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

SEC. 1426. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER SECTION 401(k). (a) In General.— Subparagraph (B) of section 401(k)(4) is amended to read as follows: “(B) Eligibility of state and local governments and tax-exempt organizations.— “(i) Tax-exempts eligible.— Except as provided in clause (ii), any organization exempt from tax under this subtitle may include a qualified cash or deferred arran ement as part of a plan maintained by it. “(ii) Governments ineligible.— A cash or deferred arrangement shall not be treated as a qualified cash or deferred arrangement if it is part of a plan maintained by a State or local government or political subdivision thereof, or any agency or instrumentality thereof. This clause shall not apply to a rural cooperative plan or to a plan of an employer described in clause (iii). “(iii) Treatment of indian tribal governments.— An employer which is an Indian tribal government (as defined in section 7701(a)(40)), a subdivision of an Indian tribal government (determined in accordance with section 7871(d)), an agency or instrumentality of an Indian tribal government or subdivision thereof, or a corporation chartered under Federal, State, or tribal law which is owned in whole or in110 STAT. 1802 part by any of the foregoing may include a qualified cash or deferred arran ement as part of a plan maintained by the employer.”. (b) Effective Date.— The amendment made by this section shall apply to plan years beginning after December 31, 1996, 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.