[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2584 Introduced in House (IH)]
1st Session
H. R. 2584
To amend the Internal Revenue Code of 1986 to provide for the
establishment of simple retirement accounts, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
November 2, 1995
Mr. Portman (for himself and Mr. Cardin) introduced the following bill;
which was referred to the Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide for the
establishment of simple retirement accounts, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. ESTABLISHMENT OF SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES
OF SMALL EMPLOYERS.
(a) In General.--Section 408 of the Internal Revenue Code of 1986
(relating to individual retirement accounts) is amended by
redesignating subsection (p) as subsection (q) and by inserting after
subsection (o) the following new subsection:
``(p) Simple Retirement Accounts.--
``(1) In general.--For purposes of this title, the term
`simple retirement account' means an individual retirement
plan--
``(A) with respect to which the requirements of
paragraphs (3), (4), and (5) are met; and
``(B) with respect to which the only contributions
allowed are contributions under a qualified salary
reduction arrangement.
``(2) Qualified salary reduction arrangement.--
``(A) In general.--For purposes of this subsection,
the term `qualified salary reduction arrangement' means
a written arrangement of an eligible employer under
which--
``(i) an employee eligible to participate
in the arrangement may elect to have the
employer make payments--
``(I) as elective employer
contributions to a simple retirement
account on behalf of the employee, or
``(II) to the employee directly in
cash,
``(ii) the amount which an employee may
elect under clause (i) for any year is required
to be expressed as a percentage of compensation
and may not exceed a total of $6,000 for any
year,
``(iii) the employer is required to make a
matching contribution to the simple retirement
account for any year in an amount equal to so
much of the amount the employee elects under
clause (i)(I) as does not exceed the applicable
percentage of compensation for the year, and
``(iv) no contributions may be made other
than contributions described in clause (i) or
(iii).
``(B) Definitions.--For purposes of this
subsection--
``(i) Eligible employer.--The term
`eligible employer' means an employer who
normally employs 100 or fewer employees on any
day during the year.
``(ii) Applicable percentage.--
``(I) In general.--The term
`applicable percentage' means 3
percent.
``(II) Election of lower
percentage.--An employer may elect to
apply a lower percentage (not less than
1 percent) for any year for all
employees eligible to participate in
the plan for such year if the employer
notifies the employees of such lower
percentage within a reasonable period
of time before the 60-day election
period for such year under paragraph
(5)(C). An employer may not elect a
lower percentage under this subclause
for any year if that election would
result in the applicable percentage
being lower than 3 percent in more than
2 of the years in the 5-year period
ending with such year.
``(III) Special rule for years
arrangement not in effect.--If any year
in the 5-year period described in
subclause (II) is a year prior to the
first year for which any qualified
salary reduction arrangement is in
effect with respect to the employer (or
any predecessor), the employer shall be
treated as if the level of the employer
matching contribution was at 3 percent
of compensation for such year.
``(C) Arrangement may be only plan of employer.--
``(i) In general.--An arrangement shall not
be treated as a qualified salary reduction
arrangement for any year if the employer (or
any predecessor employer) maintained a
qualified plan with respect to which
contributions were made, or benefits were
accrued, for service in any year in the period
beginning with the year such arrangement became
effective and ending with the year for which
the determination is being made.
``(ii) Qualified plan.--For purposes of
this subparagraph, the term `qualified plan'
means a plan, contract, pension, or trust
described in subparagraph (A) or (B) of section
219(g)(5).
``(D) No fee or penalty on employee's initial
investment determination.--An arrangement shall not be
treated as a qualified salary reduction arrangement
unless it provides that no fee or penalty will be
imposed on an employee's initial determination with
respect to the investment of any contribution.
``(E) Cost-of-living adjustment.--The Secretary
shall adjust the $6,000 amount under subparagraph
(A)(ii) at the same time and in the same manner as
under section 415(d), except that the base period taken
into account shall be the calendar quarter ending
September 30, 1995, and any increase under this
subparagraph which is not a multiple of $500 shall be
rounded to the next lower multiple of $500.
``(3) Vesting requirements.--The requirements of this
paragraph are met with respect to a simple retirement account
if the employee's rights to any contribution to the simple
retirement account are nonforfeitable. For purposes of this
paragraph, the rules similar to the rules of subsection (k)(4)
shall apply.
``(4) Participation requirements.--
``(A) In general.--The requirements of this
paragraph are met with respect to any simple retirement
account for a year only if, under the qualified salary
reduction arrangement, all employees of the employer
who--
``(i) received at least $5,000 in
compensation from the employer during each of
the 2 preceding years, and
``(ii) who are reasonably expected to
receive at least $5,000 in compensation during
the year,
are eligible to make the election under paragraph
(2)(A)(i).
``(B) Excludable employees.--An employer may elect
to exclude from the requirement under subparagraph (A)
employees described in section 410(b)(3).
``(5) Administrative requirements.--The requirements of
this paragraph are met with respect to any simplified
retirement account if, under the qualified salary reduction
arrangement--
``(A) an employer must--
``(i) make the elective employer
contributions under paragraph (2)(A)(i) not
later than the close of the 30-day period
following the last day of the month with
respect to which the contributions are to be
made, and
``(ii) make the matching contributions
under paragraph (2)(A)(iii) not later than the
date described in section 404(m)(2)(B),
``(B) an employee may elect to terminate
participation in such arrangement at any time during
the year, except that if an employee so terminates, the
arrangement may provide that the employee may not elect
to resume participation until the beginning of the next
year, and
``(C) each employee eligible to participate may
elect, during the 60-day period before the beginning of
any year, to participate in the arrangement, or to
modify the amounts subject to such arrangement, for
such year.
``(6) Definitions.--For purposes of this subsection--
``(A) Compensation.--
``(i) In general.--The term `compensation'
means amounts described in paragraphs (3) and
(8) of section 6051(a).
``(ii) Self-employed.--In the case of an
employee described in subparagraph (B),
compensation means net earnings from self-
employment determined under section 1402(a)
without regard to any contribution under this
subsection.
``(B) Employee.--The term `employee' includes an
employee as defined in section 401(c)(1).
``(C) Year.--The term `year' means the calendar
year.''.
(b) Simple Retirement Accounts Not Treated as Pension Plans.--
Notwithstanding any other provision of law, a simplified retirement
account or qualified salary reduction arrangement under section 408(p)
of the Internal Revenue Code of 1986 shall not be treated as an
employee benefit plan or pension plan for purposes of the Employee
Retirement Income Security Act of 1974.
(c) Tax Treatment of Simple Retirement Accounts.--
(1) Deductibility of contributions by employees.--
(A) Section 219(b) of such Code (relating to
maximum amount of deduction) is amended by adding at
the end the following new paragraph:
``(4) Special rule for simple retirement accounts.--This
section shall not apply with respect to any amount contributed
to a simple retirement account established under section
408(p).''.
(B) Section 219(g)(5)(A) of such Code (defining
active participant) is amended by striking ``or'' at
the end of clause (iv) and by adding at the end the
following new clause:
``(vi) any simple retirement account
(within the meaning of section 408(p)), or''.
(2) Deductibility of employer contributions.--Section 404
of such Code (relating to deductions for contributions of an
employer to pension, etc. plans) is amended by adding at the
end the following new subsection:
``(m) Special Rules for Simple Retirement Accounts.--
``(1) In general.--Employer contributions to a simple
retirement account shall be treated as if they are made to a
plan subject to the requirements of this section.
``(2) Timing.--
``(A) Deduction.--Contributions described in
paragraph (1) shall be deductible in the taxable year
of the employer with or within which the calendar year
for which the contributions were made ends.
``(B) Contributions after end of year.--For
purposes of this subsection, contributions shall be
treated as made for a taxable year if they are made on
account of the taxable year and are made not later than
the time prescribed by law for filing the return for
the taxable year (including extensions thereof).''.
(3) Contributions and distributions.--
(A) Section 402 of such Code (relating to
taxability of beneficiary of employees' trust) is
amended by adding at the end the following new
subsection:
``(k) Treatment of Simple Retirement Accounts.--Rules similar to
the rules of paragraphs (1) and (3) of subsection (h) shall apply to
contributions and distributions with respect to a simple retirement
account under section 408(p).''.
(B) Section 408(d)(3) of such Code is amended by
adding at the end the following new subparagraph:
``(G) Simple retirement accounts.--This paragraph
shall not apply to any amount paid or distributed out
of a simple retirement account (as defined in section
408(p)) unless it is paid into another simple
retirement account.''.
(C) Clause (i) of section 457(c)(2)(B) of such Code
is amended by striking ``section 402(h)(1)(B)'' and
inserting ``section 402(h)(1)(B) or (k)''.
(4) Penalties.--
(A) Early withdrawals.--Section 72(t) of such Code
(relating to additional tax in early distributions) is
amended by adding at the end the following new
paragraph:
``(6) Special rules for simple retirement accounts.--In the
case of any amount received from a simple retirement account
(within the meaning of section 408(p)) during the 2-year period
beginning on the date such individual first participated in any
qualified salary reduction arrangement maintained by the
individual's employer under section 408(p)(2), paragraph (1)
shall be applied by substituting `25 percent' for `10
percent'.''.
(B) Failure to report.--Section 6693 of such Code
is amended by redesignating subsection (c) as
subsection (d) and by inserting after subsection (b)
the following new subsection:
``(c) Penalties Relating to Simple Retirement Accounts.--
``(1) Employer penalties.--An employer who fails to provide
1 or more notices required by section 408(l)(2)(C) shall pay a
penalty of $50 for each day on which such failures continue.
``(2) Trustee penalties.--A trustee who fails--
``(A) to provide 1 or more statements required by
the last sentence of section 408(i) shall pay a penalty
of $50 for each day on which such failures continue, or
``(B) to provide 1 or more summary descriptions
required by section 408(l)(2)(B) shall pay a penalty of
$50 for each day on which such failures continue.
``(3) Reasonable cause exception.--No penalty shall be
imposed under this subsection with respect to any failure which
the taxpayer shows was due to reasonable cause.''.
(5) Reporting requirements.--
(A)(i) Section 408(l) of such Code is amended by
adding at the end the following new paragraph:
``(2) Simple retirement accounts.--
``(A) No employer reports.--Except as provided in
this paragraph, no report shall be required under this
section by an employer maintaining a qualified salary
reduction arrangement under subsection (p).
``(B) Summary description.--The trustee of any
simple retirement account established pursuant to a
qualified salary reduction arrangement under subsection
(p) shall provide to the employer maintaining the
arrangement, each year a description containing the
following information:
``(i) The name and address of the employer
and the trustee.
``(ii) The requirements for eligibility for
participation.
``(iii) The benefits provided with respect
to the arrangement.
``(iv) The time and method of making
elections with respect to the arrangement.
``(v) The procedures for, and effects of,
withdrawals from the arrangement.
``(C) Employee notification.--The employer shall
notify each employee immediately before the period for
which an election described in subsection (p)(5)(C) may
be made of the employee's opportunity to make such
election. Such notice shall include a copy of the
description described in subparagraph (B).''.
(ii) Section 408(l) of such Code is amended by
striking ``An employer'' and inserting--
``(1) In general.--An employer''.
(B) Section 408(i) of such Code is amended by
adding at the end the following new flush sentence:
``In the case of a simple retirement account under subsection (p), only
one report under this subsection shall be required to be submitted each
calendar year to the Secretary (at the time provided under paragraph
(2)) but, in addition to the report under this subsection, there shall
be furnished, within 30 days after each calendar year, to the
individual on whose behalf the account is maintained a statement with
respect to the account balance as of the close of, and the account
activity during, such calendar year.''.
(6) Exemption from top-heavy plan rules.--Section 416(g)(4)
of such Code (relating to special rules for top-heavy plans) is
amended by adding at the end the following new subparagraph:
``(G) Simple retirement accounts.--The term `top-
heavy plan' shall not include a simple retirement
account under section 408(p).''.
(7) Conforming amendments.--
(A) Section 280G(b)(6) of such Code is amended by
striking ``or'' at the end of subparagraph (B), by
striking the period at the end of subparagraph (C) and
inserting ``, or'' and by adding after subparagraph (C)
the following new subparagraph:
``(D) a simple retirement account described in
section 408(p).''.
(B) Section 402(g)(3) of such Code is amended by
striking ``and'' at the end of subparagraph (B), by
striking the period at the end of subparagraph (C) and
inserting ``, and'', and by adding after subparagraph
(C) the following new subparagraph:
``(D) any elective employer contribution under
section 408(p)(2)(A)(i).''.
(C) Subsections (b), (c), (m)(4)(B), and (n)(3)(B)
of section 414 of such Code are each amended by
inserting ``408(p),'' after ``408(k),''.
(D) Section 4972(d)(1)(A) of such Code is amended
by striking ``and'' at the end of clause (ii), by
striking the period at the end of clause (iii) and
inserting ``, and'', and by adding after clause (iii)
the following new clause:
``(iv) any simple retirement account
(within the meaning of section 408(p)).''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1995.
SEC. 2. EXTENSION OF SIMPLE PLAN TO 401(k) ARRANGEMENTS.
(a) Alternative Method of Satisfying Section 401(k)
Nondiscrimination Tests.--Section 401(k) of the Internal Revenue Code
of 1986 (relating to cash or deferred arrangements) is amended by
adding at the end the following new paragraph:
``(11) Adoption of simple plan to meet nondiscrimination
tests.--
``(A) In general.--A cash or deferred arrangement
maintained by an eligible employer shall be treated as
meeting the requirements of paragraph (3)(A)(ii) if
such arrangement meets--
``(i) the contribution requirements of
subparagraph (B),
``(ii) the exclusive benefit requirements
of subparagraph (C), and
``(iii) the vesting requirements of section
408(p)(3).
``(B) Contribution requirements.--The requirements
of this subparagraph are met if, under the
arrangement--
``(i) an employee may elect to have the
employer make elective contributions for the
year on behalf of the employee to a trust under
the plan in an amount which is expressed as a
percentage of compensation of the employee but
which in no event exceeds $6,000,
``(ii) the employer is required to make a
matching contribution to the trust for the year
in an amount equal to so much of the amount the
employee elects under clause (i) as does not
exceed 3 percent of compensation for the year,
and
``(iii) no other contributions may be made
other than contributions described in clause
(i) or (ii).
``(C) Exclusive benefit.--The requirements of this
subparagraph are met for any year to which this
paragraph applies if no contributions were made, or
benefits were accrued, for services during such year
under any qualified plan of the employer on behalf of
any employee eligible to participate in the cash or
deferred arrangement, other than contributions
described in subparagraph (B).
``(D) Definitions and special rule.--
``(i) Definitions.--For purposes of this
paragraph, any term used in this paragraph
which is also used in section 408(p) shall have
the meaning given such term by such section.
``(ii) Coordination with top-heavy rules.--
A plan meeting the requirements of this
paragraph for any year shall not be treated as
a top-heavy plan under section 416 for such
year.''.
(b) Alternative Methods of Satisfying Section 401(m)
Nondiscrimination Tests.--Section 401(m) of such Code (relating to
nondiscrimination test for matching contributions and employee
contributions) is amended by redesignating paragraph (10) as paragraph
(11) and by adding after paragraph (9) the following new paragraph:
``(10) Alternative method of satisfying tests.--A defined
contribution plan shall be treated as meeting the requirements
of paragraph (2) with respect to matching contributions if the
plan--
``(A) meets the contribution requirements of
subparagraph (B) of subsection (k)(11),
``(B) meets the exclusive benefit requirements of
subsection (k)(11)(C), and
``(C) meets the vesting requirements of section
408(p)(3).''.
(c) Effective Date.--The amendments made by this section shall
apply to plan years beginning after December 31, 1995.
SEC. 3. CREDIT FOR PENSION PLAN START-UP COSTS OF SMALL EMPLOYERS.
(a) Allowance of Credit.--Section 38(b) of the Internal Revenue
Code of 1986 (defining current year business credit) is amended by
striking ``plus'' at the end of paragraph (10), by striking the period
at the end of paragraph (11), and inserting ``, plus'', and by adding
at the end the following new paragraph:
``(12) the small employer pension plan start-up cost
credit.''.
(b) Small Employer Pension Plan Start-Up Cost Credit.--Subpart D of
part IV of subchapter A of chapter 1 of such Code (relating to business
related credits), as amended by this Act is amended by adding at the
end the following new section:
``SEC. 45C. SMALL EMPLOYER PENSION PLAN START-UP COST CREDIT.
``(a) Amount of Credit.--For purposes of section 38--
``(1) In general.--The small employer pension plan start-up
cost credit for any taxable year is an amount equal to 50
percent of the qualified start-up costs of an eligible employer
in establishing a qualified pension plan.
``(2) Aggregate limitation.--The amount of the credit under
paragraph (1) for any taxable year shall not exceed $500,
reduced by the aggregate amount determined under this section
for all preceding taxable years of the taxpayer.
``(b) Qualified Start-Up Costs; Qualified Pension Plan.--For
purposes of this section--
``(1) Qualified start-up costs.--The term `qualified start-
up costs' means any ordinary and necessary expenses of an
eligible employer which--
``(A) are paid or incurred in connection with the
establishment of a qualified pension plan, and
``(B) are of a nonrecurring nature.
``(2) Qualified pension plan.--The term `qualified pension
plan' means--
``(A) a qualified salary reduction arrangement
described in section 408(p) (relating to simple
retirement accounts), or
``(B) an arrangement described in section
401(k)(11).
``(c) Eligible Employer.--For purposes of this section--
``(1) In general.--The term `eligible employer' means an
employer which did not make any contributions on behalf of any
employee to--
``(A) a qualified pension plan,
``(B) a plan described in section 401(a) which
includes a trust exempt from tax under section 501(a),
or
``(C) a simplified employee pension (as defined in
section 408(k)),
during the 2 taxable years immediately preceding the taxable
year.
``(2) Professional service employers excluded.--Such term
shall not include an employer substantially all of the
activities of which involve the performance of services in the
fields of health, law, engineering, architecture, accounting,
actuarial science, performing arts, financial services, or
consulting.
``(d) Special Rules.--For purposes of this section--
``(1) Aggregation rules.--All persons treated as a single
employer under subsection (a) or (b) of section 52 or
subsection (n) or (o) of section 414 shall be treated as one
person.
``(2) Disallowance of deduction.--No deduction shall be
allowable under this chapter for any qualified start-up costs
for which a credit is allowable under subsection (a).''.
(c) Conforming Amendments.--
(1) Section 39(d) of such Code is amended by adding at the
end the following new paragraph:
``(7) No carryback of pension credit.--No portion of the
unused business credit for any taxable year which is
attributable to the small employer pension plan start-up cost
credit determined under section 45C may be carried back to a
taxable year ending before the date of the enactment of section
45C.''.
(2) The table of sections for subpart D of part IV of
subchapter A of chapter 1 of such Code is amended by adding at
the end the following new item:
``Sec. 45C. Small employer pension plan
start-up cost credit.''.
(d) Effective Date.--The amendments made by this section shall
apply to costs incurred after the date of the enactment of this Act in
taxable years ending after such date.
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HR 2584 IH----2