MODIFICATION OF TOP-HEAVY RULES.

SEC. 613. MODIFICATION OF TOP-HEAVY RULES. (a) Simplification of Definition of Key Employee.— (1) In general.—Section 416(i)(1)(A) (defining key employee) is amended— (A) by striking “or any of the 4 preceding plan years” in the matter preceding clause (i); (B) by striking clause (i) and inserting the following: “(i) an officer of the employer having an annual compensation greater than $130,000,”; (C) by striking clause (ii) and redesignating clauses (iii) and (iv) as clauses (ii) and (iii), respectively; and (D) by striking the second sentence in the matter following clause (iii), as redesignated by subparagraph (C), and by inserting the following: “in the case of plan years beginning after December 31, 2002, the $130,000 amount in clause (i) shall be adjusted 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 July 1, 2001, and any increase under this sentence which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000.”.115 STAT. 101 (2) Conforming amendment.—Section 416(i)(1)(B)(iii) is amended by striking “and subparagraph (A)(ii)”. (b) Matching Contributions Taken Into Account for Minimum Contribution Requirements.—Section 416(c)(2)(A) (relating to defined contribution plans) is amended by adding at the end the following: “Employer matching contributions (as defined in section 401(m)(4)(A)) shall be taken into account for purposes of this subparagraph (and any reduction under this sentence shall not be taken into account in determining whether section 401(k)(4)(A) applies).”. (c) Distributions During Last Year Before Determination Date Taken Into Account.— (1) In general.—Paragraph (3) of section 416(g) is amended to read as follows: “(3) Distributions during last year before determination date taken into account.— “(A) In general.—For purposes of determining— “(i) the present value of the cumulative accrued benefit for any employee, or “(ii) the amount of the account of any employee, such present value or amount shall be increased by the aggregate distributions made with respect to such employee under the plan during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which if it had not been terminated would have been required to be included in an aggregation group. “(B) 5-year period in case of in-service distribution.—In the case of any distribution made for a reason other than separation from service, death, or disability, subparagraph (A) shall be applied by substituting ‘5-year period’ for ‘1-year period’.”. (2) Benefits not taken into account.—Subparagraph (E) of section 416(g)(4) is amended— (A) by striking “last 5 years” in the heading and inserting “last year before determination date”; and (B) by striking “5-year period” and inserting “1-year period”. (d) Definition of Top-Heavy Plans.—Paragraph (4) of section 416(g) (relating to other special rules for top-heavy plans) is amended by adding at the end the following new subparagraph: “(H) Cash or Deferred Arrangements Using Alternative Methods of Meeting Nondiscrimination Requirements.—The term ‘top-heavy plan’ shall not include a plan which consists solely of— “(i) a cash or deferred arrangement which meets the requirements of section 401(k)(12), and “(ii) matching contributions with respect to which the requirements of section 401(m)(11) are met. If, but for this subparagraph, a plan would be treated as a top-heavy plan because it is a member of an aggregation group which is a top-heavy group, contributions under the plan may be taken into account in determining whether any other plan in the group meets the requirements of subsection (c)(2)”.115 STAT. 102 (e) Frozen Plan Exempt From Minimum Benefit Requirement.—Subparagraph (C) of section 416(c)(1) (relating to defined benefit plans) is amended— (A) by striking “clause (ii)” in clause (i) and inserting “clause (ii) or (iii)”; and (B) by adding at the end the following: “(iii) Exception for frozen plan.—For purposes of determining an employee’s years of service with the employer, any service with the employer shall be disregarded to the extent that such service occurs during a plan year when the plan benefits (within the meaning of section 410(b)) no key employee or former key employee.”. (f) Effective Date.—The amendments made by this section shall apply to years beginning after December 31, 2001.