TRUST REQUIREMENT FOR DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS.

SEC. 1448. TRUST REQUIREMENT FOR DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS. (a) In General.— Section 457 is amended by adding at the end the following new subsection: 110 STAT. 1813 “(g) Governmental Plans Must Maintain Setasides for Exclusive Benefit of Participants.— “(1) In general.— A plan maintained by an eligible employer described in subsection (e)(1)(A) shall not be treated as an eligible deferred compensation plan unless all assets and income of the plan described in subsection (b)(6) are held in trust for the exclusive benefit of participants and their beneficiaries. “(2) Taxability of trusts and participants.— For purposes of This title— “(A) a trust described in paragraph (1) shall be treated as an organization exempt from taxation under section 501(a), and “(B) notwithstanding any other provision of this title, amounts in the trust shall be includible in the gross income of participants and beneficiaries only to the extent, and at the time, provided in this section. “(3) Custodial accounts and contracts.— For purposes of this subsection! custodial accounts and contracts described in section 401(f) shall be treated as trusts under rules similar to the rules under section 401(f).”. (b) Conforming Amendment.— Paragraph (6) of section 457(b) is amended by inserting “except as provided in subsection (g),” before “which provides that”. (c) Effective Dates.— (1) In general.— Except as provided in paragraph (2), the amendments made by this section shall apply to assets and income described in section 457(b)(6) of the Internal Revenue Code of 1986 held by a plan on and after the date of the enactment of this Act. (2) Transition rule.— In the case of a plan in existence on the date of the enactment of this Act, a trust need not be established by reason of the amendments made by this section before January 1, 1999.