $3,500 if there has been no amount deferred with respect 
     to the account for 2 years and if there has been no prior 
     distribution under this cash-out rule; and (3) it permits an 
     additional election as to the time distributions must begin 
     under the plan. These changes are designed to make Section 
     457 plan participants treated more like private plan 
     participants.
       19. Rural Cooperatives. Unlike all other section 401(k) 
     plans, rural cooperative 401(k) plans are not permitted to 
     make in-service distributions for hardship or after age 59\1/
     2\. The Act treats rural cooperative plans the same as all 
     other 401(k) plans. The Act also clarifies the definition of 
     a ``rural cooperative'' for purposes of determining 
     eligibility to offer a 404(k) plan.
       20. Rules for Plans Covering Pilots. The Act applies the 
     same discrimination testing rules to pensions maintained for 
     airland pilots, whether or not the plans are collectively-
     bargained. Thus, under the rules, employees who are not air 
     pilots may be excluded from consideration in testing whether 
     the plan satisfies the minimum coverage requirements.
       21. Eligible Faculty Voluntary Retirement Incentive Plans. 
     The Act modifies the ``risk of forfeiture'' rule governing 
     the timing of tax liability to allow qualifying future 
     payments under an eligible faculty voluntary retirement 
     incentive plan to be taxes when received, as opposed to at 
     the time the participant becomes entitled to them.
       22. Uniform Retirement Act/Social Security Retirement Age. 
     The bill recognizes that plans use age 65 as a ``normal 
     retirement age'' in part because it is Social Security's 
     ``normal retirement age.'' Because the ``normal retirement 
     age'' is scheduled to increase under the Social Security law, 
     the bill provides that for purposes of the general 
     nondiscrimination rule, the Social Security retirement age is 
     a uniform retirement age.
       23. Blue-Ribbon Commission. The bill establishes a blue-
     ribbon commission which will identify the long-term goals for 
     private retirement savings. The 18-member commission would 
     consist of 6 members appointed by the President; 6 by the 
     Speaker of the House; and 6 by the Senate Majority Leader.

  Mr. PRYOR. Mr. President, this month I was extremely gratified when 
President Clinton unveiled his approach to simplify the pension rules. 
Many of the provisions in this legislation are also in this particular 
Pension Simplification Act of 1995 that I am introducing today and am 
joined with by my colleagues, Senators Hatch, Breaux, and Leahy.
  I wish to thank our colleagues for helping us in this matter. I 
commend the President for focusing on this very important cause 
affecting small businesses throughout our country. I believe that by 
working together with our Republican colleagues on the other side of 
the aisle and with our President, all of us together this year can 
enact this legislation into law. Should we do this, small businesses 
across America would be extremely grateful. It is important that this 
legislation have support from both sides, Mr. President, and I am happy 
to have Senator Hatch, my fellow member of the Finance Committee, as a 
lead cosponsor on this bill. I wish to thank him for joining us, and I 
look forward to working with him on this very important legislation.
  Mr. President, these new pension simplification provisions affecting 
small business have already been strongly endorsed by three important 
small business organizations:
  The National Federation of Independent Business, the U.S. Chamber of 
Commerce, and the Small Business Council of America.
  I ask unanimous consent that a copy of these letters of endorsement 
from these very distinguished organizations be printed in the Record.
  There being no objection, the letters were ordered to be printed in 
the Record, as follows:

                                            Small Business Council


                                                    of America

                                                Overland Park, KS.
     Re Pension simplification bill.

     Hon. David Pryor,
     Russell Senate Office Building, Washington, DC.
       Dear Senator Pryor: The Small Business Council of America 
     strongly endorses the new pension simplification legislation 
     which will streamline the country's voluntary retirement plan 
     system and encourage savings. We particularly appreciate the 
     provisions that target the Nation's small businesses. There 
     is no question that these provisions will give small 
     businesses greater access to the retirement plan system than 
     they have had over the last decade.
       We have watched with approval your unceasing drive to 
     revive the retirement plan system. Of particular importance 
     to our members is the repeal of family aggregation, the 
     institution of voluntary safe harbors for 401(k) plans and 
     the tax credit for start up costs, the recognition that for 
     many small businesses there is no such thing as a highly 
     compensated employee, the return of 401(a)(26) to its 
     original purpose and the repeal of the complicated 415(e) 
     fraction. All of these changes, as well as others set forth 
     in the bill, will dramatically improve the existing 
     retirement plan system. By making the system user friendly, 
     more small businesses will sponsor retirement plans. Easing 
     administrative burdens will reduce the costs of maintaining 
     retirement plans particularly for small businesses.
       Retirement plans sponsored by small businesses operate 
     under a stringent and excessively complicated statutory and 
     regulatory system. These limitations and rules are now so 
     complicated that the costs of sponsoring a retirement plan 
     often outweigh the benefits that a small business can 
     reasonably expect to obtain. By making the changes called for 
     in this legislation, with a few additional changes, the costs 
     incurred by small businesses sponsoring retirement plans will 
     be brought back into line. The Small Business Council of 
     America, with its technical expertise in the small business 
     retirement plan area, believes that the changes contemplated 
     by this legislation will significantly improve the country's 
     voluntary retirement plan system.
           Sincerely yours,
     Paula A. Calimafde.
                                                                    ____

                                            National Federation of


                                         Independent Business,

                                    Washington, DC, June 27, 1995.
     Hon. David Pryor,
     U.S. Senate, Washington, DC.
       Dear Senator Pryor: On behalf of the more than 600,000 
     members of the National Federation of Independent Business 
     (NFIB), I wish to indicate our strong support for your 
     legislation, The Pension Simplification Act of 1995.
       NFIB believes that simplification of the regulations and 
     reduction in the costs associated with retirement plans are 
     of vital importance to American small business. Almost two-
     thirds of NFIB members strongly support pension 
     simplification and the 1995 White House Conference on Small 
     Business ranked pension simplification number seven out of 
     sixty. Your legislation will increase the chances that small 
     employers will set-up retirement plans, enabling their 
     employees and themselves to provide for a secure retirement.
       Three out of every four small businesses currently do not 
     have retirement plans. Until small employers offer pension 
     plans, many American workers will not be covered for their 
     retirement outside of individual savings and Social Security.
       An NFIB Education Foundation study revealed that one-third 
     of small businesses which recently terminated their 
     retirement plans, did so because of changing and complex 
     regulations. Enabling small employers to implement a 
     retirement plan without complex participation and non-
     discrimination rules as well as clarifying the definition of 
     highly compensated employees will provide small employers 
     with incentives to offer plans.
       I also want to commend you for including a tax credit for 
     small businesses equal to the cost of establishing a 
     qualified retirement plan. And finally, NFIB supports your 
     proposal to prohibit the IRS from issuing retirement plan 
     regulations unless the regulation includes a section 
     addressing the needs of small employers.
       Small business owners purchase pensions coverage the same 
     way they purchase other employee benefits. The lower the 
     costs--in time, trouble and dollars--the more likely 
     employers will participate. We look forward to working with 
     you to achieve its passage.
           Sincerely,
                                                       Jack Faris,
     Presdient.
                                                                    ____

                                               Chamber of Commerce


                               of the United States of America

                                    Washington, DC, June 29, 1995.
     Hon. David H. Pryor,
     U.S. Senate, Washington, DC.
       Dear Senator Pryor: On behalf of the U.S. Chamber of 
     Commerce Federation of 215,000 businesses, 3,000 state and 
     local chambers of commerce. 1,200 trade and professional 
     associations, and 72 American Chambers of Commerce abroad, I 
     commend you for introducing the ``Pension Simplification Act 
     of 1995.''
       The American business community is encouraged by your 
     efforts to simplify the highly complex and overly burdensome 
     private pension laws. We are especially pleased that many of 
     the proposed changes in the legislation target small 
     employers, providing incentives for small businesses to 
     sponsor retirement plans.
       As you know, the time has come to reverse the decade-old 
     assault on private pensions, 

[[Page S9527]]
     and to enact sensible reform legislation that encourages employers to 
     sponsor retirement plans for their employees. This 
     legislation provides a solid framework for such reforms by 
     making meaningful changes to many of the Internal Revenue 
     Code provisions that currently hinder the private pension 
     system. While the introduction of this legislation is a good 
     start, there is much more that can and should be done to 
     ensure that pension reform provides truly meaningful 
     opportunities for increased savings through employer-
     sponsored pension plans.
       The Chamber appreciates your leadership on this issue. We 
     look forward to working with you and other members of 
     Congress to ensure that the goals of simplifying our nation's 
     pension laws and providing incentives for plan sponsorship 
     are not lost as this legislation moves through Congress.
           Sincerely,
                                                  R. Bruce Josten.

  Mr. PRYOR. Mr. President, finally, in the coming days, I will be 
asking our colleagues to look closely at the Pension Simplification Act 
and join me in cosponsoring this effort. It is a bipartisan effort.
  The bottom line is that it will increase retirement savings for 
workers in our country, especially those who work in small firms which, 
of course, is so critical to America's future.
  Mr. HATCH. Mr. President, I am pleased to join with my distinguished 
colleague, Senator Pryor, to introduce the Pension Simplification Act 
of 1995. I commend Senator Pryor for the work he has done on this issue 
over the past few years.
  I would also like to compliment President Clinton for his efforts in 
this area. We welcome the administration's suggestions on this issue.
  Mr. President, simplification of this complex area of the tax law is 
long overdue. In 1974, the Employee Retirement Income Security Act 
[ERISA] was passed into law. The original intent of Congress for this 
act was, as the name implies, to provide security for private sector 
retirees. However, almost all of the laws and regulations governing 
private sector pensions that have been added since that time have had 
the completely opposite effect.
  Since 1980, Congress has passed an average of one law per year 
affecting private sector pensions. As the rules and regulations 
governing pension plans have multiplied, defined benefit pension plans 
have become less and less attractive to employers, As a result, pension 
plan terminations have consistently outpaced the growth of new plans.
  My colleague, Senator Pryor, has tried to get Congress to act on 
pension simplification for the past 5 years. Meanwhile, an alarming 
number of pension plans have been terminated. Over the past 5 years, 
over 40,000 employee defined benefit plans have been terminated, 
affecting the retirement savings of more than 3 million Americans.
  Pension regulation has directly affected the retirement security of 
millions of working Americans. The migration of employers away from 
defined benefit pension plans and toward defined contribution plans is 
a direct result of increased regulation. Employers prefer defined 
contribution plans because such plans are easier to administer and do 
not have the complex, burdensome rules that govern defined benefit 
plans. This movement away from defined benefit plans has effectively 
shifted the risks of the retirement plan investments from employers to 
employees.
  At a time when the long-term adequacy of our Social Security Program 
is in question, we should be encouraging private sector retirement 
saving, not crippling pension plans with more and more regulation. The 
pension system provides a vital source of funding for the retirement 
needs of our nation's workforce. Over 41 million working Americans 
currently enrolled in private sector pension plans would directly 
benefit from pension simplification.
  As unfortunate as the number of terminations of pension plans have 
been, Mr. President, the real tragedy of pension law complexity is at 
the small business level. Much of the burden of current pension law has 
fallen squarely on the shoulders of America's small businesses. Many 
small businesses simply cannot afford to establish pension plans for 
their employees.
  Even if a small firm is able to establish a pension plan, current law 
throws up barriers to keeping the plan qualified for tax deferral 
treatment. Small businesses simply do not have the resources necessary 
to comply with all of the tests and antidiscrimination rules demanded 
by current law.
  As a result of the heavy regulation of pension plans, lack of 
retirement plan sponsorship has left employees of small businesses out 
in the cold. Retirement plans are simply not an option for small 
employers because of the high cost to establish and administer them. In 
1993, only 19 percent of employers with fewer than 25 employees 
sponsored a pension plan.
  Thus, small businesses are placed at a competitive disadvantage to 
larger firms by our current pension law. Not only do the compliance 
costs take away from a small firm's profitability, but the firm's 
ability to attract high-quality employees is also impaired. Employees 
seeking retirement security prefer to work for a large company that can 
much more easily provide a pension plan over a small firm that cannot 
provide such security.
  Mr. President, the Pension Simplification Act will provide relief to 
employers that are laboring under our outmoded and inflexible 
regulations to provide retirement plans for their employees. This act 
will restore flexibility to our pension laws and thus encourage 
employers, including small businesses, to offer and maintain retirement 
plans that are vital to the retirement security of our Nation's work 
force.
  The Pension Simplification Act contains several provisions which will 
provide the relief that will result in retirement security for working 
Americans.
  This bill introduces safe harbor rules for 401(k) plans that will 
help employers know whether or not their plans are qualified
 for tax-deferred treatment. The complex compliance tests required by 
current law will be eliminated.

  A strong disincentive to offer defined benefit pension plans will be 
removed by simplifying the method for determining the nontaxable 
portion of annuity payments. Thus, employers would no longer have to 
make complex calculations to determine whether offering a defined 
benefit or a defined contribution plan is more advantageous.
  The Pension Simplification Act also benefits State and local 
government pension plans by clarifying the application of the benefit 
limitation rules and by allowing these employers to establish 401(k)-
type plans.
  This bill also removes many of the burdens that small businesses face 
when trying to provide retirement programs for their employees. The 
Pension Simplification Act will make it easier for small businesses to 
provide retirement security for millions of Americans by providing a 
tax credit for starting a new pension plan. The bill also removes the 
complex discrimination rules for small employers and exempts small 
businesses from the minimum participation rules.
  Mr. President, this bill targets a complex and confusing area of law. 
However, our goal is quite simple--increased retirement security for 
American workers.
  The Pension Simplification Act is great bill, I urge my colleagues to 
join Senator Pryor and me in supporting this important piece of 
legislation.
  Mr. President, I ask unanimous consent that additional material be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:
 Section-by-Section Analysis of the Pension Simplification Act of 1995


      title i--simplification of the nondiscrimination provisions

       Sec. 101. Definition of Highly Compensated Employee (HCE)

       In general, under present law, an employee is treated as 
     highly compensated with respect to a year if during the year 
     or the preceding year the employee (1) was a 5-percent owner 
     of the employer, (2) received more than $75,000 (indexed at 
     $100,000 for 1995) in annual compensation from the employer, 
     (3) received more than $50,000 (indexed at $66,000 for 1995) 
     in annual compensation from the employer and was a member of 
     the top 20 percent of employees by compensation, or (4) was 
     an officer of the employer who received compensation greater 
     than $45,000 (indexed at $60,000 for 1995). If, for any year, 
     no officer has compensation in excess of $60,000, then the 
     highest paid officer of the employer for such year is treated 
     as an HCE.
       Under present law, all family members of (1) a 5-percent 
     owner, or (2) a HCE in the group consisting of the 10 highest 
     paid HCEs 

[[Page S9528]]
     are treated as a single HCE and all the compensation of the family 
     members is treated as compensation of the HCE.
       The bill provides that an employee is highly compensated 
     with respect to a year if the employee (1) was a 5-percent 
     owner of the employer at any time during the year or the 
     preceding year, or (2) has compensation for the preceding 
     year in excess of $80,000 (adjusted for cost-of-living 
     increases using a base period beginning October 1, 1995 (sec. 
     415(d)), or (3) was the most highly compensated officer of 
     the employer for the preceding year.
       The bill provides that the dollar limit applicable for any 
     year is the amount in effect for the calendar year with 
     respect to which compensation is determined under the bill. 
     For example, assume HCEs are being determined for the 1997 
     plan year in the case of a calendar year plan. Under the 
     bill, 1996 compensation is used to make this determination, 
     and the $80,000 figure for 1996, is the applicable dollar 
     limit for the 1997 plan year (rather than the $80,000 figure 
     as adjusted for 1997).
       Under the bill, no employee would be treated as highly 
     compensated in a year unless he or she received compensation 
     from the employer during the preceding year in excess of 
     $80,000. This proposal would apply to officers and to 5-
     percent owners. It targets small businesses where pension 
     coverage is very low. For detailed discussion, see Title III, 
     Targeted Access for Employees of Small Employers, section 
     302, page 17.
       The bill repeals the family aggregation rules.
       This provision is effective for years beginning after 
     December 31, 1995, except that for purposes of determining 
     whether an employee is an HCE in years beginning after 
     December 31, 1995, the provision is effective for years 
     beginning after December 31, 1994. Thus, for example, in 
     determining whether an employee is highly compensated for 
     1996 with respect to calendar year plan, the determination is 
     to be based on whether the employee had compensation during 
     1995 in excess of $80,000 (not $66,000 which may have been 
     the applicable amount for the employee in 1995 prior to this 
     bill).

         Sec. 102. Definition of compensation under Section 415

       Generally under present law, the section 415 limits with 
     respect to an individual are based in part on the 
     individual's taxable compensation. The general limit on a 
     participant's annual additions under a defined contribution 
     plan is the lesser of $30,000 or 25% of the participant's 
     taxable compensation.
       For example, assume a plan participant has a $20,000 
     salary. The 25% of compensation limit would generally permit 
     the participant to have an annual addition of $5,000 (25% 
     $20,000). However, because pre-tax employee contributions to 
     a cafeteria plan would reduce the employee's taxable 
     compensation from $20,000, any such contributions would also 
     reduce the participant's section 415 limit. Moreover, 
     contributions to a 401(k) plan, and other types of pre-tax 
     employee contributions, would further reduce the 
     participant's taxable compensation and section 415 limit.
       The effect of pre-tax employee contributions makes it 
     difficult to communicate in advance the section 415 limit 
     applicable to each employee; this issue also leads to 
     numerous inadvertent violations of section 415. Moreover, the 
     reduction of the section 415 limit caused by pre-tax employee 
     contributions primarily affects nonhighly compensated 
     employees; this is so in part because section 125 
     contributions generally do not vary with compensation and 
     thus have a proportionately smaller effect on higher paid 
     employees.
       Under the proposal, pre-tax employee contributions 
     described in sections 402(g), 125, or 457 would be counted as 
     compensation for purposes of section 415. In previous Pension 
     Simplification bills this provision was limited to state and 
     local governmental plans, however, the bill expands the 
     provision to all plans.

    Sec. 103. Modification of Additional Participation Requirements

       Under present law, a plan is not a qualified plan unless it 
     benefits no fewer than the lesser of (1) 50 employees or (2) 
     40 percent of all employees of an employer (sec. 401(a)(26)). 
     This minimum participation rule cannot be satisfied by 
     aggregating comparable plans, but can be applied separately 
     to different lines of business of the employer. A line of 
     business of the employer does not qualify as a separate line 
     of business unless it has at least 50 employees. Also, 
     certain employees may be disregarded in applying the rules.
       The bill provides that the minimum participation rule 
     applies only to defined benefit pension plans. In addition, 
     the bill provides that a defined benefit plan does not 
     satisfy the rule unless it benefits no fewer than the lesser 
     of (1) 50 employees or (2) the greater of (a) 40 percent of 
     all employees of the employer or (b) 2 employees (or 1 
     employee if there is only 1 employee). The separate line of 
     business and excludable employee rules apply as under present 
     law.
       In the case of an employer with only 2 employees, a plan 
     satisfies the present-law minimum participation rule if the 
     plan covers 1 employee. However, under the bill, a plan 
     satisfies the minimum participation rule only if it covers 
     both employees.
       The provision is effective for years beginning after 
     December 31, 1995.

   Sec. 104. Nondiscrimination Rules for Qualified Cash or Deferred 
                              Arrangements

       a. In general: The bill modifies the present-law 
     nondiscrimination test applicable to elective deferrals and 
     employer matching and after-tax employee contributions to 
     provide that the maximum permitted ADP or ACP for HCEs for 
     the year is determined by reference to the ADP or ACP for 
     nonhighly compensated employees for the preceding, rather 
     than the current year. In the case of the first plan year of 
     the plan, the ADP or ACP of nonhighly compensated employees 
     for the previous year is deemed to be 3 percent or, at the 
     election of the employer, the actual ADP or ACP for such plan 
     year.
       b. Section 401(k) Safe Harbor: Under present law, the 
     special nondiscrimination test applicable to elective 
     deferrals under qualified cash or deferred arrangements 
     (401(k)s) is satisfied if the actual deferral percentage 
     (ADP) under a cash or deferral arrangement for eligible HCEs 
     for a plan year is equal to or less than either (1) 125 
     percent of the ADP of all non-highly compensated employees 
     eligible to defer under the arrangement, or (2) the lesser of 
     200 percent of the ADP of all eligible nonhighly compensated 
     employees or such ADP plus 2 percentage points (section 
     401(k)). The ADP for a group of employees is the average of 
     the ratios (calculated separately for each employee in the 
     group) of the contributions paid to the plan on behalf of the 
     employee to the employee's compensation.
       A cash or deferred arrangement that satisfies the special 
     nondiscrimination test is deemed to satisfy the 
     nondiscrimination requirement applicable to qualified plans 
     with respect to the amount of contribution or benefits 
     (section 401(a)(4)).
       In addition, under present law, a special nondiscrimination 
     test is applied to employer matching contributions and after-
     tax employee contributions (section 401(m)). This special 
     nondiscrimination test is similar to the special 
     nondiscrimination test in section 401(k).
       An employer matching contribution means (1) any employer 
     contribution made on behalf of an employee on account of an 
     employee contribution made by such employee, and (2) any 
     employer contribution made on behalf of an employee on 
     account of an employee's elective deferral.
       The bill adds alternative methods of satisfying the special 
     nondiscrimination requirements applicable to elective 
     deferrals and employer matching contributions. Under these 
     safe harbor rules, a cash or deferred arrangement is treated 
     as satisfying the ADP test if the plan of which the 
     arrangement is a part (or any other plan of the employer 
     maintained with respect to the employees eligible to 
     participate in the cash or deferred arrangement) meets (1) 
     one of two contribution requirements and (2) a notice 
     requirement. These safe harbors permit a plan to satisfy the 
     special nondiscrimination tests through plan design, rather 
     than through the testing of actual contributions.
       A plan satisfies the contribution requirements under the 
     safe harbor rule for qualified cash or deferred arrangements 
     if the plan either (1) satisfies a matching contribution 
     requirement or (2) the employer makes a contribution to the 
     plan of at least 3 percent of an employee's compensation on 
     behalf of each nonhighly compensated employee who is eligible 
     to participate in the arrangement without regard to whether 
     the employee makes an elective contribution under the 
     arrangement. Under both tests, contributions may also be made 
     to highly compensated employees.
       A plan satisfies the matching contribution requirement if, 
     under the arrangement: (1) the employer makes a matching 
     contribution on behalf of each nonhighly compensated employee 
     that is not less than (a) 100 percent of the employee's 
     elective contributions up to 3 percent of compensation and 
     (b) 50 percent of the employee's elective contributions from 
     3 to 5 percent of compensation; and (2) the level of match 
     for highly compensated employees is not greater than the 
     match rate for nonhighly compensated employees.
       Alternatively, if the matching contribution requirement is 
     not satisfied at some level of employee compensation, the 
     requirement is deemed to be satisfied if (1) the level of 
     employer matching contributions does not increase as employee 
     elective contributions increase and (2) the aggregate amount 
     of matching contributions with respect to elective 
     contributions up to that level of compensation at least 
     equals the amount of matching contributions required under 
     the general safe harbor rule.
       Under the safe harbor, an employee's rights to employer 
     matching contributions or nonelective contributions used to 
     meet the contribution requirements are required to be 100 
     percent vested.
       An arrangement does not satisfy the contribution 
     requirements with respect to nonelective contributions unless 
     the requirements are met without regard to the permitted 
     disparity rules (sec. 401(1)), and nonelective contributions 
     used to satisfy the contribution requirements are not taken 
     into account for purposes of determining whether a plan of 
     the employer satisfies the permitted disparity rules. It is 
     intended that the rule applies to matching contributions as 
     well.
       Employer matching and nonelective contributions used to 
     satisfy the contribution requirements of the safe harbor 
     rules are subject to the restrictions on withdrawals 

[[Page S9529]]
     that apply to an employee's elective deferrals under a qualified cash 
     or deferred arrangement (sec. 401(k)(2)(B)).
       The notice requirement is satisfied if each employee 
     eligible to participate in the arrangement is given written 
     notice within a reasonable period before any year of the 
     employee's rights and obligations under the arrangement. This 
     notice must be sufficiently accurate and comprehensive to 
     apprise the employee of his or her rights and obligations and 
     must be written in a manner calculated to be understood by 
     the average employee eligible to participate.
       c. Alternative method of satisfying special 
     nondiscrimination test for matching contributions: The bill 
     provides a safe harbor method of satisfying the special 
     nondiscrimination test applicable to employer matching 
     contributions. Under this safe harbor, a plan is treated as 
     meeting the special nondiscrimination test with respect to 
     matching contributions if (1) the plan meets the contribution 
     and notice requirements applicable under the safe harbor 
     method of satisfying the special nondiscrimination 
     requirement for qualified cash or deferred arrangements, and 
     (2) the plan satisfies a special limitation on matching 
     contributions. After-tax employee contributions continue to 
     be tested separately under the present ACP test, taking into 
     account both employee contributions and employer matches in 
     calculating contribution percentages.
       The limitation on matching contributions is satisfied if 
     (1) matching contributions on behalf of any employee may not 
     be made with respect to employee contributions or elective 
     deferrals in excess of 6 percent of compensation and (2) the 
     level of an employer's matching contribution does not 
     increase as an employee's contributions or elective deferrals 
     increase.


                Title II.--Simplified Distribution Rules

       Under present law, distributions from tax-favored 
     retirement arrangements are generally includable in gross 
     income when received, however special rules apply in certain 
     circumstances.
       For example, certain distributions from tax-favored 
     retirement arrangements attributable to contributions prior 
     to January 1, 174, could qualify for treatment as long-term 
     capital gains.
       Under present law, a taxpayer may elect to have 5-year 
     forward averaging apply to a lump-sum distribution from a 
     qualified plan. Such an election may be made with respect to 
     a distribution received on or after the employee attains age 
     59\1/2\ and only one election may be made with respect to an 
     employee.
       Prior to the Tax Reform Act of 1986, 10-year forward 
     averaging was available with respect to lump-sum 
     distributions. The Tax Reform Act replaced 10-year averaging 
     with 5-year averaging and phased out capital gains treatment. 
     The Tax Reform Act provided transition rules which generally 
     preserved prior-law treatment in the case of certain 
     distributions with respect to individuals who attained age 50 
     before January 1, 1986.
       Under present law, a taxpayer is not required to include in 
     gross income amounts received in the form of a lump-sum 
     distribution to the extent that the amounts are attributable 
     to net unrealized appreciation in employer securities. Such 
     unrealized appreciation is includable in income when the 
     securities are sold.
       The bill eliminates 5-year averaging for lump sum 
     distributions from qualified plans, repeals the $5000 
     employer-provided death benefit exclusion, and simplifies the 
     basis recovery rules applicable to distributions from 
     qualified plans. In addition, the bill modifies the rule that 
     generally requires all participants to commence distributions 
     by age 70\1/2\.

 Sec. 201. Repeal of 5-Year Income Averaging for Lump-Sum Distributions

       The bill repeals the special 5-year forward averaging rule. 
     The original intent of the income averaging rules for pension 
     distributions was to prevent a bunching of taxable income 
     because a taxpayer received all of the benefits in a 
     qualified plan in a single taxable year. Liberalization of 
     the rollover rules enacted in 1992, as originally part of 
     this bill, increases the flexibility of taxpayers in 
     determining the time of the income inclusion of pension 
     distributions, and eliminates the need for special rules to 
     prevent bunching of income.
       The bill preserves the transition rules for 10 year 
     averaging adopted in the Tax Reform Act; in addition, the 
     repeal of 5-year averaging is not applicable to individuals 
     eligible for those transition rules. The bill also retains 
     the present-law treatment of net unrealized appreciation on 
     employer securities and generally retains the definition of 
     lump-sum distribution solely for such purpose.
       The provisions are effective with respect to distributions 
     after December 31, 1995.

   Sec. 202. Simplified Method for Taxing Annuity Distribution Under 
                         Certain Employer Plans

       Under the bill, the portion of an annuity distribution from 
     a qualified retirement plan, qualified annuity, or tax-
     sheltered annuity that represents nontaxable return of basis 
     generally is determined under a method similar to the 
     present-law simplified alternative method provided by the 
     IRS. Under the simplified method provided in the bill, the 
     portion of each annuity payment that represents nontaxable 
     return of basis generally is equal to the employee's total 
     investment in the contract as of the annuity starting date, 
     divided by the number of anticipated payments determined by 
     reference to the age of the participant listed in the table 
     set forth in the bill. The number of anticipated payments 
     listed in the table is based on the employee's age on the 
     annuity starting date. If the number of payments is fixed 
     under the terms of the annuity, that number is to be used 
     instead of the number of anticipated payments listed in the 
     table.
       The simplified method does not apply if the primary 
     annuitant has attained age 75 on the annuity starting date 
     unless there are fewer than 5 years of guaranteed payments 
     under the annuity. If in connection with commencement of 
     annuity payments, the recipient receives a lump-sum payment 
     that is not part of the annuity stream, such payment is 
     taxable under the rules relating to annuities (section 72) as 
     if received before the annuity starting data, and the 
     investment in the contract used to calculate the simplified 
     exclusion ratio for the annuity payments is reduced 
     accordingly.
       As under present law, in no event will the total amount 
     excluded from income as nontaxable return of basis be greater 
     than the recipient's total investment in the contract.

                    Sec. 203. Required Distributions

       Under present law, distributions under all qualified plans, 
     IRAs, tax-sheltered custodial accounts and annuities, and 
     eligible deferred compensation plans of State and local 
     governments are required to begin no later than April 1 of 
     the calendar year following the calendar year in which the 
     participant or owner attains age 70\1/2\, without regard to 
     the actual date of separation from service. In the case of 
     church plans and governmental plans, distributions are 
     required to begin no later than the later of the April 1 date 
     described above or April 1 of the calendar year following the 
     calendar year in which the participant retires.
       The bill repeals the rule that requires all participants in 
     qualified plans to commence distributions by age 70\1/2\ 
     without regard to whether the participant is still employed 
     by the employer, and therefore, generally replaces it with 
     the rule in effect prior to the Tax Reform Act. Thus, under 
     the bill, distributions are required to begin by April 1 of 
     the calendar year following the later of (1) the calendar 
     year in which the employee attains age 70\1/2\, or (2) the 
     calendar year in which the employee retires. In the case of a 
     5-percent owner of the employer, distributions are required 
     to begin no later than April 1 of the calendar year following 
     the year in which the 5-percent owner attains age 70\1/2\. 
     Distributions from an IRA are required to begin no later than 
     April 1 of the calendar year following the year in which the 
     IRA owner attains age 70\1/2\.
       In addition, in the case of an employee (other than a 5-
     percent owner) who retires in a calendar year after attaining 
     age 70\1/2\, the bill requires the employee's accrued benefit 
     to be actuarially increased to take into account the period 
     after age 70\1/2\ in which the employee was not receiving 
     benefits under the plan. Thus, under the bill, the employee's 
     accrued benefit is required to reflect the value of benefits 
     that the employee would have received if the employee had 
     retired at age 70\1/2\ and began receiving benefits at that 
     time.
       The actuarial adjustment rules does not apply, under the 
     bill, in the case of a governmental plan or church plan.
       This provision applies to years beginning after December 
     31, 1995.


     Title III.--Targeted Access for Employees of Small Employers.

  Sec. 301. Tax Credit for the Cost of Establishing a Plan for Small 
                               Employers

       Retirement plan coverage among employees of small employers 
     is dismally low. The cost of establishing a retirement plan 
     is, in a significant way, disproportionately high for small 
     employers. Many costs of plan establishment--plan design, 
     plan drafting, application for IRS approval--are relatively 
     fixed. Accordingly, the per-employee costs can be much higher 
     for a small employer than for a large employer.
       Under the proposal, employers with 50 or fewer employees, 
     that have not maintained a qualified retirement plan at any 
     time during the immediately preceding two years, would be 
     eligible for an income tax credit (up to a maximum of $1,000) 
     equal to the cost of establishing a qualified retirement 
     plan.

        Sec. 302. Elimination of the One-High-Paid-Officer Rule

       Under present law, the term highly compensated employee 
     includes the employer's highest paid officer even if no 
     employee in the plan receives over $45,000 (indexed to 
     $60,000 in 1995).
       The application of the highest paid officer rule is unfair 
     for small employers with low-wage workforces. For example, 
     the highest paid officer of a small employer may earn less 
     than $66,000, yet that employee is highly compensated under 
     this rule. If the same individual less than $66,000 working 
     for a large employer with numerous highly paid employees, 
     that individual would not be defined as highly compensated.
       Because the individual described above is considered highly 
     compensated, the nondiscrimination rules can severely limit 
     his or her benefits (such as 401(k) contributions). In fact, 
     due to the way the nondiscrimination rules work, these 
     limitations are actually more restrictive for the $30,000-a-
     year HCE of a small employer than they are for the $150,000-
     a-year executive of a large employer. These limitations can, 
     in turn, result in the small employer deciding not to 
     establish a plan or deciding to terminate an existing plan.

[[Page S9530]]

       Under the bill, no employee would be treated as highly 
     compensated in a year unless he or she received compensation 
     from the employer during the preceding year in excess of 
     $80,000. This proposal would apply not only to officers but 
     also to 5-percent owners.
       This proposal would, however, be subject to two conditions. 
     First, the proposal would not apply to any plan maintained by 
     the employer unless the plan makes all contributions, 
     benefits, and other plan features available on a 
     nondiscriminatory basis. For this purpose, 5-percent owners 
     would be treated as highly compensated; if there are no 5-
     percent owners, the highest paid officer for the preceding 
     year would be an HCE.
       The purpose of the conditions set forth above is to prevent 
     abuse. The conditions would, for example, prevent an employer 
     from establishing a plan solely (or primarily) for the owner.
       The second condition is that this proposal would not apply 
     to the extent provided in regulations. The purpose of this 
     second condition is to prevent business owners from avoiding 
     HCE status by treating an amount as compensation that is less 
     than reasonable compensation.
       This provision is effective for years beginning after 
     December 31, 1995, except that for purposes of determining 
     whether an employee is an HCE in years beginning after 
     December 31, 1995, the provision is effective for years 
     beginning after December 31, 1994. Thus, for example, in 
     determining whether an employee is highly compensated for 
     1996 with respect to a calendar year plan, the determination 
     is to be based on whether the employee had compensation 
     during 1995 in excess of $80,000 (not $66,000 which may have 
     been the applicable amount for the employee in 1995 prior to 
     this bill).
        Sec. 303. Salary Reduction Simplified Employee Pensions

       Under present law, a simplified employee pension (SEP) is 
     an individual retirement plan established with respect to an 
     employee that meets certain requirements. Employers with 25 
     or fewer employees may provide that contributions to a SEP 
     maybe made on a salary reduction basis.
       The bill conforms the eligibility requirements for SEP 
     participation to the rules applicable to pension plans 
     generally by providing that contributions to a SEP must be 
     made with respect to each employee who has at least one year 
     of service with the employer.
       The bill adds alternative methods of satisfying the special 
     nondiscrimination requirements for SEPs applicable to 
     elective deferrals and employer matching contributions. These 
     are the same alternative methods or ``safe harbors'' 
     discussed in Title I.-section 104 above, relating to 401(k) 
     plans.
       Further, the bill modifies the rules relating to salary 
     reducion SEPs by providing that such SEPs may be established 
     by employers with 100 or fewer employees.
       The bill also repeals the requirement that at least half of 
     eligible employees actually participate in a salary reduction 
     SEP.
       The provision applies to years beginning after December 31, 
     1995.

          Sec. 304. Exemption From Top Heavy Plan Requirements

       In general, under present law, a top-heavy plan is required 
     to satisfy special requirements regarding vesting, minimum 
     benefits or contributions, and section 415. The requirements 
     regarding minimum benefits or contributions are particularly 
     burdensome. For example, a small employer may maintain a plan 
     that permits employees to make section 401(k) contributions 
     and that provides matching contributions on behalf of 
     employees who make the section 401(k) contributions. 
     Generally, if such a plan is top-heavy, all non-key employees 
     must receive nonelective contributions equal to at least 3% 
     of compensation, even though the plan does not otherwise 
     provide for nonelective contributions.
       The top-heavy plan rules were intended to address 
     situations where an excessive percentage of a plan's 
     retirement benefits is attributable to the highly paid 
     executives and owners of the business. However, the rules 
     actually apply more broadly and are applicable to small 
     businesses where none of the owners and officers of the 
     business is highly paid. In these cases, the top-heavy plan 
     rules place a burden on middle-income individuals solely 
     because they are owners or officers of a small business.
       Under the bill, if no employee makes over $80,000 (as 
     provided in the bill's new definition of ``highly compensated 
     employee'') in the preceding year, the top-heavy plan 
     requirements do not apply for that year.

    Sec. 305. Tax Exempt Organizations Eligible Under Section 401(k)

       Under present law, tax-exempt organizations are generally 
     prohibited from establishing qualified cash or deferred 
     arrangements (401(k)s). Because of this limitation, many such 
     employers are precluded from maintaining broad-based, funded, 
     elective deferral arrangements for their employees.
       The bill allows tax-exempt organizations (other than 
     501(c)(3)s, State and Local governments, and their agencies 
     and instrumentalities who have available salary deferral 
     arrangements) to maintain 401(k)s.
       The provision applies to years beginning after December 31, 
     1995.

           Sec. 306. Regulatory Treatment of Small Employers

       Unlike large employers, small employers often do not have 
     the resources to monitor and affect the development of 
     regulations relating to qualified retirement plans. 
     Accordingly, such regulations often do not take into account 
     the unique circumstances of small employers.
       Under the bill, no IRS regulation relating to a qualified 
     retirement plan could become effective unless the regulation 
     includes a section addressing the special needs of small 
     employers.
       The provision is effective for regulations issued after 
     date of enactment.
                     title v.--paperwork reduction.

                    Sec. 401. Repeal Section 415(e)

       Section 415(e) applies an overall limit on benefits and 
     contributions with respect to an individual who participates 
     in both a defined contribution plan and a defined benefit 
     plan maintained by the same employer. These rules are 
     extremely complicated. They are also very burdensome to 
     administer because they require maintaining compensation and 
     contribution records for all employees for all years of 
     service.
       The section 415(e) limit is not the only limit in the Code 
     that safeguards against an individual accruing excessive 
     retirement benefits on a tax-favored basis. For example, 
     section 401(a)(17) provides for limitations on compensation 
     that can be taken into account for benefits and contributions 
     to qualified plans; section 401 provides extensive 
     nondiscrimination rules; and section 415 provides limits on 
     contributions paid to and benefits paid from qualified plans. 
     Taken in combination, these provisions sufficiently constrain 
     excessive tax-favored benefits accruing to highly compensated 
     employees. In addition, a 15% ``excess distribution'' penalty 
     achieves many of the same goals as Section 415(e).
       Because Section 415(e) is both cumbersome and duplicative, 
     the bill repeals this provision.
       The provision is effective for years beginning after 
     December 31, 1995.

        Sec. 402. Duties of Sponsors of Certain Prototype Plans

       The IRS master and prototype program is an administrative 
     program under which trade and professional associations, 
     banks, insurance companies, brokerage houses, and other 
     financial institutions can obtain IRS approval of model 
     retirement plan language and then make these preapproved 
     plans available for adoption by the customers, investors, or 
     association members.
       Master and prototype plans reduce the costs and burdens of 
     administering plans, especially for small to medium sized 
     employers, and improve IRS administration of plan rules.
       Today, a majority of employer-provided qualified plans are 
     approved master and prototype plans. Further expansion of the 
     program is desirable, but statutory authority should be given 
     to the IRS to define the duties of master and prototype 
     sponsors before the program becomes more widely utilized.
       The bill authorizes the IRS to define the duties of 
     organizations that sponsor master and prototype, regional 
     prototype, and other preapproved plans, including mass 
     submitters. The provision's purpose is to protect employers 
     against the loss of qualification merely because they are 
     unaware of the need to arrange for certain administrative 
     services, or the unavailability of professional assistance 
     from parties familiar with the sponsor's plan. The bill 
     should not be construed as creating fiduciary relationships 
     or responsibilities under Title I of ERISA that would not 
     exist in the absence of the provision.


                   title v.--miscellaneous provisions

                Sec. 501. Treatment of Leased Employees

       Under present law, an individual performing services is 
     treated as a leased employee of a service recipient for 
     certain employee benefit purposes if (1) the individual is 
     not a common law employee of the service recipient, (2) the 
     services are provided pursuant to an agreement between the 
     recipient and any other person, (3) the individual performs 
     services for the recipient on a substantially full-time basis 
     for a period of at least one year, and (4) the services are 
     of a type historically performed in the business field of the 
     recipient by employees.
       The bill replaces the historically performed test with a 
     control test. Thus, under the bill, an individual is a leased 
     employee of a service recipient only if the services are 
     performed by the individual under the control of the 
     recipient.
       The provision is effective for taxable years beginning 
     after December 31, 1995.
           Sec. 501. Plans Covering Self-Employed Individuals

       Prior to the Tax Equity and Fiscal Responsibility Act of 
     1982 (TEFRA) different rules applied to retirement plans 
     maintained by incorporated employers and unincorporated 
     employers (such as partnerships and sole proprietors). In 
     general, plans maintained by unincorporated employers were 
     subject to special rules in addition to the other 
     qualification requirements of the Code. TEFRA eliminated 
     most, but not all, of this disparity.
       Under present law, certain special aggregation rules apply 
     to plans maintained by owner-employers that do not apply to 
     other qualified plans (sec. 401(d) (1) and (2)). The bill 
     eliminates these special rules.
       The provision applies to years beginning after December 31, 
     1995.

 Sec. 503. Elimination of Special Vesting Rule for Multiemployer Plans

       Under present law, except in the case of multiemployer 
     plans, a plan is not a qualified plan unless a participant's 
     employer-

[[Page S9531]]
     provided benefit vests at least as rapidly as under 1 of 2 alternative 
     minimum vesting schedules. A plan satisfies the first 
     schedule if a participant acquires a nonforfeitable right to 
     100 percent of the participant's accrued benefit derived from 
     employer contributions upon the participant's completion of 5 
     years of service.
       A plan satisfies the second schedule if a participant has a 
     nonforfeitable right to at least 20 percent of the 
     participant's accrued benefit derived from employer 
     contributions after 3 years of service, 40 percent at the end 
     of 4 years of service, 60 percent at the end of 5 years of 
     service, 80 percent a the end of 6 years of service, and 100 
     percent at the end of 7 years of service.
       In the case of a multiemployer plan, a participant's 
     accrued benefit derived from employer contributions is 
     required to be 100 percent vested no later than upon the 
     participant's completion of 10 years of service. This special 
     rule applies only to employees covered by the plan pursuant 
     to a collective bargaining agreement.
       The bill conforms the vesting rules for multiemployer plans 
     to the rules applicable to other qualified plans.
       The provision is effective for plan years beginning on or 
     after the earlier of (1) the later of January 1, 1996, or the 
     date on which the last of the collective bargaining 
     agreements pursuant to which the plan is maintained 
     terminates, or (2) January 1, 1998, with respect to 
     participants with an hour of service after the effective 
     date.

       Sec. 504. Full Funding Limitation of Multi-Employer Plans

       Under present law, a deduction is allowed (within limits) 
     for employer contributions to a qualified pension plan. No 
     deduction is allowed for contributions in excess of the full 
     funding limit. The full funding limit is the excess, if any, 
     of (1) the lesser of (a) the accrued liability under the plan 
     (including normal cost) or (b) 150 percent of a plan's 
     current liability, over (2) the lesser of (a) the fair market 
     value of the plan's assets or (b) the actuarial value of the 
     plan's assets.
       Plans subject to the minimum funding rules are required to 
     make an actuarial valuation of the plan not less frequently 
     than annually.
       The bill provides that the 150 percent of current liability 
     limitation does not apply to multi-employer plans. Consistent 
     with this change, the bill also repeals the present law 
     annual valuation requirement for multi-employer plans and 
     applies the prior law requirement that valuations be 
     performed at least every 3 years.
       The provision applies to years beginning after December 31, 
     1995.
             Sec. 505. Alternative full-funding limitation

       The Secretary may, under regulations, adjust the 150-
     percent figure contained in the full funding limitation to 
     take into account the average age (and length of service, if 
     appropriate) of the participants in the plan (weighed by the 
     value of their benefits under the plan). In addition, the 
     Secretary is authorized to prescribe regulations that apply, 
     in lieu of the 150 percent of current liability limitation, a 
     different full funding limitation based on factors other than 
     current liability. The Secretary may exercise this authority 
     only in a manner so that in the aggregate, the effect on 
     Federal budge receipts is substantially identical to the 
     effect of the 150-percent full funding limitation.
       The bill provides that an employer may elect to disregard 
     the 150-percent limitation if each plan in the employer's 
     control group is not top-heavy and the average accrued 
     liability of active participants under the plan for the 
     immediately preceding 5 plan years is at least 80-percent of 
     the plan's total accrued liability (the ``alternative full 
     funding limitation''). The Secretary is required to adjust 
     the 150-percent full funding limitation (in the manner 
     specified under the bill) for employers that do not use the 
     alternative full funding limit to ensure that the election by 
     employers to disregard the 150-percent limit does not result 
     in a substantial reduction in Federal revenues for any fiscal 
     year.
       Under the bill, employers electing to apply the alternative 
     limitation generally must notify the Secretary by January 1 
     of the calendar year preceding the calendar year in which the 
     election period begins. The provision is effective on January 
     1, 1997.

Sec. 506. Affiliation Requirements for Employers Jointly Maintaining a 
                                  VEBA

       Treasury regulations require that employees eligible to 
     participate in a voluntary employees' beneficiary association 
     (``VEBA'') share an employment-related common bond. Under the 
     regulations, employees employed by a ``common employer (or 
     affiliated employers)'' are considered to have such a bond.
       Under the bill, employers are considered affiliated for 
     purposes of the VEBA rules if (1) such employers are in the 
     same line of business, (2) the employers act jointly to 
     perform tasks that are integral to the activities of each of 
     the employers, and (3) such joint activities are sufficiently 
     extensive that the maintenance of a common VEBA is not a 
     major part of such joint activities.
       Under the bill, employers are considered affiliated, for 
     example, in the following circumstances: the employers 
     participating in the VEBA are in the same line of business 
     and belong to an association that provides to its members a 
     significant amount of each of the following services: (1) 
     research and development relating to the members' primary 
     activity; (2) education and training of members' employees; 
     and (3) public relations. In addition, the employers are 
     sufficiently similar (e.g., subject to similar regulatory 
     requirements) that the association's services provide 
     material assistance to all of the employers. The employers 
     also demonstrate the importance of their joint activities by 
     having meetings at least annually attended by substantially 
     all of the employers. Finally, the employers maintain a 
     common retirement plan.
       On the other hand, it is not intended that the mere 
     existence of a trade association is a sufficient basis for 
     the member-employees to be considered affiliated, even if 
     they are in the same line of business. It is also not 
     sufficient if the trade association publishes a newsletter 
     and provides significant public relations services, but only 
     provides nominal amounts, if any, of other services integral 
     to the employers' primary activity.
       A group of employers are also not considered affiliated 
     under the bill by virtue of the membership of their employees 
     in a professional association.
       This bill is intended as a clarification of present law, 
     but is not intended to create any inference as to whether any 
     part of the Treasury regulations affecting VEBAs, other than 
     the affiliated employer rule, is or is not present law.

  Sec. 507. Treatment of Certain Governmental Plans under Section 415

       Under present law, the limitations on benefits and 
     contributions (section 415) generally apply to plans 
     maintained by State and local governments.
       Under present law, unfunded deferred compensation plans 
     maintained by State and local government employers are 
     subject to certain limitations (sec. 457). For example, such 
     plans generally may not permit deferred compensation in 
     excess of $7,500 in a single year.
       The limitations on contributions and benefits present 
     special problems for plans maintained by State and local 
     governments due to the special nature of the involvement and 
     operation of such governments.
       The bill addresses these problems by providing that (1) 
     section 457 does not apply to excess benefit plans maintained 
     by a State or local government, (2) the compensation 
     limitation on benefits under a defined benefit pension plan 
     does not apply to plans maintained by a State or local 
     government, and (3) the defined benefit pension plan limits 
     do not apply to certain disability and survivor benefits 
     provided under such plans. Excess plans maintained by a State 
     or local government are subject to the same tax rules 
     applicable to such plans maintained by private employers.
       Under present law, benefits under a defined benefit plan 
     generally may not exceed 100 percent of the participant's 
     average compensation. However, because of the unique 
     characteristics of State and local government employee plans, 
     many long-tenured and relatively low-paid employees may be 
     eligible to receive benefits in excess of their average 
     compensation as a result of cost-of-living increases. The 
     bill provides that the 100 percent of compensation limitation 
     does not apply to plans maintained by State and local 
     governments.
       The provision is effective for taxable years beginning on 
     or after the date of enactment. Governmental plans are 
     treated as if in compliance with the requirements of section 
     415 for years beginning on or before the date of enactment.

 Sec. 508. Treatment of Deferred Compensation Plans of State and Local 
                Governments and Tax-Exempt Organizations

       Under a section 457 plan, an employee who elects to defer 
     the receipt of current compensation will be taxed on the 
     amounts deferred when such amounts are paid or made 
     available. The maximum annual deferral under such a plan is 
     the lesser of (1) $7500 or (2) 33\1/2\ percent of 
     compensation (net of the deferral).
       In general, amounts deferred under a section 457 plan may 
     not be made available to an employee before the earlier of 
     (1) the calendar year in which the participant attains age 
     70\1/2\, (2) when the participant is separated from service 
     with the employer, or (3) when the participant is faced with 
     an unforeseeable emergency. Amounts that are made available 
     to an employee upon separation from service are includable in 
     gross income in the taxable year in which they are made 
     available.
       Under present law, benefits under a section 457 plan are 
     not treated as made available if the participant may elect to 
     receive a lump sum payable after separation from service and 
     within 60 days of the election. This exception to the general 
     rules is available only if the total amount payable to the 
     participant under the plan does not exceed $3500 and no 
     additional amounts may be deferred under the plan with 
     respect to the participant.
       The bill makes three changes. First, the bill permits in-
     service distributions of accounts that do not exceed $3500 if 
     no amount has been deferred under the plan with respect to 
     the account for 2 years and there has been no prior 
     distribution under this cash-out rule.
       Second, the bill increases the number of elections that can 
     be made with respect to the time distributions must begin 
     under the plan. The bill provides that the amount payable to 
     a participant under a 457 plan is not to be treated as made 
     available merely because the participant may elect to defer 
     commencement of distributions under the plan if (1) the 
     election is made after amounts may be distributed under the 
     plan but before 

[[Page S9532]]
     the actual commencement of benefits, and (2) the participant makes only 
     1 such additional election. This additional election is 
     permitted without the need for financial hardship, and the 
     election can only be to a date that is after the date 
     originally selected by the participant.
       Finally, the bill provides for indexing of the dollar limit 
     on deferrals.
       The provisions are effective for taxable years beginning 
     after the date of enactment.

        Sec. 509. Contributions on Behalf of Disabled Employees

       Under present law, special limitations on contributions to 
     a defined contribution plan apply in the case of certain 
     disabled participants. In particular, the compensation of a 
     disabled participant in a defined contribution plan is 
     treated, for purposes on the limitations or contributions and 
     benefits, as the compensation the participant received before 
     becoming disabled if (1) the participant is permanently and 
     totally disabled (within the meaning of sec. 22(c)(3)), (2) 
     the participant is not a highly compensated employee, and (3) 
     the employer elects to have this special rule apply.
       The bill makes requirements (2) and (3) inapplicable if the 
     defined contribution plan provides for the continuation of 
     contributions on behalf of all participants who are 
     permanently and totally disabled.
       It is not intended, however, that an employer be able to 
     provide contributions on behalf of all disabled participants 
     only during certain years so as to favor highly compensated 
     participants over nonhighly compensated participants. 
     Accordingly, if an employer provides for contributions on 
     behalf of all disabled participants and subsequently amends 
     its plan to delete such contributions, the plan shall cease 
     to be qualified if the timing of the amendment results in 
     discrimination in favor of highly compensated participants.
       The provision applies to years beginning after December 31, 
     1995.

    Sec. 510. Technical Clarifications of Section 401(k) for Rural 
                           Cooperative Plans

       Under present law, a qualified section 401(k) arrangement 
     must be a part of one of the following: a profit-sharing or 
     stock bonus plan, a pre-ERISA money purchase plan, or a rural 
     cooperative plan.
       A ``rural cooperative plan'' is defined generally to mean a 
     defined contribution pension plan that is maintained by a 
     rural cooperative. with respect to rural electric 
     cooperatives, a rural cooperative is generally defined to 
     mean any organization that (1) is tax-exempt or is a State or 
     local government, and (2) ``is engaged primarily in providing 
     electric service on a mutual or cooperative basis.''
       Present law was clearly intended to permit the rural 
     electric cooperatives to continue to maintain their section 
     401(k) plan. However, there are two technical issues that 
     should be clarified in order to better achieve this 
     objective.
       First, in the vast majority of states, rural electric 
     systems are organized as cooperatives. However, in some 
     states, some utilities are organized as public power 
     districts. Public power districts are subdivisions of a state 
     that provide electric service. Thus, they would clearly fall 
     within the definition of a rural cooperative but for the 
     requirement that a rural cooperative provide electric service 
     ``on a mutual or cooperative basis.''
       This requirement is not further defined in the statute or 
     regulations. Accordingly, some concern is warranted with 
     respect to whether a public power district satisfies this 
     requirement since they are political subdivisions of a state 
     and do not have the member ownership traditionally required 
     for mutual or cooperative status.
       Secondly, many rural electric cooperatives participate in a 
     multiple employer money purchase pension plan that contains a 
     section 401(k) arrangement. This multiple employer plan must 
     fit within the definition of a rural cooperative plan in 
     order for the section 401(k) arrangement to be qualified. An 
     issue therefore arises due to the fact that the definition of 
     a ``rural cooperative'' does not include taxable 
     cooperatives. Although the vast majority of rural electric 
     cooperatives are tax-exempt, some within these multiple 
     employer plans are taxable. It is unclear whether this would 
     cause the section 401(k) arrangement in the multiple employer 
     plan to fail to be qualified with respect to the 
     participating taxable cooperatives.
       The bill clarifies both of these potential problems by 
     providing that the definition of a ``rural cooperative'' 
     would be modified to include, in addition, any other 
     organization that is providing electric service. However, 
     this expansion of the definition would only apply with 
     respect to section 401(k) plans in which substantially all of 
     the employers fit within the present-law definition of a 
     rural cooperative. This limitation prevents unintended 
     expansion of the term ``rural cooperative plan.''
       In addition, under present law, unlike all other section 
     401(k) plans (other than certain pre-ERISA plans), rural 
     cooperative plans are not permitted to make in-service 
     distributions for hardship or after age 59-\1/2\. Under the 
     proposal, rural cooperative plans would be permitted to make 
     such distributions after the date of enactment.

               Sec. 511. Rules for Plans Covering Pilots

       Under present law, employees covered by a collective 
     bargaining agreement are excluded from consideration in 
     testing whether a qualified retirement plan satisfies the 
     minimum coverage and non discrimination requirements (section 
     410(b)(3)). Similarly, in the case of a plan established 
     pursuant to a collective bargaining agreement between airline 
     pilots and one or more employers, all employees not covered 
     by the collective bargaining agreement are disregarded for 
     purposes of testing whether the plan satisfies the minimum 
     coverage and nondiscrimination requirements (section 
     410(b)(3)(B)). This provision applies only in the case of a 
     plan that provides contributions or benefits for employees 
     whose principal duties are customarily performed abroad 
     aircraft in flight. Thus, a collectively bargained plan 
     covering only airline pilots in tested separately from 
     employees who are not air pilots.
       The bill provides that, in the case of a plan established 
     to provide contributions or benefits for air pilots employed 
     by one or more common carriers engaged in interstate or 
     foreign commerce on air pilots employed by carriers 
     transporting mail for or under contract with the United 
     States Government, all employees who are not air pilots are 
     excluded from consideration in testing whether the plan 
     satisfies the minimum coverage requirements (whether or not 
     they are covered by a collective bargaining agreement).
       The provision is effective for years beginning after 
     December 31, 1995.

                       Sec. 512. Tenured Faculty

       Present law section 457 governs and provides limits for 
     nonqualified deferred compensation arrangements of a 
     governmental or tax-exempt employers. Under section 457(f), 
     an individual is taxed on the value of the benefits under an 
     ineligible arrangement when there is no risk of forfeiture of 
     the benefit, rather than when any benefit is received. Risk 
     of forfeiture is generally tied to the performance of future 
     services. For example, if an employer adopted an early 
     retirement incentive to pay a yearly supplement of $10,000 
     over 5 years, the retiree will be taxed on the present value 
     of the full $50,000 in the year of retirement notwithstanding 
     the fact that he only received a payment of $10,000.
       Under the bill, ``eligible faculty voluntary retirement 
     incentive plans'' are not subject to the taxation provisions 
     of section 457(f). Payments under such plans will be taxed 
     when they are made available to participants, rather than 
     when a risk of forfeiture lapses. An ``eligible faculty 
     voluntary retirement incentive plan'' means a plan 
     established for employees serving under contracts of 
     unlimited tenure at an institution of higher learning. Total 
     benefits under the contract cannot exceed two times annual 
     compensation, and all payments must be completed over a five-
     year period.
       The provision is effective for years beginning after 
     December 31, 1995.

                    Sec. 513. Uniform Retirement Age

       A qualified plan generally must provide that payment of 
     benefits under the plan must begin no later than 60 days 
     after the end of the plan year in which the participant 
     reaches age 65. Also, for purposes of the vesting and benefit 
     accrual rules, normal retirement age generally can be no 
     later than age 65. For purposes of applying the limits on 
     contributions and benefits (section 415), social security 
     retirement age is generally used as retirement age. The 
     social security retirement age as used for such purposes is 
     presently age 65, but is scheduled to gradually increase.
       The bill provides that for purposes of the general 
     nondiscrimination rule, the social security retirement age is 
     a uniform retirement age and that subsidized early retirement 
     benefits and joint and survivor annuities are not treated as 
     not being available to employees on the same terms merely 
     because they are based on an employee's social security 
     retirement age.
       The provision is effective for years beginning after 
     December 31, 1995.

           Sec. 514. Reports of Pension and Annuity Payments

       The penalty reform provisions of the Omnibus Budget 
     Reconciliation Act of 1989 revised the penalties imposed for 
     failures to file correct and timely information returns to 
     IRS, and to provide statements to payees. This revised 
     penalty structure applies to 18 different types of reportable 
     payments. Section 6724(d)(1).
       However, this developed structure does not apply to reports 
     of pension and annuity payments required under section 
     6047(d). It also does not apply to certain reports required 
     by sections 408(i) and 408(l) relating to IRAs and SEPs.
       The bill provides that the definition of ``information 
     return'' under section 6724(d) includes reports of pension 
     and annuity payments required by section 6047(d), and any 
     report required under subsection (i) or (l) of section 408.
       Similarly, the definition of ``payee statement'' under 
     section 6724(d)(2) is amended to include reports of pension 
     and annuity payments required by section 6047(d) and any 
     report required under subsection (i) or (1) of section 408. 
     The bill provides that section 6652(e) is amended to delete 
     reports of designated distributions from the scope of its $25 
     per day penalty.
       Under present law, interest and dividend payments do not 
     have to be reported if less than $10 is paid to a person in 
     any year. Miscellaneous income need not be reported unless it 
     exceeds $600. However, the law currently contains no dollar 
     threshold for reports of ``designated distributions''--
     primarily pension and annuity payments. The bill provides a 
     $10 reporting threshold for designated distributions.
     
[[Page S9533]]


         Sec. 515. National Commission on Private Pension Plans

       In 1974, Congress first recognized the importance of the 
     Federal Government taking an active role in creating a system 
     where American workers could earn private pension benefits to 
     supplement Social Security and ensuring that promised pension 
     benefits are paid. It did this by passing the Employment 
     Retirement Income Security Act (ERISA).
       Today, our private pension system works by delivering 
     trillions of dollars to retiring American workers. However, 
     since its enactment in 1974, ERISA has become more and more 
     complex, and the administrative costs of maintaining a 
     pension plan has risen substantially.
       The bill will authorize the Commission (six members 
     appointed by the President, six by the Speaker of the House, 
     and six by the Senate Majority Leader) to review existing 
     Federal incentives and programs that encourage and protect 
     private retirement savings and set forth recommendations 
     where appropriate for increasing the level and security of 
     private retirement savings.

             Sec. 516. Date for Adoption of Plan Amendments

       The bill provides that any plan amendment required by the 
     bill are not required to be made before the first plan year 
     beginning on or after January 1, 1997, if the plan is 
     operated in accordance with the applicable provision and the 
     amendment is retroactive to the effective date of the 
     applicable provision. In the case of state and local 
     governmental plans, plan requirements are required to be made 
     on the first plan year beginning on or after January 1, 1999.
                                 ______

      By Mr. INOUYE:
  S. 1008. A bill to amend title 10, United States Code, to provide for 
appointments to the military service academies by the Resident 
Representative to the United States for the Commonwealth of the 
Northern Mariana Islands; to the Committee on Armed Services.


                     title 10 amendment legislation

 Mr. INOUYE. Mr. President, today I am introducing a bill to 
amend title 10, United States Code, to provide for appointments to the 
military service academies by the Resident Representative for the 
Commonwealth of the Northern Mariana Islands. I think it is important 
that students from the Commonwealth of the Northern Mariana Islands 
have an opportunity to be trained at our military academies and serve 
in our Armed Forces. This bill would enable that to occur. I ask 
unanimous consent that the text of the bill appear in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:
                                S. 1008

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

     Section 1. Appointments to military service academies by the 
                   resident representative to the United States 
                   for the commonwealth of the northern mariana 
                   islands.

       (a) United States Military Academy.--
       (1) Appointment authority.--Subsection (a) of section 4342 
     of title 10, United States Code, is amended by striking out 
     the sentence following the clauses of such subsection and 
     inserting in lieu thereof the following:
       ``(10) One cadet from the Commonwealth of the Northern 
     Mariana Islands, nominated by the Resident Representative to 
     the United States for the Commonwealth of the Northern 
     Mariana Islands.

     Each person specified in clauses (3) through (10) who is 
     entitled to nominate a candidate for admission to the Academy 
     may nominate a principal candidate and nine alternates for 
     each vacancy that is available to the person under this 
     subsection.''.
       (2) Domicile of cadets.--Subsection (f) of such section is 
     amended to read as follows:
       ``(f) Each candidate for admission nominated under clauses 
     (3) through (10) of subsection (a) must be domiciled--
       ``(1) in the State, or in the congressional district, from 
     which the candidate is nominated; or
       ``(2) in the District of Columbia, Puerto Rico, American 
     Samoa, Guam, the Virgin Islands, or the Commonwealth of the 
     Northern Mariana Islands, if the candidate is nominated from 
     one of those places.''.
       (3) Conforming amendments.--(A) Subsection (d) of such 
     section is amended by striking out ``(9)'' and inserting in 
     lieu thereof ``(10)''.
       (B) Section 4343 of such title is amended by striking out 
     ``(8) of section 4342(a)'' in the second sentence and 
     inserting in lieu thereof ``(10) of section 4342(a)''.
       (b) United States Naval Academy.--
       (1) Appointment authority.--Subsection (a) of section 6954 
     of title 10, United States Code, is amended by striking out 
     the sentence following the clauses of such subsection and 
     inserting in lieu thereof the following:
       ``(10) One from the Commonwealth of the Northern Mariana 
     Islands, nominated by the Resident Representative to the 
     United States for the Commonwealth of the Northern Mariana 
     Islands.

     Each person specified in clauses (3) through (10) who is 
     entitled to nominate a candidate for admission to the Academy 
     may nominate a principal candidate and nine alternates for 
     each vacancy that is available to the person under this 
     subsection.''.
       (2) Domicile of midshipmen.--Subsection (b) of section 6958 
     of such title is amended to read as follows:
       ``(b) Each candidate for admission nominated under clauses 
     (3) through (10) of section 6954(a) of this title must be 
     domiciled--
       ``(1) in the State, or in the congressional district, from 
     which the candidate is nominated; or
       ``(2) in the District of Columbia, Puerto Rico, American 
     Samoa, Guam, the Virgin Islands, or the Commonwealth of the 
     Northern Mariana Islands, if the candidate is nominated from 
     one of those places.''.
       (3) Conforming amendment.--(A) Section 6954(d) of such 
     title is amended by striking out ``(9)'' and inserting in 
     lieu thereof ``(10)''.
       (B) Section 6956(b) of such title is amended by striking 
     out ``(8) of section 6954(a)'' in the second sentence and 
     inserting in lieu thereof ``(10) of section 6954(a)''.
       (c) United States Air Force Academy.--
       (1) Appointment authority.--Subsection (a) of section 9342 
     of title 10, United States Code, is amended by striking out 
     the sentence following the clauses of such subsection and 
     inserting in lieu thereof the following:
       ``(10) One cadet from the Commonwealth of the Northern 
     Mariana Islands, nominated by the Resident Representative to 
     the United States for the Commonwealth of the Northern 
     Mariana Islands.

     Each person specified in clauses (3) through (10) who is 
     entitled to nominate a candidate for admission to the Academy 
     may nominate a principal candidate and nine alternates for 
     each vacancy that is available to the person under this 
     subsection.''.
       (2) Domicile of cadets.--Subsection (f) of such section is 
     amended to read as follows:
       ``(f) Each candidate for admission nominated under clauses 
     (3) through (10) of subsection (a) must be domiciled--
       ``(1) in the State, or in the congressional district, from 
     which the candidate is nominated; or
       ``(2) in the District of Columbia, Puerto Rico, American 
     Samoa, Guam, the Virgin Islands, or the Commonwealth of the 
     Northern Mariana Islands, if the candidate is nominated from 
     one of those places.''.
       (3) Conforming amendments.--(A) Subsection (d) of such 
     section is amended by striking out ``(9)'' and inserting in 
     lieu thereof ``(10)''.
       (B) Section 9343 of such title is amended by striking out 
     ``(8) of section 9342(a)'' in the second sentence and 
     inserting in lieu thereof ``(10) of section 9342(a)''.
       (d) Effective Date.--The amendments made by this section 
     shall apply with respect to the nomination of candidates for 
     appointment to the United States Military Academy, the United 
     States Naval Academy, and the United States Air Force Academy 
     for classes entering the academies after the date of the 
     enactment of this Act.
                                 ______

      By Mr. D'AMATO:
  S. 1009. A bill to prohibit the fraudulent production, sale, 
transportation, or possession of fictitious items purporting to be 
valid financial instruments of the United States, foreign governments, 
States, political subdivisions, or private organizations, to increase 
the penalties for counterfeiting violations, and for other purposes; to 
the Committee on Banking, Housing, and Urban Affairs.


            the financial instruments anti-fraud act of 1995

 Mr. D'AMATO. Mr. President, I am today introducing the 
Financial Instruments Anti-Fraud Act of 1995.
  This legislation combats the use of factitious financial instruments 
to defraud individual investors, banks, pension funds, and charities. 
These fictitious instruments have been called many names, including 
prime bank notes, prime bank derivatives, prime bank guarantees, 
Japanese yen bonds, Indonesian promissory notes, U.S. Treasury 
warrants, and U.S. dollar notes. Fictitious financial instruments have 
caused hundreds of millions of dollars in losses.
  Mr. President, these frauds have been perpetrated by antigovernment 
groups such as the Posse Comitatus and ``We the People,'' which use 
fictitious financial instruments to fund their violent activities. In 
the wake of the terrible tragedy in Oklahoma City, I hope my colleagues 
will support legislation that will cut the purse strings of these 
organizations.
  Because these fictitious instruments are not counterfeits of any 
existing negotiable instrument, Federal prosecutors have determined 
that the manufacture, possession, or utterance of these instruments 
does not violate the counterfeit or bank fraud provisions contained in 
chapters 25 and 65 of title 18 of the United States Code. The 
perpetrators of these frauds can be prosecuted under existing Federal 
law only 

[[Page S9534]]
if they used the mails or wires, or violated the bank fraud statute.
  Mr. President, we have worked closely with the Treasury Department 
and various U.S. Attorneys' Offices to prepare the Financial 
Instruments Anti-Fraud Act of 1995. This bill makes it a violation of 
Federal law to possess, pass, utter, publish, or sell, with intent to 
defraud, any items purporting to be negotiable instruments of the U.S. 
Government, a foreign government, a State entity, or a private entity. 
It closes a loophole in Federal counterfeiting law.
  Fictitious financial instruments are typically produced in very large 
denominations and purport to offer very high rates of return. Promoters 
of these schemes claim that they have exclusive access to secret 
wholesale markets paying 25 percent or more to investors. The June 13, 
1994, issue of Business Week reported that innocent investors, 
including the National Council of Churches and Salvation Army, lost 
hundreds of millions of dollars in a scam involving bogus guarantees 
issued by the Czech Republic's Banka Bohemia.
  Mr. President, organized terrorist and militia groups are 
distributing do-it-yourself kits that provide the materials and 
instructions for members of such organizations to produce phony money 
order and securities. These antisocial groups seek to undermine the 
soundness of the U.S. financial system, and to raise funds to advance 
their violent, radical agenda. They claim, for example, that the IRS is 
a tool of Zionist international bankers and advocate violent 
confrontation with Federal law enforcement agents.
  Drug traffickers also rely on fictitious financial investment 
instruments. Some West African organized criminal syndicates, for 
instance, use these instruments to fund their thriving heroin trade.
  In addition to combating the use of fictitious financial investment 
instruments, this legislation correct a technical error that occurred 
when the Congress enacted the Counterfeit Deterrence Act of 1992. 
Congress intended this bill to increase penalties for counterfeit 
violations. As a result of a drafting error, however, the 1992 
legislation actually lowered criminal penalties for counterfeiting.
  This bill imposes criminal penalties for the production and sale of 
fictitious instruments. These penalties are identical to those imposed 
for counterfeiting. Criminals found guilty under these sections will 
fact up to 25 years in prison.
  Mr. President, I strongly urge passage of the Financial Instruments 
Anti-Fraud Act of 1995.
                                 ______

      By Mr. STEVENS (for himself and Mr. Murkowski):
  S. 1010. A bill to amend the ``unit of general local government'' 
definition for Federal payments in lieu of taxes to include unorganized 
boroughs in Alaska and for other purposes; to the Committee on Labor 
and Human Resources.


                            pilt legislation

 Mr. STEVENS. Mr. President, Alaska shoulders more than its 
fair share of the Federal lands. Federal lands are costly to State and 
local governments, which cannot impose a property tax on the Federal 
Government. Also, we are not able to develop the Federal lands to 
produce jobs and strengthen our economy.
  The Payments In Lieu of Taxes [PILT] program provides Federal funds 
to local governments which have tax-exempt Federal lands within their 
boundaries. PILT funding is designed to relieve the fiscal burden on 
local governments which Federal lands impose by severely reducing the 
property tax base. Under the act directing PILT payments, the Secretary 
of the Interior makes annual payments to each unit of general local 
government within which Federal lands are located.
  Despite Alaska's stature as the largest State in the Union and 
despite the millions of Federal acres in Alaska, Alaska is currently 
only the 10th highest PILT recipient. This is because the definition of 
``unit of general local government'' includes only organized boroughs 
and certain independent cities in Alaska. Yet over 60 percent of Alaska 
and 60 percent of the Federal lands are located outside of any 
organized borough.
  I cannot over-emphasize this point. Only 40 percent of the Federal 
lands in Alaska are located in organized boroughs. Over half of the 
Federal lands in Alaska, 60 percent, are not currently considered in 
determining PILT payments to Alaska. Therefore, hundreds of poor rural 
Alaskan communities which are surrounded by Federal lands, but which 
are outside of organized boroughs, receive no PILT payments. Most of 
these villages lack adequate sewer and water systems and do not have 
health facilities within 200 or 300 miles.
  Last year, I introduced a bill to include Federal lands which are not 
within organized boroughs or independent cities. That legislation, 
which the Senate passed, would have accomplished this by correcting an 
inequity in the present definition of ``unit of general local 
government'' for the purpose of determining PILT payments to include 
unorganized boroughs. Today, I am introducing a similar bill.
  This bill will resolve a great injustice. The villages in Alaska that 
are surrounded by tax-exempt Federal lands should be compensated for 
loss of property tax revenues and for the inability to use the lands 
for any development. The increase in Alaskan PILT payments will 
directly benefit villages which are in desperate need of resources to 
sustain basic necessities for their remote existence.
  Currently, the local governments in Alaska receive about $4.5 million 
a year from PILT. Under this legislation, the funds the State and 
villages receive would increase by about $2.5 million under the 
corrected PILT program. $2.5 million a year will only begin to improve 
the living conditions in the villages--but it will help. And it is 
much-needed.
  This bill will not increase the current entitlement ceiling of PILT. 
It will only change the way the PILT fund is divided. It will provide a 
small additional share of the PILT fund distribution to those Alaskan 
communities that are outside organized boroughs.
  This legislation also will not reduce other States' PILT funding by 
very much because PILT calculations include population statistics. 
Therefore, Alaska will never receive as much as some of the Western 
States with high populations and relatively high Federal acreage.
  It is a matter of fairness--60 percent of the Federal lands in Alaska 
are not included under current PILT calculations. Alaska is the only 
State not fully compensated for all of its Federal lands. Even the 
territories and the District of Columbia are fully compensated.
  I would appreciate the support of the other Senators to see that 
Alaska finally receives PILT funds for all of the Federal lands in the 
State--not just 40 percent of them.
                                 ______

      By Mr. CRAIG (for himself, Mr. Heflin, Mr. Lugar, and Mr. Leahy):
  S. 1011. A bill to help reduce the cost of credit to farmers by 
providing relief from antiquated and unnecessary regulatory burdens for 
the Farm Credit System, and for other purposes.


              The Farm Credit System Regulatory Relief Act

  Mr. CRAIG. Mr. President, I am here today to introduce the Farm 
Credit System Regulatory Relief Act of 1995. I am pleased that my 
colleague, Senator Heflin along with the chairman and ranking member of 
the Agriculture Committee, Senators Lugar and Leahy, join me as 
original cosponsors of this important legislation.
  The Farm Credit System Regulatory Relief Act of 1995 will provide for 
the elimination, consistent with safety and soundness requirements, of 
all regulations that are unnecessary, unduly burdensome or costly, or 
not based on statute.
  The Farm Credit System supplies about 25 percent of the credit 
provided to American producers and more than 80 percent of the credit 
provided to agricultural cooperatives. The cost of this credit is 
increased by unnecessary regulations. The increasingly competitive 
global market combined with the decreasing role of the Federal 
Government in agricultural support programs necessitates that farmers 
and ranchers have continued access to competitive sources of financial 
capital.
  There are 8 Farm Credit System banks and approximately 230 locally 
owned farm credit associations located across all 50 of the United 
States. If the Farm Credit System is to remain the 

[[Page S9535]]
viable financial partner for American agriculture that it is, then the 
time is now to make these significant revisions. Mr. President, I would 
also emphasize for the record that this piece of legislation is simply 
and solely regulatory relief, it does not provide the Farm Credit 
System with any additional or expanded lending authorities.
  The changes, as I have outlined in the attached section-by-section 
summary, are an important step toward ensuring that our American 
farmers will be able to obtain competitive loan rates and better 
service from the Farm Credit System.
  Mr. President, I ask unanimous consent that the section-by-section 
analysis of this bill along with a letter from the Farm Credit 
Administration be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:
   The Farm Credit System Regulatory Relief Act of 1995--Section-by-
                            Section Analysis

       Section 1: Short title; table of contents: The short title 
     is the ``Farm Credit System Regulatory Relief Act of 1995.''
       Section 2: References to the Farm Credit Act of 1971: As 
     used in this bill, all references, unless otherwise noted, 
     are references to the ``Farm Credit Act of 1971.''
       Section 3: Regulatory Review: This section describes the 
     findings of Congress regarding recent efforts by the Farm 
     Credit Administration (FCA) to reduce regulatory burden on 
     Farm Credit System institutions. This section also directs 
     FCA to continue its efforts to eliminate, consistent with 
     safety and soundness, all regulations that are unnecessary, 
     unduly burdensome or costly, or not based on statute.
       Section 4: Examination of Farm Credit System Institutions: 
     Under current law, the Farm Credit Administration has the 
     authority to examine System direct lender institutions 
     whenever and as often as the agency chooses, but not less 
     than once every year. This section would grant the FCA 
     flexibility to extend the length of time between mandatory 
     examinations to 18 months. This section would not apply to 
     Federal Land Bank Associations, which under current law are 
     only mandated for examination every three years.
       Nothing in this section would affect FCA's ability to 
     examine any System institution at any time the regulator 
     deems necessary. Likewise, this section would not affect the 
     specific technical requirements of FCA's examinations or the 
     Agency's enforcement authorities.
       This section is designed to reduce examination costs for 
     well-captialized System institutions while fully preserving 
     FCA's existing safety and soundness oversight authorities.
       Section 5; Farm Credit Insurance Fund Operations. This 
     section would authorize the Farm Credit System Insurance 
     Corporation (FCSIC) to allocate to System banks excess 
     interest earnings generated by the Farm Credit Insurance Fund 
     once the Fund reaches the secure base amount. At the same 
     time, until the excess interest earnings are rebated to 
     system banks, which would not begin until five years after 
     the secure base amount is reached, any uses of the Fund would 
     could first from the allocated earnings held in the Fund. 
     Only after such allocated amounts were exhausted would funds 
     from the secure base amount be used.
       Current law requires the FCSIC to assess premiums until 
     such time as the aggregate amount in the Farm Credit 
     Insurance Fund (The Fund) equals the secure base amount. The 
     secure base amount is defined as an amount equal to 2 percent 
     of the insured liabilities of the Farm Credit System, or such 
     other amount determined by FCSIC to be actuarially sound. 
     Once the secure base is reached (expected in early 1997), 
     premiums can be suspended. However, FSCIC does not have the 
     authority to address the excess interest earnings that will 
     continue to build above the secure base amount.
       This section would allow the eventual rebate of this excess 
     interest to those institutions that have paid insurance 
     premiums based on a three-year running average of their 
     accruing loan volume. This section would also authorize, but 
     not require, FCSIC to reduce insurance premiums as the 
     Insurance Fund approaches the 2 percent secure base amount.
       Section 6: Powers with Respect to Troubled Insured System 
     Banks: This section would require FCSIC to implement the 
     least costly of all alternatives available to it, including 
     an assisted merger, as it considers options for providing 
     assistance to a troubled System institution. It would also 
     make clear that the directorship and management of an 
     assisted institution serves at the discretion of and is 
     subject to the approval of FCSIC. Current law permits FCSIC 
     to provide ``open-bank'' assistance to a troubled System 
     institution if such assistance is merely less costly than 
     liquidation, and also permits FCSIC to ignore this least-cost 
     restriction altogether in certain limited circumstances. 
     Current law also permits FCSIC to provide financial support 
     to a troubled institution without any requirement that the 
     operations or management of that institution be materially 
     changed. Failure to amend current authorities could lead to 
     open-ended cost to the Farm Credit Insurance fund, and 
     potentially result in additional costs to other, healthy FCS 
     institutions.
       Section 7: Farm Credit System Insurance Corporation Board 
     of Directors: This section would retain the current structure 
     of the FCSIC Board by removing provisions of current law 
     requiring a new FCSIC Board structure. Currently, the FCSIC 
     board is comprised of the three board members of the Farm 
     Credit Administration. The Chairman of FCSIC is elected by 
     the board and must be someone other than the FCA chairman. 
     Effective January 1, 1996, current law requires the 
     establishment of a new, full-time presidentially-appointed, 
     three-person board completely separate and independent from 
     the FCA board. This section would remove the provision in 
     current law and would result in the retention of the FCA 
     board as the FCSIC board.
       Section 8: Conservatorships and Receiverships: This section 
     makes a conforming change to clarify that FCSIC can act in 
     the capacity of a receiver or conservator of a System 
     institution.
       Section 9: Examinations by the Farm Credit System Insurance 
     Corporation: This section provides that once the Farm Credit 
     Administration cancels the charter of a System institution 
     that is in receivership, FCSIC shall have exclusive authority 
     to examine the institution.
       Section 10: Oversight and Regulatory Actions by the Farm 
     Credit System Insurance Corporation: This section provides 
     that the Farm Credit Administration shall consult with FCSIC 
     before approving any debt issuances by a System bank that 
     fails to meet the minimum capital levels set by FCA. This 
     section also provides for consultation with FCSIC before the 
     Farm Credit Administration approves a proposed merger or 
     restructuring of a System bank or large association that does 
     not meet FCA's minimum capital levels. Finally, the section 
     grants FCSIC similar authority to that of the FDIC to 
     prohibit any golden parachute payment of indemnification 
     payment by a System institution that is in a troubled 
     condition.
       Section 11: Formation of Administrative Service Entities: 
     This section would allow Farm Credit System associations to 
     establish administrative service entities. These entities 
     would not be permitted to perform activities or carry out 
     functions not currently authorized by statute. Under current 
     law, Farm Credit System banks can form such entities under 
     Section 4.25 of the Farm Credit Act. This section would 
     extend that authority to FCS associations, although an entity 
     organized under this section would have no authority either 
     to extend credit or provide insurance services to Farm Credit 
     System borrowers, nor would it have any greater authority 
     with respect to functions and services than the organizing 
     assocaiton or associations possess under the Farm Credit Act.
       Section 12: Requirements for Loans Sold into the Secondary 
     Market: This section would make inapplicable the borrower 
     rights requirements of current law, and allow System banks 
     and associations to change their bylaws to make inapplicable 
     the borrower stock requirements of current law, for any loan 
     specifically originated for sale into the secondary market. 
     Under current law, Farm Credit borrowers are required to buy 
     and maintain stock or participation certificates in the 
     System institution which originated their loan, even when the 
     loan was originated with the express intent of selling it 
     into the secondary market.
       In addition, System loans to farmers are covered by the 
     borrower rights provisions of the Agricultural Credit Act of 
     1987. This section would allow System institutions to waive 
     these requirements for loans that are originated for sale 
     into the secondary market. If loans designated for sale into 
     the secondary market are not sold within one year, the 
     relevant borrower stock and borrower rights requirements 
     would again apply.
       The borrower stock provisions of this section would apply 
     whether or not the bank or association retains a subordinated 
     participation interest in a loan or pool of loans or 
     contributes to a cash reserve pursuant to title VIII of the 
     Farm Credit Act.
       Section 13: Removal of Antiquated and Unnecessary Paperwork 
     Requirements:
       Compensation of Association Personnel: This section would 
     remove the requirement in current law that Farm Credit System 
     banks approve the appointment and compensation of association 
     CEOs.
       Use of Private Mortgage Insurance: This section would allow 
     a rural home loan borrower to obtain financing in excess of 
     85 percent of the value of the real estate collateral 
     pledged, provided the borrower obtains private mortgage 
     insurance for the amount in excess of 85 percent. Under 
     current statute, Farm Credit System institutions can only 
     lend up to 85 percent of the value of the real estate 
     security unless federal, state, or government agency 
     guarantees are obtained.
       Removal of Certain Borrower Reporting Requirements: This 
     section would repeal the provision of current law which 
     requires all long-term mortgage borrowers to provide updated 
     financial statements every three years, regardless of the 
     status of the borrower's loan.
       Disclosure Relating to Adjustable Rate Loans: For loans not 
     subject to the Truth-In-Lending Act, current regulation 
     requires Farm Credit System institutions to notify a borrower 
     of any increase in the interest rate applicable to the 
     borrower's loan at least 10
      

[[Page S9536]]
     days in advance of the effective date of the change. For adjustable 
     rate loans that are based on an underlying index (such as 
     prime), this requirement is impossible to fulfill.
       This section would permit notice of a change in the 
     borrower's interest rate to be given within a reasonable time 
     after the effective date of an increase or decrease.
       Joint Management Agreements: This section would remove the 
     requirement in current law that both stockholders and the 
     Farm Credit Administration approve joint management 
     agreements, thereby leaving such decisions to the discretion 
     of the boards of directors of the institutions involved.
       Dissemination of Quarterly Reports: This section would 
     require that regulations issued by the Farm Credit 
     Administration governing the dissemination of quarterly 
     reports to shareholders be no more burdensome or costly than 
     regulations issued by other financial regulators governing 
     similar disclosures by national banks.
       Section 14: Removal of Federal Government Certification 
     Requirement for Certain Private Sector Financings: This 
     section would remove government certification procedures for 
     certain Banks for Cooperatives' lending activities without 
     changing eligibility requirements in current statute. Under 
     current law, eligibility for FCS bank for cooperative rural 
     utility lending is based on the eligibility requirements in 
     the Rural Electrification Act. Current statute requires the 
     administrator of the Rural Electrification Administration 
     (REA) to certify that rural utility companies are eligible 
     for REA financing in order for those systems to obtain 
     private sector financing from the Banks for Cooperatives. 
     This section would remove the certification requirement 
     without changing the underlying eligibility criteria in the 
     statute.
       Section 15: Reform of Regulatory Limitations on Dividend, 
     Member Business, and Voting Practices of Eligible Farmer-
     Owned Cooperatives: This section would allow greater 
     flexibility for evolving cooperative structure issues such as 
     dividend, member business, and voting practices. Under 
     current law, farmer-owned cooperatives are required to 
     maintain rigid operating procedures in order to maintain 
     their eligibility for FCS Bank for Cooperatives financing. 
     This section would allow existing borrowers to adapt their 
     operations, while retaining their farmer-owned nature, and 
     thereby maintain their continued eligibility to borrow from 
     the Banks for Cooperatives. This section would not expand 
     Banks for Cooperatives eligibility to cooperatives that do 
     not meet the eligibility criteria in current law.
                                                                    ____



                                   Farm Credit Administration,

                                        McLean, VA, June 29, 1995.
     Hon. Larry E. Craig,
     Chairman, Forestry, Conservation, and Rural Revitalization 
         Subcommittee.
     Committee on Agriculture, Nutrition and Forestry,
     U.S. Senate, Washington, DC.
       Dear Mr. Chairman: In response to your request, the Farm 
     Credit Administration provides its views on the proposed Farm 
     Credit System Regulatory Relief Act of 1995 (Relief Act). 
     Relieving regulatory burden has been a strategic goal of the 
     FCA's since 1994, and we have accomplished a great deal in 
     this area. We are, nevertheless, supportive of legislative 
     efforts to relieve burdens we lack the power to remove, 
     provided safety and soundness are not compromised.
       We do not believe it is necessary for the Congress to 
     direct FCA to continue its efforts to eliminate regulations 
     that are unnecessary, unduly burdensome or costly or not 
     based on statute. The FCA has been actively involved in an 
     effort to streamline its regulations with a view to relieving 
     regulatory burden and is committed to continuing that 
     process. The FCA Board recently reaffirmed the existing 
     policy to regulate only as necessary to implement or 
     interpret the statute or as required by safety and soundness 
     and to conduct a periodic review of regulations with a view 
     to eliminating unnecessary burden.
       While we understand the position the System has taken with 
     respect to the statutory provision for financial statements, 
     we do believe that timely financial information on large 
     loans with annual or infrequent payment schedules is required 
     for safe and sound business decisions and planning. Should 
     the statutory provision be eliminated, we would continue to 
     address this issue by regulation as necessary for safety and 
     soundness. It should also be noted that the current FCA 
     regulation (12 CFR 614.4200(c)) exempts loans with regular 
     and frequently scheduled payments such as rural housing or 
     other similarly amortized consumer-type loans.
       With respect to the provisions dealing with information 
     provided to stockholders, FCA regulations require that 
     borrowers receive a 10-day advance notice of the increase in 
     rates on an adjustable rate loan, whether the rate is an 
     administered rate or is tied to an index that is available to 
     the general public and not under the lender's control. The 
     Relief Act proposes to delete this requirement and provide 
     for a post increase notice within a reasonable time. The FCA 
     Board has expressed interest in relaxing the regulatory 
     requirement and would support notification to the borrower 
     within 10 days after the increase or decrease.
       The Relief Act provisions would relieve an association of 
     any obligation to provide stockholders with a quarterly 
     financial report. The quarterly report, together with the 
     annual report, serves a dual purpose. The reports provide 
     shareholders with current information on the performance of 
     their investment and the management of the association they 
     own. In addition, they serve as the basis for disclosure to 
     prospective shareholders. FCA regulations currently require 
     that quarterly reports be sent to stockholders or published 
     in a widely available publication. The FCA currently is 
     considering a request from a number of System institutions to 
     permit these reports be made available only when stockholders 
     request them. The Relief Act would relieve System 
     institutions of the obligation to provide a quarterly report 
     even if requested. We think shareholders need to have access 
     to recent financial information about the institution they 
     own.
       With respect to the provision related to the Farm Credit 
     System Insurance Corporation Board structure, we believe that 
     it would result in significant savigns and that addressign 
     this issue as proposed in the Relief Act would be consistent 
     with the current emphasis on streamlining government.
       We thank you for the opportunity to comment. If we can be 
     of further assistance, please let us know.
           Sincerely,
                                                    Marsha Martin,
                                                         Chairman.
                                                    Doyle L. Cook,
                                                     Board Member.

  Mr. HEFLIN. Mr. President, I rise in strong support of, and am proud 
to lend my cosponsorship to, the Farm Credit System Regulatory Relief 
Act of 1995.
  The Farm Credit System has played a central role in providing capital 
to farming families for decades. However, as we face an evolving 
business world, modifications are necessary for Farm Credit to remain a 
viable financial partner for American agriculture.
  The availability of credit is of vital importance to rural economies. 
The Farm Credit System Regulatory Relief Act addresses the need for 
adequate and reliable credit by providing for the removal of 
unnecessary and burdensome regulation which will facilitate the flow of 
required capital.
  The Farm Credit Regulatory Relief Act grants the Farm Credit 
Administration the flexibility to extend the length of time between 
mandatory examinations to 18 months. The Farm Credit Administration has 
the authority to examine system-direct lending institutions whenever 
and as often as the agency chooses. This improvement only changes the 
mandatory period between examinations. This change will reduce the 
isntitutions' examination costs and the savings will be passed back to 
rural borrowers through lwoer loan rates, thereby making capital more 
easily attainable where it is most needed.
  In addition to reducing costs, the Regulatory Relief Act will also 
allow the Farm Credit System to better serve local communities by 
creating administrative service entities. Current law allows Farm 
Credit banks to establish such service entities. This act would extend 
existing authority to Farm Credit System associations which serve the 
rural communities. I fully support this change and believe that it is 
long overdue.
  Through the removal of outdated and burdensome regulations, the Farm 
Credit System will be able to better serve farming families and rural 
communities wshile promoting cost savings to agriculture by providing 
farmers with competitive loan rates. For these reasons, I strongly 
support the Farm Credit Regulatory Relief Act of 1995.
                                 ______

      By Mr. D'AMATO (for himself and Mr. Moynihan):
  S. 1012. A bill to extend the time for construction of certain FERC 
licensed hydro projects; to the Committee on Energy and Natural 
Resources.


                 Hydroelectric power license extension

 Mr. D'AMATO. Mr. President, I rise today to introduce 
legislation with my friend and colleague, Senator Moynihan, that will 
keep two hydroelectric projects in upstate New York on track. Our 
legislation will extend the time limitations on two Federal Energy 
Regulatory Commission [FERC] licensed hydroelectric projects located on 
two existing dam sites on the Hudson River--the Northumberland project 
and the Waterford project.
  The Northumberland Hydroelectric project, when completed, will 
generate 48 million kilowatt hours of electricity while the Waterford 
Hydroelectric project will produce 42 million kilowatt hours. The 
development of these two dams will provide a clean alternative energy 
source. In addition, the construction and operation of these projects 
will provide jobs for this upstate region of New York. 

[[Page S9537]]

  As many of my colleagues who are familiar with similar projects know, 
the Federal Power Act sets a time limit for the beginning of 
construction on a hydropower project once FERC has issued a license. 
Once a license is issued, construction must occur 2 years from the 
licensing date unless FERC extends the initial two year deadline. The 
Federal Power Act allows only one extension for up to 2 years. Failure 
to commerce construction within the time allotted opens the license to 
termination. In the case of these two projects, FERC has already 
extended the deadline--the Northumberland deadline is January 16, 1996, 
while the Waterford deadline is June 7, 1997.
  The bill that we are introducing today is identical to legislation 
introduced in the House by Representatives Solomon and McNulty. Both 
bills give FERC the authority to extend the construction deadline for 
each project for up to a total of 6 years. The current licensees for 
these projects are moving steadily toward development, however, they 
recognize that they may not be able to achieve their goals within the 
prescribed deadlines. By enacting this legislation, the extra time 
necessary to realize the potential of these projects will be granted.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1012

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

     SECTION 1. EXTENSION.

       Notwithstanding the limitations of section 13 of the 
     Federal Power Act, the Federal Energy Regulatory Commission, 
     upon the request of the licensee or licensees for FERC 
     projects numbered 4244 and 10648 (and after reasonable 
     notice), is authorized in accordance with the good faith, due 
     diligence, and public interest requirements of such section 
     13 and the Commission's procedures under such section, to 
     extend the time required for commencement of construction for 
     each of such projects for up to a maximum of 3 consecutive 2-
     year periods. This section shall take effect for the projects 
     upon the expiration of the extension (issued by the 
     Commission under such section 13) of the period required for 
     commencement of construction of each such project.
                                 ______

      By Mr. NICKLES:
  S. 1014. A bill to improve the management of royalties from Federal 
and Outer Continental Shelf oil and gas leases, and for other purposes; 
to the Committee on Energy and Natural Resources.


                    The royalty fairness act of 1995

  Mr. NICKLES. Mr. President, over time, serious problems have 
developed with the ways courts and consequently the Minerals Management 
Service [MMS] have interpreted the Federal statute of limitations 
governing royalty collection. Basically the issue is: At what time does 
the statute of limitations begin to run on the underpayment of 
royalties?
  Some courts claim that the statute of limitations does not begin to 
run until the MMS ``should have known about the deficiency'' in the 
amount the producer has paid [Mesa v. U.S. (10th Cir. 1994)]. Other 
courts have held that the current six year statute ``is tolled until 
such time as the government could reasonably have known about a fact 
material to its right of action.'' [Phillips v. Lujan (10th Cir. 
1993)].
  Either of the above interpretations subject producers to unlimited 
liability--a period that well exceeds the statute of limitations on 
other agency actions regarding procedures. This situation has created a 
climate of deep uncertainty in the payment of royalties that was not 
intended by Congress and that is not in the best interests of 
consumers, producers, or ultimately the U.S. Government.
  Oil and gas producers pay billions of dollars every year for the 
opportunity to drill on Federal land. The payment of royalties is a 
routine part of doing business with the federal government. Their is no 
attempt here to alter that obligation to pay.
  However, like all other businesses, oil and gas producers need 
certainty in their business relationships and in their business 
transactions with the Federal Government. That certainty is not now 
present in the MMS's regulations or in numerous court decisions 
interpreting the applicable statute of limitations. Certainty can be 
achieved only through legislation. For that reason, I am introducing 
today the Royalty Fairness Act of 1995.
  The main objective of this legislation is to identify the time when 
the statute of limitations begins to run on royalty payments. In most 
cases, it will be when the obligation to pay the royalty begins. That 
will occur, in most instances, at the time of an underpayment of the 
royalty payment to the MMS.
  Let me summarize the effects and provisions of this bill:
  The bill establishes a 6-year statute of limitations for auditing 
royalty activities and correcting errors, defined to commence the month 
following the month of production.
  The bill also addresses the refund period for overpayments on OCS 
drilling. Currently, there is a 2-year period to file for an 
overpayment on offshore leases. Experience has shown that this period 
is too short and that, as a result, producers can lose legitimate 
refunds. To correct this problem, the bill extends the refund period 
from 2 to 3 years. This section also provides for routine crediting or 
offsetting of overpayments against payments currently due--something 
that is not permitted now for royalty payments but would increase the 
efficiencies of collection.
  An amendment to the Federal Oil and Gas Royalty Management Act of 
1982 [FOGRMA] is included to similarly shorten the time frame for 
producers to keep records. There is simply no need to keep records 
beyond the proposed 6-year statute of limitations.
  Interest reciprocity is established, but requires offsetting by both 
the lessee and the Secretary. This offsetting procedure applies to all 
overpayments and underpayments at the lessee level for all federal 
leases of the same category prior to determining the ``net'' 
overpayment or underpayment which is subject to interest.
  The Act allows the Secretary to waive interest. Currently, the law is 
interpreted to require the collection of interest in all cases. That 
interpretation has made it difficult to resolve payment issues or 
settle disputed claims. Thus, this section is intended to facilitate 
the settlement of payments and disputes.
  Furthermore, the Act provides an inducement for MMS to resolve 
administrative proceedings in a diligent timeframe (3 years). There is 
currently no such inducement; in fact, the MMS in many instances tolls 
its decisions indefinitely.
  This bill provides for the imposition of civil or criminal penalties 
upon a showing of willful misconduct or gross negligence. Currently 
penalties or assessments are imposed without notice or an opportunity 
to be heard. This section provides for due process.
  No section of this bill allows for reduced royalties either before or 
after production is commenced.
  It does, however, eliminate the need to give formal notice before 
seeking enforcement of the Outer Continental Shelf Leasing Act [OCSLA].
  These are the major provisions of the Act. It covers leases 
administered by the Secretary of the Interior on Federal lands and the 
Outer Continental Shelf but specifically excludes Indian lands.
  The MMS has made a number of attempts to correct these problems, and 
currently it has several information policies that parallel many of the 
provisions in this bill. However, there will be no permanent solution 
until Congress enacts legislation. The bill has strong support among 
oil and gas producers. I am confident that creating a climate of 
certainty in the oil and gas industry and getting rid of some 
inconsistencies in current regulation is very much in the national 
economic interest.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:
                                S. 1014

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,
     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Federal 
     Oil and Gas Royalty Simplification and Fairness Act of 
     1995''.
       (b) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
Sec. 3. Limitation periods.
Sec. 4. Overpayments: offsets and refunds.

[[Page S9538]]

Sec. 5. Required recordkeeping.
Sec. 6. Royalty interest, penalties, and payments.
Sec. 7. Limitation on assessments.
Sec. 8. Cost-effective audit and collection requirements.
Sec. 9. Elimination of notice requirement.
Sec. 10. Royalty in kind.
Sec. 11. Time and manner of royalty payment.
Sec. 12. Repeals.
Sec. 13. Indian lands.
Sec. 14. Effective date.
     SEC. 2. DEFINITIONS.

       Section 3 of the Federal Oil and Gas Royalty Management Act 
     of 1982 (30 U.S.C. 1701 et seq.) is amended as follows:
       (1) In paragraph (5), by inserting ``(including any unit 
     agreement and communitization agreement)'' after 
     ``agreement''.
       (2) By amending paragraph (7) to read as follows:
       ``(7) `lessee' means any person to whom the United States 
     issues a lease.''.
       (3) By striking ``and'' at the end of paragraph (15), by 
     striking the period at the end of paragraph (16) and 
     inserting a semicolon, and by adding at the end the 
     following:
       ``(17) `administrative proceeding' means any agency process 
     for rulemaking, adjudication or licensing, as defined in and 
     governed by chapter 5 of title 5, United States Code 
     (relating to administrative procedures);
       ``(18) `assessment' means any fee or charge levied or 
     imposed by the Secretary or the United States other than--
       ``(A) the principal amount of any royalty, minimum royalty, 
     rental, bonus, net profit share or proceed of sale;
       ``(B) any interest; and
       ``(C) any civil or criminal penalty;
       ``(19) `commence' means--
       ``(A) with respect to a judicial proceeding, the service of 
     a complaint, petition, counterclaim, cross-claim, or other 
     pleading seeking affirmative relief or seeking offset or 
     recoupment;
       ``(B) with respect to an administrative proceeding--
       ``(i) the receipt by a lessee of an order to pay issued by 
     the Secretary; or
       ``(ii) the receipt by the Secretary of a written request or 
     demand by a lessee, or any person acting on behalf of a 
     lessee which asserts an obligation due the lessee;
       ``(20) `credit' means the method by which an overpayment is 
     utilized to discharge, cancel, reduce or offset an obligation 
     in whole or in part;
       ``(21) `obligation' means a duty of the Secretary, the 
     United States, or a lessee--
       ``(A) to deliver or take oil or gas in kind; or
       ``(B) to pay, refund, credit or offset monies, including 
     (but not limited to) a duty to calculate, determine, report, 
     pay, refund, credit or offset--
       ``(i) the principal amount of any royalty, minimum royalty, 
     rental, bonus, net profit share or proceed of sale;
       ``(ii) any interest;
       ``(iii) any penalty; or
       ``(iv) any assessment,
     which arises from or relates to any lease administered by the 
     Secretary for, or any mineral leasing law related to, the 
     exploration, production and development of oil or gas on 
     Federal lands or the Outer Continental Shelf;
       ``(22) `offset' means the act of applying an overpayment 
     (in whole or in part) against an obligation which has become 
     due to discharge, cancel or reduce the obligation;
       ``(23) `order to pay' means a written order issued by the 
     Secretary or the United States which--
       ``(A) asserts a definite and quantified obligation due the 
     Secretary or the United States; and
       ``(B) specifically identifies the obligation by lease, 
     production month and amount of such obligation ordered to be 
     paid, as well as the reason or reasons such obligation is 
     claimed to be due,

     but such term does not include any other communication by or 
     on behalf of the Secretary or the United States;
       ``(24) `overpayment' means any payment (including any 
     estimated royalty payment) by a lessee or by any person 
     acting on behalf of a lessee in excess of an amount legally 
     required to be paid on an obligation;
       ``(25) `payment' means satisfaction, in whole or in part, 
     of an obligation due the Secretary or the United States;
       ``(26) `penalty' means a statutorily authorized civil fine 
     levied or imposed by the Secretary or the United States for a 
     violation of this Act, a mineral leasing law, or a term or 
     provision of a lease administered by the Secretary;
       ``(27) `refund' means the return of an overpayment by the 
     Secretary or the United States by the drawing of funds from 
     the United States Treasury;
       ``(28) `underpayment' means any payment by a lessee or 
     person acting on behalf of a lessee that is less than the 
     amount legally required to be paid on an obligation; and
       ``(29) `United States' means--
       ``(A) the United States Government and any department, 
     agency, or instrumentality thereof; and
       ``(B) when such term is used in a geographic sense, 
     includes the several States, the District of Columbia, Puerto 
     Rico, and the territories and possessions of the United 
     States.''.

     SEC. 3. LIMITATION PERIODS.

       (a) In General.--The Federal Oil and Gas Royalty Management 
     Act of 1982 (30 U.S.C. 1701 et seq.) is amended by adding 
     after section 114 the following new section:

     ``SEC. 115. LIMITATION PERIODS.

       ``(a) In General.--
       ``(1) Six-year period.--A judicial or administrative 
     proceeding which arises from, or relates to, an obligation 
     may not be commenced unless such proceeding is commenced 
     within 6 years from the date on which such obligation becomes 
     due.
       ``(2) Limit on tolling of limitation period.--The running 
     of the limitation period under paragraph (1) shall not be 
     suspended or tolled by any action of the United States or an 
     officer or agency thereof other than the commencement of a 
     judicial or administrative proceeding under paragraph (1) or 
     an agreement under paragraph (3).
       ``(3) Fraud or concealment.--For the purpose of computing 
     the limitation period under paragraph (1), there shall be 
     excluded therefrom any period during which there has been 
     fraud or concealment by a lessee in an attempt to defeat or 
     evade payment of any such obligation.
       ``(4) Reasonable period for providing information.--In 
     seeking information on which to base an order to pay, the 
     Secretary shall afford the lessee or person acting on behalf 
     of the lessee a reasonable period in which to provide such 
     information before the end of the period under paragraph (1).
       ``(b) Final Agency Action.--The Director of the Minerals 
     Management Service shall issue a final Director's decision in 
     any administrative proceeding before the Director within one 
     year from the date such proceeding was commenced. The 
     Secretary shall issue a final agency decision in any 
     administrative proceeding within 3 years from the date such 
     proceeding was commenced. If no such decision has been issued 
     by the Director or Secretary within the prescribed time 
     periods referred to above:
       ``(1) the Director's or Secretary's decision, as the case 
     may be, shall be deemed issued and granted in favor of the 
     lessee or lessees as to any nonmonetary obligation and any 
     obligation the principal amount of which is less than $2,500; 
     and
       ``(2) in the case of a monetary obligation the principal 
     amount of which is $2,500 or more, the Director's or 
     Secretary's decision, as the case may be, shall be deemed 
     issued and final, and the lessee shall have a right of de 
     novo judicial review and appeal of such final agency action.
       ``(c) Tolling by Agreement.--Prior to the expiration of any 
     period of limitation under subsections (a) or (c), the 
     Secretary and a lessee may consent in writing to extend such 
     period as it relates to any obligation under the mineral 
     leasing laws. The period so agreed upon may be extended by 
     subsequent agreement or agreements in writing made before the 
     expiration of the period previously agreed upon.-
       ``(d) Limitation on Certain Actions by the United States.--
     When an action on or enforcement of an obligation under the 
     mineral leasing laws is barred under subsection (a) or (b), 
     the United States or an officer or agency thereof may not 
     take any other or further action regarding that obligation 
     including (but not limited to) the issuance of any order, 
     request, demand or other communication seeking any document, 
     accounting, determination, calculation, recalculation, 
     principal, interest, assessment, penalty or the initiation, 
     pursuit or completion of an audit.
       ``(e) Obligation Becomes Due.--
       ``(1) In general.--For purposes of subsection (a), an 
     obligation becomes due when the right to enforce the 
     obligation is fixed.
       ``(2) Special rule regarding royalty obligation.--The right 
     to enforce any royalty obligation is fixed for the purposes 
     of this Act on the last day of the calendar month following 
     the month in which oil or gas is produced, except that with 
     respect to any such royalty obligation which is altered by a 
     retroactive redetermination of working interest ownership 
     pursuant to a unit or communitization agreement, the right to 
     enforce such royalty obligation in such amended unit or 
     communitization agreement is fixed for the purposes of this 
     Act on the last day of the calendar month in which such 
     redetermination is made. The Secretary shall issue any such 
     redetermination within 180 days of receipt of a request for 
     redetermination.
       ``(f) Judicial Review of Administrative Proceedings.--In 
     the event an administrative proceeding subject to subsection 
     (a) is timely commenced and thereafter the limitation period 
     in subsection (a) lapses during the pendency of the 
     administrative proceeding, no party to such administrative 
     proceeding shall be barred by this section from commencing a 
     judicial proceeding challenging the final agency action in 
     such administrative proceeding so long as such judicial 
     proceeding is commenced within 90 days from receipt of notice 
     of the final agency action.
       ``(g) Implementation of Final Decision.--In the event a 
     judicial or administrative proceeding subject to subsection 
     (a) is timely commenced and thereafter the limitation period 
     in subsection (a) lapses during the pendency of such 
     proceeding, any party to such proceeding shall not be barred 
     from taking such action as is required or necessary to 
     implement the final unappealable judicial or administrative 
     decision, including any action required or necessary to 
     implement such decision by the recovery or recoupment of an 
     underpayment or overpayment by means of refund, credit or 
     offset. 

[[Page S9539]]

       ``(h) Stay of Payment Obligation Pending Review.--Any party 
     ordered by the Secretary or the United States to pay any 
     obligation (including any interest, assessment or penalty) 
     shall be entitled to a stay of such payment without bond or 
     other surety pending administrative or judicial review unless 
     the Secretary demonstrates that such party is or may become 
     financially insolvent or otherwise unable to pay the 
     obligation, in which case the Secretary may require a bond or 
     other surety satisfactory to cover the obligation.
       ``(i) Inapplicability of the Other Statutes of 
     Limitation.--The limitations set forth in sections 2401, 
     2415, 2416, and 2462 of title 28, United States Code, section 
     42 of the Mineral Leasing Act (30 U.S.C. 226-2), and section 
     3716 of title 31, United States Code, shall not apply to any 
     obligation to which this Act applies.''.
       (b) Clerical Amendment.--The table of contents in section 1 
     of such Act (30 U.S.C. 1701) is amended by adding after the 
     item relating to section 114 the following new item:

``Sec. 115. Limitation period.''.
     SEC. 4. OVERPAYMENTS: OFFSETS AND REFUNDS.

       (a) In General.--The Federal Oil and Gas Royalty Management 
     Act of 1982 (30 U.S.C. 1701 et seq.) is amended by adding 
     after section 111 the following new section:

     ``SEC. 111A. OVERPAYMENTS: OFFSETS AND REFUNDS.

       ``(a) Offsets.--
       ``(1) Manner.--For each reporting month, a lessee or person 
     acting on behalf of a lessee shall offset all under payments 
     and overpayments made for that reporting month for all leases 
     within the same royalty distribution category established 
     under permanent indefinite appropriations.
       ``(2) Offset against obligations.--The net overpayment 
     resulting within each category from the offsetting described 
     in paragraph (1) may be offset and credited against any 
     obligation for current or subsequent reporting months which 
     have become due on leases within the same royalty 
     distribution category.
       ``(3) Prior approval not required.--The offsetting or 
     crediting of any overpayment, in whole or part, shall not 
     require the prior request to or approval by the Secretary.
       ``(4) Exclusion of certain under and overpayments.--Any 
     underpayment or overpayment upon which an order has been 
     issued which is subject to appeal shall be excluded from the 
     offsetting provisions of this section.
       ``(b) Refunds.--
       ``(1) In general.--A refund request may be made to the 
     Secretary not before one-year after the subject reporting 
     month. After such one-year period and when a lessee or a 
     person acting on behalf of a lessee has made a net 
     overpayment to the Secretary or the United States and has 
     offset or credited in accordance with subsection (a), the 
     Secretary shall, upon request, refund to such lessee or 
     person the net overpayment, with accumulated interest thereon 
     determined in accordance with section 111. If for any reason, 
     a lessee or person acting on behalf of a lessee is no longer 
     accruing obligations on any lease within a category, then 
     such lessee or person may immediately file a request for a 
     refund of any net overpayment and accumulated interest.
       ``(2) Request.--The request for refund is sufficient if 
     it--
       ``(A) is made in writing to the Secretary;
       ``(B) identifies the person entitled to such refund; and
       ``(C) provides the Secretary information that reasonably 
     enables the Secretary to identify the overpayment for which 
     such refund is sought.
       ``(3) Treatment as written request or demand.--Service of a 
     request for refund shall be a `written request or demand' 
     sufficient to commence an administrative proceeding.
       ``(4) Payment by secretary of the treasury.--The Secretary 
     shall certify the amount of the refund to be paid under 
     paragraph (1) to the Secretary of the Treasury who is 
     authorized and directed to make such refund.
       ``(5) Payment period.--A refund under this subsection shall 
     be paid within 90 days of the date on which the request for 
     refund was received by the Secretary.
       ``(c) Limitation on Offsets and Refunds.--
       ``(1) Limitation period for offsets and refunds.--Except as 
     provided by paragraph (2), a lessee or person acting on 
     behalf of a lessee may not offset or receive a refund of any 
     overpayment which arises from or relates to an obligation 
     unless such offset or refund request is initiated within six 
     years from the date on which the obligation which is the 
     subject of the overpayment became due.
       ``(2) Exception.--(A) For any overpayment the recoupment of 
     which (in whole or in part) by offset or refund, or both, may 
     occur beyond the six-year limitation period provided in 
     paragraph (1), where the issue of whether an overpayment 
     occurred has not been finally determined, or where recoupment 
     of the overpayment has not been accomplished within said six-
     year period, the lessee or person acting on behalf of a 
     lessee may preserve its right to recover or recoup the 
     overpayment beyond the limitation period by filing a written 
     notice of the overpayment with the Secretary within the six-
     year period.
       ``(B) Notice under subparagraph (A) shall be sufficient if 
     it--
       ``(i) identifies the person who made such overpayment;
       ``(ii) asserts the obligation due the lessee or person; and
       ``(iii) identifies the obligation by lease, production 
     month and amount, as well as the reason or reasons such 
     overpayment is due.
       ``(d) Prohibition Against Reduction of Refunds or 
     Offsets.--In no event shall the Secretary directly or 
     indirectly claim any amount or amounts against, or reduce any 
     offset or refund (or interest accrued thereon) by, the amount 
     of any obligation the enforcement of which is barred by 
     section 115.''.
       (b) Clerical Amendment.--The table of contents in section 1 
     of such Act (30 U.S.C. 1701)is amended by adding after the 
     item relating to section 111 the following new item:

``Sec. 111A. Overpayments: offsets and refunds.''.
     SEC. 5. REQUIRED RECORDKEEPING.

       Section 103 of the Federal Oil and Gas Royalty Management 
     Act of 1982 (30 U.S.C. 1713(b)) is amended by adding at the 
     end the following:
       ``(c) Records required by the Secretary for the purpose of 
     determining compliance with an applicable mineral leasing 
     law, lease provision, regulation or order with respect to oil 
     and gas leases from Federal lands or the Outer Continental 
     Shelf shall be maintained for six years after an obligation 
     becomes due unless the Secretary commences a judicial or 
     administrative proceeding with respect to an obligation 
     within the time period prescribed by section 115 in which 
     such records may be relevant. In that event, the Secretary 
     may direct the record holder to maintain such records until 
     the final nonappealable decision in such judicial or 
     administrative proceeding is rendered. Under no circumstance 
     shall a record holder be required to maintain or produce any 
     record covering a time period for which a substantive claim 
     with respect to an obligation to which the record relates 
     would be barred by the applicable statute of limitation in 
     section 115.''.

     SEC. 6. ROYALTY INTEREST, PENALTIES, AND PAYMENTS.

       (a) Interest Charged on Late Payments and Underpayments.--
     Section 111(a) of the Federal Oil and Gas Royalty Management 
     Act of 1982 (30 U.S.C. 1721(a)) is amended to read as 
     follows:
       ``(a) In the case of oil and gas leases where royalty 
     payments are not received by the Secretary on the date that 
     such payments are due, or are less than the amount due, the 
     Secretary shall charge interest on a net late payment or 
     underpayment at the rate published by the Department of the 
     Treasury as the Treasury Current Value Of Funds Rate. The 
     Secretary may waive or forego such interest in whole or in 
     part. In the case of a net underpayment for a given reporting 
     month, interest shall be computed and charged only on the 
     amount of the net underpayment and not on the total amount 
     due from the date of the net underpayment. The net 
     underpayment is determined by offsetting in the same manner 
     as required under paragraphs (1) and (2) of section 111A(a). 
     Interest may only be billed by the Secretary for any net 
     underpayment not less than one year following the subject 
     reporting month.''.
       (b) Charge on Late Payment Made by the Secretary.--Section 
     111(b) of the Federal Oil and Gas Royalty Management Act of 
     1982 (30 U.S.C. 1721(b)) is amended to read as follows:
       ``(b) Any payment made by the Secretary to a State under 
     section 35 of the Mineral Leasing Act, and any other payment 
     made by the Secretary which is not paid on the date required 
     under such section 35, shall include an interest charge 
     computed at the rate published by the Department of the 
     Treasury as the Treasury Current Value of Funds Rate. The 
     Secretary shall not be required to pay interest under this 
     paragraph until collected or when such interest has been 
     waived or is otherwise not collected. With respect to any 
     obligation, the Secretary may waive or forego interest 
     otherwise required under section 3717 of title 31, United 
     States Code.''.
       (c) Period.--Section 111(f) of the Federal Oil and Gas 
     Royalty Management Act of 1982 (30 U.S.C. 1721(f)) is amended 
     to read as follows:
       ``(f) Unless waived or not collected pursuant to 
     subsections (a)(2) and (b)(2), interest shall be charged 
     under this section only for the number of days a payment is 
     late.''.
       (d) Lessee Interest.--Section 111 of the Federal Oil and 
     Gas Royalty Management Act of 1982 (30 U.S.C. 1721) is 
     amended by adding the following after subsection (g):
       ``(h) If a net overpayment, as determined by offsetting as 
     required under section 111A(1) and (2) for a reporting month, 
     interest shall be allowed and paid or credited on such net 
     overpayment, with such interest to accrue from the date such 
     net overpayment was made, at the rate published by the 
     Department of the Treasury as the Treasury Current Value of 
     Funds Rate.''.
       (e) Payment Exception for Minimal Production.--Section 111 
     of the Federal Oil and Gas Royalty Management Act of 1982 (30 
     U.S.C. 1721) is amended by adding the following after 
     subsection (h):
       ``(i) For any well on a lease which produces on average 
     less than 250 thousand cubic feet of gas per day or 25 
     barrels of oil per day, the royalty on the actual or 
     allocated lease production may be paid--

[[Page S9540]]

       ``(1) for a 12-month period, only based on actual 
     production removed or sold from the lease; and
       ``(2) 6 months following such period, for additional 
     production allocated to the lease during the period.

     No interest shall be allowed or accrued on any underpayment 
     resulting from this payment methodology until the month 
     following the applicable 12-month period.''.

     SEC. 7. LIMITATION ON ASSESSMENTS.

       Section 111 of the Federal Oil and Gas Royalty Management 
     Act of 1982 (30 U.S.C. 1721) is amended by adding the 
     following after subsection (i):
       ``(j) The Secretary may levy or impose an assessment upon 
     any person not to exceed $250 for any reporting month for the 
     inaccurate reporting of information required under subsection 
     (k). No assessment may be levied or imposed upon any person 
     for any underpayment, late payment, or estimated payment or 
     for any erroneous or incomplete royalty or production related 
     report for information not required by subsection (k) absent 
     a showing of gross negligence or willful misconduct.''.

     SEC. 8. COST-EFFECTIVE AUDIT AND COLLECTION REQUIREMENTS.

       Section 101 of the Federal Oil and Gas Royalty Management 
     Act of 1982 (30 U.S.C. 1701 et seq.) is amended by adding the 
     following after subsection (c):
       ``(d)(1) If the Secretary determines that the cost of 
     accounting for and collecting of any obligation due for any 
     oil or gas production exceeds or is likely to exceed the 
     amount of the obligation to be collected, the Secretary shall 
     waive such obligation.
       ``(2) The Secretary shall develop a lease level reporting 
     and audit strategy which eliminates multiple or redundant 
     reporting of information.
       ``(3) In carrying out this section, for onshore production 
     from any well which is less than 250 thousand cubic feet of 
     gas per day or 25 barrels of oil per day, or for offshore 
     production for any well less than 1,500,000 cubic feet of gas 
     per day or 150 barrels of oil per day, the Secretary shall 
     only require the lessee to submit the information described 
     in section 111(k). For such onshore and offshore production, 
     the Secretary shall not conduct royalty reporting compliance 
     and enforcement activities, levy or impose assessments 
     described in such section 111(k) and shall not bill for 
     comparisons between royalty reporting and production 
     information. The Secretary may only conduct audits on such 
     leases if the Secretary has reason to believe that the lessee 
     has not complied with payment obligations for at least three 
     months during a twelve month period. The Secretary shall not 
     perform such audit if the Secretary determines that the cost 
     of conducting the audit exceeds or is likely to exceed the 
     additional royalties expected to be received as a result of 
     such audit.''.-

     SEC. 9. ELIMINATION OF NOTICE REQUIREMENT.

       Section 23(a)(2) of the Outer Continental Shelf Lands Act 
     (43 U.S.C. 1349(a)(2)) is amended to read as follows:
       ``(2) Except as provided in paragraph (3) of this 
     subsection, no action may be commenced under subsection 
     (a)(1) of this section if the Attorney General has commenced 
     and is diligently prosecuting a civil action in a court of 
     the United States or a State with respect to such matter, but 
     in any such action in a court of the United States any person 
     having a legal interest which is or may be adversely affected 
     may intervene as a matter of right.''.

     SEC. 10. ROYALTY IN KIND.

       (a) In General.--Section 27(a)(1) of the Outer Continental 
     Shelf Lands Act (43 U.S.C. 1353(a)(1)) and the first 
     undesignated paragraph of section 36 of the Mineral Leasing 
     Act (30 U.S.C. 192) are each amended by adding at the end the 
     following: ``Any royalty or net profit share of oil or gas 
     accruing to the United States under any lease issued or 
     maintained by the Secretary for the exploration, production 
     and development of oil and gas on Federal lands or the Outer 
     Continental Shelf, at the Secretary's option, may be taken in 
     kind at or near the lease upon 90 days prior written notice 
     to the lessee. Once the United States has commenced taking 
     royalty in kind, it shall continue to do so until 90 days 
     after the Secretary has provided written notice to the lessee 
     that it will resume taking royalty in value. Delivery of 
     royalty in kind by the lessee shall satisfy in full the 
     lessee's royalty obligation. Once the oil or gas is delivered 
     in kind, the lessee shall not be subject to the reporting and 
     recordkeeping requirements, including requirements under 
     section 103, except for those reports and records necessary 
     to verify the volume of oil or gas produced and delivered 
     prior to or at the point of delivery.''.
       (b) Sale.--Section 27(c)(1) of the Outer Continental Shelf 
     Lands Act (43 U.S.C. 1353(c)(1)) is amended by striking 
     ``competitive bidding for not more than its regulated price, 
     or if no regulated price applies, not less than its fair 
     market value'' and inserting ``competitive bidding or private 
     sale''.

     SEC. 11. TIME, MANNER, AND INFORMATION REQUIREMENTS FOR 
                   ROYALTY PAYMENT AND REPORTING.

       Section 111 of the Federal Oil and Gas Royalty Management 
     Act of 1982 (30 U.S.C. 1721) is amended by adding the 
     following after subsection (j):
       ``(k)(1) Any royalty payment on an obligation due the 
     United States for oil or gas produced pursuant to an oil and 
     gas lease administered by the Secretary shall be payable at 
     the end of the month following the month in which oil or gas 
     is removed or sold from such lease.
       ``(2) Royalty reporting with respect to any obligation 
     shall be by lease and shall include only the following 
     information:
       ``(A) identification of the lease;
       ``(B) product type;
       ``(C) volume (quantity) of such oil or gas produced;
       ``(D) quality of such oil or gas produced;
       ``(E) method of valuation and value, including deductions; 
     and
       ``(F) royalty due the United States.
       ``(3) Other than the reporting required under paragraph 
     (2), the Secretary shall not require additional reports or 
     information for production or royalty accounting, including 
     (but not limited to) information or reports on allowances, 
     payor information, selling arrangements, and revenue source.
       ``(4) No assessment may be imposed on a retroactive 
     adjustments with respect to royalty information made on a net 
     basis for reports described in paragraph (2).
       ``(5) The Secretary shall establish reporting thresholds 
     for de minimis production, which is defined as less than 100 
     thousand cubic feet of gas per day or 10 barrels of oil per 
     day per lease. For such de minimis production, the lessee 
     shall report retroactive adjustments with the current month 
     royalty payment, and the Secretary shall not bill for, or 
     collect, comparisons to production, assessments, or interest.
       ``(6) If the deadline for tendering a royalty payment 
     imposed by paragraph (1) cannot be met for one or more 
     leases, an estimated royalty payment in the approximate 
     amount of royalties that would otherwise be due may be made 
     by a lessee or person acting on behalf of a lessee for such 
     leases to avoid late payment interest charges. When such 
     estimated royalty payment is established, actual royalties 
     become due at the end of the second month following the month 
     the production was removed or sold for as long as the 
     estimated balance exists. Such estimated royalty payment may 
     be carried forward and not reduced by actual royalties paid. 
     Any estimated balance may be adjusted, recouped, or 
     reinstated, at any time. The requirements of paragraph (2) 
     shall not apply to any estimated royalty payment.''.

     SEC. 12. REPEALS.

       (a) FOGRMA.--Section 307 of the Federal Oil and Gas Royalty 
     Management Act of 1982 (30 U.S.C. 1755), is repealed. Section 
     1 of such Act (relating to the table of contents) is amended 
     by striking out the item relating to section 307.
       (b) OCSLA.--Effective on the date of the enactment of this 
     Act, section 10 of the Outer Continental Shelf Lands Act (43 
     U.S.C. 1339) is repealed.

     SEC. 13. INDIAN LANDS.

       The amendments made by this Act shall not apply with 
     respect to Indian lands, and the provisions of the Federal 
     Oil and Gas Royalty Management Act of 1982 as in effect on 
     the day before the date of enactment of this Act shall apply 
     after such date only with respect to Indian lands.

     SEC. 14. EFFECTIVE DATE.

       This Act, and the amendments made by this Act, shall take 
     effect on the date of the enactment of this Act with respect 
     to any obligation which becomes due on or after such date of 
     enactment.
     

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