102 STAT. 3630 PUBLIC LAW 100-647—NOV. 10, 1988

unless under such plan such employee is entitled, when the
coverage under the other health plan referred to in
subparagraph (AXD ceases, to elect coverage under the plan
of the employer (whether or not an election is otherwise
available). Such election is to be on the same terms as if
such employee was making such election during a subse-
quent open season. Rules similar to the rules of the preced-
ing sentences of this subparagraph shall apply in the case
of an employee treated as not having a spouse or depend-
ents or having a spouse or dependents covered by a health
plan of another emplover providing core benefits/'; and
(B) by striking out and at the end of subparagraph
(BXi), by striking out the period at the end of subparagraph
(BXii) and inserting in lieu thereof ", and", and by adding at
the end thereof the following new clause:

"(iii) the health coverage (if any) received by the
employee from the employer."

(9) DEFINITION OF PLAN.—Paragraph (11) of section 890') of the
1986 Code is amended by striking out "Each option" and insert-
ing in lieu thereof "Except as provided in subsection (gXH each
option".

(10) MODIFICATION OF PENALTY.—Subparagraph (B) of section
6652(kX2) of the 1986 Code is amended to read as follows:

"(B) the amount which bears the same ratio to the em-
ployer-provided benefit (within the meaning of section 89
without regard to subsection (gXSXCXO thereof) with respect
to the employee to whom such failure relates as the amount
of such benefit required to be but not shown on timely
statements under sections 6051(a) and 6051(d) bears to the
amount required to be shown.".

CM) CAFETERIA PLANS.—Subparagraph (D) of section 89(gX3) of
the 1986 Code is amended to read as follows:
"(D) SALARY REDUCTIONS.—

"(i) IN GENERAL.—Except for purposes of subsections
(dXIXAXii) and (jX5), any salary reduction shall be
treated as an employer-provided benefit.

"(ii) SPECIAL RULE FOR SUBSECTION (dXiXaXii).—Not-
withstanding clause (i), any salary reduction under a
cafeteria plan (within the meaning of section 125) shall
treated as an employer-provided benefit for purposes of
subsection (dXIXAXii) if—

"(I) the percentage of employees who are not
highly compensated employees eligible to partici-
pate in the plan is not greater than the percentage
of highly compensated employees so eligible,

"(II) all employees eligible to participate in the
plan are eligible under the same terms and condi-
tions, and

"(III) no highly compensated employee eligible
under the plan is eligible to participate in any
other plan maintained by the employer for any
benefit of the same type unless the benefit is avail-
able on the same terms and conditions to every
employee who is not a highly compensated em-
ployee eligible to participate in the plan,
"(iii) REGULATIONS.—Notwithstanding clause (i) or
(ii), the Secretary may by regulations provide that any