EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO DEFINED CONTRIBUTION PLANS.

SEC. 632. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO DEFINED CONTRIBUTION PLANS. (a) Equitable Treatment.— (1) In general.—Subparagraph (B) of section 415(c)(1) (relating to limitation for defined contribution plans) is amended by striking “25 percent” and inserting “100 percent”. (2) Application to section 403(b).—Section 403(b) is amended— (A) by striking “the exclusion allowance for such taxable year” in paragraph (1) and inserting “the applicable limit under section 415”, (B) by striking paragraph (2), and (C) by inserting “or any amount received by a former employee after the fifth taxable year following the taxable year in which such employee was terminated” before the period at the end of the second sentence of paragraph (3). (3) Conforming amendments.—115 STAT. 114 (A) Subsection (f) of section 72 is amended by striking “section 403(b)(2)(D)(iii))” and inserting “section 403(b)(2)(D)(iii), as in effect before the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001”. (B) Section 404(a)(10)(B) is amended by striking “, the exclusion allowance under section 403(b)(2),”. (C) Section 415(a)(2) is amended by striking “, and the amount of the contribution for such portion shall reduce the exclusion allowance as provided in section 403(b)(2)”. (D) Section 415(c)(3) is amended by adding at the end the following new subparagraph: “(E) Annuity contracts.—In the case of an annuity contract described in section 403(b), the term ‘participant’s compensation’ means the participant’s includible compensation determined under section 403(b)(3).”. (E) Section 415(c) is amended by striking paragraph (4). (F) Section 415(c)(7) is amended to read as follows: “(7) Certain contributions by church plans not treated as exceeding limit.— “(A) In general.—Notwithstanding any other provision of this subsection, at the election of a participant who is an employee of a church or a convention or association of churches, including an organization described in section 414(e)(3)(B)(ii), contributions and other additions for an annuity contract or retirement income account described in section 403(b) with respect to such participant, when expressed as an annual addition to such participant’s account, shall be treated as not exceeding the limitation of paragraph (1) if such annual addition is not in excess of $10,000. “(B) $40,000 aggregate limitation.—The total amount of additions with respect to any participant which may be taken into account for purposes of this subparagraph for all years may not exceed $40,000. “(C) Annual addition.—For purposes of this paragraph, the term ‘annual addition’ has the meaning given such term by paragraph (2).”. (G) Subparagraph (B) of section 402(g)(7) (as redesignated by section 611(c)(3)) is amended by inserting before the period at the end the following: “(as in effect before the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001”. (H) Section 664(g) is amended— (i) in paragraph (3)(E) by striking “limitations under section 415(c)” and inserting “applicable limitation under paragraph (7)”, and (ii) by adding at the end the following new paragraph: “(7) Applicable limitation.— “(A) In general.—For purposes of paragraph (3)(E), the applicable limitation under this paragraph with respect to a participant is an amount equal to the lesser of— “(i) $30,000, or “(ii) 25 percent of the participant’s compensation (as defined in section 415(c)(3)).115 STAT. 115 “(B) Cost-of-living adjustment.—The Secretary shall adjust annually the $30,000 amount under subparagraph (A)(i) 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, 1993, and any increase under this subparagraph which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000.”. (4) Effective date.—The amendments made by this subsection shall apply to years beginning after December 31, 2001. (b) Special Rules for Sections 403(b) and 408.— (1) In general.—Subsection (k) of section 415 is amended by adding at the end the following new paragraph: “(4) Special rules for sections 403(b) and 408.—For purposes of this section, any annuity contract described in section 403(b) for the benefit of a participant shall be treated as a defined contribution plan maintained by each employer with respect to which the participant has the control required under subsection (b) or (c) of section 414 (as modified by subsection (h)). For purposes of this section, any contribution by an employer to a simplified employee pension plan for an individual for a taxable year shall be treated as an employer contribution to a defined contribution plan for such individual for such year.”. (2) Effective date.— (A) In general.—The amendment made by paragraph (1) shall apply to limitation years beginning after December 31, 1999. (B) Exclusion allowance.—Effective for limitation years beginning in 2000, in the case of any annuity contract described in section 403(b) of the Internal Revenue Code of 1986, the amount of the contribution disqualified by reason of section 415(g) of such Code shall reduce the exclusion allowance as provided in section 403(b)(2) of such Code. (3) Election to modify section 403(b) exclusion allowance to conform to section 415 modification.—In the case of taxable years beginning after December 31, 1999, and before January 1, 2002, a plan may disregard the requirement in the regulations regarding the exclusion allowance under section 403(b)(2) of the Internal Revenue Code of 1986 that contributions to a defined benefit pension plan be treated as previously excluded amounts for purposes of the exclusion allowance. (c) Deferred Compensation Plans of State and Local Governments and Tax-Exempt Organizations.— (1) In general.—Subparagraph (B) of section 457(b)(2) (relating to salary limitation on eligible deferred compensation plans) is amended by striking “33⅓ percent” and inserting “100 percent”. (2) Effective date.—The amendment made by this subsection shall apply to years beginning after December 31, 2001.