[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.
                                 <all>
HR 2584 IH----2