[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1498 Introduced in House (IH)]







107th CONGRESS
  1st Session
                                H. R. 1498

   To amend the Internal Revenue Code of 1986 to allow individuals a 
 refundable credit for elective deferrals and IRA contributions and to 
 allow small employers credits for pension plan startup costs and for 
                      pension plan contributions.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             April 4, 2001

  Mr. Neal of Massachusetts (for himself, Mr. Rangel, Mr. Matsui, Mr. 
   Coyne, and Mr. Andrews) 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 allow individuals a 
 refundable credit for elective deferrals and IRA contributions and to 
 allow small employers credits for pension plan startup costs and for 
                      pension plan contributions.

    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 ``Retirement Security Act of 2001''.

SEC. 2. REFUNDABLE CREDIT TO CERTAIN INDIVIDUALS FOR ELECTIVE DEFERRALS 
              AND IRA CONTRIBUTIONS.

    (a) In General.--Subpart C of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to refundable credits) 
is amended by redesignating section 35 as section 36 and by inserting 
after section 34 the following new section:

``SEC. 35. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS BY CERTAIN 
              INDIVIDUALS.

    ``(a) Allowance of Credit.--In the case of an eligible individual, 
there shall be allowed as a credit against the tax imposed by this 
subtitle for the taxable year an amount equal to the applicable 
percentage of so much of the qualified retirement savings contributions 
of the eligible individual for the taxable year as do not exceed 
$2,000.
    ``(b) Applicable Percentage.--For purposes of this section, the 
applicable percentage is the percentage determined in accordance with 
the following table:


------------------------------------------------------------------------
                    Adjusted Gross Income
-------------------------------------------------------------
    Joint return           Head of a        All other cases   Applicable
---------------------      household     -------------------- percentage
                     --------------------
   Over     Not over    Over    Not over    Over    Not over
------------------------------------------------------------------------
$0         $25,000    $0        $18,750   $0        $12,500          50
 25,000     35,000     18,750    26,250    12,500    17,500          45
 35,000     45,000     26,250    33,750    17,500    22,500          35
 45,000     55,000     33,750    41,250    22,500    27,500          25
 55,000     75,000     41,250    56,250    27,500    37,500          15
 75,000    .........   56,250   ........   37,500   ........          0
------------------------------------------------------------------------

    ``(c) Eligible Individual.--For purposes of this section--
            ``(1) In general.--The term `eligible individual' means any 
        individual if--
                    ``(A) such individual has attained the age of 18 as 
                of the close of the taxable year, and
                    ``(B) the compensation (as defined in section 
                219(f)(1)) includible in the gross income of the 
                individual (or, in the case of a joint return, of the 
                taxpayer) for such taxable year is at least $5,000.
            ``(2) Dependents and full-time students not eligible.--The 
        term `eligible individual' shall not include--
                    ``(A) any individual with respect to whom a 
                deduction under section 151 is allowable to another 
                taxpayer for a taxable year beginning in the calendar 
                year in which such individual's taxable year begins, 
                and
                    ``(B) any individual who is a student (as defined 
                in section 151(c)(4)).
            ``(3) Individuals receiving certain retirement 
        distributions not eligible.--
                    ``(A) In general.--The term `eligible individual' 
                shall not include, with respect to a taxable year, any 
                individual who received during the testing period--
                            ``(i) any distribution from a qualified 
                        retirement plan (as defined in section 
                        4974(c)), or from an eligible deferred 
                        compensation plan (as defined in section 
                        457(b)), which is includible in gross income, 
                        or
                            ``(ii) any distribution from a Roth IRA 
                        which is not a qualified rollover contribution 
                        (as defined in section 408A(e)) to a Roth IRA.
                    ``(B) Testing period.--For purposes of subparagraph 
                (A), the testing period, with respect to a taxable 
                year, is the period which includes--
                            ``(i) such taxable year,
                            ``(ii) the preceding taxable year, and
                            ``(iii) the period after such taxable year 
                        and before the due date (without extensions) 
                        for filing the return of tax for such taxable 
                        year.
                    ``(C) Excepted distributions.--There shall not be 
                taken into account under subparagraph (A)--
                            ``(i) any distribution referred to in 
                        section 72(p), 401(k)(8), 401(m)(6), 402(g)(2), 
                        404(k), or 408(d)(4),
                            ``(ii) any distribution to which section 
                        408A(d)(3) applies, and
                            ``(iii) any distribution before January 1, 
                        2002.
                    ``(D) Treatment of distributions received by spouse 
                of individual.--For purposes of determining whether an 
                individual is an eligible individual for any taxable 
                year, any distribution received by the spouse of such 
                individual shall be treated as received by such 
                individual if such individual and spouse file a joint 
                return for such taxable year and for the taxable year 
                during which the spouse receives the distribution.
    ``(d) Qualified Retirement Savings Contributions.--For purposes of 
this section, the term `qualified retirement savings contributions' 
means the sum of--
            ``(1) the amount of the qualified retirement contributions 
        (as defined in section 219(e)) made by the eligible individual,
            ``(2) the amount of--
                    ``(A) any elective deferrals (as defined in section 
                402(g)(3)) of such individual, and
                    ``(B) any elective deferral of compensation by such 
                individual under an eligible deferred compensation plan 
                (as defined in section 457(b)) of an eligible employer 
                described in section 457(e)(1)(A), and
            ``(3) the amount of voluntary employee contributions by 
        such individual to any qualified retirement plan (as defined in 
        section 4974(c)).
    ``(e) Adjusted Gross Income.--For purposes of this section, 
adjusted gross income shall be determined without regard to sections 
911, 931, and 933.
    ``(f) Investment in the Contract.--Notwithstanding any other 
provision of law, a qualified retirement savings contribution shall not 
fail to be included in determining the investment in the contract for 
purposes of section 72 by reason of the credit under this section.
    ``(g) Transitional Rules.--In the case of taxable years beginning 
before January 1, 2008--
            ``(1) Contribution limit.--Subsection (a) shall be applied 
        by substituting for `$2,000'--
                    ``(A) $600 in the case of taxable years beginning 
                in 2002, 2003, or 2004, and
                    ``(B) $1,000 in the case of taxable years beginning 
                in 2005, 2006, or 2007.
            ``(2) Applicable percentage.--The applicable percentage 
        shall be determined under the following table (in lieu of the 
        table in subsection (b)):


------------------------------------------------------------------------
                    Adjusted Gross Income
-------------------------------------------------------------
    Joint return           Head of a        All other cases   Applicable
---------------------      household     -------------------- percentage
                     --------------------
   Over     Not over    Over    Not over    Over    Not over
------------------------------------------------------------------------
$0         $20,000    $0        $15,000   $0        $10,000          50
 20,000     25,000     15,000    18,750    10,000    12,500          45
 25,000     30,000     18,750    22,500    12,500    15,000          35
 30,000     35,000     22,500    26,250    15,000    17,500          25
 35,000     40,000     26,250    30,000    17,500    20,000          15
 40,000    .........   30,000   ........   20,000   ........       0.''
------------------------------------------------------------------------

      
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting before the period ``, or 
        from section 35 of such Code''.
            (2) The table of sections for subpart C of part IV of 
        subchapter A of chapter 1 of such Code is amended by striking 
        the last item and inserting the following new items:

                              ``Sec. 35. Elective deferrals and IRA 
                                        contributions by certain 
                                        individuals.
                              ``Sec. 36. Overpayments of tax.''

    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 3. CREDIT FOR PENSION PLAN STARTUP COSTS OF SMALL EMPLOYERS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to business related 
credits) is amended by adding at the end the following new section:

``SEC. 45E. SMALL EMPLOYER PENSION PLAN STARTUP COSTS.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible employer, the small employer pension plan startup cost credit 
determined under this section for any taxable year is an amount equal 
to 50 percent of the qualified startup costs paid or incurred by the 
taxpayer during the taxable year.
    ``(b) Dollar Limitation.--The amount of the credit determined under 
this section for any taxable year shall not exceed--
            ``(1) $1,000 for the first credit year,
            ``(2) $500 for each of the 2 taxable years immediately 
        following the first credit year, and
            ``(3) zero for any other taxable year.
    ``(c) Eligible Employer.--For purposes of this section--
            ``(1) In general.--The term `eligible employer' has the 
        meaning given such term by section 408(p)(2)(C)(i).
            ``(2) Employers maintaining qualified plans during 1998 not 
        eligible.--Such term shall not include an employer if such 
        employer (or any predecessor employer) maintained a qualified 
        plan (as defined in section 408(p)(2)(D)(ii)) with respect to 
        which contributions were made, or benefits were accrued, for 
        service in 1998. If only individuals other than employees 
        described in subparagraph (A) or (B) of section 410(b)(3) are 
        eligible to participate in the qualified employer plan referred 
        to in subsection (d)(1), then the preceding sentence shall be 
        applied without regard to any qualified plan in which only 
        employees so described are eligible to participate.
    ``(d) Other Definitions.--For purposes of this section--
            ``(1) Qualified startup costs.--
                    ``(A) In general.--The term `qualified startup 
                costs' means any ordinary and necessary expenses of an 
                eligible employer which are paid or incurred in 
                connection with--
                            ``(i) the establishment or administration 
                        of an eligible employer plan, or
                            ``(ii) the retirement-related education of 
                        employees with respect to such plan.
                    ``(B) Plan must have at least 2 participants.--Such 
                term shall not include any expense in connection with a 
                plan that does not have at least 2 individuals who are 
                eligible to participate.
                    ``(C) Plan must be established before january 1, 
                2010.--Such term shall not include any expense in 
                connection with a plan established after December 31, 
                2009.
            ``(2) Eligible employer plan.--The term `eligible employer 
        plan' means a qualified employer plan within the meaning of 
        section 4972(d), or a qualified payroll deduction arrangement 
        within the meaning of section 408(q)(1) (whether or not an 
        election is made under section 408(q)(2)). A qualified payroll 
        deduction arrangement shall be treated as an eligible employer 
        plan only if all employees of the employer who--
                    ``(A) have been employed for 90 days, and
                    ``(B) are not described in subparagraph (A) or (C) 
                of section 410(b)(3),
        are eligible to make the election under section 408(q)(1)(A).
            ``(3) First credit year.--The term `first credit year' 
        means--
                    ``(A) the taxable year which includes the date that 
                the eligible employer plan to which such costs relate 
                becomes effective, or
                    ``(B) at the election of the eligible employer, the 
                taxable year preceding the taxable year referred to in 
                subparagraph (A).
    ``(e) 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. All eligible employer plans shall be treated as 1 
        eligible employer plan.
            ``(2) Disallowance of deduction.--No deduction shall be 
        allowed for that portion of the qualified startup costs paid or 
        incurred for the taxable year which is equal to the credit 
        determined under subsection (a).
            ``(3) Election not to claim credit.--This section shall not 
        apply to a taxpayer for any taxable year if such taxpayer 
        elects to have this section not apply for such taxable year.''
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) of such Code (defining current year business credit) is amended 
by striking ``plus'' at the end of paragraph (12), by striking the 
period at the end of paragraph (13) and inserting ``, plus'', and by 
adding at the end the following new paragraph:
            ``(14) in the case of an eligible employer (as defined in 
        section 45E(c)), the small employer pension plan startup cost 
        credit determined under section 45E(a).''
    (c) Conforming Amendments.--
            (1) Section 39(d) of such Code is amended by adding at the 
        end the following new paragraph:
            ``(10) No carryback of small employer pension plan startup 
        cost credit before january 1, 2002.--No portion of the unused 
        business credit for any taxable year which is attributable to 
        the small employer pension plan startup cost credit determined 
        under section 45E may be carried back to a taxable year 
        beginning before January 1, 2002.''
            (2) Subsection (c) of section 196 of such Code is amended 
        by striking ``and'' at the end of paragraph (8), by striking 
        the period at the end of paragraph (9) and inserting ``, and'', 
        and by adding at the end the following new paragraph:
            ``(10) the small employer pension plan startup cost credit 
        determined under section 45E(a).''
            (3) 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. 45E. Small employer pension plan 
                                        startup costs.''
    (d) Effective Date.--The amendments made by this section shall 
apply to costs paid or incurred in taxable years beginning after 
December 31, 2001.

SEC. 4. CREDIT FOR QUALIFIED PENSION PLAN CONTRIBUTIONS OF SMALL 
              EMPLOYERS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to business related 
credits) is amended by adding at the end the following new section:

``SEC. 45F. SMALL EMPLOYER PENSION PLAN CONTRIBUTIONS.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible employer, the small employer pension plan contribution credit 
determined under this section for any taxable year is an amount equal 
to 50 percent of the amount which would (but for subsection (f)(1)) be 
allowed as a deduction under section 404 for such taxable year for 
qualified employer contributions made to any qualified retirement plan 
on behalf of any nonhighly compensated employee.
    ``(b) Credit Limited to 3 Years.--The credit allowable by this 
section shall be allowed only with respect to the period of 3 taxable 
years beginning with the taxable year in which the qualified retirement 
plan becomes effective.
    ``(c) Qualified Employer Contribution.--For purposes of this 
section--
            ``(1) Defined contribution plans.--In the case of a defined 
        contribution plan, the term `qualified employer contribution' 
        means the amount of nonelective and matching contributions to 
        the plan made by the employer on behalf of any nonhighly 
        compensated employee to the extent such amount does not exceed 
        3 percent of such employee's compensation from the employer for 
        the year.
            ``(2) Defined benefit plans.--In the case of a defined 
        benefit plan, the term `qualified employer contribution' means 
        the amount of employer contributions to the plan made on behalf 
        of any nonhighly compensated employee to the extent that the 
        accrued benefit of such employee derived from such 
        contributions for the year do not exceed the equivalent (as 
        determined under regulations prescribed by the Secretary and 
        without regard to contributions and benefits under the Social 
        Security Act) of 3 percent of such employee's compensation from 
        the employer for the year.
    ``(d) Qualified Retirement Plan.--
            ``(1) In general.--The term `qualified retirement plan' 
        means any plan described in section 401(a) which includes a 
        trust exempt from tax under section 501(a) if the plan meets--
                    ``(A) the contribution requirements of paragraph 
                (2),
                    ``(B) the vesting requirements of paragraph (3), 
                and
                    ``(C) the distributions requirements of paragraph 
                (4).
            ``(2) Contribution requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if, under the plan--
                            ``(i) the employer is required to make 
                        nonelective contributions of at least 1 percent 
                        of compensation (or the equivalent thereof in 
the case of a defined benefit plan) for each nonhighly compensated 
employee who is eligible to participate in the plan, and
                            ``(ii) except in the case of a defined 
                        benefit plan, allocations of nonelective 
                        employer contributions are either in equal 
                        dollar amounts for all employees covered by the 
                        plan or bear a uniform relationship to the 
                        total compensation, or the basic or regular 
                        rate of compensation, of the employees covered 
                        by the plan.
                    ``(B) Compensation limitation.--The compensation 
                taken into account under subparagraph (A) for any year 
                shall not exceed the limitation in effect for such year 
                under section 401(a)(17).
            ``(3) Vesting requirements.--The requirements of this 
        paragraph are met if the plan satisfies the requirements of 
        subparagraph (A) or (B).
                    ``(A) 3-year vesting.--A plan satisfies the 
                requirements of this subparagraph if an employee who 
                has completed at least 3 years of service has a 
                nonforfeitable right to 100 percent of the employee's 
                accrued benefit derived from employer contributions.
                    ``(B) 5-year graded vesting.--A plan satisfies the 
                requirements of this subparagraph if an employee has a 
                nonforfeitable right to a percentage of the employee's 
                accrued benefit derived from employer contributions 
                determined under the following table:

                                                     The nonforfeitable
``Years of service:                                      percentage is:
    1.............................................                  20 
    2.............................................                  40 
    3.............................................                  60 
    4.............................................                  80 
    5.............................................                 100.
            ``(4) Distribution requirements.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the requirements of this paragraph 
                are met if, under the plan--
                            ``(i) in the case of a profit-sharing or 
                        stock bonus plan, amounts are distributable 
                        only as provided in section 401(k)(2)(B), and
                            ``(ii) in the case of a pension plan, 
                        amounts are distributable subject to the 
                        limitations applicable to other distributions 
                        from the plan.
                    ``(B) Distributions within 5 years after 
                separation, etc.--In no event shall a plan meet the 
                requirements of this paragraph unless, under the plan, 
                amounts distributed--
                            ``(i) after separation from service or 
                        severance from employment, and
                            ``(ii) within 5 years after the date of the 
                        earliest employer contribution to the plan,
                may be distributed only in a direct trustee-to-trustee 
                transfer to a plan having the same distribution 
                restrictions as the distributing plan.
    ``(e) Other Definitions.--For purposes of this section--
            ``(1) Eligible employer.--The term `eligible employer' has 
        the meaning given such term by section 408(p)(2)(C)(i).
            ``(2) Nonhighly compensated employees.--The term `highly 
        compensated employee' has the meaning given such term by 
        section 414(q) (determined without regard to section 
        414(q)(1)(B)(ii)).
    ``(f) Special Rules.--
            ``(1) Disallowance of deduction.--No deduction shall be 
        allowed for that portion of the qualified employer 
        contributions paid or incurred for the taxable year which is 
        equal to the credit determined under subsection (a).
            ``(2) Election not to claim credit.--This section shall not 
        apply to a taxpayer for any taxable year if such taxpayer 
        elects to have this section not apply for such taxable year.
    ``(g) Recapture of Credit on Forfeited Contributions.--If any 
accrued benefit which is forfeitable by reason of subsection (d)(3) is 
forfeited, the employer's tax imposed by this chapter for the taxable 
year in which the forfeiture occurs shall be increased by 35 percent of 
the employer contributions from which such benefit is derived to the 
extent such contributions were taken into account in determining the 
credit under this section.
    ``(h) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out the purposes of this section, 
including regulations to prevent the abuse of the purposes of this 
section through the use of multiple plans.
    ``(i) Termination.--This section shall not apply to any plan 
established after December 31, 2009.''
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) of such Code (defining current year business credit) is amended 
by striking ``plus'' at the end of paragraph (13), by striking the 
period at the end of paragraph (14) and inserting ``, plus'', and by 
adding at the end the following new paragraph:
            ``(15) in the case of an eligible employer (as defined in 
        section 45F(e)), the small employer pension plan contribution 
        credit determined under section 45F(a).''
    (c) Conforming Amendments.--
            (1) Section 39(d) of such Code is amended by adding at the 
        end the following new paragraph:
            ``(11) No carryback of small employer pension plan 
        contribution credit before january 1, 2002.--No portion of the 
        unused business credit for any taxable year which is 
        attributable to the small employer pension plan contribution 
        credit determined under section 45F may be carried back to a 
        taxable year beginning before January 1, 2002.''
            (2) Subsection (c) of section 196 of such Code is amended 
        by striking ``and'' at the end of paragraph (9), by striking 
        the period at the end of paragraph (10) and inserting ``, 
        and'', and by adding at the end the following new paragraph:
            ``(11) the small employer pension plan contribution credit 
        determined under section 45F(a).''
            (3) 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. 45F. Small employer pension plan 
                                        contributions.''
    (d) Effective Date.--The amendments made by this section shall 
apply to contributions paid or incurred in taxable years beginning 
after December 31, 2001.
                                 <all>