[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3560 Introduced in House (IH)]







105th CONGRESS
  2d Session
                                H. R. 3560

 To amend title II of the Social Security Act and the Internal Revenue 
Code of 1986 to provide for a pilot program for personalized retirement 
security through personal retirement savings accounts to allow for more 
 control by individuals over their Social Security retirement income, 
                        and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             March 26, 1998

Mr. Smith of Michigan introduced the following bill; which was referred 
                   to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
 To amend title II of the Social Security Act and the Internal Revenue 
Code of 1986 to provide for a pilot program for personalized retirement 
security through personal retirement savings accounts to allow for more 
 control by individuals over their Social Security retirement income, 
                        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. SHORT TITLE AND TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Social Security 
Solvency Pilot Program Act of 1998''.
    (b) Table of Contents.--

Sec. 1. Short title and table of contents.
Sec. 2. Findings and purposes.
Sec. 3. Establishment of individual retirement security program.
Sec. 4. Reduction in appropriations to the Trust Funds.
Sec. 5. Adjustments to primary insurance amounts under part A of title 
                            II of the Social Security Act.
Sec. 6. Personal retirement savings accounts.
Sec. 7. Interim and final reports.
Sec. 8. Investment of social security trust funds in marketable 
                            securities during fiscal year 1999.

SEC. 2. FINDINGS AND PURPOSES.

    (a) Findings.--The Congress makes the following findings:
            (1) One of America's most popular Government programs, 
        Social Security, is in jeopardy. The 1997 Board of Trustee's 
        report states that the current system faces an actuarial 
        deficit of 2.23 percent of taxable payroll. According to the 
        1997 Board of Trustee's report, the Social Security trust fund 
        will begin to run a deficit by 2011 and will be exhausted by 
        2029.
            (2) Helping assure Americans retirement security is a major 
        national goal.
            (3) The Congress should strengthen Social Security to 
        ensure Americans retirement security. The changes made to 
        strengthen Social Security should--
                    (A) create a solvent Social Security system,
                    (B) maintain or increase total retirement benefits 
                for current and future retirees,
                    (C) avoid payroll tax increases, and
                    (D) avoid additional Federal debt as a means of 
                financing Social Security.
            (4) The root causes of the weaknesses in the present Social 
        Security system are its inadequate funding mechanism and 
        changing demographics. Social Security was designed in 1935 as 
        a pay-as-you-go system, in which current workers supported 
        current retirees. This design worked when America had 42 
        workers per beneficiary in 1945, but that ratio has fallen over 
        time. In 1995 there are only 3.3 workers per beneficiary, and 
        by 2060 the ratio is projected to fall to 1.8 workers per 
        beneficiary. To pay benefits to the rising number of retirees, 
        the Government has levied increasing payroll taxes on workers. 
        To maintain the program in its current form, the Government 
        will have to continue to raise payroll taxes or substantially 
        reduce benefits.
            (5) The key to a more secure Social Security system is 
        increased savings and private investment. We should move from a 
        financing system based on the Federal Government's power to tax 
        workers to one based on savings and investment accounts owned 
        and controlled by workers.
            (6) Allowing workers to take advantage of higher investment 
        returns will increase their income in retirement. Over the last 
        100 years, the stock market has earned roughly 7 percent after 
        inflation compared to a yield of 1.5 to 2 percent after 
        inflation projected by the Social Security Administration for 
        workers' payroll taxes. The difference is enormous. For 
        example, $1,000 invested for 50 years at 2 percent becomes 
        nearly $2,700. The same amount invested for 50 years at 7 
        percent becomes nearly $30,000.
    (b) Purposes.--The purpose of this Act is to establish a pilot 
program which may serve as the basis for furture legislaton for the 
following purposes:
            (1) To give workers and retirees more ownership and control 
        over their retirement savings.
            (2) To improve the living standards of future retirees by 
        allowing them to take advantage of low-risk investment 
        opportunities that earn higher returns than those they can 
        expect to realize under the current Social Security system.
            (3) To stimulate the American economy by increasing savings 
        and investment leading to higher productivity,more jobs, and 
        better wages.
            (4) To ensure the solvency of the Social Security system 
        while maintaining an adequate reserve in the Social Security 
        trust fund.

SEC. 3. ESTABLISHMENT OF INDIVIDUAL RETIREMENT PROGRAM.

    (a) In General.--Title II of the Social Security Act is amended--
            (1) by inserting before section 201 the following:

                    ``Part A--Insurance Benefits'';

        and
            (2) by adding at the end the following new part:

            ``Part B--Individual Retirement Security Program

           ``deposits to personal retirement savings accounts

    ``Sec. 251. (a) In General.--Subject to this part, within 10 
business days after receipt during any fiscal year of taxes paid under 
sections 3101(a) and 3111(a) of the Internal Revenue Code of 1986 with 
respect to a covered employee, and within 10 business days after 
receipt during any fiscal year of taxes paid under section 1401(a) of 
such Code with respect to a covered self-employed individual, the 
Secretary of the Treasury shall deposit, from amounts otherwise 
available in the general fund of the Treasury, into--
            ``(1) such personal retirement savings accounts as are 
        designated under section 252(c) with respect to such employee 
        or individual, and
            ``(2) such personal retirement savings accounts as are 
        designated under section 252(c) with respect to any other 
        covered employee or covered self-employed individual (if any) 
        who is the spouse of the employee or individual referred to in 
        paragraph (1),
a total amount equal to 2.5 percent of the wages and self-employment 
income with respect to which such taxes were determined. In any case in 
which there are accounts designated with respect to a spouse as 
described in paragraph (2), 50 percent of such total amount shall 
deposited into accounts described in paragraph (1) and the remainder 
shall be deposited into accounts described in paragraph (2). Any amount 
deposited into 2 or more accounts under paragraph (1) or (2) shall be 
distributed among accounts in such manner as may be specified in 
connection with their designation.
    ``(b) Corrections.--The Secretary of the Treasury shall provide by 
regulation for a procedure for corrections of erroneous deposits under 
subsection (a), including provision for adequate notice and opportunity 
for hearing.

       ``covered employees and covered self-employed individuals

    ``Sec. 252. (a) Covered Employee.--Subject to subsections (d) and 
(e), the term `covered employee' means, in connection with any person 
who is a covered employer for any calendar year beginning after 
December 31, 1998, any individual--
            ``(1) with respect to whose employment by such employer 
        during such calendar year there is imposed an excise tax under 
        section 3111 of the Internal Revenue Code of 1986,
            ``(2) who files with the Board of Trustees, on or after 
        November 30, 1998, and before February 1, 1999, and in such 
        form and manner as shall be prescribed in regulations of the 
        Board, an election described in subsection (c), and
            ``(3) who, as of the date of the filing of the election 
        pursuant to subsection (c), has attained age 16 but has not 
        attained age 21.
    ``(b) Covered Self-Employed Individual.--Subject to subsections (d) 
and (e), the term `covered self-employed individual' means any 
individual--
            ``(1) on whose self-employment income for a taxable year 
        beginning after December 31, 1998, there is imposed a tax under 
        section 1401(a) of the Internal Revenue Code of 1986,
            ``(2) who files with the Board of Trustees, on or after 
        November 30, 1998, and before February 1, 1999, and in such 
        form and manner as shall be prescribed in regulations of the 
        Board, an election described in subsection (c), and
            ``(3) who, as of the date of the filing of election 
        pursuant to subsection (c), has attained age 16 but has not 
        attained age 21.
    ``(c) Elections.--An individual's election referred to in 
subsection (a)(2) or (b)(2) shall consist of a signed declaration of 
such individual's intention to be treated as a covered employee with 
respect to wages paid to such individual and a covered self-employed 
individual with respect to self-employment income derived by such 
individual, together with a signed designation by such individual of 
one or more personal retirement savings accounts to which deposits with 
respect to the individual are to be made under section 251. Elections 
under this section by individuals who have not attained age 18 shall be 
made by such individual's parent or legal guardian. Any election under 
this section shall be irrevocable, subject to subsections (d) and (e).
    ``(d) Numerical Limit Based on Projections of Budget Surplus for 
Fiscal Year 1999.--
            ``(1) Projected limitation.--Not later than February 1, 
        1999, the Secretary of the Treasury, employing reasonable 
        assumptions, shall project and publish in the Federal Register 
        the number to which the total number of covered employees and 
        covered self-employed individuals would be required to be 
        limited as of such date in order to preclude the total amount 
        deposited in personal retirement savings accounts pursuant to 
        section 251(a) for fiscal year 1999 from exceeding an amount 
        equal to the surplus in the total budget of the United States 
        Government for fiscal year 1998.
            ``(2) Restriction on participation to achieve projected 
        limitation.--If the total number of individuals who have filed 
        elections under this section as of February 1, 1999, exceeds 
        the number projected under paragraph (1), then the terms 
        `covered employee' and `covered self-employed individual' shall 
        exclude any individual who, as of such date, has attained an 
        age greater than the age attained as of such date by the oldest 
        of such projected number of the youngest individuals who have 
        filed such elections as of such date.
    ``(e) Termination of Status.--Any individual who is a covered 
employee or a covered self-employed individual as defined in the 
preceding provisions of this paragraph shall cease to be such a covered 
employee or covered self-employed individual on February 1, 2009.

                 ``periodic reports by account trustee

    ``Sec. 253. (a) In General.--The trustee of a personal retirement 
savings account shall make periodic reports concerning the status of 
the account which shall meet the requirements of section 408B(g)(2) of 
the Internal Revenue Code of 1986 and of this section. Each periodic 
report shall be furnished to the account holder on at least a 
semiannual basis on or before the 30th day following the period for 
which the report is required.
    ``(b) Information Required To Be Included.--The periodic report 
shall contain the following information for transactions occurring 
during the period for which the report is provided:
            ``(1) The balance in the account.
            ``(2) The amount of authorized personal retirement savings 
        account contributions.
            ``(3) The earnings on the account balance, expressed in 
        terms of dollar amounts and as a percentage return on 
        investment.
            ``(4) The amount of distributions.
            ``(5) The name and address of the trustee.
            ``(6) Commission fees and fees for administrative expenses 
        charged in connection with the account.
            ``(7) Other information which may be required from time to 
        time by the Board of Trustees.
The language of the report shall be written in a form so as to be 
understood by the average covered employee.
    ``(c) Reports to Board of Trustees.--The Board of Trustees may 
require the periodic report to be filed with the Board at such time as 
the Board may specify in regulations under this section.
    ``(d) Failure by Trustee To Make Timely Periodic Reports.--
            ``(1) In general.--The trustee of a personal retirement 
        savings account shall be subject to a civil penalty of not to 
        exceed $100 a day from the date of such trustee's failure or 
        refusal to furnish the periodic report required to be furnished 
        by the trustee under this section until the date on which such 
        report is furnished.
            ``(2) Penalties assessed by board of trustees.--Any civil 
        penalty assessed by this subsection shall be imposed by the 
        Board of Trustees and collected in a civil action. The Board of 
        Trustees may compromise the amount of any civil penalty imposed 
        by this subsection. The Board of Trustees may waive the 
        application of this subsection with respect to any failure if 
        the Board of Trustees determines that such failure is due to 
        reasonable cause and not to intentional disregard of rules and 
        regulations.

                  ``availability of funds for deposits

    Sec. 254. (a) Amounts Available From General Fund.--Subject to such 
additional appropriations as may be enacted pursuant to subsection 
(b)--
            ``(1) for fiscal year 1999, there shall be available, for 
        deposits into personal retirement savings accounts pursuant to 
        section 251(a) for such fiscal year, an amount equal to the 
        surplus in the total budget of the United States Government for 
        fiscal year 1998, and
            ``(2) for each fiscal year after fiscal year 1999 and 
        before fiscal year 2004, there shall be available, for deposits 
        into personal retirement savings accounts pursuant to section 
        251(a) for such fiscal year, an amount equal to the the excess 
        (if any) of--
                    ``(A) the surplus (if any) in the total budget of 
                the United States Government for the preceding fiscal 
                year, over
                    ``(B) the amount specified in connection with such 
                preceding fiscal year in the following table:

``Fiscal year:                      Specified amount:
    1999...........................
                                        $ 9,000,000,000 
    2000...........................
                                        $ 1,000,000,000 
    2001...........................
                                        $13,000,000,000 
    2002...........................
                                        $67,000,000,000 
    2003...........................
                                        $53,000,000,000.
    ``(b) Authorization of Additional Appropriations.--There are 
authorized to be appropriated for each fiscal year after fiscal year 
1998 and before fiscal year 2010, from amounts otherwise available in 
the general fund of the Treasury, such amounts, in addition to any 
amounts made available under subsection (a) for such fiscal year, as 
are necessary to carry out the provisions of this part.

                             ``definitions

    ``Sec. 255. For purposes of this title--
            ``(1) Personal retirement savings account.--The term 
        `personal retirement savings account' has the meaning provided 
        in section 408B of the Internal Revenue Code of 1986.
            ``(2) Covered employer.--The term `covered employer' means, 
        for any calendar year, any person on whom an excise tax is 
        imposed under section 3111 of the Internal Revenue Code of 1986 
        with respect to having an individual in his employ to whom 
        wages are paid by such person during such calendar year.
            ``(3) Business day.--The term `business day' means any day 
        other than a Saturday, Sunday, or legal holiday in the area 
        involved.
            ``(4) Board of trustees.--
                    ``(A) In general.--The term `Board of Trustees' 
                means the Board of Trustees of the Federal Old-Age and 
                Survivors Insurance Trust Fund and the Federal 
                Disability Insurance Trust Fund.
                    ``(B) Role of secretary of the treasury.--
                            ``(i) In general.--In connection with the 
                        duties of the Board of Trustees under this 
                        part, the Secretary of the Treasury shall serve 
                        as Executive Director of the Board of Trustees.
                            ``(ii) Staff.--Upon request of the Board of 
                        Trustees, the Secretary may detail, on a 
                        reimbursable basis, any of the personnel of the 
                        Department of the Treasury to the Board of 
                        Trustees to assist it in carrying out its 
                        duties under this part.
                            ``(iii) Administrative support.--Upon the 
                        request of the Board, the Secretary shall 
                        provide to the Board of Trustees from the 
                        Department of the Treasury, on a reimbursable 
                        basis, the administrative support services 
                        necessary for the Board to carry out its 
                        responsibilities under this part.''.
    (b) Effective Date and Notice Requirements.--
            (1) Effective date.--The amendments made by subsection (a) 
        shall apply with respect to wages paid after December 31, 1998, 
        for pay periods ending after such date and self-employment 
        income for taxable years beginning after such date.
            (2) Notice requirements.--
                    (A) In general.--Not later than October 1, 1998, 
                the Commissioner of Social Security, pursuant to 
                direction by the Board of Trustees of the Federal Old-
                Age and Survivors Insurance Trust Fund and the Federal 
                Disability Insurance Trust Fund, shall--
                            (i) send to the last known address of each 
                        eligible individual a description of the 
                        program established by the amendments made by 
                        this Act (including a detailed description of 
                        the process of election under section 252 of 
                        the Social Security Act), which shall be 
                        written in the form of a pamphlet in language 
                        which may be readily understood by the average 
                        worker,
                            (ii) provide for toll-free access by 
                        telephone from all localities in the United 
                        States to the Social Security Administration 
                        and for a site on the Internet through which 
                        individuals may obtain information and answers 
                        to questions regarding such program, and
                            (iii) provide information to the media in 
                        all localities of the United States about such 
                        program, such toll-free access by telephone, 
                        and such site on the Internet.
                    (B) Eligible individual.--For purposes of this 
                paragraph, the term ``eligible individual'' means an 
                individual who, as of the date of the pamphlet sent 
                pursuant to subparagraph (A), is indicated within the 
                records of the Social Security Administration as--
                            (i) not having attained age 21, and
                            (ii) being credited with one or more 
                        quarters of coverage under section 213 of the 
                        Social Security Act.
                    (C) Matters to be included.--The Commissioner of 
                Social Security shall include with the pamphlet sent to 
                each eligible individual pursuant to subparagraph (A)--
                            (i) a statement of the number of quarters 
                        of coverage indicated in the records of the 
                        Social Security Administration as of the date 
                        of the description as credited to such 
                        individual under section 213 of the Social 
                        Security Act and the date as of which such 
                        records may be considered accurate, and
                            (ii) the number for toll-free access by 
                        telephone established by the Commissioner 
                        pursuant to subparagraph (A).

SEC. 4. REDUCTION IN APPROPRIATIONS TO THE TRUST FUNDS.

    Section 201 of the Social Security Act (42 U.S.C. 401) is amended 
by adding at the end the following new subsection:

            ``Reduction in Appropriations to the Trust Funds

    ``(n) Under regulations prescribed by the Board of Trustees (in 
consultation with the Secretary of the Treasury) to carry out this 
subsection, the amounts appropriated for any fiscal year under 
paragraphs (3) and (4) of subsection (a), to the extent attributable to 
taxes paid during such fiscal year with respect to an individual who is 
for such fiscal year a covered employee or covered self-employed 
individual (as defined in section 252), shall be reduced by 20 
percent.''.

SEC. 5. ADJUSTMENTS TO PRIMARY INSURANCE AMOUNTS UNDER PART A OF TITLE 
              II OF THE SOCIAL SECURITY ACT.

    (a) In General.--Section 215 of the Social Security Act (42 U.S.C. 
415) is amended by adding at the end the following new subsection:

 ``Adjustment of Primary Insurance Amount in Relation to Deposits Made 
                to Personal Retirement Savings Accounts

    ``(j)(1) Except as provided in paragraph (2), an individual's 
primary insurance amount as determined in accordance with this section 
(before adjustments made under subsection (i)) shall be equal to the 
excess (if any) of--
            ``(A) the amount which would be so determined without the 
        application of this subsection, over
            ``(B) the monthly amount of an immediate life annuity, 
        determined on the basis of 50 percent of the total of all 
        amounts which have been deposited pursuant to section 251(c) 
        (indexed in the same manner as is applicable with respect to 
        average indexed monthly earnings under subsection (b)) into all 
        personal retirement savings accounts held by such individual, 
        plus accrued interest compounded annually, assuming an interest 
        rate of 3.7 percent and using the mortality table used under 
        412(l)(7)(C)(ii) of the Internal Revenue Code of 1986.
    ``(2) In the case of an individual described in paragraph (1) who 
becomes entitled to disability insurance benefits under section 223, 
such individual's primary insurance amount shall be determined without 
regard to paragraph (1).
    ``(3) For purposes of this subsection, the term `immediate life 
annuity' means an annuity--
            ``(A) the annuity starting date (as defined in section 
        72(c)(4) of the Internal Revenue Code of 1986) of which 
        commences with the first month following the date of the 
        determination, and
            ``(B) which provides for a series of substantially equal 
        monthly payments over the life expectancy of the individual 
        described in paragraph (1).''.
    (b) Conforming Amendment to Railroad Retirement Act of 1974.--
Section 1 of the Railroad Retirement Act of 1974 (45 U.S.C. 231) is 
amended by adding at the end the following:
    ``(s) In applying applicable provisions of the Social Security Act 
for purposes of determining the amount of the annuity to which an 
individual is entitled under this Act, section 215(j) of the Social 
Security Act and part B of title II of such Act shall be disregarded.''
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to computations and recomputations of primary 
insurance amounts occurring after December 31, 1998.

SEC. 6. PERSONAL RETIREMENT SAVINGS ACCOUNTS.

    (a) Deduction for Contributions by Taxpayer.--Part VII of 
subchapter B of chapter 1 of the Internal Revenue Code of 1986 
(relating to additional itemized deductions) is amended by 
redesignating section 222 as section 223 and by inserting after section 
221 the following new section:

``SEC. 222. CONTRIBUTIONS TO PERSONAL RETIREMENT SAVINGS ACCOUNTS.

    ``(a) In General.--In the case of an individual who is an electing 
personal retirement savings account participant for the taxable year, 
there shall be allowed as a deduction an amount equal to 50 percent of 
the amount contributed during such taxable year by such individual to a 
personal retirement savings account maintained for the benefit of such 
individual.
    ``(b) Limitation.--The amount of contributions which may be taken 
into account under subsection (a) shall not exceed $2,000.
    ``(c) Electing Personal Retirement Savings Account Participant.--An 
individual is an electing personal retirement savings account 
participant for any taxable year if any amount is deposited under 
section 251(c) of the Social Security Act for such taxable year to a 
personal retirement savings account maintained for the benefit of such 
individual.
    ``(d) Special Rules.--
            ``(1) No deduction for trustee-to-trustee transfers.--No 
        deduction shall be allowed for amounts transferred to an 
        account under section 408B(f)(2).
            ``(2) Time when contributions deemed made.--For purposes of 
        this section, a taxpayer shall be deemed to have made a 
        contribution to a personal retirement savings account on the 
        last day of the preceding taxable year if the contribution is 
        made on account of such taxable year and is made not later than 
        the time prescribed by law for filing the return for such 
        taxable year (not including extensions thereof).''
    (b) Personal Retirement Savings Accounts.--Subpart A of part I of 
subchapter D of chapter 1 of such Code (relating to pension, profit-
sharing, stock bonus plans, etc.) is amended by inserting after section 
408A the following new section:

``SEC. 408B. PERSONAL RETIREMENT SAVINGS ACCOUNTS.

    ``(a) General Rule.--Gross income shall not include any amount 
deposited in a personal retirement savings account under section 251(c) 
of the Social Security Act.
    ``(b) Personal Retirement Savings Account.--For purposes of this 
title, the term `personal retirement savings account' means a trust 
created or organized in the United States for the exclusive benefit of 
an individual or his beneficiaries, but only if the written governing 
instrument creating the trust meets the following requirements:
            ``(1) No contribution will be accepted other than--
                    ``(A) deposits under sections 251(c) of the Social 
                Security Act, and
                    ``(B) contributions made in cash, except that 
                contributions under this subparagraph may not be 
                accepted for any taxable year in excess of $2,000.
            ``(2) No amount may be paid or distributed from such 
        trust--
                    ``(A) before the date on which the account holder 
                attains age 59\1/2\, becomes entitled to disability 
                insurance benefits under section 223 of the Social 
                Security Act, or dies, or
                    ``(B) in a manner not meeting the requirements of 
                subsection (d).
            ``(3) The trustee of which is a regulated investment 
        company (as defined in section 851) which is approved by the 
        Secretary for purposes of this section.
            ``(4) The interest of an individual in the balance in his 
        account is nonforfeitable.
Paragraphs (1) and (2) shall not apply to direct trustee-to-trustee 
transfers described in subsection (f)(2).
    ``(c) Investment Requirements.--
            ``(1) In general.--Amounts in a personal retirement savings 
        account may be invested only in regulated investment companies 
        (as defined in section 851) which are approved by the Secretary 
        for purposes of this section.
            ``(2) Criteria for secretarial approval.--The Secretary may 
        approve a regulated investment company for purposes of this 
        section only if--
                    ``(A) an election is in effect under section 
                851(b)(1) for such company, and
                    ``(B) the portfolio assets of such company--
                            ``(i) replicate the assets of a broad-based 
                        index of stocks which is approved by the 
                        Secretary, or
                            ``(ii) are of a type determined by the 
                        Secretary not to involve high risks for the 
                        investor.
        To the extent possible, the Secretary shall approve under 
        subparagraph (B)(i) funds in each of the following 4 
        categories: domestic stocks, domestic bonds, stocks of 
        companies having small capitalization, and foreign stocks. The 
        Secretary shall take into account management costs in 
        determining whether to approve a company for purposes of this 
        section.
    ``(d) Distribution Requirements.--
            ``(1) In general.--The requirements of this subsection are 
        met with respect to distributions from a personal retirement 
        savings account only if such distributions are in accordance 
        with a payment option under paragraph (2). The preceding 
        sentence shall not apply to direct trustee-to-trustee transfers 
        described in subsection (f)(2).
            ``(2) Payment options.--The payment options under this 
        paragraph are the following:
                    ``(A) Lifetime option.--Distributions in equal 
                annual or more frequent periodic installments over a 
                stated period of 10, 15, or 20 years, payable to the 
                account holder. The trustee of the account shall be 
                liable under the terms of the account to the account 
                holder for the timely payment of periodic payments 
                during the stated period. If the account holder 
                survives the stated period, the terms governing the 
                account shall provide for continuing distributions for 
                the life of the account holder in annual or more 
                frequent periodic payments for the life of the account 
                holder or (if earlier) until exhaustion of the account 
                balance.
                    ``(B) Nonlifetime option.--Distributions in equal 
                annual or more frequent periodic installments of 
                interest only, or of interest and principal. Any such 
                payment of equal installments shall continue until--
                            ``(i) payment ceases at the direction of 
                        the account holder to the trustee,
                            ``(ii) payment continues in accordance with 
                        this subparagraph but at an adjusted level at 
                        the direction of the account holder to the 
                        trustee, or
                            ``(iii) the distribution converts to an 
                        option described in subparagraph (A) at the 
                        direction of the account holder to the trustee.
                    ``(C) Additional options.--Distributions in any 
                other manner permitted under regulations prescribed by 
                the Secretary.
    ``(e) Account Exempt From Tax.--
            ``(1) General rule.--Any personal retirement savings 
        account is exempt from taxation under this subtitle. 
        Notwithstanding the preceding sentence, any such account is 
        subject to the taxes imposed by section 511 (relating to 
        imposition of tax on unrelated business income of charitable, 
        etc. organizations).
            ``(2) Application of prohibited transactions rules, etc.--
        Rules similar to the rules of paragraphs (2), (3), and (4) of 
        section 408(e) shall apply to personal retirement savings 
        accounts.
    ``(f) Distributions Taxed as if Social Security Benefits.--
            ``(1) General rule.--Amounts paid or distributed from a 
        personal retirement savings account shall be includible in 
        gross income only if so includible under section 86, determined 
        by treating such amounts as social security benefits (as 
        defined in such section).
            ``(2) Trustee-to-trustee transfers.--No amount shall be 
        includible in gross income by reason of a direct trustee-to-
        trustee transfer between personal retirement savings accounts 
        of the same individual.
            ``(3) Return of excess contributions.--Paragraph (1) shall 
        not apply to the distribution of any contribution (other than a 
        deposit made under section 251(c) of the Social Security Act) 
        made during a taxable year to the extent that such contribution 
        exceeds the dollar amount specified in subsection (b)(1)(B) 
        if--
                    ``(A) such distribution is received on or before 
                the last day prescribed by law (including extensions) 
                for filing such individual's return for such taxable 
                year,
                    ``(B) such contribution is not taken into account 
                in determining the deduction allowed under section 222, 
                and
                    ``(C) such distribution is accompanied by the 
                amount of net income attributable to such contribution.
        Any net income described in subparagraph (C) shall be included 
        in gross income for the taxable year in which such contribution 
        is made.
    ``(g) Certain Other Rules To Apply.--The following rules shall 
apply to personal retirement savings accounts in the same manner that 
such rules apply to individual retirement accounts:
            ``(1) Section 408(h) (relating to custodial accounts).
            ``(2) Section 408(i) (relating to reports).
    ``(h) Treatment After Death of Account Holder.--A personal 
retirement savings account shall cease to be such on the date of the 
account holder's death, but no amount shall be includible in gross 
income by reason of such cessation.''
    (c) Deduction Allowed Whether or Not Taxpayer Itemizes Other 
Deductions.--Subsection (a) of section 62 of such Code is amended by 
inserting after paragraph (17) the following new paragraph:
            ``(18) Personal retirement savings accounts.--The deduction 
        allowed by section 222.''
    (d) Tax on Excess Contributions.--
            (1) In general.--Subsection (a) of section 4973 of such 
        Code is amended by striking ``or'' at the end of paragraph (4), 
        by adding ``or'' at the end of paragraph (5), and by inserting 
        after paragraph (5) the following new paragraph:
            ``(6) a personal retirement savings account (as defined in 
        section 408B),''.
            (2) Excess contribution defined.--Section 4973 is amended 
        by adding at the end the following new subsection:
    ``(g) Excess Contributions to Personal Retirement Savings 
Accounts.--For purposes of this section--
            ``(1) In general.--In the case of personal retirement 
        savings accounts maintained for the benefit of any 1 
        beneficiary, the term `excess contributions' means the amount 
        by which the amount contributed for the taxable year to such 
        accounts exceeds $2,000.
            ``(2) Special rules.--For purposes of paragraph (1), the 
        following contributions shall not be taken into account:
                    ``(A) Any contributions under section 251(c) of the 
                Social Security Act.
                    ``(B) Any trustee-to-trustee transfer.''
    (e) Conforming Amendments.--
            (1) Paragraph (1) of section 4975(e) of such Code (relating 
        to tax on prohibited transactions) is amended by redesignating 
        subparagraph (F) as subparagraph (G), by striking ``or'' at the 
        end of subparagraph (E), and by inserting after subparagraph 
        (E) the following new subparagraph:
                    ``(F) a personal retirement savings account 
                described in section 408B(b), or''.
            (2) Paragraph (2) of section 6693(a) of such Code (relating 
        to failure to provide reports on certain tax favored accounts 
        or annuities) is amended by redesignating subparagraphs (C) and 
        (D) as subparagraphs (D) and (E), respectively, and by 
        inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) section 408B(g)(2) (relating to personal 
                retirement savings accounts),''.
    (f) Clerical Amendments.--
            (1) The table of sections for part VII of subchapter B of 
        chapter 1 of such Code is amended by striking the last item and 
        inserting the following new items:

                              ``Sec. 222. Contributions to personal 
                                        retirement savings accounts.
                              ``Sec. 223. Cross reference.''
            (2) 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 408A the following new item:

                              ``Sec. 408B. Personal retirement savings 
                                        accounts.''
    (g) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.

SEC. 7. INTERIM AND FINAL REPORTS.

    Not later than February 1, 1999, and annually thereafter through 
February 1, 2009, the Board of Trustees of the Federal Old-Age and 
Survivors Insurance Trust Fund shall submit to each House of the 
Congress an interim report on the operation of the amendments made by 
this Act. Not later than August 1, 2009, Board of Trustees shall submit 
to each House of the Congress a final report on the operation of such 
amendments. The Board of Trustees shall include in each report its 
assessment of the effectiveness of such amendments and its 
recommendations for legislative and administrative changes.

SEC. 8. INVESTMENT OF SOCIAL SECURITY TRUST FUNDS IN MARKETABLE 
              SECURITIES IN FISCAL YEAR 1999.

    During fiscal year 1999, all obligations purchased by the Managing 
Trustee of the Federal Old-Age and Survivors Insurance Trust Fund and 
the Federal Disability Insurance Trust Fund for purposes of investment 
of such Trust Funds pursuant to section 201(d) of the Social Security 
Act shall consist of obligations other than obligations issued pursuant 
to such section solely for purchase by such Trust Funds. Such 
obligations purchased during such fiscal year may be purchased on 
original issue at the issue price or by purchase of outstanding 
obligations at the market price, except that the Managing Trustee shall 
ensure that, to the extent practicable, such obligations have 
maturities, and bear interest at a rate, comparable to the maturities 
and interest rates required under such section in connection with 
obligations issued solely for purchase by such Trust Funds, subject to 
an option to redeem such obligations at any time at the purchase price.
                                 <all>