To amend the Internal Revenue Code of 1986 with respect to the treatment of governmental plans.

Amends the Internal Revenue Code to exclude State and local governmental plans from the limitation on benefits exceeding 100 percent of the participant's average compensation for the high three years.

Provides that qualified governmental excess benefit arrangements shall not be taken into account in determining whether pension plans meet the limitations on benefits and contributions of qualified plans. Requires taxation of such benefits as if they were provided under a deferred compensation plan maintained by a corporation not exempt from tax which does not meet the requirements of qualified pension, profit-sharing, and stock bonus plans.

Exempts disability income received as a pension, annuity, or similar allowance as a result of personal injuries or sickness from the reduced dollar limitation for defined benefit plans where the employee has less than ten years participation or the retirement benefit begins before the social security retirement age.

Repeals the special rule for State and local government plans which requires such limitation to equal the accrued benefit.