MODIFICATION OF REQUIRED DISTRIBUTION RULES FOR DESIGNATED BENEFICIARIES.

SEC. 401. MODIFICATION OF REQUIRED DISTRIBUTION RULES FOR DESIGNATED BENEFICIARIES. (a) Modification of Rules Where Employee Dies Before Entire Distribution.— (1) In general.—Section 401(a)(9) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph: “(H) Special rules for certain defined contribution plans.—In the case of a defined contribution plan, if an employee dies before the distribution of the employee’s entire interest— “(i) In general.—Except in the case of a beneficiary who is not a designated beneficiary, subparagraph (B)(ii)— “(I) shall be applied by substituting ‘10 years’ for ‘5 years’, and “(II) shall apply whether or not distributions of the employee’s interests have begun in accordance with subparagraph (A). “(ii) Exception for eligible designated beneficiaries.—Subparagraph (B)(iii) shall apply only in the case of an eligible designated beneficiary. “(iii) Rules upon death of eligible designated beneficiary.—If an eligible designated beneficiary dies before the portion of the employee’s interest to which this subparagraph applies is entirely distributed, the exception under clause (ii) shall not apply to any beneficiary of such eligible designated beneficiary and the remainder of such portion shall be distributed within 10 years after the death of such eligible designated beneficiary. “(iv) Special rule in case of certain trusts for disabled or chronically ill beneficiaries.—In the case of an applicable multi-beneficiary trust, if under the terms of the trust— “(I) it is to be divided immediately upon the death of the employee into separate trusts for each beneficiary, or “(II) no individual (other than a eligible designated beneficiary described in subclause (III) or (IV) of subparagraph (E)(ii)) has any right to the employee’s interest in the plan until the death of all such eligible designated beneficiaries with respect to the trust, for purposes of a trust described in subclause (I), clause (ii) shall be applied separately with respect to the portion of the employee’s interest that is payable to any eligible designated beneficiary described in subclause (III) or (IV) of subparagraph (E)(ii); and, for purposes of a trust described in subclause (II), subparagraph (B)(iii) shall apply to the distribution of the employee’s interest and any beneficiary who is not such an eligible designated beneficiary shall be treated as a beneficiary of the eligible designated beneficiary upon the death of such eligible designated beneficiary. “(v) Applicable multi-beneficiary trust.—For purposes of this subparagraph, the term ‘applicable multi-beneficiary trust’ means a trust— “(I) which has more than one beneficiary, “(II) all of the beneficiaries of which are treated as designated beneficiaries for purposes of determining the distribution period pursuant to this paragraph, and “(III) at least one of the beneficiaries of which is an eligible designated beneficiary described in subclause (III) or (IV) of subparagraph (E)(ii). “(vi) Application to certain eligible retirement plans.—For purposes of applying the provisions of this subparagraph in determining amounts required to be distributed pursuant to this paragraph, all eligible retirement plans (as defined in section 402(c)(8)(B), other than a defined benefit plan described in clause (iv) or (v) thereof or a qualified trust which is a part of a defined benefit plan) shall be treated as a defined contribution plan.” . (2) [26 U.S.C. 401] Definition of eligible designated beneficiary.—Section 401(a)(9)(E) of such Codeis amended to read as follows: “(E) Definitions and rules relating to designated beneficiaries.—For purposes of this paragraph— “(i) Designated beneficiary.—The term ‘designated beneficiary’ means any individual designated as a beneficiary by the employee. “(ii) Eligible designated beneficiary.—The term ‘eligible designated beneficiary’ means, with respect to any employee, any designated beneficiary who is— “(I) the surviving spouse of the employee, “(II) subject to clause (iii), a child of the employee who has not reached majority (within the meaning of subparagraph (F)), “(III) disabled (within the meaning of section 72(m)(7)), “(IV) a chronically ill individual (within the meaning of section 7702B(c)(2), except that the requirements of subparagraph (A)(i) thereof shall only be treated as met if there is a certification that, as of such date, the period of inability described in such subparagraph with respect to the individual is an indefinite one which is reasonably expected to be lengthy in nature), or “(V) an individual not described in any of the preceding subclauses who is not more than 10 years younger than the employee. The determination of whether a designated beneficiary is an eligible designated beneficiary shall be made as of the date of death of the employee. “(iii) Special rule for children.—Subject to subparagraph (F), an individual described in clause (ii)(II) shall cease to be an eligible designated beneficiary as of the date the individual reaches majority and any remainder of the portion of the individual’s interest to which subparagraph (H)(ii) applies shall be distributed within 10 years after such date.” . (b) [26 U.S.C. 401 note] Effective Dates.— (1) In general.—Except as provided in this subsection, the amendments made by this section shall apply to distributions with respect to employees who die after December 31, 2019. (2) Collective bargaining exception.—In the case of a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers ratified before the date of enactment of this Act, the amendments made by this section shall apply to distributions with respect to employees who die in calendar years beginning after the earlier of— (A) the later of— (i) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof agreed to on or after the date of the enactment of this Act), or (ii) December 31, 2019, or (B) December 31, 2021. For purposes of subparagraph (A)(i), any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement added by this section shall not be treated as a termination of such collective bargaining agreement. (3) Governmental plans.—In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), paragraph (1) shall be applied by substituting “December 31, 2021” for “December 31, 2019”. (4) Exception for certain existing annuity contracts.— (A) In general.—The amendments made by this section shall not apply to a qualified annuity which is a binding annuity contract in effect on the date of enactment of this Act and at all times thereafter. (B) Qualified annuity.—For purposes of this paragraph, the term “qualified annuity” means, with respect to an employee, an annuity— (i) which is a commercial annuity (as defined in section 3405(e)(6) of the Internal Revenue Code of 1986); (ii) under which the annuity payments are made over the life of the employee or over the joint lives of such employee and a designated beneficiary (or over a period not extending beyond the life expectancy of such employee or the joint life expectancy of such employee and a designated beneficiary) in accordance with the regulations described in section 401(a)(9)(A)(ii) of such Code (as in effect before such amendments) and which meets the other requirements of section 401(a)(9) of such Code (as so in effect) with respect to such payments; and (iii) with respect to which— (I) annuity payments to the employee have begun before the date of enactment of this Act, and the employee has made an irrevocable election before such date as to the method and amount of the annuity payments to the employee or any designated beneficiaries; or (II) if subclause (I) does not apply, the employee has made an irrevocable election before the date of enactment of this Act as to the method and amount of the annuity payments to the employee or any designated beneficiaries. (5) Exception for certain beneficiaries.— (A) In general.—If an employee dies before the effective date, then, in applying the amendments made by this section to such employee’s designated beneficiary who dies after such date— (i) such amendments shall apply to any beneficiary of such designated beneficiary; and (ii) the designated beneficiary shall be treated as an eligible designated beneficiary for purposes of applying section 401(a)(9)(H)(ii) of the Internal Revenue Code of 1986 (as in effect after such amendments). (B) Effective date.—For purposes of this paragraph, the term “effective date” means the first day of the first calendar year to which the amendments made by this section apply to a plan with respect to employees dying on or after such date.