Employees not covered by qualified retirement plans or arrangements entitled to participate in payroll deposit IRA arrangements

(a)

In general

Subpart A of part I of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to pension, profit-sharing, stock bonus plans, etc.) is amended by inserting after section 408A the following new section:

408B.

Right to payroll deposit IRA arrangements at work

(a)

Requirement to provide payroll deposit IRA arrangement

Each employer (other than an employer described in subsection (e)) shall provide to each applicable employee of the employer for any calendar year the opportunity to participate in a payroll deposit IRA arrangement which meets the requirements of this section. (b)

Payroll deposit IRA arrangement

For purposes of this section— (1)

In general

The term payroll deposit IRA arrangement means a written arrangement of an employer— (A)under which an applicable employee eligible to participate in the arrangement may elect to contribute to an individual retirement plan established by or on behalf of the employee by having the employer make periodic direct deposit or other payroll deposit payments (including electronic payments) to the plan by payroll deduction, and (B)which meets the requirements of paragraph (2). (2)

Administrative requirements

The requirements of this paragraph are met with respect to any payroll deposit IRA arrangement if— (A)the employer must make the payments elected under paragraph (1)(A) on or before the later of— (i)the due date for the deposit of tax required to be deducted and withheld under chapter 24 (relating to collection of income tax at source on wages) for the payroll period to which such payments relate, or (ii)the 30th day following the last day of the month with respect to which the payments are to be made, (B)subject to a requirement for reasonable notice, an employee may elect to terminate participation in the arrangement at any time during a calendar year, except that if an employee so terminates, the arrangement may provide that the employee may not elect to resume participation until the beginning of the next calendar year, (C)each employee eligible to participate may elect, during the 60-day period or other period specified by the Secretary before the beginning of any calendar year (and during the 60-day period or other period specified by the Secretary before the first day the employee is eligible to participate), to participate in the arrangement, or to modify the employee's election under the arrangement (including the amounts subject to the arrangement and the manner in which such amounts are invested), for such year, (D)the employer provides— (i)immediately before the beginning of each period described in subparagraph (C), a notice to each employee of the employee’s opportunity to make the election and the maximum amount which may be contributed to an individual retirement plan on an annual basis, and (ii)if the arrangement includes an automatic enrollment arrangement, the notices required under subsection (h) with respect to the automatic enrollment arrangement, (E)subject to subsection (f), the arrangement provides that an employee may elect to have contributions made to any individual retirement plan specified by the employee, and (F)if the arrangement does not include an automatic enrollment arrangement— (i)the arrangement requires the employer to take all reasonable actions to solicit from all employees eligible to participate in the arrangement an explicit election to either participate or not to participate in the arrangement, and (ii)the arrangement provides that if an employee fails to make an explicit election under clause (i) within the time prescribed under the arrangement, the employee will be treated as having made an election to participate in the arrangement (and amounts shall be invested on behalf of the participant) in the same manner as if the arrangement had included an automatic enrollment arrangement under subsection (g). (c)

Applicable employee defined; related definitions and rules

For purposes of this section— (1)

Applicable employee

(A)

In general

The term applicable employee means, with respect to any calendar year, any employee— (i)who was not eligible under a qualified plan or arrangement maintained by the employer for service for the preceding calendar year, and (ii)with respect to whom it is reasonable to expect that the employee will not be eligible during the calendar year under such a qualified plan or arrangement. (B)

Special rules

For purposes of subparagraph (A)(i)— (i)

Eligibility

An employee shall be treated as eligible under a plan for a preceding calendar year if, as of the last day of the last plan year ending in the preceding calendar year, the employee has satisfied the plan's eligibility requirements. (ii)

Excluded plans

A qualified plan or arrangement shall not be taken into account under this paragraph if— (I)the plan or arrangement is frozen as of the first day of the preceding calendar year, or (II)in the case of a plan or arrangement under which the only contributions are discretionary on the part of the sponsor, there has not been an employer contribution made to the plan or arrangement for the 2-plan-year period ending with the last plan year ending in the second preceding calendar year and it is not reasonable to assume that an employer contribution will be made for the plan year ending in the preceding calendar year. (2)

Excludable employees

An employer may elect to exclude from treatment as applicable employees under paragraph (1)— (A)employees described in section 410(b)(3), (B)employees who have not attained the age of 18 before the beginning of the calendar year, (C)employees who have not completed at least 3 months of service with the employer, (D)in the case of an employer that maintains a qualified plan or arrangement which generally excludes employees who have not satisfied the eligibility requirements described in section 410(a)(1)(A) (without regard to section 410(a)(1)(B)), employees who have not yet satisfied such requirements, (E)employees who are eligible to make salary reduction contributions under an arrangement which meets the requirements of section 403(b), and (F)all employees of the employer if the employer maintains an arrangement described in section 408(p). (3)

Qualified plan or arrangement

The term qualified plan or arrangement means a plan, contract, pension, or trust described in section 219(g)(5). (4)

Exception for employees of governments and churches

The term applicable employee shall not include an employee of— (A)a government or entity described in section 414(d), or (B)a church or a convention or association of churches which is exempt from tax under section 501, including any employee described in section 414(e)(3)(B). (5)

Designation of applicable employees

The Secretary shall issue guidelines for determining the class or classes of employees to be covered by a payroll deposit IRA arrangement. Such guidelines shall provide that if an employer elects under paragraph (2) to exclude employees from the arrangement, the employer shall specify the classification or categories of employees who are not so covered. (d)

Payroll deposit IRA contributions treated like other contributions to individual retirement plans

(1)

Tax treatment unaffected

The fact that a contribution to an individual retirement plan is made on behalf of an employee under a payroll deposit IRA arrangement instead of being made directly by the employee shall not affect the deductibility or other tax treatment of the contribution or of other amounts under this title. (2)

Payroll savings contributions taken into account

Any contribution made on behalf of an employee under a payroll deposit IRA arrangement shall be taken into account in applying the limitations on contributions to individual retirement plans and the other provisions of this title applicable to individual retirement plans as if the contribution had been made directly by the employee. (e)

Exception for certain small and new employers

(1)

In general

The requirements of this section shall not apply for any calendar year to an employer if— (A)the employer did not have more than 10 employees who received at least $5,000 of compensation from the employer for the preceding calendar year, or (B)was not in existence at all times during the 2 preceding calendar years and did not have more than 100 employees who received at least $5,000 of compensation from the employer on any day during either of the 2 preceding calendar years. (2)

Operating rules

In determining the number of employees for purposes of this subsection— (A)any rule applicable in determining the number of employees for purposes of section 408(p)(2)(C) shall be applicable under this subsection, (B)all members of the same family (within the meaning of section 318(a)(1)) shall be treated as 1 individual, and (C)any reference to an employer shall include a reference to any predecessor employer. (f)

Deposits to individual retirement plans other than those selected by employee

(1)

In general

An employer shall not be treated as failing to satisfy the requirements of this section or any other provision of this title merely because the employer makes all contributions (or all contributions on behalf of employees who do not specify an individual retirement plan, trustee, or issuer to receive the contributions) to individual retirement plans specified in paragraph (2) or (4). (2)

Plans of a designated trustee or issuer

An employer may elect to have contributions for all applicable employees participating in a payroll deposit IRA arrangement made to individual retirement plans of a designated trustee or issuer under the arrangement. The preceding sentence shall not apply unless each participant is notified in writing that the participant’s balance may be transferred without cost or penalty to another individual retirement plan established by or on behalf of the participant. (3)

Payroll tax deposit procedure

The Secretary, in consultation with the TSP II Board, shall establish a procedure under which an employer— (A)may include with each deposit of tax required to be deducted and withheld under chapter 24 the aggregate amounts, for the period covered by the deposit, which applicable employees have designated under subsection (b)(1)(A) (or are deemed to have designated under subsection (b)(2)(F)(ii) or under an automatic enrollment arrangement described in subsection (g)) for contribution to individual retirement plans, established on behalf of the employees under paragraph (4), and (B)specifies, in such manner as the Secretary may prescribe, the following information for each applicable employee for whom a contribution is to be made: (i)The employee's name and TIN. (ii)The amount of the contribution. (iii)The investment options selected by the employee (or deemed to have been selected by the employee under such automatic enrollment arrangement) and the amount of the contribution allocated to each option. (4)

Establishment and maintenance of accounts under payroll tax deposit procedure

(A)

In general

Subject to the provisions of this section and section 408C, the TSP II Board shall provide for the establishment and maintenance of individual retirement plans (including automatic IRAs) into which contributions may be deposited under paragraph (3). To the maximum extent practicable, the TSP II Board shall— (i)enter into contracts with persons eligible to be trustees of individual retirement plans under section 408 to establish such plans, to provide the investment funds and investment management, and to provide notice, record keeping, and other administrative services, and (ii)ensure that the costs of investment management and administration are kept to a minimum, including through consideration of the use of investments which involve passive management and which seek to replicate the performance of a portion of the market. (B)

Payroll deposit features

The TSP II Board shall establish procedures so that contributions may be made to individual retirement plans (including automatic IRAs) under paragraph (3) without undue administrative or paperwork requirements on participating employers. Such procedures shall ensure that only 1 such plan may be established for each TIN. (C)

Limitation on rollovers

If— (i)any amount is paid or distributed out of an individual retirement plan established under this paragraph, and (ii)such amount is paid into an individual retirement plan which was not established under this paragraph,

the payment described in clause (ii) shall be treated as a rollover contribution for purposes of section 408(d)(3) if and only if the balance to the credit of the individual in such individual retirement plan or arrangement immediately before the payment described in clause (i) was at least $15,000.

(g)

Coordination with automatic enrollment and other default election provisions

(1)

In general

Contributions under a payroll deposit IRA arrangement may be made pursuant to an automatic enrollment arrangement. (2)

Automatic enrollment arrangement

The term automatic enrollment arrangement means an arrangement under a payroll deposit IRA arrangement and subject to rules prescribed by the Secretary— (A)under which an individual may elect to have the employer make payments as contributions to an individual account plan on behalf of the individual, or to the individual directly in cash, (B)under which the individual is treated as having elected to have the employer make such contributions in an amount equal to a specified percentage of compensation or dollar amount until the individual specifically elects not to have such contributions made (or specifically elects to have such contributions made at a different percentage or in a different amount), and (C)which meets notice requirements substantially similar to those described in section 414(w)(4). (3)

Default investments

If an employee is deemed under an automatic enrollment arrangement to have made an election to participate in a payroll deposit IRA arrangement— (A)the employee shall be deemed to have made an election to make contributions in the amount specified in paragraph (4), (B)such contributions shall be transferred to— (i)an automatic IRA, or (ii)if the employer has made an election under subsection (f)(2), to an individual retirement plan of the designated trustee or issuer but only if the requirements of subparagraph (C) are met with respect to such individual retirement plan, and (C)such contributions shall be invested as provided in paragraph (5). (4)

Amount of contributions

(A)

In general

The amount specified in this paragraph is 3 percent of compensation. (B)

Authority of board to provide for annual increases

The TSP II Board may by regulation provide for annual increases in the percentage of compensation an employee is deemed to have elected under paragraph (2) but in no event shall the percentage of compensation an employee is deemed to have elected exceed 8 percent. (C)

Contribution limit

The contributions under paragraph (2) on behalf of an employee for any calendar year shall not exceed the dollar limits applicable to the employee for the calendar year under section 219 or 408A. (5)

Investment in life cycle fund or other investments specified by the board

Amounts contributed under paragraph (3) shall be invested in— (A)a life cycle fund similar to the life cycle funds offered under the Thrift Savings Fund established under subchapter III of chapter 84 of title 5, United States Code, or (B)such other investment or investments as the TSP II Board specifies in regulations (which shall be promulgated after taking into account, but not necessarily conforming to, regulations prescribed by the Secretary of Labor under section 404(c)(5) of the Employee Retirement Income Security Act of 1974) and which entails asset allocation and extensive diversification. (6)

Coordination with withholding

The Secretary shall modify the withholding exemption certificate under section 3402(f) so that any notice and election requirements with respect to an automatic enrollment arrangement which is part of a payroll deposit IRA arrangement may be met through the use of such certificate. (h)

Model notice

The Secretary, in consultation with the TSP II Board, shall— (1)provide a model notice, written in a manner calculated to be understandable to the average worker, that is simple for employers to use— (A)to notify employees of the requirement under this section for the employer to provide certain employees with the opportunity to participate in a payroll deposit IRA arrangement, and (B)to satisfy the requirements of subsection (b)(2)(D), (2)provide uniform forms for enrollment, including automatic enrollment, in a payroll deposit IRA arrangement, and (3)establish a web site or other electronic means for small employers to access and use to obtain information on payroll deposit IRA arrangements and to obtain required notices and forms. (i)

Cross reference

For provision preempting conflicting State laws, see section 2(g) of the Automatic IRA Act of 2007.

(b)

Notice of availability of investment guidelines

Section 408(i) of the Internal Revenue Code of 1986 (relating to reports) is amended by adding at the end the following new sentence: Any report furnished under paragraph (2) to an individual shall include notice of the availability of, and methods of acquiring, the basic investment guidelines prepared by the Secretary of Labor.. (c)

Development of basic investment guidelines

(1)

In general

The Secretary of Labor shall, in consultation with the Secretary of Treasury, develop and publish basic guidelines for investing for retirement. Except as otherwise provided by the Secretary of Labor, such guidelines shall include— (A)information on the benefits of diversification, (B)information on the essential differences, in terms of risk and return, between various pension plan investments, including stocks, bonds, mutual funds, and money market investments, (C)information on how an individual’s pension plan investment allocations may differ depending on the individual’s age and years to retirement and on other factors determined by the Secretary of Labor, (D)sources of information where individuals may learn more about pension rights, individual investing, and investment advice, and (E)such other information related to individual investing as the Secretary of Labor determines appropriate. (2)

Calculation information

The guidelines under paragraph (1) shall include addresses for Internet sites and worksheets which a participant or beneficiary in a pension plan may use to calculate— (A)the retirement age value of the participant’s or beneficiary’s nonforfeitable pension benefits under the plan (expressed as an annuity amount and determined by reference to varied historical annual rates of return and annuity interest rates), and (B)other important amounts relating to retirement savings, including the amount which a participant or beneficiary would be required to save annually to provide a retirement income equal to various percentages of their current salary (adjusted for expected growth prior to retirement). (3)

Public comment

The Secretary of Labor shall provide at least 90 days for public comment on proposed guidelines before publishing the final guidelines. (4)

Rules relating to guidelines

The guidelines under paragraph (1)— (A)shall be written in a manner calculated to be understood by the average plan participant, and (B)may be delivered in written, electronic, or other appropriate manner to the extent such manner would ensure that the guidelines are reasonably accessible to participants and beneficiaries. (d)

Penalty for failure to provide access to payroll savings arrangements

Chapter 43 of the Internal Revenue Code of 1986 (relating to qualified pension, etc., plans) is amended by adding at the end the following new section:

4980H.

Requirements for employers to provide employees access to payroll deposit IRA arrangements

(a)

General rule

There is hereby imposed a tax on any failure by an employer to meet the requirements of subsection (d) for a calendar year. (b)

Amount

(1)

In general

The amount of the tax imposed by subsection (a) on any failure for any calendar year shall be $100 with respect to each employee to whom such failure relates. (2)

Tax not to apply where failure not discovered and reasonable diligence exercised

No tax shall be imposed by subsection (a) on any failure during any period for which it is established to the satisfaction of the Secretary that the employer subject to liability for the tax did not know that the failure existed and exercised reasonable diligence to meet the requirements of subsection (d). In no event shall the tax be imposed with respect to any failure that ends before the expiration of 90 days after the employer has responded or has had a reasonable opportunity to respond to a request for confirmation of compliance under subsection (c). (3)

Tax not to apply to failures corrected within 30 days

No tax shall be imposed by subsection (a) on any failure if— (A)the employer subject to liability for the tax under subsection (a) exercised reasonable diligence to meet the requirements of subsection (d), and (B)the employer provides the payroll deposit IRA arrangement described in section 408B to each employee eligible to participate in the arrangement by the end of the 30-day period beginning on the first date the employer knew, or exercising reasonable diligence would have known, that such failure existed. (4)

Waiver by Secretary

In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive or otherwise inequitable relative to the failure involved. (c)

Procedures for notice

Not later than 6 months after the date of the enactment of this section, the Secretary shall prescribe and implement procedures for obtaining from employers confirmation that such employers are in compliance with the requirements of subsection (d). The Secretary, in the Secretary’s discretion, may prescribe that the confirmation shall be obtained on an annual or less frequent basis, and may use for this purpose the annual report or quarterly report for employment taxes, or such other means as the Secretary may deem advisable. (d)

Requirement to provide employee access to payroll deposit IRA arrangements

The requirements of this subsection are met if the employer meets the requirements of section 408B.

(e)

Coordination with ERISA fiduciary duties

Section 404(c)(2) of Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104(c)(2)) is amended— (1)by inserting or an individual retirement plan designated by the employer under section 408B of such Code after 1986, (2)by inserting (7 days after notice has been given to an employee that an individual retirement plan has been established on behalf of the employee under section 408B of such Code) after established in subparagraph (C), and (3)by inserting or with respect to an individual retirement plan designated by an employer under section 408B of such Code after arrangement in the last sentence. (f)

Conforming amendments

(1)The table of sections for subpart A of part I of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 408A the following new item:

Sec. 408B. Right to payroll deposit IRA arrangements at work.

(2)The table of sections for chapter 43 of such Code is amended by adding at the end the following new item:

Sec. 4980H. Requirements for employers to provide employees access to payroll deposit IRA arrangements.

(g)

Preemption of conflicting State laws

The amendments made by this section shall supersede any law of a State that would directly or indirectly prohibit or restrict the establishment or operation of a payroll deposit IRA arrangement meeting the requirements of section 408B of the Internal Revenue Code of 1986 (including the inclusion in any such arrangement of an automatic enrollment arrangement as defined in section 408B(g) of such Code). (h)

Effective date

The amendments made by this section shall apply to calendar years beginning after December 31, 2008.