Congressional Record, Volume 141 Issue 109 (Friday, June 30, 1995)

[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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