TAXABILITY OF BENEFICIARY OF QUALIFIED PLAN.

SEC. 521. TAXABILITY OF BENEFICIARY OF QUALIFIED PLAN. (a) In General.—So much of section 402 (relating to taxability of beneficiary of employees’ trust) as precedes subsection (g) thereof is amended to read as follows: “SEC. 402. TAXABILITY OF BENEFICIARY OF EMPLOYEES’ TRUST. “(a) Taxability of Beneficiary of Exempt Trust.—Except as otherwise provided in this section, any amount actually distributed to any distributee by any employees’ trust described in section 401(a) which is exempt from tax under section 501(a) shall be 106 STAT. 301taxable to the distributee, in the taxable year of the distributee in which distributed, under section 72 (relating to annuities). “(b) Taxability of Beneficiary of Nonexempt Trust.— “(1) Contributions.—Contributions to an employees’ trust made by an employer during a taxable year of the employer which ends with or within a taxable year of the trust for which the trust is not exempt from tax under section 501(a) shall be included in the gross income of the employee in accordance with section 83 (relating to property transferred in connection with performance of services), except that the value of the employee’s interest in the trust shall be substituted for the fair market value of the property for purposes of applying such section. “(2) Distributions.—The amount actually distributed or made available to any distributee by any trust described in paragraph (1) shall be taxable to the distributee, in the taxable year in which so distributed or made available, under section 72 (relating to annuities), except that distributions of income of such trust before the annuity starting date (as defined in section 72(c)(4)) shall be included in the gross income of the employee without regard to section 72(e)(5) (relating to amounts not received as annuities). “(3) Grantor trusts.—A beneficiary of any trust described in paragraph (1) shall not be considered the owner of any portion of such trust under subpart E of part I of subchapter J (relating to grantors and others treated as substantial owners). “(4) Failure to meet requirements of section 410(b).— “(A) Highly compensated employees.—If 1 of the reasons a trust is not exempt from tax under section 501(a) is the failure of the plan of which it is a part to meet the requirements of section 401(a)(26) or 410(b), then a highly compensated employee shall, in lieu of the amount determined under paragraph (1) or (2) include in gross income for the taxable year with or within which the taxable year of the trust ends an amount equal to the vested accrued benefit of such employee (other than the employee’s investment in the contract) as of the close of such taxable year of the trust. “(B) Failure to meet coverage tests.— If a trust is not exempt from tax under section 501(a) for any taxable year solely because such trust is part of a plan which fails to meet the requirements of section 401(a)(26) or 410(b), paragraphs (1) and (2) shall not apply by reason of such failure to any employee who was not a highly compensated employee during— “(i) such taxable year, or “(ii) any preceding period for which service was creditable to such employee under the plan. “(C) Highly compensated employee.— For purposes of this paragraph, the term ‘highly compensated employee’ has the meaning given such term by section 414(q). “(c) Rules Applicable to Rollovers From Exempt Trusts.— “(1) Exclusion from income.—If— “(A) any portion of the balance to the credit of an employee in a qualified trust is paid to the employee in an eligible rollover distribution, 106 STAT. 302 “(B) the distributee transfers any portion of the property received in such distribution to an eligible retirement plan, and “(C) in the case of a distribution of property other than money, the amount so transferred consists of the property distributed, then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid. “(2) Maximum amount which may be rolled over.—In the case of any eligible rollover distribution, the maximum amount transferred to which paragraph (1) applies shall not exceed the portion of such distribution which is includible in gross income (determined without regard to paragraph (1)). “(3) Transfer must be made within 60 days of receipt.—Paragraph (1) shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed. “(4) Eligible rollover distribution.— For purposes of this subsection, the term ‘eligible rollover distribution’ means any distribution to an employee of all or any portion of the balance to the credit of the employee in a qualified trust; except that such term shall not include— “(A) any distribution which is one of a series of substantially equal periodic payments (not less frequently than annually) made— “(i) for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of the employee and the employee’s designated beneficiary, or “(ii) for a specified period of 10 years or more, and “(B) any distribution to the extent such distribution is required under section 401(a)(9). “(5) Transfer treated as rollover contribution under section 408.—For purposes of this title, a transfer to an eligible retirement plan described in clause (i) or (ii) of paragraph (8)(B) resulting in any portion of a distribution being excluded from gross income under paragraph (1) shall be treated as a rollover contribution described in section 408(d)(3). “(6) Sales of distributed property.— For purposes of this subsection— “(A) Transfer of proceeds from sale of distributed property treated as transfer of distributed property.—The transfer of an amount equal to any portion of the proceeds from the sale of property received in the distribution shall be treated as the transfer of property received in the distribution. “(B) Proceeds attributable to increase in value.—The excess of fair market value of property on sale over its fair market value on distribution shall be treated as property received in the distribution. “(C) Designation where amount of distribution exceeds rollover contribution.—In any case where part or all of the distribution consists of property other than money— 106 STAT. 303 “(i) the portion of the money or other property which is to be treated as attributable to amounts not included in gross income, and “(ii) the portion of the money or other property which is to be treated as included in the rollover contribution, shall be determined on a ratable basis unless the taxpayer designates otherwise. Any designation under this subparagraph for a taxable year shall be made not later them the time prescribed by law for filing the return for such taxable year (including extensions thereof). Any such designation, once made, shall be irrevocable. “(D) Nonrecognition of gain or loss.—No gain or loss shall be recognized on any sale described in subparagraph (A) to the extent that an amount equal to the proceeds is transferred pursuant to paragraph (1). “(7) Special rule for frozen deposits.— “(A) In general.—The 60-day period described in paragraph (3) shall not— “(i) include any period during which the amount transferred to the employee is a frozen deposit, or “(ii) end earlier than 10 days after such amount ceases to be a frozen deposit. “(B) Frozen deposits.—For purposes of this subparagraph, the term ‘frozen deposit’ means any deposit which may not be withdrawn because of— “(i) the bankruptcy or insolvency of any financial institution, or “(ii) any requirement imposed by the State in which such institution is located by reason of the bankruptcy or insolvency (or threat thereof) of 1 or more financial institutions in such State. A deposit shall not be treated as a frozen deposit unless on at least 1 day during the 60-day period described in paragraph (3) (without regard to this paragraph) such deposit is described in the preceding sentence. “(8) Definitions.—For purposes of this subsection— “(A) Qualified trust.—The term ‘qualified trust’ means an employees’ trust described in section 401(a) which is exempt from tax under section 501(a). “(B) Eligible retirement plan.—The term ‘eligible retirement plan’ means— “(i) an individual retirement account described in section 408(a), “(ii) an individual retirement annuity described in section 408(b) (other than an endowment contract), “(iii) a qualified trust, and “(iv) an annuity plan described in section 403(a). “(9) Rollover where spouse receives distribution after death of employee.—If any distribution attributable to an employee is paid to the spouse of the employee after the employee’s death, the preceding provisions of this subsection shall apply to such distribution in the same manner as if the spouse were the employee; except that a trust or plan described in clause (iii) or (iv) of paragraph (8)(B) shall not be treated as an eligible retirement plan with respect to such distribution. “(10) Denial of averaging for subsequent distributions.—If paragraph (1) applies to any distribution paid 106 STAT. 304to any employee, paragraphs (1) and (3) of subsection (d) shall not apply to any distribution (paid after such distribution) of the balance to the credit of the employee under the plan under which the preceding distribution was made (or under any other plan which, under subsection (d)(4)(C), would be aggregated with such plan). “(d) Tax on Lump Sum Distributions.— “(1) Imposition of separate tax on lump sum distributions.— “(A) Separate tax.—There is hereby imposed a tax (in the amount determined under subparagraph (B)) on a lump sum distribution. “(B) Amount of tax.— The amount of tax imposed by subparagraph (A) for any taxable year is an amount equal to 5 times the tax which would be imposed by subsection (c) of section 1 if the recipient were an individual referred to in such subsection and the taxable income were an amount equal to ⅕ of the excess of— “(i) the total taxable amount of the lump sum distribution for the taxable year, over “(ii) the minimum distribution allowance. “(C) Minimum distribution allowance.— For purposes of this paragraph, the minimum distribution allowance for any taxable year is an amount equal to— “(i) the lesser of $10,000 or one-half of the total taxable amount of the lump sum distribution for the taxable year, reduced (but not below zero) by “(ii) 20 percent of the amount (if any) by which such total taxable amount exceeds $20,000. “(D) Liability for tax.—The recipient shall be liable for the tax imposed by this paragraph. “(2) Distributions of annuity contracts.— “(A) In general.—In the case of any recipient of a lump sum distribution for any taxable year, if the distribution (or any part thereof) is an annuity contract, the total taxable amount of the distribution shall be aggregated for purposes of computing the tax imposed by paragraph (1)(A), except that the amount of tax so computed shall be reduced (but not below zero) by that portion of the tax on the aggregate total taxable amount which is attributable to annuity contracts. “(B) Beneficiaries.—For purposes of this paragraph, a beneficiary of a trust to which a lump sum distribution is made shall be treated as the recipient of such distribution if the beneficiary is an employee (including an employee within the meaning of section 401(c)(1)) with respect to the plan under which the distribution is made or if the beneficiary is treated as the owner of such trust for purposes of subpart E of part I of subchapter J. “(C) Annuity contracts.—For purposes of this paragraph, in the case of the distribution of an annuity contract, the taxable amount of such distribution shall be deemed to be the current actuarial value of the contract, determined on the date of such distribution. “(D) Trusts.—In the case of a lump sum distribution with respect to any individual which is made only to 2 or more trusts, the tax imposed by paragraph (1)(A) shall 106 STAT. 305be computed as if such distribution was made to a single trust, but the liability for such tax shall be apportioned among such trusts according to the relative amounts received by each. “(E) Regulations.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this paragraph. “(3) Allowance of deduction.—The total taxable amount of a lump sum distribution for any taxable year shall be allowed as a deduction from gross income for such taxable year, but only to the extent included in the taxpayer’s gross income for such taxable year. “(4) Definitions and special rules.— “(A) Lump sum distribution.— For purposes of this section and section 403, the term ‘lump sum distribution’ means the distribution or payment within 1 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 59½, “(iii) on account of the employee’s separation from the 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). Clause (iii) of this subparagraph shall be applied only with respect to an individual who is an employee without regard to section 401(c)(1), and clause (iv) shall be applied only with respect to an employee within the meaning of section 401(c)(1). A distribution of an annuity contract from a trust or annuity plan referred to in the first sentence of this subparagraph shall be treated as a lump sum distribution. For purposes of this subparagraph, a distribution to 2 or more trusts shall be treated as a distribution to 1 recipient. For purposes of this subsection, 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)). “(B) Averaging to apply to 1 lump sum distribution after age 59½.—Paragraph (1) shall apply to a lump sum distribution with respect to an employee under subparagraph (A) only if— “(i) such amount is received on or after the date on which the employee has attained age 5914, and “(ii) the taxpayer elects for the taxable year to have all such amounts received during such taxable year so treated. Not more than 1 election may be made under this subparagraph by any taxpayer with respect to any employee. No election may be made under this subparagraph by any taxpayer other than an individual, an estate, or a trust. In the case of a lump sum distribution made with respect to an employee to 2 or more trusts, the election under this subparagraph shall be made by the personal representative of the taxpayer. 106 STAT. 306 “(C) Aggregation of certain trusts and plans.—For purposes of determining the balance to the credit of an employee under subparagraph (A)— “(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. “(D) Total taxable amount.— For purposes of this section and section 403, the term ‘total taxable amount’ means, with respect to a lump sum distribution, the amount of such distribution which exceeds the sum of— “(i) the amounts considered contributed by the employee (determined by applying section 72(f)), reduced by any amounts previously distributed which were not includible in gross income, and “(ii) the net unrealized appreciation attributable to that part of the distribution which consists of the securities of the employer corporation so distributed. “(E) Community property laws.—The provisions of this subsection, other than paragraph (3), shall be applied without regard to community property laws. “(F) Minimum period of service.—For purposes of this subsection, no amount distributed to an employee from or under a plan may be treated as a lump sum distribution under subparagraph (A) unless the employee has been a participant in the plan for 5 or more taxable years before the taxable year in which such amounts are distributed. “(G) Amounts subject to penalty.—This subsection 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. “(H) Balance to credit of employee not to include amounts payable under qualified domestic relations order.—For purposes of this subsection, 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)). “(I) Transfers to cost-of-living arrangement not treated as distribution.—For purposes of this subsection, 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. “(J) 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 subsection, the payment under a qualified domestic relations order (within the 106 STAT. 307meaning 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 subparagraph, the balance to the credit of the alternate payee shall not include any amount payable to the employee. “(K) Treatment of portion not rolled over.—If any portion of a lump sum distribution is transferred in a transfer to which subsection (c) applies, paragraphs (1) and (3) shall not apply with respect to the distribution. “(L) Securities.—For purposes of this subsection, the terms ‘securities’ and ‘securities of the employer corporation’ have the respective meanings provided by subsection (e)(4)(E). “(5) Special rule where portions of lump sum distribution attributable to rollover of bond purchased under qualified bond purchase plan.—If any portion of a lump sum distribution is attributable to a transfer described in section 405(d)(3)(A)(ii) (as in effect before its repeal by the Tax Reform Act of 1984), paragraphs (1) and (3) of this subsection shall not apply to such portion. “(6) Treatment of potential future vesting.— “(A) In general.—For purposes of determining whether any distribution which becomes payable to the recipient on account of the employee’s separation from service is a lump sum distribution, the balance to the credit of the employee shall be determined without regard to any increase in vesting which may occur if the employee is reemployed by the employer. “(B) Recapture in certain cases.—If— “(i) an amount is treated as a lump sum distribution by reason of subparagraph (A), “(ii) special lump sum treatment applies to such distribution, “(iii) the employee is subsequently reemployed by the employer, and “(iv) as a result of services performed after being so reemployed, there is an increase in the employee’s vesting for benefits accrued before the separation referred to in subparagraph (A), under regulations prescribed by the Secretary, the tax imposed by this chapter for the taxable year (in which the increase in vesting first occurs) shall be increased by the reduction in tax which resulted from the special lump sum treatment (and any election under paragraph (4)(B) shall not be taken into account for purposes of determining whether the employee may make another election under paragraph (4)(B)). “(C) Special lump sum treatment.—For purposes of this paragraph, special lump sum treatment applies to any distribution if any portion of such distribution is taxed under the subsection by reason of an election under paragraph (4)(B). “(D) Vesting.—For purposes of this paragraph, the term ‘vesting’ means the portion of the accrued benefits derived from employer contributions to which the participant has a nonforfeitable right. 106 STAT. 308 “(7) Coordination with foreign tax credit limitations.—Subsections (a), (b), and (c) of section 904 shall be applied separately with respect to any lump sum distribution on which tax is imposed under paragraph (1), and the amount of such distribution shall be treated as the taxable income for purposes of such separate application. “(e) Other Rules Applicable to Exempt Trusts.— “(1) Alternate payees.— “(A) Alternate payee treated as distributee.—For purposes of subsection (a) and section 72, an alternate payee who is the spouse or former spouse of the participant shall be treated as the distributee of any distribution or payment made to the alternate payee under a qualified domestic relations order (as defined in section 414(p)). “(B) Rollovers.—If any amount is paid or distributed to an alternate payee who is the spouse or former spouse of the participant by reason of any qualified domestic relations order (within the meaning of section 414(p)), sub-section (c) shall apply to such distribution in the same manner as if such alternate payee were the employee. “(2) Distributions by united states to nonresident aliens.— The amount includible under subsection (a) in the gross income of a nonresident alien with respect to a distribution made by the United States in respect of services performed by an employee of the United States shall not exceed an amount which bears the same ratio to the amount includible in gross income without regard to this paragraph as— “(A) the aggregate basic pay paid by the United States to such employee for such services, reduced by the amount of such basic pay which was not includible in gross income by reason of being from sources without the United States, bears to “(B) the aggregate basic pay paid by the United States to such employee for such services. In the case of distributions under the civil service retirement laws, the term ‘basic pay’ shall have the meaning provided in section 8331(3) of title 5, United States Code. “(3) Cash or deferred arrangements.—For purposes of this title, contributions made by an employer on behalf of an employee to a trust which is a part of a qualified cash or deferred arrangement (as defined in section 401(k)(2)) shall not be treated as distributed or made available to the employee nor as contributions made to the trust by the employee merely because the arrangement includes provisions under which the employee has an election whether the contribution will be made to the trust or received by the employee in cash. “(4) Net unrealized appreciation.— “(A) Amounts attributable to employee contributions.—For purposes of subsection (a) and section 72, in the case of a distribution other than a lump sum distribution, the amount actually distributed to any distributee from a trust described in subsection (a) shall not include any net unrealized appreciation in securities of the employer corporation attributable to amounts contributed by the employee (other than deductible employee contributions within the meaning of section 72(o)(5)). This 106 STAT. 309subparagraph shall not apply to a distribution to which subsection (c) applies. “(B) Amounts attributable to employer contributions.—For purposes of subsection (a) and section 72, in the case of any lump sum distribution which includes securities of the employer corporation, there shall be excluded from gross income the net unrealized appreciation attributable to that part of the distribution which consists of securities of the employer corporation. In accordance with rules prescribed by the Secretary, a taxpayer may elect, on the return of tax on which a lump sum distribution is required to be included, not to have this subparagraph apply to such distribution. “(C) Determination of amounts and adjustments.—For purposes of subparagraphs (A) and (B), net unrealized appreciation and the resulting adjustments to basis shall be determined in accordance with regulations prescribed by the Secretary. “(D) Lump sum distribution.—For purposes of this paragraph, the term ‘lump sum distribution’ has the meaning given such term by subsection (d)(4)(A) (without regard to subsection (d)(4)(F)). “(E) Definitions relating to securities.— For purposes of this paragraph— “(i) Securities.—The term ‘securities’ means only shares of stock and bonds or debentures issued by a corporation with interest coupons or in registered form. “(ii) Securities of the employer.—The term ‘securities of the employer corporation’ includes securities of a parent or subsidiary corporation (as defined in subsections (e) and (f) of section 424) of the employer corporation. “(5) 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). “(f) Written Explanation to Recipients of Distributions Eligible for Rollover Treatment.— “(1) In general.— The plan administrator of any plan shall, within a reasonable period of time before making an eligible rollover distribution from an eligible retirement plan, provide a written explanation to the recipient— “(A) of the provisions under which the recipient may have the distribution directly transferred to another eligible retirement plan, “(B) of the provision which requires the withholding of tax on the distribution if it is not directly transferred to another eligible retirement plan, “(C) of the provisions under which the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date on which the recipient received the distribution, and 106 STAT. 310 “(D) if applicable, of the provisions of subsections (d) and (e) of this section. “(2) Definitions.— For purposes of this subsection— “(A) Eligible rollover distribution.—The term ‘eligible rollover distribution’ has the same meaning as when used in subsection (c) of this section or paragraph (4) of section 403(a). “(B) Eligible retirement plan.—The term ‘eligible retirement plan’ has the meaning given such term by subsection (c)(8)(B).” (b) Conforming Amendments.— (1) Paragraph (1) of section 55(c) is amended by striking “section 402(e)” and inserting “section 402(d)”. (2) Paragraph (8) of section 62(a) (relating to certain portion of lump-sum distributions from pension plans taxed under section 402(e)) is amended by striking “402(e)” in the text and heading and inserting “402(d)”. (3) Paragraph (4) of section 72(o) (relating to special rule for treatment of rollover amount) is amended by striking “sections 402(a)(5), 402(a)(7)” and inserting “sections 402(c)”. (4) Paragraph (2) of section 219(d) (relating to recontributed amount) is amended by striking “section 402(a)(5), 402(a)(7)” and inserting “section 402(c)”. (5) Paragraph (20) of section 401(a) is amended— (A) by striking “a qualified total distribution described in section 402(a)(5)(E)(i)(I)” and inserting “1 or more distributions within 1 taxable year to a distributee on account of a termination of the plan of which the trust is a part, or in the case of a profit-sharing or stock bonus plan, a complete discontinuance of contributions under such plan”, and (B) by adding at the end the following new sentence: “For purposes of this paragraph, rules similar to the rules of section 402(a)(6)(B) (as in effect before its repeal by section 211 of the Unemployment Compensation Amendments of 1992) shall apply.” (6) Clause (v) of section 401(a)(28)(B) (relating to coordination with distribution rules) is amended to read as follows: “(v) Coordination with distribution rules.—Any distribution required by this subparagraph shall not be taken into account in determining whether a subsequent distribution is a lump sum distribution under section 402(d)(4)(A) or in determining whether section 402(c)(10) applies.” (7) Subclause (IV) of section 401(k)(2)(B)(i) is amended by striking “section 402(a)(8)” and inserting “section 402(e)(3)”. (8) Subparagraph (B)(ii) of section 401(k)(10) (relating to distributions that must be lump-sum distributions) is amended— (A) by striking “section 402(e)(4)” and inserting “section 402(d)(4)”, and (B) by striking “subparagraph (H)” and inserting “subparagraph (F)”. (9) Section 402(g)(1) is amended by striking “subsections (a)(8)” and inserting “subsections (e)( (3)”. (10) Section 402(i) is amended by striking “subsection (e)(4)” and inserting “subsection (d)(4)”. 106 STAT. 311 (11) Subsection (j) of section 402 is amended by striking “(a)(1) or (e)(4)(J)” and inserting “(e)(4)”. (12)(A) Clause (i) of section 403(a)(4)(A) is amended by inserting “in an eligible rollover distribution (within the meaning of section 402(c)(4))” before the comma at the end thereof (B) Subparagraph (B) of section 403(a)(4) is amended to read as follows: “(B) Certain rules made applicable.—Rules similar to the rules of paragraphs (2) through (7) of section 402(c) shall apply for purposes of subparagraph (A).” (13)(A) Clause (i) of section 403(b)(8)(A) is amended by inserting “in an eligible rollover distribution (within the meaning of section 402(c)(4))” before the comma at the end thereof (B) Paragraph (8) of section 403(b) is amended by striking subparagraphs (B), (C), and (D) and inserting the following: “(B) Certain rules made applicable.—Rules similar to the rules of paragraphs (2) through (7) of section 402(c) shall apply for purposes of subparagraph (A).” (14) 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 amended by striking “section 402(e)” and inserting “section 402(d)”. (15) 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 amended by striking “section 402(e)” and inserting “section 402(d)”. (16) Paragraph (1) of section 408(a) is amended by striking “section 402(a)(5), 402(a)(7)” and inserting “section 402(c)”. (17) Clause (ii) of section 408(d)(3)(A) is amended to read as follows: “(ii) no amount in the account and no part of the value of the annuity is attributable to any source other than a rollover contribution (as defined in section 402) from an employee’s trust described in section 401(a) which is exempt from tax under section 501(a) or from an annuity plan described in section 403(a) (and any earnings on such contribution), and the entire amount received (including property and other money) is paid (for the benefit of such individual) into another such trust or annuity plan not later than the 60th day on which the individual receives the payment or the distribution; or”. (18) Subparagraph (B) of section 408(d)(3) (relating to limitations) is amended by striking the second sentence thereof. (19) Subparagraph (F) of section 408(d)(3) (relating to frozen deposits) is amended by striking “section 402(a)(6)(H)” and inserting “section 402(c)(7)”. (20) Subclause (I) of section 414(n)(5)(C)(iii) is amended by striking “section 402(a)(8)” and inserting “section 402(e)(3)”. (21) Clause (i) of section 414(q)(7)(B) is amended by striking “402(a)(8)” and inserting “402(e)(3)”. (22) Paragraph (2) of section 414(s) (relating to employer may elect to treat certain deferrals as compensation) is amended by striking “402(a)(8)” and inserting “402(e)(3)”. (23) Subparagraph (A) of section 415(b)(2) (relating to annual benefit in general) is amended by striking “sections 402(a)(5)” and inserting “sections 402(c)”. 106 STAT. 312 (24) Subparagraph (B) of section 415(b)(2) (relating to adjustment for certain other forms of benefit) is amended by striking “sections 402(a)(5)” and inserting “sections 402(c)”. (25) Paragraph (2) of section 415(c) (relating to annual addition) is amended by striking “sections 402(a)(5)” and inserting “sections 402(c)”. (26) Subparagraph (B) of section 457(c)(2) is amended by striking “section 402(a)(8)” in clause (i) thereof and inserting “section 402(e)(3)”. (27) Section 691(c) (relating to coordination with section 402(e)) is amended by striking “402(e)” in the text and heading and inserting “402(d)”. (28) Subparagraph (B) of section 871(a)(1) (relating to income other than capital gains) is amended by striking “402(a)(2), 403(a)(2), or”. (29) Paragraph (1) of section 871(b) (relating to imposition of tax) is amended by striking “402(e)(1)” and inserting “402(d)(1)”. (30) Paragraph (1) of section 871(k) is amended by striking “section 402(a)(4)” and inserting “section 402(e)(2)”. (31) Subsection (b) of section 877 (relating to alternative tax) is amended by striking “402(e)(1)” and inserting “402(d)(1)”. (32) Subsection (b) of section 1441 (relating to income items) is amended by striking “402(a)(2), 403(a)(2), or”. (33) Paragraph (5) of section 1441(c) (relating to special items) is amended by striking “402(a)(2), 403(a)(2), or”. (34) Subparagraph (A) of section 3121(v)(1) is amended by striking “section 402(a)(8)” and inserting “section 402(e)(3)”. (35) Subparagraph (A) of section 3306(r)(1) is amended by striking “section 402(a)(8)” and inserting “section 402(e)(3)”. (36) Subsection (a) of section 3405 is amended by striking “Pensions, Annuities, Etc.—”from the heading thereof and inserting “Periodic Payments.—”. (37) Subsection (b) of section 3405 (relating to nonperiodic distribution) is amended— (A) by striking “the amount determined under paragraph (2)” from paragraph (1) thereof and inserting “an amount equal to 10 percent of such distribution”; and (B) by striking paragraph (2) (relating to amount of withholding) and redesignating paragraph (3) as paragraph (2). (38) Paragraph (4) of section 3405(d) (relating to qualified total distributions) is hereby repealed. (39) Paragraph (8) of section 3405(d) (relating to maximum amounts withheld) is amended to read as follows: “(8) Maximum amount withheld.—The maximum amount to be withheld under this section on any designated distribution shall not exceed the sum of the amount of money and the fair market value of other property (other than securities of the employer corporation) received in the distribution. No amount shall be required to be withheld under this section in the case of any designated distribution which consists only of securities of the employer corporation and cash (not in excess of $200) in lieu of financial shares. For purposes of this paragraph, the term ‘securities of the employer corporation’ has the meaning given such term by section 402(e)(4)(E).” 106 STAT. 313 (40) Subparagraph (A) of section 3405(d)(13) is amended by striking “(b)(3)” and inserting “(b)(2)”. (41) Subparagraph (A) of section 4973(b)(1) is amended by striking “sections 402(a)(5), 402(a)(7)” and inserting “sections 402(c)”. (42) Paragraph (4) of section 4980A(c) (relating to special rule where taxpayer elects income averaging) is amended by striking “section 402(e)(4)(B)” and inserting “section 402(d)(4)(B)”. (43) Subparagraph (C) of section 7701(j)(1) is amended by striking “section 402(a)(8)” and inserting “section 402(e)(3)”. (44) Section 411(d)(3) is amended by adding at the end the following new sentence: “For purposes of this paragraph, in the case of the complete discontinuance of contributions under a profit-sharing or stock bonus plan, such plan shall be treated as having terminated on the day on which the plan administrator notifies the Secretary (in accordance with regulations) of the discontinuance.” (d) Model Explanation.—The Secretary of the Treasury or his delegate shall develop a model explanation which a plan administrator may provide to a recipient in order to meet the requirements of section 402(f) of the Internal Revenue Code of 1986. (e) Effective Dates.— (1) In general.—The amendments made by this section shall apply to distributions after December 31, 1992. (2) Special rule for partial distributions.—For purposes of section 402(a)(5)(D)(i)(II) of the Internal Revenue Code of 1986 (as in effect before the amendments made by this section), a distribution before January 1, 1993, which is made before or at the same time as a series of periodic payments shall not be treated as one of such series if it is not substantially equal in amount to other payments in such series.