Page:United States Statutes at Large Volume 100 Part 3.djvu/1135

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2943

under regulations prescribed by the Secretary, the tax imposed by this chapter for the taxable year (in which the increase in vesting first occurs) shall be increased by the reduction in tax which resulted from the special lump sum treatment (and any election under paragraph (4)(B) shall not be taken into account for purposes of determining whether the employee may make another election under paragraph (4)(B)). "(C) SPECIAL LUMP SUM TREATMENT.—For purposes of this paragraph, special lump sum treatment applies to any distribution if any portion of such distribution— "(i) is taxed under this subsection by reason of an election under paragraph (4)(B), or "(ii) is treated as long-term capital gain under subsection (a)(2) of this section or section 403(a)(2). "(D) VESTING.—For purposes of this paragraph the term 'vesting' means the portion of the accrued benefits derived from employer contributions to which the participant has a nonforfeitable right." (3) RULES RELATING TO ROLLOVERS.—Paragraph (6) of section 402(a) (relating to special rollover rules) is amended by adding at the end thereof the following new subparagraph: "(G) TREATMENT OF POTENTIAL FUTURE VESTING.—

"(i) IN GENERAL.—For purposes of paragraph (5), in determining whether any portion of a distribution on account of the employee's separation from service may be transferred in a transfer to which paragraph (5)(A) applies, the balance to the credit of the employee shall be determined without regard to any increase in vesting which may occur if the employee is re-employed by the employer, "(ii) TREATMENT OF SUBSEQUENT DISTRIBUTIONS.—If—

"(I) any portion of a distribution is transferred in a transfer to which paragraph (5)(A) applies by reason of clause (i), "(II) the employee is subsequently re-employed by the employer, and "(III) as a result of service performed after being so re-employed, there is an increase in the employee's vesting for benefits accrued before the separation referred to in clause (i), then the provisions of paragraph (5)(D)(iii) shall apply to any distribution from the plan after the distribution referred to in clause (i). The preceding sentence shall not apply if the distribution referred to in subclause (I) is made without the consent of the participant." (4) TREATMENT OF WITHDRAWAL OF MANDATORY CONTRIBUTIONS.— (A) AMENDMENTS OF INTERNAL REVENUE CODE.—

(i) Clause (ii) of section 411(a)(3)(D) is amended by striking out the last sentence and inserting in lieu thereof the following: "The plan provision required under this clause may provide that such repayment must be made (I) in the case of a withdrawal on account of separation from service, before the earlier of 5 years after the first date on which the participant is subsequently re-employed by the employer, or the close of

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