[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1656 Introduced in House (IH)]







105th CONGRESS
  1st Session
                                H. R. 1656

 To amend the Internal Revenue Code of 1986 to provide small business 
  employees with a simple, secure, and fully portable defined benefit 
                                 plan.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              May 16, 1997

Mrs. Johnson of Connecticut (for herself, Mr. Pomeroy, and Mr. Fawell) 
 introduced the following bill; which was referred to the Committee on 
 Ways and Means, and in addition to the Committee on Education and the 
 Workforce, for a period to be subsequently determined by the Speaker, 
 in each case for consideration of such provisions as fall within the 
                jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to provide small business 
  employees with a simple, secure, and fully portable defined benefit 
                                 plan.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Secure Assets For Employees (SAFE) 
Plan Act of 1997''.

SEC. 2. SAFE ANNUITIES AND TRUSTS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
of the Internal Revenue Code of 1986 is amended by inserting after 
section 408 the following new section:

``SEC. 408A. SAFE ANNUITIES AND TRUSTS.

    ``(a) Employer Eligibility.--
            ``(1) In general.--An employer may establish and maintain a 
        SAFE annuity or a SAFE trust for any year only if--
                    ``(A) the employer is an eligible employer (as 
                defined in section 408(p)(2)(C)), and
                    ``(B) the employer does not maintain (and no 
                predecessor of the employer maintains) a qualified plan 
                (other than a permissible 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 annuity or trust became effective and ending 
                with the year for which the determination is being 
                made.
            ``(2) Definitions.--For purposes of paragraph (1)--
                    ``(A) Qualified plan.--The term `qualified plan' 
                has the meaning given such term by section 
                408(p)(2)(D)(ii).
                    ``(B) Permissible plan.--The term `permissible 
                plan' means--
                            ``(i) a plan under which only elective 
                        deferrals described in section 402(g)(3), 
                        deferred compensation described in section 457, 
                        or employer matching contributions may be made, 
                        and
                            ``(ii) any collectively bargained plan.
    ``(b) SAFE Annuity.--
            ``(1) In general.--For purposes of this title, the term 
        `SAFE annuity' means an individual retirement annuity (as 
        defined in section 408(b) without regard to paragraph (2) 
        thereof and without regard to the limitation on aggregate 
        annual premiums contained in the flush language of section 
        408(b)) if--
                    ``(A) such annuity meets the requirements of 
                paragraphs (2) through (6), and
                    ``(B) the only contributions to such annuity are 
                employer contributions.
        Nothing in this section shall be construed as preventing an 
        employer from using a group annuity contract which is divisible 
        into individual retirement annuities for purposes of providing 
        SAFE annuities.
            ``(2) Participation requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met for any year only if all employees of 
                the employer who--
                            ``(i) received at least $5,000 in 
                        compensation from the employer during any 2 
                        consecutive preceding years, and
                            ``(ii) received at least $5,000 in 
                        compensation during the year,
                are entitled to the benefit described in paragraph (5) 
                for such year.
                    ``(B) Excludable employees.--An employer may elect 
                to exclude from the requirements under subparagraph (A) 
                employees described in section 410(b)(3).
            ``(3) Vesting.--The requirements of this paragraph are met 
        if the employee's rights to any benefits are nonforfeitable.
            ``(4) Benefit form.--The requirements of this paragraph are 
        met if the only form of benefit is--
                    ``(A) a benefit payable annually in the form of a 
                single life annuity with monthly payments (with no 
                ancillary benefits) beginning at age 65, or
                    ``(B) any other form of benefit which is the 
                actuarial equivalent (based on the assumptions 
                specified in the SAFE annuity) of the benefit described 
                in subparagraph (A).
            ``(5) Amount of annual accrued benefit.--
                    ``(A) In general.--The requirements of this 
                paragraph are met for any plan year if the accrued 
                benefit of each participant derived from employer 
                contributions for such year, when expressed as a 
                benefit described in paragraph (4)(A), equals the 
                applicable percentage of the participant's compensation 
                for such year.
                    ``(B) Applicable percentage.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `applicable 
                        percentage' means 3 percent.
                            ``(ii) Election of lower percentage.--An 
                        employer may elect to apply an applicable 
                        percentage of 1 percent, 2 percent or zero 
                        percent for any year for all employees eligible 
                        to participate in the plan for such year if the 
                        employer notifies the employees of such 
                        percentage within a reasonable period before 
                        the beginning of such year.
                    ``(C) Compensation limit.--The compensation taken 
                into account under this paragraph for any year shall 
                not exceed the limitation in effect for such year under 
                section 401(a)(17).
                    ``(D) Credit for service before plan adopted.--
                            ``(i) In general.--An employer may elect to 
                        take into account a specified number of years 
                        of service (not greater than 10) performed 
                        before the adoption of the plan (each 
                        hereinafter referred to as a `prior service 
                        year') as service under the plan if the same 
                        specified number of years is available to all 
                        employees eligible to participate in the plan 
                        for the first plan year.
                            ``(ii) Accrual of prior service benefit.--
                        Such an election shall be effective for a prior 
                        service year only if the requirements of this 
                        paragraph are met for an eligible plan year 
                        (with respect to employees entitled to credit 
                        for such prior service year) by doubling the 
                        applicable percentage (if any) for such plan 
                        year. For purposes of the preceding sentence, 
                        an eligible plan year is a plan year in the 
                        period of consecutive plan years (but not more 
                        than the number specified under clause (i)) 
                        beginning with the first plan year that the 
                        plan is in effect.
                            ``(iii) Election may not apply to certain 
                        prior service years.--This subparagraph shall 
                        not apply with respect to any prior service 
                        year of an employee if--
                                    ``(I) for any part of such prior 
                                service year such employee was an 
                                active participant (within the meaning 
                                of section 219(g)(5) under any defined 
                                benefit plan of the employer (or any 
                                predecessor thereof), or
                                    ``(II) such employee received 
                                during such prior service year less 
                                than $5,000 in compensation from the 
                                employer.
            ``(6) Funding.--
                    ``(A) In general.--The requirements of this 
                paragraph are met only if the employer is required to 
                contribute to the annuity for each plan year the amount 
                necessary (determined in accordance with subparagraph 
                (B)) to fund the accrued benefit for each participant 
                entitled to such benefit for such year.
                    ``(B) Actuarial assumptions.--In determining the 
                amount required to be contributed under subparagraph 
                (A)--
                            ``(i) the assumed interest rate shall be 5 
                        percent per year,
                            ``(ii) the assumed mortality shall be 
                        determined under the applicable mortality table 
                        (as defined in section 417(e)(3), as modified 
                        by the Secretary so that it does not include 
                        any assumption for preretirement mortality),
                            ``(iii) the assumed retirement age shall be 
                        65, and
                            ``(iv) an assumption for reasonable 
                        expenses shall be permitted consistent with 
                        State law.
                    ``(C) Time when contributions deemed made.--For 
                purposes of this paragraph, any contribution made for a 
                plan year during the 8\1/2\-month period beginning on 
                the day after the last day of such plan year shall be 
                deemed to have been made on such last day.
                    ``(D) Penalty for failure to make required 
                contribution.--The taxes imposed by section 4971 shall 
                apply to a failure to make the contribution required by 
                this paragraph in the same manner as if the amount of 
                the failure were an accumulated funding deficiency to 
                which such section applies.
            ``(7) Definitions and special rule.--
                    ``(A) Definitions.--The definitions in section 
                408(p)(6) shall apply for purposes of this subsection.
                    ``(B) Use of designated financial institutions.--A 
                rule similar to the rule of section 408(p)(7) (without 
                regard to the last sentence thereof) shall apply for 
                purposes of this subsection.
    ``(c) SAFE Trust.--
            ``(1) In general.--For purposes of this title, the term 
        `SAFE trust' means a trust forming part of a defined benefit 
        plan if--
                    ``(A) such trust meets the requirements of section 
                401(a) as modified by subsection (d),
                    ``(B) a participant's benefits under the plan are 
                based solely on the balance of a separate account in 
                such plan of such participant,
                    ``(C) such plan meets the requirements of 
                paragraphs (2) through (8), and
                    ``(D) the only contributions to such trust are 
                employer contributions.
            ``(2) Participation requirements.--A plan meets the 
        requirements of this paragraph for any year only if the 
        requirements of subsection (b)(2) are met for such year.
            ``(3) Vesting.--A plan meets the requirements of this 
        paragraph for any year only if the requirements of subsection 
        (b)(3) are met for such year.
            ``(4) Benefit form.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), a plan meets the requirements of this 
                paragraph only if the requirements of subsection (b)(4) 
                are met for purposes of this subparagraph, a plan may 
                satisfy the requirements of subsection (b)(4) by 
                purchasing an annuity contract which meets the 
                requirements of subsection (b)(4).
                    ``(B) Direct transfers to individual retirement 
                plan or safe annuity.--A plan shall not fail to meet 
                the requirements of this paragraph by reason of 
                permitting, at the election of the employee, a trustee-
                to-trustee transfer of the entire balance to the credit 
                of the employee to an individual retirement account 
                described in section 408(a), an individual retirement 
                annuity described in section 408(b) (other than an 
                endowment contract), or a SAFE annuity.
            ``(5) Amount of annual accrued benefit.--A plan meets the 
        requirements of this paragraph for any year only if the 
        requirements of subsection (b)(5) are met for such year.
            ``(6) Funding.--
                    ``(A) In general.--A plan meets the requirements of 
                this paragraph for any year only if--
                            ``(i) the requirements of subsection (b)(6) 
                        are met for such year, and
                            ``(ii) in the case of a plan which has an 
                        unfunded prior year liability as of the close 
                        of such plan year, the plan requires that the 
                        employer make an additional contribution to 
                        such plan for such year equal to the amount of 
                        such unfunded prior year liability.
                    ``(B) Unfunded prior year liability.--For purposes 
                of this paragraph, the term `unfunded prior year 
                liability' means, with respect to any plan year, the 
                excess (if any) of--
                            ``(i) the aggregate of the accrued 
                        liabilities under the plan as of the close of 
                        the prior plan year, over
                            ``(ii) the value of the plan's assets 
                        determined under section 412(c)(2) as of the 
                        close of the plan year (determined without 
                        regard to any contributions for such plan 
                        year).
                Such accrued liabilities shall be determined using the 
                assumptions specified in subsection (b)(6)(B).
                    ``(C) Changes in mortality table.--If the 
                applicable mortality table under section 417(e)(3) for 
                any plan year is not the same as such table for the 
                prior plan year, the Secretary shall prescribe 
                regulations which phase in the effect of the changes 
                over a reasonable period of plan years determined by 
                the Secretary.
                    ``(D) Disregard assumptions for expenses.--For 
                purposes of this paragraph, the assumption specified in 
                subsection (b)(6)(B)(iv) shall be disregarded.
            ``(7) Separate accounts for participants.--A plan meets the 
        requirements of this paragraph for any year only if the plan 
        provides--
                    ``(A) for an individual account for each 
                participant, and
                    ``(B) for benefits based solely on--
                            ``(i) the amount contributed to the 
                        participant's account, and
                            ``(ii) any income, expenses, gains and 
                        losses, and any forfeitures of accounts of 
                        other participants which may be allocated to 
                        such participant's account.
            ``(8) Trust may not hold securities which are not readily 
        tradable.--A plan meets the requirements of this paragraph only 
        if the plan prohibits the trust from holding directly or 
        indirectly securities which are not readily tradable on an 
        established securities market or otherwise. Nothing in this 
        paragraph shall prohibit the trust from holding insurance 
        company products regulated by State law.
            ``(9) Definitions and special rule.--The definitions and 
        special rule applicable under subsection (b)(7) shall apply for 
        purposes of this subsection.
    ``(d) Special Rules for SAFE Annuities and Trusts.--
            ``(1) Certain requirements treated as met.--For purposes of 
        section 401(a), a SAFE annuity and a SAFE trust shall be 
        treated as meeting the requirements of the following 
        provisions:
                    ``(A) Section 401(a)(4) (relating to 
                nondiscrimination rules).
                    ``(B) Section 401(a)(26) (relating to minimum 
                participation).
                    ``(C) Section 410 (relating to minimum 
                participation and coverage requirements).
                    ``(D) Section 411(b) (relating to accrued benefit 
                requirements).
                    ``(E) Paragraphs (6) and (7) of section 412(c) 
                (relating to full funding limitation).
                    ``(F) Section 415 (relating to limitations on 
                benefits and contributions under qualified plans).
                    ``(G) Section 416 (relating to special rules for 
                top-heavy plans).
            ``(2) Contributions not taken into account in applying 
        limits to other plans.--Contributions to a SAFE annuity or a 
        SAFE trust shall not be taken into account in applying sections 
        404 and 415 to other plans maintained by the employer.''
    (b) Deduction Limits Not To Apply to Employer Contributions.--
            (1) In general.--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:
    ``(n) Special Rules for SAFE Annuities and Trusts.--
            ``(1) In general.--Employer contributions to a SAFE annuity 
        or SAFE trust 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).''
            (2) Coordination with deduction under section 219.--
                    (A) Section 219(b) of such Code (relating to 
                maximum amount of deduction) is amended by adding at 
                the end the following new paragraph:
            ``(5) Special rule for safe annuities.--This section shall 
        not apply with respect to any amount contributed to a SAFE 
        annuity established under section 408A(b).''
                    (B) Section 219(g)(5)(A) of such Code (defining 
                active participant) is amended by striking ``or'' at 
                the end of clause (v) and by adding at the end the 
                following new clause:
                            ``(vii) any SAFE annuity (within the 
                        meaning of section 408A), or''.
    (c) Contributions and Distributions.--
            (1) Section 402 of such Code (relating to taxability of 
        beneficiary of employees' trust) is amended by adding at the 
        end the following new subsection:
    ``(l) Treatment of SAFE Annuities.--Rules similar to the rules of 
paragraphs (1) and (3) of subsection (h) shall apply to contributions 
and distributions with respect to a SAFE annuities under section 
408A.''
            (2) Section 408(d)(3) of such Code is amended by adding at 
        the end the following new subparagraph:
                    ``(H) SAFE annuities.--This paragraph shall not 
                apply to any amount paid or distributed out of a SAFE 
                annuity (as defined in section 408A) unless it is paid 
                in a trustee-to-trustee transfer into another SAFE 
                annuity.''
    (d) Increased Penalty on Early Withdrawals.--Section 72(t) of such 
Code (relating to additional tax on early distributions) is amended by 
adding at the end the following new paragraph:
            ``(7) Special rules for safe annuities and trusts.--In the 
        case of any amount received from a SAFE annuity or a SAFE trust 
        (within the meaning of section 408A), paragraph (1) shall be 
        applied by substituting `20 percent' for `10 percent'.''
    (e) Simplified Employer Reports.--
            (1) SAFE annuities.--Section 408(l) of such Code (relating 
        to simplified employer reports) is amended by adding at the end 
        the following new paragraph:
            ``(3) SAFE annuities.--
                    ``(A) Simplified report.--The employer maintaining 
                any SAFE annuity (within the meaning of section 408A) 
                shall file a simplified annual return with the 
                Secretary containing only the information described in 
                subparagraph (B).
                    ``(B) Contents.--The return required by 
                subparagraph (A) shall set forth--
                            ``(i) the name and address of the employer,
                            ``(ii) the date the plan was adopted,
                            ``(iii) the number of employees of the 
                        employer,
                            ``(iv) the number of such employees who are 
                        eligible to participate in the plan,
                            ``(v) the total amount contributed by the 
                        employer to each such annuity for such year and 
                        the minimum amount required under section 408A 
                        to be so contributed,
                            ``(vi) the percentage elected under section 
                        408A(b)(5)(B), and
                            ``(vii) the number of employees with 
                        respect to whom contributions are required to 
                        be made for such year under section 
                        408A(b)(5)(D).
                    ``(C) Reporting by issuer of safe annuity.--
                            ``(i) In general.--The issuer of each SAFE 
                        annuity shall provide to the owner of the 
                        annuity for each year a statement setting forth 
                        as of the close of such year--
                                    ``(I) the benefits guaranteed at 
                                age 65 under the annuity, and
                                    ``(II) the cash surrender value of 
                                the annuity.
                            ``(ii) Summary description.--The issuer of 
                        any SAFE annuity shall provide to the employer 
                        maintaining the annuity for each year a 
                        description containing the following 
                        information:
                                    ``(I) The name and address of the 
                                employer and the issuer.
                                    ``(II) The requirements for 
                                eligibility for participation.
                                    ``(III) The benefits provided with 
                                respect to the annuity.
                                    ``(IV) The procedures for, and 
                                effects of, withdrawals (including 
                                rollovers) from the annuity.
                    ``(D) Time and manner of reporting.--Any return, 
                report, or statement required under this paragraph 
                shall be made in such form and at such time as the 
                Secretary shall prescribe.''
            (2) SAFE trusts.--Section 6059 (relating to actuarial 
        reports) is amended by redesignating subsections (c) and (d) as 
        subsections (d) and (e), respectively, and by inserting after 
        subsection (b) the following new subsection:
    ``(c) SAFE Trusts.--In the case of a SAFE Trust (within the meaning 
of section 408A), the Secretary shall require a simplified actuarial 
report which contains information similar to the information required 
in section 408(l)(3)(B).''
    (f) Conforming Amendments.--
            (1) Section 280G(b)(6) of such Code is amended by striking 
        ``or'' at the end of subparagraph (C), by striking the period 
        at the end of subparagraph (D) and inserting ``, or'' and by 
        adding after subparagraph (D) the following new subparagraph:
                    ``(E) a SAFE annuity described in section 408A.''
            (2) Subsections (b), (c), (m)(4)(B), and (n)(3)(B) of 
        section 414 of such Code are each amended by inserting 
        ``408A,'' after ``408(p),''.
            (3) Section 4972(d)(1)(A) of such Code is amended by 
        striking ``and'' at the end of clause (iii), by striking the 
        period at the end of clause (iv) and inserting ``, and'', and 
        by adding after clause (iv) the following new clause:
                            ``(v) any SAFE annuity (within the meaning 
                        of section 408A).''
    (g) Modifications of ERISA.--
            (1) Exemption from insurance coverage.--Subsection (b) of 
        section 4021 of the Employee Retirement Income Security Act of 
        1974 (29 U.S.C. 1321) is amended by striking ``or'' at the end 
        of paragraph (12), by striking the period at the end of 
        paragraph (13) and inserting ``; or'', and by adding at the end 
        the following new paragraph:
            ``(14) which is established and maintained as part of a 
        SAFE trust (as defined in section 408A of the Internal Revenue 
        Code of 1986).''
            (2) Reporting requirements.--Section 101 of such Act (29 
        U.S.C. 1021) is amended by redesignating subsection (h) as 
        subsection (i) and by inserting after subsection (g) the 
        following new subsection:
    ``(h) SAFE Annuities.--
            ``(1) No employer reports.--Except as provided in this 
        subsection, no report shall be required under this section by 
        an employer maintaining a SAFE annuity under section 408A(b) of 
        the Internal Revenue Code of 1986.
            ``(2) Summary description.--The issuer of any SAFE annuity 
        shall provide to the employer maintaining the annuity for each 
        year a description containing the following information:
                    ``(A) The name and address of the employer and the 
                issuer.
                    ``(B) The requirements for eligibility for 
                participation.
                    ``(C) The benefits provided with respect to the 
                annuity.
                    ``(D) The procedures for, and effects of, 
                withdrawals (including rollovers) from the annuity.''
            (3) Employee notification.--The employer shall provide each 
        employee eligible to participate in the SAFE annuity with the 
        description described in paragraph (2) at the same time as the 
        notification required under section 408A(b)(5)(B) of the 
        Internal Revenue Code of 1986.''
    (h) Clerical Amendment.--The table of sections for subpart A of 
part I of subchapter D of chapter 1 of such Code is amended by 
inserting after the item relating to section 408 the following new 
item:

                              ``Sec. 408A. SAFE annuities and trusts.''
    (i) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1997.
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