Congressional Record, Volume 152 Issue 123 (Wednesday, September 27, 2006)

[Congressional Record Volume 152, Number 123 (Wednesday, September 27, 2006)]
[Senate]
[Pages S10289-S10308]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

By Mr. FRIST:
S. 3946. A bill to make an alien who is a member of a criminal gang
removable from the United States and inadmissible to the United States,
to permit the Secretary of Homeland Security to deny a visa to an alien
who is a national of a country that has denied or delayed accepting an
alien removed from the United States, and for other purposes; to the
Committee on the Judiciary.
______

By Mr. FRIST:
S. 3947. A bill to permit the Secretary of Homeland Security to grant
citizenship to an alien who serves on active duty in the Armed Forces,
to assist such an alien in applying for citizenship, and for other
purposes; to the Committee on the Judiciary.
______

By Mr. FRIST:
S. 3948. A bill to amend chapter 27 of title 18, United States Code,
to prohibit the unauthorized construction, financing, or, with reckless
disregard, permitting the construction or use on one's land, of a
tunnel or subterranean passageway between the United States and another
country; to the Committee on the Judiciary.
______

By Mr. FRIST:
S. 3949. A bill to study the geographic areas in Mexico from which
illegal immigrants are entering the United

[[Page S10290]]

States and to develop plans to address the social, political, and
economic conditions that are contributing to such illegal immigration;
to the Committee on Foreign Relations.
Mr. FRIST. Mr. President, like all of my colleagues in this body, I
recognize that our immigration system needs vast improvements. While we
have spent a great deal of time discussing immigration over the past
year, it appears unlikely that this body will pass comprehensive reform
before we break for the recess. This week we have been discussing an
important bill that would begin the process completely securing our
southern border. I support that bill wholeheartedly and I would also
hope to make other improvements to our immigration laws we can make
before we end this session.
Today, therefore, I'm proposing four separate bills intended to
strengthen our immigration system.
One will help military men and women become citizens more quickly,
another will make it easier to remove gang members from our country,
another will impose tough penalties on people who tunnel beneath our
borders, and the fourth will begin an effort to stop illegal
immigration at its source.
I'd like to discuss all four bills briefly . . . they have different
purposes and will all complement each other in efforts to improve our
immigration system.
I am introducing the Community Protection Against International Gangs
Act. Street gangs remain the bane of our society. Their members sell
narcotics, steal, and commit horrific acts of violence. Many of these
gangs--groups like Mara Salvatrucha, better known as MS-13--draw their
membership from immigrants to the United States. While the overwhelming
majority of immigrants in the United States obey the law, those who
join these gangs wreak havoc on immigrant communities all over the
country.
To protect our Nation, we need to stop them . . . now.
Thus, I'm proposing the CPAIGA Act. This law will make our policy
clear: immigrants who join gangs are no longer welcome in our country.
Under my bill, anyone who joins a gang or helps one faces immediate
deportation proceedings. In addition, my bill will let the Secretary of
State and the Secretary of Homeland Security deny visas to the
nationals of any country that refuses to take back its own criminals.
I am also introducing the Enhanced Border Tunnel Prevention Act. To
enhance our crackdown on sophisticated criminal conspiracies, we should
also impose tough new penalties on those who construct tunnels under
our border. People who build tunnels, or allow them to be built on land
that they own or control, should face serious time in prison. Smugglers
who use them should have their penalties doubled. We can't allow our
borders to become a sieve.
In addition, I am introducing the Soldiers to Citizens Act. Just as
we make it clear that criminals have no place in the United States, we
should simultaneously do everything we can to welcome the finest people
from around the world. Every year, over 8,000 people who are not U.S.
citizens enlist in our armed forces.
They serve with valor and distinction . . . they defend our liberty.
If they wish to become citizens, they should not face unnecessary
burdens.
Under my legislation, anyone who gives our military 2 years of
honorable and satisfactory service can acquire citizenship under an
expedited process. Service in the military strongly implies that a
person has acquired the things we expect from new citizens: a command
of English, good moral character, understanding of our history and
appreciation for our democratic institutions. Thus, soldiers, sailors,
airmen, and marines whose chains of command certify that they've met
these requirements should be able to acquire citizenship by filling out
some simple paperwork and swearing the citizenship oath.
I believe that the Senate should do everything it can to speed the
citizenship process for others in the military who do not want to avail
themselves of this process. In particular, we must do away with the
burdensome, duplicative process that requires military enlistees to
give fingerprints once when they join the military and again when they
apply for citizenship. At the same time, we should establish a high-
quality, toll-free information center to provide timely, accurate
information to any servicemember interested in becoming a citizen.
Finally, I am introducing the Illegal Immigration Source Study and
Focus Act. Finally, I believe we need to do more to deal with the
underlying causes of much illegal immigration: social, economic, and
political conditions in Mexico that lead many to believe they have no
choice but as to leave their homeland. Illegal immigration hurts both
the United States and Mexico. Our governments must work together so we
can understand what areas produce the most illegal immigrants and what
we might do to help immigrants.
My bill would begin a process of collaboration. It will mandate
regular reports on the areas that produce the most illegal immigrants
and, just as importantly, focus our own aid to Mexico on improving the
conditions that produce illegal immigration in the first place.
Steps like those I have proposed will not change our immigration
system overnight. They will not end illegal immigration.
But they will make our cities safer, stem the flow of illegal
immigration, and help those who serve in our armed forces. These are
worthy measures and I urge all of my colleagues to support them.
I ask unanimous consent that the text of the bills be printed in the
Record.
There being no objection, the text of the bills was ordered to be
printed in the Record, as follows:

S. 3946

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 ``Community Protection Against
International Gangs Act''.

SEC. 2. INADMISSIBILITY AND REMOVAL OF ALIEN GANG MEMBERS.

(a) Inadmissibility.--Section 212(a)(2) of the Immigration
and Nationality Act (8 U.S.C. 1182(a)(2)) is amended by
adding at the end the following:
``(J) Aliens associated with criminal gangs.--Unless the
Secretary of Homeland Security or the Attorney General waives
the application of this subparagraph, any alien who a
consular officer, the Attorney General, or the Secretary of
Homeland Security knows or has reason to believe--
``(i) is, or has been, a member of a criminal street gang
(as defined in section 521(a) of title 18, United States
Code); or
``(ii) has participated in the activities of such a
criminal street gang, knowing or having reason to know that
such activities promoted, furthered, aided, or supported the
illegal activity of the criminal street gang,
is inadmissible.''.
(b) Removal.--Section 237(a)(2) (8 U.S.C. 1227(a)(2)) is
amended by adding at the end the following:
``(F) Aliens associated with criminal gangs.--Unless the
Secretary of Homeland Security or the Attorney General waives
the application of this subparagraph, any alien who the
Secretary of Homeland Security or the Attorney General knows
or has reason to believe--
``(i) is, or at any time after admission has been, a member
of a criminal street gang (as defined in section 521(a) of
title 18, United States Code); or
``(ii) has participated in the activities of such a
criminal street gang, knowing or having reason to know that
such activities promoted, furthered, aided, or supported the
illegal activity of the criminal street gang,
is deportable.''.

SEC. 3. PENALTY FOR FAILURE TO ACCEPT AN ALIEN REMOVED FROM
THE UNITED STATES.

Section 243(d) of the Immigration and Nationality Act (8
U.S.C. 1253(d)) is amended to read as follows:
``(d) Denying Visas to Nationals of Country Denying or
Delaying Accepting Alien.--The Secretary of Homeland
Security, after making a determination that the government of
a foreign country has denied or unreasonably delayed
accepting an alien who is a citizen, subject, national, or
resident of that country after the alien has been ordered
removed, and after consultation with the Secretary of State,
may instruct the Secretary of State to deny a visa to any
citizen, subject, national, or resident of that country until
the country accepts the alien that was ordered removed.''.

S. 3947

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 ``Soldiers to Citizens Act''.

SEC. 2. CITIZENSHIP FOR MEMBERS OF THE ARMED FORCES.

Section 329 of the Immigration and Nationality Act (8
U.S.C. 1440) is amended--
(1) in subsection (b), by striking ``subsection (a)'' and
inserting ``subsection (a) or (d)''; and

[[Page S10291]]

(2) by adding at the end the following:
``(d) Notwithstanding any other provision of law, except
for provisions relating to revocation of citizenship under
subsection (c), an individual who is not a citizen of the
United States shall not be denied the opportunity to apply
for membership in the United States Armed Forces. Such an
individual who becomes an active duty member of the United
States Armed Forces shall, consistent with this section and
with the approval of the individual's chain of command, be
granted United States citizenship after performing at least 2
years of honorable and satisfactory service on active duty.
Not later than 90 days after such requirements are met with
respect to an individual, such individual shall be granted
United States citizenship.
``(e) An alien described in subsection (d) shall be
naturalized without regard to the requirements of this title
or any other requirements, processes, or procedures of the
Secretary of Homeland Security, if the alien--
``(1) files an application for naturalization in accordance
with such procedures to carry out this section as may be
established by regulation by the Secretary of Homeland
Security or the Secretary of Defense;
``(2) demonstrates to the alien's military chain of command
proficiency in the English language, good moral character,
and knowledge of the Federal Government and United States
history, consistent with the requirements contained in this
Act; and
``(3) takes the oath required under section 337 of this Act
and participates in an oath administration ceremony in
accordance with this Act.''.

SEC. 3. WAIVER OF REQUIREMENT FOR FINGERPRINTS FOR MEMBERS OF
THE ARMED FORCES.

Notwithstanding any other provision of law or any
regulation, the Secretary of Homeland Security shall use the
fingerprints provided by an individual at the time the
individual enlists in the Armed Forces to satisfy any
requirement for fingerprints as part of an application for
naturalization if the individual--
(1) may be naturalized pursuant to section 328 or 329 of
the Immigration and Nationality Act (8 U.S.C. 1439 and 1440);
(2) was fingerprinted in accordance with the requirements
of the Department of Defense at the time the individual
enlisted in the Armed Forces; and
(3) submits an application for naturalization not later
than 12 months after the date the individual enlisted in the
Armed Forces.

SEC. 4. PROVISION OF INFORMATION ON NATURALIZATION TO MEMBERS
OF THE ARMED FORCES.

The Secretary of Homeland Security shall--
(1) establish a dedicated toll-free telephone service
available only to members of the Armed Forces and the
families of such members to provide information related to
naturalization pursuant to section 328 or 329 of the
Immigration and Nationality Act (8 U.S.C. 1439 and 1440),
including the status of an application for such
naturalization;
(2) ensure that the telephone service required by paragraph
(1) is operated by employees of the Department of Homeland
Security who--
(A) have received specialized training on the
naturalization process for members of the Armed Forces and
the families of such members; and
(B) are physically located in the same unit as the military
processing unit that adjudicates applications for
naturalization pursuant to such section 328 or 329; and
(3) implement a quality control program to monitor, on a
regular basis, the accuracy and quality of information
provided by the employees who operate the telephone service
required by paragraph (1), including the breadth of the
knowledge related to the naturalization process of such
employees.

S.3948

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 ``Enhanced Border Tunnel
Prevention Act''.

SEC. 2. CONSTRUCTION OF BORDER TUNNEL OR PASSAGE.

(a) In General.--Chapter 27 of title 18, United States
Code, is amended by adding at the end the following:

``Sec. 554. Border tunnels and passages

``(a) Any person who knowingly constructs or finances the
construction of a tunnel or subterranean passage that crosses
the international border between the United States and
another country, other than a lawfully authorized tunnel or
passage known to the Secretary of Homeland Security and
subject to inspection by the Bureau of Immigration and
Customs Enforcement, shall be imprisoned for not more than 25
years.
``(b) Any person who knows or recklessly disregards the
construction or use of a tunnel or passage described in
subsection (a) on land that the person owns or controls shall
be imprisoned for not more than 15 years.
``(c) Any person who uses a tunnel or passage described in
subsection (a) to unlawfully smuggle an alien, goods (in
violation of section 545), controlled substances, weapons of
mass destruction (including biological weapons), or a member
of a terrorist organization (as defined in section
212(a)(3)(B)(vi) of the Immigration and Nationality Act (8
U.S.C. 1182(a)(3)(B)(vi))) shall be subject to a maximum term
of imprisonment that is twice the maximum term of
imprisonment that would have otherwise been applicable had
the unlawful activity not made use of such a tunnel or
passage.''.
(b) Clerical Amendment.--The table of sections for chapter
27 of title 18, United States Code, is amended by adding at
the end the following:
``Sec. 554. Border tunnels and passages.''.

(c) Criminal Forfeiture.--Section 982(a)(6) of title 18,
United States Code, is amended by inserting ``554,'' before
``1425,''.

SEC. 3. DIRECTIVE TO THE UNITED STATES SENTENCING COMMISSION.

(a) In General.--Pursuant to its authority under section
994 of title 28, United States Code, and in accordance with
this section, the United States Sentencing Commission shall
promulgate or amend sentencing guidelines to provide for
increased penalties for persons convicted of offenses
described in section 554 of title 18, United States Code, as
added by section 2.
(b) Requirements.--In carrying out this section, the United
States Sentencing Commission shall--
(1) ensure that the sentencing guidelines, policy
statements, and official commentary reflect the serious
nature of the offenses described in section 554 of title 18,
United States Code, and the need for aggressive and
appropriate law enforcement action to prevent such offenses;
(2) provide adequate base offense levels for offenses under
such section;
(3) account for any aggravating or mitigating circumstances
that might justify exceptions, including--
(A) the use of a tunnel or passage described in subsection
(a) of such section to facilitate other felonies; and
(B) the circumstances for which the sentencing guidelines
currently provide applicable sentencing enhancements;
(4) ensure reasonable consistency with other relevant
directives, other sentencing guidelines, and statutes;
(5) make any necessary and conforming changes to the
sentencing guidelines and policy statements; and
(6) ensure that the sentencing guidelines adequately meet
the purposes of sentencing set forth in section 3553(a)(2) of
title 18, United States Code.

S. 3949

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 ``Illegal Immigration Source
Study and Focus Act''.

SEC. 2. STUDIES AND REPORTS ON ILLEGAL IMMIGRATION FROM
MEXICO.

(a) Studies.--Not later than 1 year after the date of the
enactment of this Act, and once every 5 years thereafter, the
Secretary of State, in cooperation with the Secretary of
Homeland Security, shall conduct a study--
(1) to identify the geographic areas in Mexico from which--
(A) large numbers of residents are leaving to enter the
United States in violation of Federal immigration law; and
(B) large percentages of the population of such areas are
leaving to enter the United States in violation of Federal
immigration law; and
(2) to analyze the social, political, and economic
conditions in the geographic areas identified under paragraph
(1) that contribute to illegal immigration into the United
States.
(b) Reports.--Not later than 16 months after the date of
the enactment of this Act, and every 5 years thereafter, the
Secretary of State shall submit to Congress a report that--
(1) describes the results of the study conducted under
subsection (a); and
(2) provides recommendations on how the Government of the
United States can improve the conditions described in
subsection (a)(2).

SEC. 3. IMMIGRATION IMPACT FOCUS AREAS.

(a) Designation.--Based on the results of each study
conducted under section 2(a) and subject to subsection (b),
the Administrator of the United States Agency for
International Development, in consultation with the Secretary
of State, the Secretary of Homeland Security, and appropriate
officials of the Government of Mexico, shall designate not
more than 4 geographic areas within Mexico as Immigration
Impact Focus Areas.
(b) Population Limits.--An area may not be designated as an
Immigration Impact Focus Area under subsection (a) unless the
population of such area is--
(1) not less than 0.5 percent of the total population of
Mexico; and
(2) not more than 5.0 percent of the total population of
Mexico.
(c) Development Assistance Plan.--The Administrator of the
United States Agency for International Development, in
consultation with the Secretary of State, shall develop a
plan to concentrate, to the extent practicable, economic
development and humanitarian assistance provided to Mexico in
the Immigration Impact Focus Areas designated under
subsection (a).
______

Ms. SNOWE (for herself and Mr. Kerry):
S. 3950. A bill to amend the Internal Revenue Code of 1986 to allow a
credit against income tax for qualified equity investments in certain
small businesses; to the Committee on Finance.

[[Page S10292]]

Ms. SNOWE. Mr. President, to help start-up small businesses obtain
access to capital, today I rise with my colleague Senator Kerry to
introduce the Access to Capital for Entrepreneurs Act of 2006 or ACE
Act. Our bill would encourage equity investments in qualified small
businesses by providing so-called ``angel investors'' with a tax
incentive to fund new small business enterprises. Angel investors are
high-net-worth individuals who invest in and support start-up companies
in the critical early stages of growth.
As Chair of the Senate Committee on Small Business and
Entrepreneurship, I meet with prospective entrepreneurs in Maine and
across the country and repeatedly hear about their dreams of starting
dynamic new businesses. Unfortunately, their hopes can sometimes be
dashed when these entrepreneurs encounter barriers to raising the funds
they need to get their ``start-up'' enterprises off the ground.
For entrepreneurs and other aspiring small business owners, a self-
evident truth since the founding of our country is that it takes money
to make money. Our legislation makes that goal a little easier for
aspiring small business owners by ensuring that our entrepreneurs have
access to venture capital and credit markets so they can continue to
drive America's economic growth and job creation. Since small
businesses represent 99 percent of all employers and create nearly 75
percent of all net new jobs, Congress must do everything within its
power to help them grow and thrive.
Under the Access to Capital for Entrepreneurs Act of 2006, angel
investors would be eligible for a 25 percent tax credit to offset up to
$500,000 of investments per year. Because the legislation limits the
investment per small business to $250,000, which is the amount a
typical entrepreneur requires to begin operations, an investor would
have to invest in at least two companies to receive the full $500,000
tax credit. To qualify for the tax incentive, the angel investor must
have an income of $200,000 over a two-year period, or net worth of $1
million. It's patterned after successful tax credits that have been
enacted in 21 states, including Maine.

Recent research shows that venture capitalists are now targeting
their investments for larger businesses or for later in a business's
development, leaving precious little seed money for new ventures.
Today, venture capitalists invest an average of $7 million per deal, an
amount that far exceeds the needs of a nascent small business.
Moreover, in 2005, of the $21.7 billion invested by venture
capitalists, just 3.3 percent was allocated to start-up small
businesses.
There were 227,000 angel investors who were active in 2005. Yet there
are hundreds of thousands more waiting to be created. IRS statistics
show that the ratio of potential to active angel investors is between 7
to 1 and 10 to 1. There is an enormous untapped market of future
investors who we can call to help finance emerging small businesses in
virtually every sector of the economy.
Our bill would remedy this situation by encouraging more angel
investors to fund more of our Nation's smallest businesses. These
businesses are critical to the economy, as they generate 60 percent to
80 percent of net new jobs and contribute more than 50 percent of non-
farm private-sector output.
In addition, if the provisions of the ACE Act are signed into law,
many small businesses that would otherwise fail for lack of adequate
resources could grow and expand, creating more jobs for Americans, and
further bolstering our Nation's economy. With no incentive, angel
investments helped create 198,000 jobs in the United States during
2005. Imagine how many more jobs we could create if we enact the tax
credit we are proposing today.
I am committed to supporting our Nation's small business community by
increasing its access to capital. The entrepreneurial spirit of our 25
million small businesses dates back to our Nation's founding. From
family farms to software development, small businesses are the heart of
our economy and the linchpin for the innovation that moves our country
forward. Americans who assume the risks and responsibilities inherent
in owning and operating a business deserve our praise, admiration and
unwavering support.
I ask unanimous consent that the text of the bill be printed in the
Record.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:

S. 3950

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 ``Access to Capital for
Entrepreneurs Act of 2006''.

SEC. 2. EQUITY INVESTMENT IN SMALL BUSINESS TAX CREDIT.

(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. 45N. EQUITY INVESTMENT IN SMALL BUSINESS TAX CREDIT.

``(a) General Rule.--For purposes of section 38, in the
case of a qualified investor, the equity investment in small
business tax credit determined under this section for the
taxable year is an amount equal to 25 percent of the amount
of each qualified equity investment made by the qualified
investor during the taxable year.
``(b) Credit Amount.--For purposes of determining the small
business tax credit under subsection (a)--
``(1) Limitation per qualified investor.--The amount of
qualified equity investments made by the qualified investor
during the taxable year shall not exceed $500,000.
``(2) Limitation per qualified small business.--The amount
of qualified equity investments made by the qualified
investor in a qualified small business during the taxable
year shall not exceed $250,000.
``(c) Definitions.--For purposes of this section--
``(1) Qualified investor.--The term `qualified investor'
means--
``(A) an individual who qualifies as an accredited investor
under rules and regulations prescribed by the Commissioner of
the Securities and Exchange Commission, or
``(B) a partnership with respect to which all of the
partners are individuals who qualify as accredited investors
under rules and regulations prescribed by the Commissioner of
the Securities and Exchange Commission.
``(2) Qualified equity investment.--The term `qualified
equity investment' means the transfer of cash or cash
equivalents in exchange for stock or capital interest in a
qualified small business.
``(3) Qualified small business.--The term `qualified small
business' means a private small business concern (within the
meaning of section 3 of the Small Business Act)--
``(A) that meets the applicable size standard (as in effect
on January 1, 2005) established by the Administrator of the
Small Business Administration pursuant to subsection (a)(2)
of such section, and
``(B) has its principal place of business in the United
States.
For purposes of this section, all members of the same
controlled group of corporations (within the meaning of
section 267(f)) and all persons under common control (within
the meaning of section 52(b)) shall be treated as 1 qualified
small business.
``(d) Active Business Requirement.--
``(1) In general.--Holding stock in a qualified small
business shall not be treated as a qualified equity
investment unless, during substantially all of the qualified
investor's holding period for such stock, such qualified
small business meets the active business requirements of
paragraph (2).
``(2) Requirements.--
``(A) In general.--For purposes of paragraph (1), the
requirements of this paragraph are met by a qualified small
business for any period if during such period at least 80
percent (by value) of the assets of such qualified small
business are used by such qualified small business in the
active conduct of 1 or more qualified trades or businesses.
``(B) Special rule for certain activities.--For purposes of
subparagraph (A), if, in connection with any future qualified
trade or business, a qualified small business is engaged in--
``(i) start-up activities described in section
195(c)(1)(A),
``(ii) activities resulting in the payment or incurring of
expenditures which may be treated as research and
experimental expenditures under section 174, or
``(iii) activities with respect to in-house research
expenses described in section 41(b)(4),
assets used in such activities shall be treated as used in
the active conduct of a qualified trade or business. Any
determination under this subparagraph shall be made without
regard to whether a qualified small business has any gross
income from such activities at the time of the determination.
``(C) Qualified trade or business.--For purposes of this
paragraph, the term `qualified trade or business' is as
defined in section 1202(e)(3).
``(D) Stock in other entities.--
``(i) Look-thru in case of subsidiaries.--For purposes of
this subsection, stock and debt in any subsidiary entity
shall be disregarded and the parent qualified small business
shall be deemed to own its ratable share of the subsidiary's
assets, and to conduct its ratable share of the subsidiary's
activities.
``(ii) Portfolio stock or securities.--A qualified small
business shall be treated as failing to meet the requirements
of subparagraph (A) for any period during which more than 10
percent of the value of its assets (in

[[Page S10293]]

excess of liabilities) consists of stock or securities in
other entities which are not subsidiaries of such qualified
small business other than assets described in subparagraph
(E)).
``(iii) Subsidiary.--For purposes of this subparagraph, an
entity shall be considered a subsidiary if the parent owns
more than 50 percent of the combined voting power of all
classes of stock entitled to vote, or more than 50 percent in
value of all outstanding stock, of such entity.
``(E) Working capital.--For purposes of subparagraph (A),
any assets which--
``(i) are held as a part of the reasonably required working
capital needs of a qualified trade or business of the
qualified small business, or
``(ii) are held for investment and are reasonably expected
to be used within 2 years to finance research and
experimentation in a qualified trade or business or increases
in working capital needs of a qualified trade or business,
shall be treated as used in the active conduct of a qualified
trade or business. For periods after the qualified small
business has been in existence for at least 2 years, in no
event may more than 50 percent of the assets of the qualified
small business qualify as used in the active conduct of a
qualified trade or business by reason of this subparagraph.
``(F) Maximum real estate holdings.--A qualified small
business shall not be treated as meeting the requirements of
subparagraph (A) for any period during which more than 10
percent of the total value of its assets consists of real
property which is not used in the active conduct of a
qualified trade or business. For purposes of the preceding
sentence, the ownership of, dealing in, or renting of real
property shall not be treated as the active conduct of a
qualified trade or business.
``(G) Computer software royalties.--For purposes of
subparagraph (A), rights to computer software which produces
active business computer software royalties (within the
meaning of section 543(d)(1)) shall be treated as an asset
used in the active conduct of a trade or business.
``(e) Certain Purchases by Qualified Investor of Its Own
Stock.--
``(1) Redemptions from qualified investor or related
person.--Stock acquired by the qualified investor shall not
be treated as a qualified equity investment if, at any time
during the 4-year period beginning on the date 2 years before
the issuance of such stock, the qualified small business
issuing such stock purchased (directly or indirectly) any of
its stock from the qualified investor or from a person
related (within the meaning of section 267(b) or 707(b)) to
the qualified investor.
``(2) Significant redemptions.--Stock issued by a qualified
small business to a qualified investor shall not be treated
as a qualified equity investment if, during the 2-year period
beginning on the date 1 year before the issuance of such
stock, such qualified small business made 1 or more purchases
of its stock with an aggregate value (as of the time of the
respective purchases) exceeding 5 percent of the aggregate
value of all of its stock as of the beginning of such 2-year
period.
``(3) Treatment of certain transactions.--If any
transaction is treated under section 304(a) as a distribution
in redemption of the stock of any qualified small business,
for purposes of subparagraphs (A) and (B), such qualified
small business shall be treated as purchasing an amount of
its stock equal to the amount treated as such a distribution
under section 304(a).
``(f) Special Rule for Related Parties.--
``(1) In general.--No credit shall be allowed under
subsection (a) with respect to a qualified equity investment
made by a qualified investor in a qualified small business
that is a related party to the qualified investor.
``(2) Related party.--For purposes of paragraph (1), a
person is a related party with respect to another person if
such person bears a relationship to such other person
described in section 267(b) or 707(b), or if such persons are
engaged in trades or businesses under common control (within
the meaning of subsections (a) and (b) of section 52).
``(g) Recapture of Credit in Certain Cases.--
``(1) In general.--If, at any time during the 3-year period
beginning on the date that the qualified equity investment is
made by the qualified investor, there is a recapture event
with respect to such investment, then the tax imposed by this
chapter for the taxable year in which such event occurs shall
be increased by the credit recapture amount.
``(2) Credit recapture amount.--For purposes of paragraph
(1), the credit recapture amount is an amount equal to the
sum of--
``(A) the aggregate decrease in the credits allowed to the
taxpayer under section 38 for all prior taxable years which
would have resulted if no credit had been determined under
this section with respect to such investment, plus
``(B) interest at the underpayment rate established under
section 6621 on the amount determined under subparagraph (A)
for each prior taxable year for the period beginning on the
due date for filing the return for the prior taxable year
involved.
No deduction shall be allowed under this chapter for interest
described in subparagraph (B).
``(3) Recapture event.--For purposes of paragraph (1),
there is a recapture event with respect to a qualified equity
investment if such investment is sold, transferred, or
exchanged by the qualified investor, but only to the extent
that such sale, transfer, or exchange is not the direct
result of a complete or partial liquidation of the qualified
small business in which such qualified equity investment is
made.
``(4) Special rules.--
``(A) Tax benefit rule.--The tax for the taxable year shall
be increased under paragraph (1) only with respect to credits
allowed by reason of this section which were used to reduce
tax liability. In the case of credits not so used to reduce
tax liability, the carryforwards and carrybacks under section
39 shall be appropriately adjusted.
``(B) No credits against tax.--Any increase in tax under
this subsection shall not be treated as a tax imposed by this
chapter for purposes of determining the amount of any credit
under this chapter or for purposes of section 55.
``(h) Basis Reduction.--The basis of any qualified equity
investment shall be reduced by the amount of any credit
determined under this section with respect to such
investment.
``(i) Regulations.--
``(1) In general.--The Secretary shall prescribe such
regulations as necessary to carry out the provisions of this
section.
``(2) Certification of qualified equity investment.--Such
regulations shall require that a qualified investor--
``(A) certify that the small business in which the equity
investment is made meets the requirements described in
subsection (c)(3), and
``(B) include the name, address, and taxpayer
identification number of such small business on the return
claiming the credit under subsection (a).
``(j) Termination.--This section shall not apply to
qualified equity investments made in taxable years beginning
after December 31, 2011.''.
(b) Credit Made Part of General Business Credit.--
Subsection (b) of section 38 of the Internal Revenue Code of
1986 is amended by striking ``and'' at the end of paragraph
(29), by striking the period at the end of paragraph (30) and
inserting ``, and'', and by adding at the end the following
new paragraph:
``(31) in the case of a taxpayer, the equity investment in
small business tax credit determined under section 45N(a).''.
(c) Clerical Amendment.--The table of sections for subpart
D of part IV of subchapter A of chapter 1 of the Internal
Revenue Code of 1986 is amended by adding at the end the
following new item:

``Sec. 45N. Equity investment in small business tax credit.''.

(d) Effective Date.--The amendments made by this section
shall apply to qualified equity investments made after
December 31, 2006, in taxable years beginning after such
date.
______

By Mr. BINGAMAN (for himself and Mr. Smith):
S. 3952. A bill to amend the Internal Revenue Code of 1986 to allow
employees not covered by qualified retirement plans to save for
retirement through automatic payroll deposit IRAs, to facilitate
similar savings by the self-employed, and for other purposes; to the
Committee on Finance.
Mr. BINGAMAN. Mr. President, I rise today with my colleagues, Senator
Smith and Senator Kerry, to introduce this important legislation that
will ensure that more working Americans have a retirement account. This
legislation is the result of the collaborative work done by David John
of the Heritage Foundation and Mark Iwry of the Retirement Security
Project to provide a simple, cost-effective way to increase retirement
security for our Nation's workers who currently do not have a
retirement plan. The Automatic IRA Act of 2006 will require employers
who do not currently sponsor a retirement plan to offer their workers
the opportunity to have part of their paycheck to be sent directly to
an IRA. This will not only help millions of Americans begin saving for
their retirement but will also provide subtle encouragement to
employers to sponsor a qualified retirement account such as a SIMPLE or
a 401(k).
In 2004, it was estimated that as many as 71 million Americans work
for an employer who does not offer them any kind of retirement plan--
almost half of all of our country's workers. Without an employer-
sponsored retirement plan, many of these workers will not be saving
adequately for their retirement. The first steps to addressing this
growing inequity are to ensure that all workers have easy access to a
retirement account and the ability to have part of their wages go
directly from their paycheck into this account. Both of these features
have been proven to encourage retirement savings and are imperative if
we are going to address our national retirement savings rate.
Under this legislation, all employers with more than 10 employees who
do

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not sponsor a qualified retirement or pension plan must offer its
employees the ability to have wages remitted directly to an automatic
IRA through payroll deduction. These employers will not be required to
make any contributions to these accounts and will receive a tax credit
to offset the administrative costs of remitting part of the employee's
wages to the IRA. It is entirely up to the employer as to what IRA
options the employees would have. For instance, the employer could
decide to remit the funds to the IRA of the employee's choice or the
employer could decide to remit the money to the financial institution
of his or her choice. The employer will also have a new option--the
ability to remit the money to a new, simplified type of IRA, the
automatic IRA. A board, similar to the Federal Government's existing
Thrift Savings Plan Board, would create standards for these new
accounts that must be followed by participating financial service
companies. This board will also be responsible for educating the public
about the importance of having a qualified retirement account as part
of their duties.
Mr. President, it is going to take a bipartisan approach to address
our Nation's retirement savings problems. I again want to applaud the
efforts made by Mr. John of the Heritage Foundation and Mr. Iwry from
the Retirement Security Project in advancing this proposal. It is now
up to all of us in this Chamber to follow their example and pass this
legislation.
I ask unanimous consent that the material be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

The Retirement Security Project

pursuing universal retirement security through automatic iras

(Testimony before the Subcommittee on Long-Term Growth and Debt
Reduction, Committee on Finance, United States Senate, June 29, 2006)

Chairman Smith, Ranking Member Kerry, and Senator Grassley,
we appreciate the opportunity to testify before you. We are
submitting our testimony as a single joint statement because
we believe strongly in the need for a common strategy to
expand retirement savings, and in the importance of
approaching these issues in a manner that transcends
ideological and partisan differences.
At the request of Committee staff, this written statement
focuses on our proposal to expand retirement savings for
small business workers--the automatic IRA. We are pleased by
the positive reaction the proposal has received and are
grateful to our colleagues, including those in government and
in various stakeholder organizations, who have contributed to
these ideas.
With the looming retirement security crisis facing our
country, policy-makers from both parties are focused on ways
to strengthen pensions and increase savings. Our proposal for
automatic IRAs would provide a relatively simple, cost-
effective way to increase retirement security for the
estimated 71 million workers whose employers (usually smaller
businesses) do not sponsor plans. It would enable these
employees to save for retirement by allowing them to have
their employers regularly transfer amounts from their
paycheck to an IRA.
We are by no means suggesting that the automatic IRA
proposal is the only step that should be taken to expand
retirement savings for small business workers. In fact, we
have long believed in the primacy of employer-sponsored
retirement plans as vehicles for pension coverage.
Additionally, we continue to advocate strongly for the
expansion of pension coverage through automatic features in
401(k) and similar retirement savings plans.
The automatic 401(k) approach makes intelligent use of
defaults--the outcomes that occur when individuals are unable
or unwilling to make an affirmative choice or otherwise fail
to act--to enlist the power of inertia to promote saving.
Automating enrollment, escalation of contributions,
investment, and rollovers expands coverage in several ways.
Enrolling employees in a plan unless they opt out increases
significantly the number of eligible employees who
participate in the plan. Escalating the amount of the default
contribution tends to increase the amount people save over
time. Providing for a default investment (which participants
can reject in favor of other alternatives) reflecting
consensus investment principles such as diversification and
asset allocation tends to raise the expected investment
return on contributions. Finally, making retention or
rollover of benefits rather than consumption the default when
an employee leaves a job furthers the long-term preservation
of retirement savings for their intended purposes. By helping
improve performance under the nondiscrimination standards and
generally making plans more effective in providing retirement
benefits, the automatic 401(k) can also encourage more
employers to sponsor or continue sponsoring plans.
The automatic IRA builds on the success of the automatic
401(k). Moreover, as explained below, we would intend and
expect the introduction of automatic IRAs to expand the
number of employers that choose to sponsor 401(k) or SIMPLE
plans instead of offering only automatic IRAs. But for
millions of workers who continue to have no employer plan,
the automatic IRA would provide a valuable retirement savings
opportunity.
The automatic IRA proposal is set out in the remainder of
this written statement.

Executive Summary of Proposal

This testimony proposes an ambitious but practical set of
initiatives to expand dramatically retirement savings in the
United States--especially to those not currently offered an
employer-provided retirement plan. The essential strategy
here, as in the case of the automatic 401(k) described above,
is to make saving more automatic--and hence easier, more
convenient, and more likely to occur. As noted, making saving
easier by making it automatic has been shown to be remarkably
effective at boosting participation in 401(k) plans, but
roughly half of U.S. workers are not offered a 401(k) or any
other type of employer-sponsored plan. Among the 153 million
working Americans in 2004, over 71 million worked for an
employer that did not sponsor a retirement plan of any kind,
and another 17 million did not participate in their
employer's plan. This testimony explores a new and, we
believe, promising approach to expanding the benefits of
automatic saving to a wider array of the population: the
``automatic IRA.''
The automatic IRA would feature direct payroll deposits to
a low-cost, diversified individual retirement account. Most
American employees not covered by an employer-sponsored
retirement plan would be offered the opportunity to save
through the powerful mechanism of regular payroll deposits
that continue automatically (an opportunity now limited
mostly to 401(k)-eligible workers).
Employers above a certain size (e.g., 10 employees) that
have been in business for at least two years but that still
do not sponsor any plan for their employees would be called
upon to offer employees this payroll-deduction saving option.
These employers would receive a temporary tax credit for
simply serving as a conduit for saving, by making regular
payroll deposit available to their employees. Employers would
receive a small additional tax credit for each employee who
participates. Other employers that do not sponsor a plan also
would receive the tax credit if they offered payroll
deduction saving.
Firms would be provided a standard notice to inform
employees of the automatic IRA (payroll-deduction saving)
option, and a standard form to elicit from each employee a
decision either to participate or to opt out. For most
employees, the payroll deductions would be made by direct
deposit similar to the very common direct deposit of
paychecks to employees' accounts at their financial
institutions.
To maximize participation, employers would be provided a
standard enrollment module reflecting current best practices
in enrollment procedures. The use of automatic enrollment
(whereby employees automatically participate at a statutorily
specified rate of contribution unless they opt out) would be
encouraged in two ways. First, the standard materials
provided to employers would be framed so as to present auto
enrollment as the presumptive enrollment method, although
employer would be able to opt for the alternative of
obtaining responses from all employees. Second, employers
using auto enrollment to promote participation would not need
to obtain responses from unresponsive employees. As discussed
earlier, evidence from the 401(k) universe strongly suggests
that high levels of participation tend to result not only
from auto enrollment but also from the practice of eliciting
from each eligible individual an explicit decision to
participate or to opt out.
Employers making direct deposit or payroll deduction
available would be protected from potential fiduciary
liability and from having to choose or arrange default
investments. Instead, diversified default investments and a
handful of standard, low-cost investment alternatives would
be specified by statute and regulation. Payroll deduction
contributions would be transferred, at the employer's option,
to a central repository, which would remit them to IRAs
designated by employees or, absent employee designation, to a
default collective retirement account.
Investment management as well as record keeping and other
administrative functions would be contracted to private
sector financial institutions to the fullest extent
practicable. Costs would be minimized through a no-frills
design relying on index funds, economies of scale, and
maximum use of electronic technologies, and modeled to some
degree on the Thrift Savings Plan for federal government
employees. Once accounts reached a predetermined balance
(e.g., $15,000) sufficient to make them sufficiently
profitable to attract the interest of the full range of IRA
providers, account owners would have the option to transfer
them to IRAs of their choosing.
This approach involves no employer contributions, no
employer compliance with qualified plan or ERISA
requirements, and, as noted, no employer liability or
responsibility for selecting investments, for selecting an
IRA provider, or for opening IRAs for employees. It also
steers clear of any adverse impact on employer-sponsored
plans or on

[[Page S10295]]

the incentives designed to encourage firms to adopt new
plans. In fact, the indirect intended effect of the proposal
would be to draw small employers into the private pension
system.
Our proposed approach would seek to capitalize on the rapid
trend toward automated or electronic fund transfers. With the
spread of new, low-cost technologies, employers are
increasingly using automated or electronic systems to manage
payroll, including withholding and federal tax deposits, and
for other transfers of funds. Many employers use an outside
payroll service provider, an on-line payroll service, or
software to perform these functions, including direct deposit
of paychecks to accounts designated by employees.
For firms already offering direct deposit, including many
that use outside payroll providers, direct deposit to an IRA
would entail no additional cost, insofar as these systems
have unused fields that could be used for the additional
direct deposit destination. Other small businesses still
write paychecks by hand, complete the federal tax deposit
forms and Forms W-2 by hand, and deliver them to employees
and to the local depositary institution. Our proposal would
not require these employers to make the transition to
automatic payroll processing or use of on-line systems
(although it might have the effect of encouraging such
transitions).
At the same time, we would not be inclined to deny payroll
deduction savings to all employees of employers that do not
yet use automatic payroll processing (and we would not want
to give small employers an incentive to drop automatic
payroll processing). These employees would benefit from the
ability to save through regular payroll deposits at the
workplace whether the deposits are made electronically or by
hand. Employees would still have the advantages of a method
of saving that, once begun, continues automatically, that is
more likely to begin because of workplace enrollment
arrangements and peer group reinforcement, and that often
will not reduce take-home pay. To that end, we outline below
a strategy to address these situations efficiently and with
minimal cost.
For the self-employed and others who have no employer,
regular contributions to IRAs would be facilitated in three
principal ways: (1) extending the payroll deposit option to
many independent contractors who work for employers (other
than the very smallest businesses); (2) enabling taxpayers to
direct the IRS to make direct deposit of a portion of their
income tax refunds; and (3) expanding access to automatic
debit arrangements, including on-line and traditional means
of access through professional and trade associations that
could help arrange for automatic debit and direct deposit to
IRAs. Automatic debit essentially replicates the power of
payroll deduction insofar as it continues automatically once
the individual has chosen to initiate it.
In addition, a powerful financial incentive to contribute
might be provided by means of matching deposits to the IRAs.
Private financial institutions that maintain the accounts
could deliver matching contributions and be reimbursed
through tax credits.

the basic problem and proposed solution

In general, the households that tend to be in the best
financial position to confront retirement are the 42 percent
of the workforce that participate in an employer-sponsored
retirement plan. For reasons we have discussed earlier,
traditionally, the takeup rate for IRAs (those who contribute
as a percentage of those who are eligible) is less than 1 in
10, but the takeup rate for employer-sponsored 401(k) plans
tends to be on the order of 7 in 10.
Moreover, as discussed, an increasing share of 401(k) plans
are including automatic features that make saving easier and
bolster participation. When firms are not willing to sponsor
401(k)-type plans, the automatic IRA proposed here would
apply many of the lessons learned from 401(k) plans so that
more workers could enjoy automated saving to build assets--
but without imposing any significant burden on employers.
Employers that do not sponsor plans for their employees could
facilitate saving by employees--without sponsoring a plan,
without making employer matching contributions, and without
complying with plan qualification or fiduciary standards.
Employers can help employees save simply by offering to remit
a portion of their pay to an IRA, preferably by direct
deposit, at little or no cost to the employer.
Such direct deposit savings using IRAs would not and should
not replace retirement plans, such as pension, profit
sharing, 401(k), or SIMPLE-IRA plans. Indeed, the automatic
IRA would be carefully designed so as to avoid any adverse
effect on employer sponsorship of ``real'' plans, which must
adhere to standards requiring reasonably broad or
proportionate coverage of moderate and lower-income workers
and various safeguards for employees, and which often involve
employer contributions. Instead, payroll-deduction direct
deposit savings, as envisioned here, would promote wealth
accumulation for retirement by filling in the coverage gaps
around employer-sponsored retirement plans. Moreover, as
described below, the arrangements we propose are designed to
set the stage for small employers to ``graduate'' from
offering payroll deduction to sponsoring an actual retirement
plan.

employee access to payroll deposit saving

The automatic IRA is a means of facilitating direct
deposits to a retirement account, giving employees access to
the power of direct deposit saving. In much the same way that
millions of employees have their pay directly deposited to
their account at a bank or other financial institution, and
millions more elect to contribute to 401(k) plans by payroll
deduction, employees would have the choice to instruct the
employer to send an amount they select directly from their
paychecks to an IRA. Employers generally would be required to
offer their employees the opportunity to save through such
direct deposit or payroll-deduction IRAs.
Direct deposit to IRAs is not new. In 1997, Congress
encouraged employers not ready or willing to sponsor a
retirement plan to at least offer their employees the
opportunity to contribute to IRAs through payroll deduction.
Both the IRS and the Department of Labor have issued
administrative guidance to publicize the payroll deduction or
direct deposit IRA option for employers and to ``facilitate
the establishment of payroll deduction IRAs.'' This guidance
has made clear that employers can offer direct deposit IRAs
without the arrangement being treated as employer
sponsorship of a retirement plan that is subject to ERISA
or qualified plan requirements. However, it appears that
few employers actually have direct deposit or payroll-
deduction IRAs--at least in a way that actively encourages
employees to take advantage of the arrangement. After some
years of encouragement by the government, direct deposit
IRAs have simply not caught on widely among employers and,
consequently, offer little opportunity for employees to
save.
With this experience in mind, we propose a new strategy
designed to induce employers to offer, and employees to take
up, direct deposit or payroll deposit saving.
Tax credit for employers that serve as conduit for employee
contributions
Under our proposal, firms that do not provide employees a
qualified retirement plan, such as a pension, profit-sharing,
or 401(k) plan, would be given an incentive (a temporary tax
credit) to offer those employees the opportunity to make
their own payroll deduction contributions to IRAs using the
employers' payroll systems as a conduit. The tax credit would
be available to a firm for the first two years in which it
offered payroll deposit saving to an IRA, in order to help
the firm adjust to any modest administrative costs associated
with the ``automatic IRA.'' This automatic IRA credit would
be designed to avoid competing with the tax credit available
under current law to small businesses that adopt a new
employer-sponsored retirement plan.

small business new plan startup credit

Under current law, an employer with 100 or fewer employees
that starts a new retirement plan for the first time can
generally claim a tax credit for a portion of its startup
costs. The credit equals 50 percent of the cost of
establishing and administering the plan (including educating
employees about the plan) up to $500 per year. The employer
can claim the credit of up to $500 for each of the first
three years of the plan.
Accordingly, the automatic IRA tax credit could be set, for
example, at $50 plus $10 per employee enrolled. It would be
capped at, say, $250 or $300 in the aggregate--low enough to
make the credit meaningful only for very small businesses,
and lower than the $500 three-year credit available under
current law for establishing a new employer plan. Employers
would be precluded from claiming both the new plan startup
credit and the proposed automatic IRA credit; otherwise,
somewhat larger employers might have a financial incentive to
limit a new plan to fewer than all of their employees in
order to earn an additional credit for providing payroll
deposit saving to other employees. As in the case of the
current new plan startup credit, employers also would be
ineligible for the credit if they had sponsored a retirement
plan during the preceding three years for substantially the
same group of employees covered by the automatic IRA.
Example: Joe employs four people in his auto body shop, and
currently does not sponsor a retirement plan for his
employees. If Joe chooses to adopt a 401(k) or SIMPLE-IRA
plan, he and each of his employees generally can contribute
up to $15,000 (401(k)) or $10,000 (SIMPLE) a year, and the
business might be required to make employer contributions.
Under this scenario, Joe can claim the startup tax credit for
50 percent of his costs over three years up to $500 per year.
Alternatively, if Joe decides only to offer his employees
payroll deposit to an IRA, the business will not make
employer contributions, and Joe can claim a tax credit for
each of the next two years of $50 plus $10 for each employee
who signs up to contribute out of his own salary.
Employers with more than 10 employees that have been in
business for at least two years and that still do not sponsor
any plan for their employees would be called upon to offer
employees this opportunity to save a portion of their own
wages using payroll deposit. If the employer sponsored a plan
designed to cover only a subset of its employees (such as a
particular subsidiary, division or other business unit), it
would have to offer the payroll deposit facility to the rest
of its workforce (i.e., employees not in that business unit)
other than employees excluded from consideration under the
qualified plan coverage standards (union-represented
employees or nonresident aliens)

[[Page S10296]]

and those in the permissible qualified plan eligibility
waiting period. The arrangement would be structured so as to
avoid, to the fullest extent possible, employer costs or
responsibilities. The tax credit would be available both to
those firms that are required to offer payroll deposit to all
of their employees and to the small or new firms that are not
required to offer the automatic IRA, but do so voluntarily.
The intent would be to encourage, without requiring, the
smallest employers to participate.
Acting as conduit entails little or no cost to employers
For many if not most employers, offering direct deposit or
payroll deduction IRAs would involve little or no cost.
Unlike a 401(k) or other employer-sponsored retirement plan,
the employer would not be maintaining a plan. First, there
would be no employer contributions: employer contributions to
direct deposit IRAs would not be required or permitted.
Employers willing to make retirement contributions for their
employees would continue to do so in accordance with the
safeguards and standards governing employer-sponsored
retirement plans, such as SIMPLE-IRAs, 401(k)s, and
traditional pensions. (The SIMPLE-IRA is essentially a
payroll deposit IRA with an employee contribution limit that
is in between the IRA and 401(k) limits and with employer
contributions, but without the annual reports, plan
documents, and most of the other administrative requirements
applicable to other employer plans.)
Employer-sponsored retirement plans are the saving vehicles
of choice and should be encouraged; the direct deposit IRA is
a fallback designed to apply to employees who are not
fortunate enough to be covered under an actual employer
retirement plan. (As discussed below, it is also intended to
encourage more employers to make the decision sooner or later
to ``graduate'' to sponsorship of an employer plan.)
Direct deposit or payroll deduction IRAs also would
minimize employer responsibilities. Firms would not be
required to: comply with plan qualification or ERISA rules;
establish or maintain a trust to hold assets (since IRAs
would receive the contributions); determine whether employees
are actually eligible to contribute to an IRA; select
investments for employee contributions; select among IRA
providers, or set up IRAs for employees.
Employers would be required simply to let employees elect
to make a payroll-deduction deposit to an IRA (in the manner
described below, with a standard notice informing employees
of the automatic IRA (payroll-deposit saving) option, and a
standard form eliciting the employee's decision to
participate or to opt out. Employer then would implement
deposits elected by employees. Employers would not be
required to remit the direct deposits to the IRA provider(s)
any faster than the timing of the federal payroll deposits
they are required to make. (Those deposits generally are
required to be made on a standard schedule, either monthly or
twice a week.) Nor would employers be required to remit
direct deposits to a variety of different IRAs specified by
their employees (as explained below).
A requirement to offer payroll-deduction to an IRA would by
no means be onerous. It would dovetail neatly with what
employers already do. Employers of course are already
required to withhold federal income tax and payroll tax from
employees' pay and remit those amounts to the federal tax
deposit system. While this withholding does not require the
employer to administer an employee election of the sort
associated with direct deposit to an IRA, the tax withholding
amounts do vary from employee to employee and depend on the
way each employee completes IRS Form W-4 (which employers
ordinarily obtain from new hires to help the employer comply
with income tax withholding). The employee's payroll deposit
IRA election might be made on an attachment or addendum to
the Form W-4. Because employees' salary reduction
contributions to IRAs would ordinarily receive tax-favored
treatment, the employer would report on Form W-2 the reduced
amount of the employee's taxable wages together with the
amount of the employee's contribution.
Direct deposit; automated fund transfers
Our proposed approach would seek to capitalize on the rapid
trend toward automated or electronic fund transfers. With the
spread of new, low-cost technologies, employers are
increasingly using automated or electronic systems to manage
payroll, including withholding and federal tax deposits, and
for other transfers of funds. It is common for employers to
retain an outside payroll service provider to perform these
functions, including direct deposit of paychecks to accounts
designated by employees or contractors. Other employers use
an on-line payroll service that offers direct deposit and
check printing (or that allows employers to write checks by
hand). Still others do not outsource their payroll tax and
related functions to a third-party payroll provider but do
use readily available software or largely paperless on-line
methods to make their federal tax deposits and perhaps other
fund transfers, just as increasing numbers of households pay
bills and manage other financial transactions on line. (The
IRS encourages employers to use its free Electronic Federal
Tax Payment System for making federal tax deposits.)
For the many firms that already offer their workers direct
deposit, including many that use outside payroll providers,
direct deposit to an IRA would entail no additional cost,
even in the short term, insofar as the employer's system has
unused fields that could be used for the additional direct
deposit destination. Other small businesses still write their
own paychecks by hand, complete the federal tax deposit forms
and Forms W-2 by hand, and deliver them to employees and to
the local bank or other depositary institution. Our proposal
would not require these employers to make the transition to
automatic payroll processing or use of on-line systems
(although it might have the beneficial effect of encouraging
such transitions).
At the same time, we would not be inclined to deny the
benefits of payroll deduction savings to all employees of
employers that do not yet use automatic payroll processing
(and we would not want to give small employers an incentive
to drop automatic payroll processing). These employees would
benefit from the ability to save through regular payroll
deposits at the workplace whether the deposits are made
electronically or by hand. Employees would still have the
advantages of tax-favored saving that, once begun, continues
automatically, that is more likely to begin because of
workplace enrollment arrangements and peer group
reinforcement, and need not cause a visible reduction in
take-home pay if begun promptly when employees are hired.
Accordingly, we would suggest a three-pronged strategy with
respect to employers that do not use automatic payroll
processing.
First, a large proportion of the employers that still
process their payroll by hand would be exempted under the
exception for very small employers described below. As a
result, this proposal would focus chiefly on those employers
that already offer their employees direct deposit of
paychecks but have not used the same technology to provide
employees a convenient retirement saving opportunity.
Second, employers would have the ease of ``piggybacking''
the payroll deposits to IRAs onto the federal tax deposits
they currently make. The process, including timing and
logistics, for both sets of deposits would be the same.
Accompanying or appended to the existing federal tax deposit
forms would be a similar payroll deposit savings form
enabling the employer to send all payroll deposit savings to
a single destination. The small employer who mails or
delivers its federal tax deposit check and form to the local
bank (or whose accountant or financial provider assists with
this) would add another check and form to the same mailing or
delivery.
Third, as noted, the existing convenient, low-cost on-line
system for federal tax deposits would be expanded to
accommodate a parallel stream of payroll deduction savings
payments.
Since employers making payroll deduction savings available
to their employees would not be required to make
contributions or to comply with plan qualification or ERISA
requirements with respect to these arrangements, the cost to
employers would be minimal. They would administer and
implement employee elections to participate or to opt out
through their payroll systems. On occasion, employers might
need to address mistakes or misunderstandings regarding
employee payroll deductions and deposit directions. The time
and attention required of the employer could generally be
expected to be minimized through orderly communications,
written or electronic, between employees and employers,
facilitated by the use of standard forms that ``piggyback''
on the existing IRS forms such as the W-4 used by individuals
to elect levels of income tax withholding.
Exemption for small and new employers
As discussed, the requirement to offer payroll deposit to
IRAs as a substitute for sponsoring a retirement plan would
not apply to the smallest firms (those with up to 10
employees) or to firms that have not been in business for at
least two years. However, even small or new firms that are
exempted would be encouraged to offer payroll deposit through
the tax credit described earlier. (In addition, a possible
approach to implementation of this program would be to
require payroll deposit for the first year or two only by
non-plan sponsors that are above a slightly larger size. This
would try out the new system and could identify any ``bugs''
or potential improvements before broader implementation.)
Employees of small employers that are exempted--like other
individuals who do not work for an employer that is part of
the payroll deposit system outlined here--would be able to
use other mechanisms to facilitate saving. These include the
ability to contribute by instructing the IRS to make a direct
deposit of a portion of an income tax refund, by setting up
an automatic debit arrangement for IRA contributions (perhaps
with the help of a professional or trade association), and by
other means discussed below.
Employee Participation
Like a 401(k) contribution, the amount elected by the
employee as a salary reduction contribution generally would
be tax-favored. It either would be a ``pre-tax'' contribution
to a traditional, tax-deductible IRA--deducted or excluded
from the employee's gross income for tax purposes--or a
contribution to a Roth IRA, which instead receives tax-
favored treatment upon distribution. An employee who did not
qualify to

[[Page S10297]]

make a deductible IRA contribution or a Roth IRA contribution
(for example, because of income that exceeds the applicable
income eligibility thresholds), would be responsible for
making the appropriate adjustment on the employee's tax
return. The statute would specify which type of IRA is the
default, and the firm would have no responsibility for
ensuring that employees satisfied the applicable IRA
requirements.
It is often argued that a Roth IRA is the preferred
alternative for lowerincome individuals on the theory that
their marginal income tax rates are likely to increase as
they become more successful economically. The argument is
often made also that a Roth is preferable for many others on
the assumption that federal budget deficits will cause income
tax rates to rise in the future. On either of those
assumptions, all other things being equal, the Roth's tax
advantage for payouts would likely be more valuable than the
traditional IRA's tax deduction for contributions. In
addition, the Roth, by producing less taxable income in
retirement years, could avoid exposing the individual to a
higher rate of incomerelated tax on social security benefits
in retirement.
This point of view, however, may well overstate the
probability that our tax system, including the federal income
tax, social security taxes, and the tax treatment of the Roth
IRA, will continue essentially as it is. If, instead of
increasing marginal tax rates, we moved to a consumption or
value added tax or another system that exempts savings or
retirement savings from tax--or if a future Congress
eliminated or limited the Roth income tax (and social
security benefits tax) advantages--the choice of a Roth over
a deductible IRA would entail giving up the proverbial bird
in the hand for two in the bush.
Because the automatic IRA proposal would encourage but not
require individuals to save, the associated incentives for
saving are important. The instant gratification taxpayers can
obtain from a deductible IRA might do more to motivate many
households than the government's long-term promise of an
uncertain tax benefit in an uncertain future. (In addition,
by shifting the loss of tax revenues beyond the congressional
budget ``window'' period, the Roth also presents a special
challenge to a policy of fiscal responsibility.) Accordingly,
we are inclined to make the traditional IRA the default but
to allow individuals to elect payroll deposits to a Roth.
Employees covered
Employees eligible for payroll deposit savings might be,
for example, employees who have worked for the employer on a
regular basis (including parttime) for a specified period of
time and whose employment there is expected to continue.
Employers would not be required, however, to offer direct
deposit savings to employees they already cover under a
retirement plan, including employees eligible to contribute
(whether or not they actually do so) to a 401(k)-type salary-
reduction arrangement. Accordingly, as discussed, an employer
that limits retirement plan coverage to a portion of its
workforce generally would be required to offer direct deposit
or other payroll deduction saving to the rest of the
workforce.

the automatic ira

Obstacles to participation
Even if employers were required to offer direct deposit to
IRAs, various impediments would prevent many eligible
employees from taking advantage of the opportunity. To save
in an IRA, individuals must make a variety of decisions and
must overcome inertia. At least five key questions are
involved in the process for employees:
a) whether to participate at all;
b) where (with which financial institution) to open an IRA
(or, if they have an IRA already, whether to use it or open a
new one);
c) whether the IRA should be a traditional or Roth IRA;
d) how much to contribute to the IRA; and
e) how to invest the IRA.
Once these decisions have been made, the individual must
still take the initiative to fill out the requisite paperwork
(whether on paper or electronically) to participate. Even in
401(k) plans, where decisions (b) and, unless the plan offers
a Roth 401(k) option, (c) are not required, millions of
employees are deterred from participating because of the
other three decisions or because they simply do not get
around to enrolling in the plan.
Overcoming the obstacles to participation: Encouraging
automatic enrollment
These obstacles can be overcome by making participation
easier and more automatic, in much the same way as is being
done increasingly in the 401(k) universe. An employee
eligible to participate in a 401(k) plan automatically has a
savings vehicle ready to receive the employee's contributions
(the plan sponsor sets up an account in the plan for each
participating employee) and benefits from a powerful
automatic savings mechanism in the form of regular payroll
deduction. With payroll deduction as the method of saving,
deposits continue to occur automatically and regularly--
without the need for any action by the employee--once the
employee has elected to participate. And finally, to jump-
start that initial election to participate, an increasing
percentage of 401(k) plan sponsors are using ``automatic
enrollment.''
Auto enrollment tends to work most effectively when it is
followed by gradual escalation of the initial contribution
rate. The automatic contribution rate can increase either on
a regular, scheduled basis, such as 4 percent in the first
year, 5 percent in the second year, etc., or in coordination
with future pay raises. But if the default mode is
participation in the plan (as it is under auto enrollment),
employees no longer need to overcome inertia and take the
initiative in order to save; saving happens automatically,
even if employees take no action.
Employers offering payroll deposit saving to an IRA should
be explicitly permitted to arrange for appropriate automatic
increases in the automatic IRA contribution rate. However, an
employer facilitating saving in an automatic IRA has far less
of an incentive to use automatic escalation (or to set the
initial automatic contribution rate as high as it thinks
employees will accept) than an employer sponsoring a 401(k)
plan. The 401(k) sponsor generally has a financial incentive
to encourage nonhighly compensated employees to contribute as
much as possible, because their average contribution level
determines how much highly compensated employees can
contribute under the 401(k) nondiscrimination standards.
Because no nondiscrimination standards apply to IRAs,
employers have no comparable incentive to maximize
participation and contributions to IRAs.
Automatic enrollment, which has typically been applied to
newly hired employees (as opposed to both new hires and
employees who have been with the employer for some years),
has produced dramatic increases in 401(k) participation. This
is especially true in the case of lower-income and minority
employees. In view of the basic similarities between employee
payroll-deduction saving in a 401(k) and under a direct
deposit IRA arrangement, the law should, at a minimum,
permit employers to automatically enroll employees in
direct deposit IRAs.
The conditions imposed by the Treasury Department on 401(k)
auto enrollment would apply to direct or payroll deposit IRA
auto enrollment as well: all potentially auto enrolled
employees must receive advance written notice (and annual
notice) regarding the terms and conditions of the saving
opportunity and the auto enrollment, including the procedure
for opting out, and all employees must be able to opt out at
any time.
It is not at all clear, however, whether simply allowing
employers to use auto enrollment with direct deposit IRAs
will prove to be effective. A key motivation for using auto
enrollment in 401(k) plans is to improve the plan's score
under the 401(k) nondiscrimination test by encouraging more
moderate- and lower-paid (``nonhighly compensated'')
employees to participate, which in turn increases the
permissible level of tax-preferred contributions for highly
compensated employees. This motivation is absent when the
employer is merely providing direct deposit IRAs, rather than
sponsoring a qualified plan such as a 401(k), because no
nondiscrimination standards apply unless there is a plan.
A second major motivation for using 401(k) auto enrollment
in many companies is management's sense of responsibility or
concern for employees and their retirement security. Many
executives involved in managing employee plans and benefits
have opted for auto enrollment because they believe far too
many employees are saving too little and investing unwisely
and need a strong push to ``do the right thing'' and take
advantage of the 401(k) plan. This motivation--by no means
present in all employers--is especially unlikely to be
driving an employer that merely permits payroll deposit to
IRAs without sponsoring a retirement plan.
Third, employers might have greater concern about potential
employee reaction to auto enrollment in the absence of an
employer matching contribution. The high return on employees'
investment delivered by the typical 401(k) match helps give
confidence to 401(k) sponsors using auto enrollment that they
are doing right by their employees and need not worry unduly
about potential complaints from workers who failed to read
the notice.
Finally, an employer concern that has made some plan
sponsors hesitate to use auto enrollment with 401(k) plans
might loom larger in the case of auto enrollment with direct
deposit IRAs. This is the concern about avoiding a possible
violation of state laws that prohibit deductions from
employee paychecks without the employee's advance written
authorization. Assuming most direct deposit IRA arrangements
are not employer plans governed by ERISA, such state laws, as
they apply to automatic IRAs, may not be preempted by ERISA
because they do not ``relate to any employee benefit plan.''
For reasons such as these, without a meaningful change in the
law, most employers that are unwilling to offer a qualified
plan today are unlikely to take the initiative to
automatically enroll employees in direct deposit IRAs.
Not requiring employers to use automatic enrollment
One possible response would be to require employers to use
automatic enrollment in conjunction with the direct deposit
IRAs (while giving the employers a tax credit and legal
protections). The argument for such a requirement would be
that it would likely increase participation dramatically
while preserving employee choice (workers could always opt
out), and that, for the reasons summarized above, employers
that do not provide a qualified plan (or a match) are
unlikely to use auto enrollment voluntarily.

[[Page S10298]]

The arguments against such a requirement include the concern
that a workforce that presumably has not shown sufficient
demand for a qualified retirement plan to induce the employer
to offer one might react unfavorably to being automatically
enrolled in direct deposit savings without a matching
contribution. (In addition, some small business owners who
have only a few employees and work with all of them on a
daily basis might take the view that automatic enrollment is
unnecessary because of the constant flow of communication
between the owner and each employee.)
It is noteworthy, however, that recent public opinion
polling shows strong support among registered voters for
making saving easier by making it automatic, with 71 percent
of respondents favoring a fully automatic 401(k), including
automatic enrollment, automatic investment, and automatic
contribution increases over time, with the opportunity to opt
out at any stage. A vast majority (85 percent) of voters said
that if they were automatically enrolled in a 401(k), they
would not opt out, even when given the opportunity to do so.
In addition, given the choice, 59 percent of respondents
preferred a workplace IRA with automatic enrollment to one
without.
Requiring explicit ``Up or Down'' employee elections while
encouraging auto enrollment
An alternative approach that has been used in 401(k) plans
and might be particularly well suited to payroll deposit
savings is to require all eligible employees to submit an
election that explicitly either accepts or declines direct
deposit to an IRA. Instead of treating employees who fail to
respond as either excluded or included, this ``up or down''
election approach has no default. There is evidence
suggesting that requiring employees to elect one way or the
other can raise 401(k) participation nearly as much as auto
enrollment does. Requiring an explicit election picks up many
who would otherwise fail to participate because they do not
complete and return the enrollment form due to
procrastination, inertia, inability to decide on investments
or level of contribution, and the like.
Accordingly, a possible strategy for increasing
participation in payroll deposit IRAs would be to require
employers to obtain a written (including electronic) ``up or
down'' election from each eligible employee either accepting
or declining the direct deposit to an IRA. Under this
strategy, employers that voluntarily auto enroll their
employees in the direct deposit IRAs would be excused from
the requirement that they obtain an explicit election from
each employee because all employees who fail to elect would
be participating. This exemption--treating an employer's use
of auto enrollment as an alternative means of satisfying its
required-election obligation--would add an incentive for
employers to use auto enrollment without requiring them to
use it. Any firms that prefer not to use auto enrollment
would simply obtain a completed election from each employee,
either electronically or on a paper form. And either way--
whether the employer chose to use auto enrollment or the
required-election approach--participation would likely
increase significantly, perhaps even approaching the level
that might be achieved if auto enrollment were required for
all payroll deposit IRAs.
This combined strategy for promoting payroll deposit IRA
participation could be applied separately to new hires and
existing employees: thus, an employer auto enrolling new
hires would be exempted from obtaining completed elections
from all new hires (but not from existing employees), while
an employer auto enrolling both new hires and existing
employees would be excused from having to obtain elections
from both new hires and existing employees.
The required election would not obligate employers to
obtain a new election from each employee every year. Once an
employee submitted an election form, that employee would not
be required to make another election: as in most 401(k)
plans, the initial election would continue throughout the
year and from year to year unless and until the employee
chose to change it. Similarly, an employee who failed to
submit an election form and was auto enrolled by default in
the payroll deposit IRA would continue to be auto enrolled
unless and until the employee took action to make an explicit
election.
To maximize participation, employers would receive a
standard enrollment module reflecting current best practices
in enrollment procedures. A nationwide website with standard
forms would serve as a repository of state-of-the-art best
practices in and savings education. The use of automatic
enrollment (whereby employees automatically are enrolled at a
statutorily specified rate of contribution--such as 3% of
pay--unless they opt out) would be encouraged in two ways.
First, the standard materials provided to employers would be
framed so as to present auto enrollment as the presumptive or
perhaps even the default enrollment method, although
employers would be easily able to opt out in favor of simply
obtaining an ``up or down'' response from all employees. In
effect, such a ``double default'' approach would use the same
principle at both the employer and employee level by auto
enrolling employers into auto enrolling employees. Second, as
noted, employers using auto enrollment to promote
participation would not need to obtain responses from
unresponsive employees.
Compliance and enforcement
Employers' use of the required-election approach would also
help solve an additional problem--enforcing compliance with a
requirement that employers offer direct deposit savings. As a
practical matter, many employers might question whether the
IRS would ever really be able to monitor and enforce such a
requirement. Employers may believe that, if the IRS asked an
employer why none of its employees used direct deposit IRAs,
the employer could respond that it told its employees about
this option and they simply were not interested. However, if
employers that were required to offer direct deposit savings
had to obtain a signed election from each eligible employee
who declined the payroll deposit option, employers would know
that the IRS could audit their files for each employee's
election. This by itself would likely improve compliance.
In fact, a single paper or e-mail notice could advise the
employee of the opportunity to engage in payroll deduction
savings and elicit the employee's response. The notice and
the employee's election might be added or attached to IRS
Form W-4. (As noted, the W-4 is the form an employer
ordinarily obtains from new hires and often from other
employees to help the employer comply with its income tax--
withholding obligations.) If the employer chose to use auto
enrollment, the notice would also inform employees of that
feature (including the default contribution level and
investment and the procedure for opting out), and the
employer's records would need to show that employees who
failed to submit an election were in fact participating in
the payroll deduction savings.
Employers would be required to certify annually to the IRS
that they were in compliance with the payroll deposit savings
requirements. This might be done in conjunction with the
existing IRS Form W-3 that employers file annually to
transmit Forms W-2 to the government. Failure to offer
payroll deposit savings would ultimately need to be backed up
by an appropriate sanction, such as the threat of civil
monetary penalties or an excise tax.
Portability of savings
IRAs are inherently portable. Unlike a 401(k) or other
employer plan, an IRA survives and functions independently of
the individual saver's employment status. Thus the IRA owner
is not at risk of forfeiting or losing the account or
suffering an interruption in the ability to contribute when
changing or losing employment. As a broad generalization, the
automatic IRAs outlined here presumably would be freely
transferable to and with other IRAs and qualified plans that
permit such transfers. (However, as discussed below, the
investment limitations and other cost-containment features of
these IRAs raise the issue of whether transferability to
other types of vehicles should be subject to
restrictions.)

making a savings vehicle available

Most current direct deposit arrangements use a payroll-
deduction savings mechanism similar to the 401(k), but,
unlike the 401(k), do not give the employee a ready-made
vehicle or account to receive deposits. The employee must
open a recipient account and must identify the account to the
employer. However, where the purpose of the direct deposit is
saving, it would be useful to many individuals who would
rather not choose a specific IRA to have a ready-made
fallback or default account available for the deposits.
Under this approach, modeled after the SIMPLE-IRA, which
currently covers an estimated 2 million employees,
individuals who wish to direct their contributions to a
specific IRA would do so. The employer would follow these
directions as employers ordinarily do when they make direct
deposits of paychecks to accounts specified by employees. At
the same time, the employer would also have the option of
simplifying its task by remitting all employee contributions
in the first instance to IRAs at a single private financial
institution that the employer designates. However, even in
this case, employees would be able to transfer the
contributions, without cost, from the employer's designated
financial institution to an IRA provider chosen by the
employee.
By designating a single IRA provider to receive all
contributions, the employer could avoid the potential
administrative hassles of directing deposits to a multitude
of different IRAs for different employees, while employees
would be free to transfer their contributions from the
employer's designated institution to an IRA provider of their
own choosing. Even this approach, though, still places a
burden on either the employer or the employee to choose an
IRA. For many small businesses, the choice might not be
obvious or simple. In addition, the market may not be very
robust because at least some of the major financial
institutions that provide IRAs may well not be interested in
selling new accounts that seem unlikely to grow enough to be
profitable within a reasonable time. Some of the major
financial firms appear to be motivated at least as much by a
desire to maximize the average account balance as by the goal
of maximizing aggregate assets under management. They
therefore may shun small accounts that seem to lack much
potential for rapid growth.
The current experience with automatic rollover IRAs is a
case in point. Firms are required to establish these IRAs as
a default vehicle for qualified plan participants whose
employment terminates with an account balance of not more
than $5,000 and who fail to provide any direction regarding
rollover or

[[Page S10299]]

other payout. The objective is to reduce leakage of benefits
from the tax-favored retirement system by stopping
involuntary cashouts of account balances between $1,000 and
$5,000. (Plan sponsors continue to have the option to cash
out balances of up to $1,000 and to retain in the plan
account balances between $1,000 and $5,000 instead of rolling
them over to an IRA.) Because plan sponsors are required to
set up IRAs only for ``unresponsive'' participants--those who
fail to give instructions as to the disposition of their
benefits--these IRAs are presumed to be less likely than
other IRAs are to attract additional contributions.
Accordingly, significant segments of the IRA provider
industry have not been eager to cater to this segment of the
market. As a result, plan sponsors have tended to reduce
their cashout level from $5,000 to $1,000 so that new IRAs
would not have to be established.
For somewhat similar reasons, IRA providers might expect
payroll deposit IRAs to be less profitable than other
products. As a result, employers and employees might well
find that providers are not marketing to them aggressively
and that the array of payroll deposit IRA choices is
comparatively limited.
The prospect of tens of millions of personal retirement
accounts with relatively small balances likely to grow
relatively slowly suggests that the market may need to be
encouraged to develop widely available low-cost personal
accounts or IRAs. Otherwise, for ``small savers,'' fixed-cost
investment management and administrative fees may consume too
much of the earnings on the account and potentially even
erode principal.
A standard default account
Accordingly, to facilitate saving and minimize costs, we
believe that a strong case can be made for a default IRA that
would be automatically available to receive direct deposit
contributions without requiring either the employee or
employer to choose among IRA providers and without requiring
the employee to take the initiative to open an IRA. Under
this approach, for the convenience of both employees and
employers, those who wish to save but have no time or taste
for the process of locating and choosing an IRA would be able
to use a standard default, or automatic, account. If neither
the employer nor the employee designated a specific IRA
provider, the contributions would go to a personal retirement
account within a plan that would in some respects resemble
the federal Thrift Savings Plan (the 401(k)-type retirement
savings plan that covers federal government employees).
These standard default accounts would be maintained and
operated by private financial institutions under contract
with the federal government. To the fullest extent
practicable, the private sector would provide the investment
funds, investment management, record keeping, and related
administrative services. To serve as a default account for
direct deposits that have not been directed elsewhere by
employers or employees, an account need not be maintained by
a governmental entity. Given sufficient quality control and
adherence to reasonably uniform standards, various private
financial institutions could contract to provide the default
accounts, on a collective or individual institution basis,
more or less interchangeably--perhaps allocating customers on
a geographic basis or in accordance with other
arrangements based on providers' capacity. These fund
managers could be selected through competitive bidding.
Once individual default accounts reached a predetermined
balance (e.g., $15,000) sufficient to make them
potentially profitable for many private IRA providers,
account owners would have the option to transfer them to
IRAs of their choosing.
Cost containment
Both the direct deposit IRAs expressly selected by
employees and employers and the standardized direct deposit
IRAs that serve as default vehicles would be designed to
minimize the costs of investment management and account
administration. It should be feasible to realize substantial
cost savings through index funds, economies of scale in asset
management and administration, uniformity, and electronic
technologies.
In accordance with statutory guidelines for all direct
deposit IRAs, government contract specifications would call
for a no-frills approach to participant services in the
interest of minimizing costs. By contrast to the wide open
investment options provided in most current IRAs and the high
(and costlier) level of customer service provided in many
401(k) plans, the standard account would provide only a few
investment options (patterned after the Thrift Savings Plan,
if not more limited), would permit individuals to change
their investments only once or twice a year, and would
emphasize transparency of investment and other fees and other
expenses.
Specifically, costs of direct deposit IRAs might be reduced
by federal standards that, to the extent possible,
Exclude brokerage services and retail equity funds from the
investment options available under the IRA.
Limit the number of investment options under the IRA.
Allow individuals to change their investments only once or
twice per year.
Specify a low-cost default investment option and provide
that, if any of an individual's account balance is invested
in the default option, all of it must be.
Prohibit loans (IRAs do not allow them in any event) and
perhaps limit preretirement withdrawals.
Limit access to customer service call centers.
Preclude commissions.
Make compliance testing unnecessary.
Give account owners only a single account statement per
year (especially if daily valuation is built into the system
and is available to account owners).
Encourage the use of electronic and other new technologies
(including enrollment on a web site) for fund transfers,
record keeping, and communications among IRA providers,
participating employees, and employers to reduce paperwork
and cost. Electronic administration has considerable
potential to cut costs.
The availability to savers of a major low-cost personal
account alternative in the form of the standard account may
even help, through market competition, to drive down the
costs and fees of IRAs offered separately by private
financial institutions. Through efficiencies associated with
collective investment and greater uniformity, the standard
account should help move the system away from the retail-type
cost structure characteristic of current IRAs. It should also
help create a broad infrastructure of individual savings
accounts that would cover most of the working population.
In conjunction with these steps, Congress and the
regulators may be able to do more to require simplified,
uniform disclosure and description of IRA investment and
administrative fees and charges (building on previous work by
the Department of Labor relating to 401(k) fees). Such
disclosure should help consumers compare costs and thereby
promote healthy price competition.
Another approach would begin by recognizing the trade-off
between asset management costs and investment types. As a
broad generalization, asset management charges tend to be low
for money market funds, certificates of deposit, and certain
other relatively low-risk, lower-return investments that
generally do not require active management. However, it
appears that limiting individual accounts to these types of
investments would be unnecessarily restrictive. As discussed
below (under ``Default Investment Fund''), passively managed
index funds, such as those used in the Thrift Savings Plan,
are also relatively inexpensive.
A very different approach to cost containment would be to
impose a statutory or regulatory limitation on investment
management and administrative fees that providers could
charge. One example is the United Kingdom's limit on
permissible charges for management of ``stakeholder pension''
accounts--an annual 150 basis point fee cap for five years
that is scheduled to drop to 100 basis points thereafter. As
another and more limited example, the U.S. Department of
Labor has imposed a kind of limitation on fees charged by
providers of automatic rollover IRAs established by employers
for terminating employees who fail to provide any direction
regarding the disposition of account balances of up to
$5,000. Labor regulations provide a fiduciary safe harbor
for auto rollover IRAs that preserve principal and that do
not charge fees greater than those charged by the IRA
provider for other IRAs it provides.
Presumably, a mandatory limit would give rise to potential
cross-subsidies from products that are free of any limit on
fees to the IRAs that are subject to the fee limit--a result
that could be viewed either as an inappropriate distortion or
as a necessary and appropriate allocation of resources. We
would view a mandatory limit as a last resort, preferring the
market-based strategies outlined above.
Default investment fund
Both the IRAs offered independently by private financial
institutions and explicitly selected by employees or
employers and the default IRAs would serve the important
purpose of providing low-cost professional asset management
to millions of individual savers, presumably improving their
aggregate investment results. To that end, all of these
accounts would offer a similar, limited set of investment
options, including a default investment fund in which
deposits would automatically be invested unless the
individual chose otherwise. This default investment would be
a highly diversified ``target asset allocation'' or ``life-
cycle'' fund comprised of a mix of equities and fixed income
or stable value investments, and probably relying heavily on
index funds. (The life-cycle funds recently introduced into
the federal Thrift Savings Plan are one possible model.) A
portion or all of the fixed income component could be
comprised of Treasury inflation protected securities
(``TIPS'') to protect against the risk of inflation.
The mix of equities and fixed income would be intended to
reflect the consensus of most personal investment advisers,
which emphasizes sound asset allocation and diversification
of investments--including exposure to equities (and perhaps
other assets that have higher-risk and higher-return
characteristics), at least given the foundation of retirement
income already delivered through Social Security and assuming
the funds will not shortly be needed for expenses. The use of
index funds would avoid the costs of active investment
management while promoting wide diversification.
This default investment would actually consist of several
different funds, depending on the individual's age, with the
more conservative investments (such as those relying

[[Page S10300]]

more heavily on TIPS) applicable to older individuals who are
closer to the time when they might need to use the funds.
Individuals who selected the default fund or were defaulted
into it would have their account balances entirely invested
in that fund. However, they would be free to exit the fund at
specified times and opt for a different investment option
among those offered within the IRA.
The standard automatic (default) investment would also
serve two other key purposes. It would encourage employee
participation in direct deposit savings by enabling employees
who are satisfied with the default to simplify what may be
the most difficult decision they would otherwise be required
to make as a condition of participation (i.e., how to
invest). Finally, the standard default investment should
encourage more employers to use automatic enrollment (thereby
boosting employee participation) by saving them from having
to choose a default investment. This, in turn, would make it
easier to protect employers from responsibility for IRA
investments, especially employers using automatic enrollment
(as discussed below).
We would not fully specify the default investment by
statute. It is desirable to maintain a degree of flexibility
in order to reflect a consensus of expert financial advice
over time. Accordingly, general statutory guidelines would be
fleshed out at the administrative level after regular comment
by and consultation with private-sector investment experts.
An additional and major design issue is whether the
standard, limited set of investment options for payroll
deposit IRAs should be only a minimum set of options in each
IRA, so that the IRA provider would be permitted to provide
any additional options it wished. Limiting the IRAs to these
specified options would best serve the purposes of containing
costs, improving investment results for IRA owners in the
aggregate, and simplifying individuals' investment choices.
At the same time, such restrictions would constrain the
market, potentially limit innovation, and limit choice for
individuals who prefer other alternatives.
One of the ways to resolve this tradeoff would be to limit
direct deposit IRAs to the prescribed array of investment
options without imposing any comparable limits on other IRAs,
and to allow owners of direct deposit IRAs (including default
IRAs) to transfer or roll over their account balances between
the two classes of accounts. Under this approach, the owner
of a direct deposit IRA could transfer the account balance to
other (unrestricted) IRAs that are willing to accept such
transfers (but perhaps only after the account balance reaches
a specified amount that would no longer be unprofitable to
most IRA providers). While such a transfer to an unrestricted
IRA would deprive the owner of the cost-saving advantages of
the no-frills, limited-choice model, such a system would
still enable individuals to retain the efficiencies and cost
protection associated with the standard low-cost model if
they so choose.
Employers protected from any risk of fiduciary liability
Employers traditionally have been particularly concerned
about the risk of fiduciary liability associated with their
selection of retirement plan investments.
This concern extends to the employer's designation of
default investments that employees are free to decline in
favor of alternative investments. In the IRA universe,
employers transferring funds to automatic rollover IRAs and
employer-sponsored SIMPLE-IRAs retain a measure of fiduciary
responsibility for initial investments.
By contrast, under our proposal, employers making direct
deposits would be insulated from such potential liability.
These employers would have no liability or fiduciary
responsibility with respect to the manner in which direct
deposits are invested in default IRAs or in nondefault IRAs
(whether selected by the employer or the employee), nor would
employers be exposed to potential liability with respect to
any employee's choice of IRA provider or type of IRA. This
protection of employers is facilitated by statutory
designation of standard investment types that reduces the
need for continuous professional investment advice. To
protect workers against inappropriate IRA providers or
inappropriate employer selection of IRA providers while
continuing to insulate employers from fiduciary
responsibility, employers could be precluded from imposing a
particular IRA provider on its employees other than the
government-contracted default IRA or could be constrained to
choose among an approved list of providers based on capital
adequacy, soundness, and other criteria.
Public opinion polling
Recent public opinion polling has shown overwhelming
support for payroll deduction direct deposit saving. Among
registered voters surveyed, 83 percent of respondents said
they would be agreeable to having their employer offer to
sign them up for an IRA and allow them to contribute to it
through direct deposit of a small amount from their paycheck
to help them save for retirement. Similarly, 79 percent of
registered voters expressed support (and 54 percent expressed
``strong'' support) for giving taxpayers the option to have
part of their income tax refund deposited into a retirement
savings account such as an IRA by just checking a box on
their tax return.
In addition, the polling shows very strong support for a
requirement that goes far beyond our proposal, that every
company offer its employees some kind of retirement plan--
such as a pension or 401(k), or at least an IRA to which
employees could contribute. Among registered voters surveyed
in August 2005, 77 percent supported such a requirement (and
59 percent responded that they were ``strongly'' in support).
As discussed, the approach described in this paper would not
require employers to offer their employees retirement plans,
but would give firms a financial incentive to offer their
employees access to payroll deduction as a convenient and
easy means of saving, and would require firms above a certain
size and maturity to extend this offer to their employees.

the importance of protecting employer plans

Employer-sponsored pension, profit-sharing, 401(k), and
other plans can be particularly effective--more so than
IRAs--in accumulating benefits for employees. As noted
earlier, the participation rate in 401(k)s, for example,
tends to range from two thirds to three quarters of eligible
employees, in contrast to IRAs, in which fewer than 1 in
10 eligible individuals participates. Employer plans tend
to be far more effective than IRAs at providing coverage
because of a number of attributes: for one thing, pension
and profit-sharing plans, for example, are funded by
employer contributions that automatically are made for the
benefit of eligible employees without requiring the
employee to take any initiative in order to participate.
Second, essentially all tax-qualified employer plans must
abide by standards that either seek to require reasonably
proportionate coverage of rank and-file workers or give
the employer a distinct incentive to encourage widespread
participation by employees. This encouragement typically
takes the form of both employer-provided retirement
savings education efforts and employer matching
contributions. The result is that the naturally eager
savers, who tend to be in the higher tax brackets, tend to
subsidize or bring along the naturally reluctant savers,
who often are in the lowest (including zero) tax brackets.
Employer-sponsored retirement plans also have other
features that tend to make them effective in providing or
promoting coverage. As noted, the proposal outlined here
seeks to transplant some of these features to the IRA
universe. These include the automatic availability of a
saving vehicle, the use of payroll deduction (which continues
automatically once initiated), matching contributions
(further discussed below), professional investment
management, and peer group reinforcement of saving behavior.
The automatic IRA must thus be designed carefully to avoid
competing with or crowding out employer plans and to avoid
encouraging firms to drop or reduce the employer
contributions that many make to plan participants. Owners and
others who control the decision whether to adopt or continue
maintaining a retirement plan for employees should continue
to have incentives to sponsor such plans. The ability to
offer employees direct deposit to IRAs should be designed so
that it will not prompt employers to drop, curtail, or
refrain from adopting retirement plans.
Probably the single most important protection for employer
plans is to set maximum permitted contribution levels to the
automatic IRA so that they will be sufficient to meet the
demand for savings by most households but not high enough to
satisfy the appetite for tax-favored saving of business
owners or decision-makers. The average annual contribution to
a 401(k) plan by a nonhighly compensated employee is somewhat
greater than $2,000, and average annual 401(k) contributions
by employees generally tend to be on the order of 7 percent
of pay. A $3,000 contribution is 7.5 percent of pay for a
family earning $40,000, and 6 percent of pay for a family
earning $50,000.
Yet IRA contribution limits are already higher than these
contribution levels. IRAs currently allow a married couple to
contribute up to $8,000 ($4,000 each) on a tax-favored basis,
and an additional $1,000 ($500 each) if they are age 50 or
older. By 2008, these figures are scheduled to rise to
$10,000 plus $2,000 ($1,000 each) for those age 50 or older.
These amounts--the current $9,000 a year for those age 50 and
over ($8,000 for others) and the post-2007 $12,000 annual
amount for those age 50 and over ($10,000 for others)--may
well be enough to satisfy the desire of many small-business
owners for tax-favored retirement savings. Even some small-
business owners that might consider saving somewhat more than
$10,000 or $12,000 per year might well conclude that they are
better off not incurring the cost of making contributions and
providing a plan for their employees because the net benefit
to them of having a plan for employees is not greater than
the net benefit of simply saving through IRAs and giving
their employees access to IRAs.
Accordingly, at the most, payroll deposit IRAs should not
permit contributions above the current IRA dollar limits, and
could be limited to a lower amount such as $3,000. (A 3% of
pay contribution would remain below $3,000 for employees
whose compensation did not exceed $100,000.) Imposing a lower
limit on the payroll deduction IRA would reduce to some
degree the risk that employees will exceed the maximum IRA
dollar contribution limit because of auto enrollment,
combined with possible other contributions to an IRA. That is
already a risk under current

[[Page S10301]]

law, but the automatic nature of auto enrollment increases
the risk, especially if auto escalation is implemented. There
is a tradeoff between the desirability of limiting the
contribution amount (to mitigate both this risk and the risk
of competing with employer plans) and the simplicity of using
an existing vehicle (the IRA) ``as is''.
In any event, the employee--not the employer--would be
responsible for monitoring any of all of their IRA
contributions to comply with the maximum limit (in part
because employees can contribute on their own and through
multiple employers). The ultimate reconciliation would be
made by the individual when filing the federal income tax
return.
In addition, the automatic IRA should be designed to avoid
reducing ordinary employees' incentives to contribute to
employer-sponsored plans such as 401(k)s. If workers perceive
a program such as direct deposit savings to IRAs as a more
attractive destination for their contributions than an
employer-sponsored plan (for example, because of better
matching, tax treatment, investment options, or liquidity),
it could unfortunately divert employee contributions from
employer plans. This in turn could have a destabilizing
effect by making it difficult for employers to meet the
nondiscrimination standards applicable to 401(k)s and other
plans and therefore potentially discouraging employers from
continuing the plans or their contributions. While a detailed
discussion of these points is beyond the scope of this paper,
it is important to maintain a relationship between IRAs and
employer-sponsored retirement plans that preserves and
protects the employer plans.
Automatic payroll deduction can promote marketing and
adoption of employer plans
Our approach is designed not only to avoid causing any
reduction or contraction of employer plans, but actually to
promote expansion of employer plans. Consultants, third-party
administrators, financial institutions, and other plan
providers could be expected to view this proposal as
providing a valuable new opportunity to market 401(k)s,
SIMPLE-IRAs and other tax-favored retirement plans to
employers. Firms that, under this proposal, were about to
begin offering their employees payroll deduction saving or
had been offering their employees payroll deduction saving
for a year or two could be encouraged to ``trade up'' to an
actual plan such as a 401(k) or SIMPLE-IRA.
Especially because these plans can now be purchased at very
low cost, it would seem natural for many small businesses to
graduate from payroll deduction savings and complete the
journey to a qualified plan in order to obtain the added
benefits in terms of recruitment, employee relations, and
larger tax-favored saving opportunities for owners and
managers.
The following compares the maximum annual tax-favored
contribution levels for IRAs, SIMPLE-IRA plans and 401(k)
plans in effect for 2006:

------------------------------------------------------------------------
IRA SIMPLE-IRA 401(k)
------------------------------------------------------------------------
Under age 50................. $4,000 per $10,000 $15,000
spouse ($5,000
after 2007).
Age 50 and above............. $4,500 per $12,000 $20,000
spouse ($6,000
after 2007).
------------------------------------------------------------------------

In addition, as noted, small employers that adopt a new
plan for the first time are entitled to a tax credit of up to
$500 each year for three years. As discussed, the proposed
tax credit for offering payroll deposit would be smaller, so
as to maintain the incentive for employers to go beyond the
payroll deduction or direct deposit IRA and adopt an actual
plan such as a SIMPLE, 401(k), or other employer plan.

Encouraging Contributions by Nonemployees

The payroll deposit system outlined thus far would not
automatically cover self-employed individuals, employees of
the smallest or newest businesses that are exempt from any
payroll deposit obligation, or certain unemployed individuals
who can save. A strategy centered on automatic arrangements
can also make it easier for these people to contribute to
IRAs.
Encouraging automatic debit arrangements
For individuals who are not employees or who otherwise lack
access to payroll deduction, automatic debit arrangements can
serve as a counterpart to automatic payroll deduction.
Automatic debit enables individuals to spread payments out
over time and to make payments on a regular and timely basis
by having them automatically charged to and deducted from an
account--such as a checking or savings account or credit
card--at regular intervals on a set schedule. The individual
generally gives advance authorization to the payer that
manages the account or the recipient of the payment, or both.
The key is that, as in the case of payroll deduction, once
the initial authorization has been given, regular payments
continue without requiring further initiative on the part of
the individual. For many consumers, automatic debit is a
convenient way to pay bills or make payments on mortgages or
other loans without having to remember to make each payment
when due and without having to write and mail checks.
Similarly, as an element of an automatic IRA strategy,
automatic debit can facilitate saving while reducing
paperwork and cutting costs. For example, households can be
encouraged to sign up on-line for regular automatic debits to
a checking account or credit card that are directed to an IRA
or other saving vehicle. With on-line sign-up and monitoring,
steps can be taken to familiarize more households with
automatic debit arrangements and, via Internet websites and
otherwise, to make those arrangements easier to set up and
use as a mechanism for saving in IRAs.
Facilitating automatic debit iras through professional or
trade associations
Professional and trade associations could facilitate the
establishment of IRAs and the use of automatic debit and
direct deposit to the IRAs. Independent contractors and other
individuals who do not have an employer often belong to such
an association. The association, for example, might be able
to make saving easier for those members who wish to save by
making available convenient arrangements for automatic debit
of members' accounts. Association websites can make it easy
for members to sign up on line, monitor the automatic debit
savings, and make changes promptly when they wish to.
Although such associations generally lack the payroll-
deduction mechanism that is available to employers, they can
help their members set up a pipeline involving regular
automatic deposits (online or by traditional means) from
their personal bank or other financial accounts to an IRA
established for them.
Facilitating direct deposit of income tax refunds to IRAs
Another major element of a strategy to encourage
contributions outside of employment would be to allow
taxpayers to deposit a portion of their income tax refunds
directly into an IRA by simply checking a box on their tax
returns.
Currently, the IRS allows direct deposits of refunds to be
made to only one account. This all-or-nothing approach
discourages many households from saving any of the refund
because at least a portion of the refund is often needed for
immediate expenses. Allowing households instead to split
their refunds to deposit a portion directly into an IRA could
make saving simpler and, thus, more likely.
The Bush administration has supported divisible refunds in
its last three budget documents; however, the necessary
administrative changes have yet to be implemented. Since
federal income tax refunds total nearly $230 billion a year
(more than twice the estimated annual aggregate amount of net
personal savings in the United States), even a modest
increase in the proportion of refunds saved every year could
bring about a significant increase in savings.
Extending direct deposit to independent contractors
Millions of Americans are self-employed as independent
contractors. Many of these workers receive regular payments
from firms, but because they are not employees, they are not
subject to income tax or payroll tax withholding. These
individuals might be included in the direct deposit system by
giving them the right to request that the firm receiving
their services direct deposit into an IRA a specified portion
from the compensation that would otherwise be paid to them.
Compared to writing a large check to an IRA once a year,
this approach has several potential advantages to independent
contractors, which might well encourage them to save. These
include the ability to commit themselves to save a portion of
their compensation before they receive it (which, for some
people, makes the decision to defer consumption easier); the
ability to avoid having to make an affirmative choice among
various IRA providers; remittance of the funds by the firm by
direct deposit to the IRA; and, where payments are made to
the independent contractor on a regular basis, an arrangement
that, like regular payroll with holdings for employees,
automatically continues the pattern of saving through
repeated automatic payroll deductions unless and until the
individual elects to change.
In many cases, the independent service provider will not
have a sufficient connection to a firm that receives the
services, or both the independent contractor and the firm
will be unwilling to enter into a payroll deposit type of
arrangement. In such instances, the independent contractor
could contribute to an IRA using automatic debit (as
discussed above) or by sending together with the estimated
taxes that generally are due four times a year.
Matching deposits as a financial incentive
A powerful financial incentive for direct deposit saving by
those who are not in the higher tax brackets (and who
therefore derive little benefit from a tax deduction or
exclusion) would be a matching deposit to their direct
deposit IRA. One means of delivering such a matching deposit
would be via the bank, mutual fund, insurance carrier,
brokerage firm, or other financial institution that provides
the direct deposit IRA. For example, the first $500
contributed to an IRA by an individual who is eligible to
make deductible contributions to an IRA might be

[[Page S10302]]

matched by the private IRA provider on a dollar-for-dollar
basis, and the next $1,000 of contributions might be matched
at the rate of 50 cents on the dollar. The financial provider
would be reimbursed for its matching contributions through
federal income tax credits.
Recent evidence from a randomized experiment involving
matched contributions to IRAs suggests that a simple matching
deposit to an IRA can make individuals significantly more
likely to contribute and more likely to contribute larger
amounts.
Matching contributions--similar to those provided by most
401(k) plan sponsors--not only would help induce individuals
to contribute directly from their own pay, but also, if the
match were automatically deposited in the IRA, would add to
the amount saved in the IRA. The use of matching deposits,
however, would make it necessary to implement procedures
designed to prevent gaming--contributing to induce the
matching deposit, then quickly withdrawing those
contributions to retain the use of those funds. Among the
possible approaches would be to place matching deposits in a
separate subaccount subject to tight withdrawal rules and to
impose a financial penalty on early withdrawals of matched
contributions.
American households have a compelling need to increase
their personal saving, especially for long-term needs such as
retirement. This paper proposes a strategy that would seek to
make saving more automatic--hence easier, more convenient,
and more likely to occur--largely by adapting to the IRA
universe practices and arrangements that have proven
successful in promoting 401(k) participation. In our view,
the automatic IRA approach outlined here holds considerable
promise of expanding retirement savings for millions of
workers.

Mr. KERRY. Mr. President, I am pleased to join my colleagues Senators
Smith, Conrad, and Bingaman in introducing the Women's Retirement
Security Act of 2006. This legislation comes on the heels of the
passage of the Pension Protection Act of 2006, which makes improvements
to the defined benefit pension plan system.
The legislation that we are introducing today builds upon that
legislation and focuses on defined contribution plans. Our pension
system has shifted away from defined benefit plans to defined
contribution plans. We should make it easier for employers to offer
defined contribution plans and for individuals to participate in these
plans.
At a time when we have a negative savings rate that is the lowest
since the Great Depression, we should provide appropriate incentives to
help individuals save for retirement. In an effort to achieve this, the
Women's Retirement Security Act of 2006 focuses on increasing
retirement savings, the preservation of income, equity in divorce,
improving financial literacy, and encouraging small businesses to enter
and remain in the employer retirement plan system.
This legislation increases savings by allowing employees to
contribute a portion of their paycheck to an individual retirement
account (IRA) if their employer does not offer a pension plan.
Automatic IRAs will help the 71 million workers that do not have
employer-sponsored plans. It is a low-cost, sensible solution that
provides a stepping stone toward employer-sponsored retirement plans.
More workers are likely to contribute to an IRA if the contribution is
deducted from their payroll. Automatic IRAs will help combat the
inertia that is a factor in our low savings rate. The bill also
provides a tax credit to help small businesses with the cost of
implementation.
Women are often placed at a disadvantage in our retirement system
because they cycle in and out of the work force. The Women's Retirement
Security Act of 2006 addresses this issue by requiring employers that
offer defined contribution plans to cover part-time employees that meet
specific requirements.
Pension coverage needs to improve, particularly for small businesses.
In 2004, only 26 percent of workers at firms with fewer than 25
employees participated in pension plans. Progress has been made on
providing coverage to small businesses. Currently, more than 19 million
workers are covered by small business retirement plans, but more than
36 million Americans work for firms with less than 25 employees.
The Women's Retirement Security Act of 2006 provides a start-up
credit for new small business retirement contributions. In addition, it
removes rules that discourage small employers from adopting deferral
only plans.
______

By Mr. KERRY:
S. 3953. A bill to foster development of minority-owned small
businesses; to the Committee on Small Business and Entrepreneurship.
Mr. KERRY. Mr. President, I rise today to introduce the Minority
Entrepreneurship Development Act of 2006. It's especially appropriate
that this bill be introduced during Hispanic Heritage Month. Millions
of Latino Americans during this time reflect on their place in this
country and the positive contributions they have made here. One area
where we can be certain that the Hispanic community has made a
significant contribution is in business. The principled and strong
leadership of Hispanic Americans can be seen in corporate boards and
sole proprietorships alike. As a Nation, we must support the
development of the next generation of business leaders within the
Latino community. I believe that this legislation will help in that
effort.
This legislation is aimed at giving potential and burgeoning
entrepreneurs the tools they need to realize their goals. Whether those
goals include creating a small business that will employ people from
the community or taking a small business and making it into a major
enterprise, it's imperative that we develop the tools to help minority
small business owners succeed.
I want to take a moment and tell you why it's so important to expand
the numbers of entrepreneurs in the minority community. As the Ranking
Member on the Senate Committee on Small Business and Entrepreneurship,
I have received firsthand testimony and countless reports documenting
the positive economic impact that occurs when we foster
entrepreneurship in underserved communities. There are signs of
significant economic returns when minority businesses are created and
are able to grow in size and capacity. Between 1987 and 1997, revenue
from minority owned firms rose by 22.5 percent, an increase equivalent
to an annual growth rate of 10 percent. Employment opportunities within
minority owned firms increased by 23 percent during that same period.
There is a clear correlation between the growth of minority owned firms
and the economic viability of the minority community.
Although, these economic numbers tell a significant part of the
story, they don't tell the whole story of what these firms mean to the
minority communities they serve and represent. Many of these business
leaders are first generation immigrants; many are first generation
business owners and many represent, for those in their communities,
what hard work, determination and patience can do.
We must encourage those kinds of values in our minority communities
and, quite frankly, in our nation as a whole. For generations, millions
have come to our shores in search of a better life. Millions of others
were brought here by force and for years were not given a voice in how
their lives would turn out. But how ever we got here, we all have
become branches of this great tree we call America. This tree is still
nourished by roots planted by our forefathers more than 200 years ago.
Those men and women planted the roots of hard work, innovation, faith
and risk taking.
When you think about it, those words are the perfect description of
an entrepreneur. It is the spirit of entrepreneurship that has made our
nation great. And that is why it is absolutely imperative that we
continue to support and develop that spirit in our minority
communities. To that end, this legislation provides several tools to
help minority entrepreneurs as they develop and grow their businesses.
First, this legislation will create an Office of Minority Small
Business Development. One of its primary functions will be to increase
the number of small business loans that minority businesses receive.
Latinos, African-Americans, Asian-Americans and women have been
receiving far fewer small business loans than they reasonably should.
To ensure that this trend is reversed and minorities begin to get a
greater share of loan dollars, venture capital investments, counseling,
and contracting opportunities, this bill will give the new office the
authority to monitor the outcomes for programs under Capital Access,
Entrepreneurial Development, and Government Contracting. It also
requires the head of

[[Page S10303]]

the Office to work with SBA's partners, trade associations and business
groups to identify more effective ways to market to minority business
owners, and to work with the head of Field Operations to ensure that
district offices have staff and resources to market to minorities.
Second, this legislation will create the Minority Entrepreneurship
and Innovation Pilot Program. This program will offer a competitive
grant to Historically Black Colleges and Universities, Tribal Colleges,
and Hispanic-Serving Institutions to create an entrepreneurship
curriculum at these institutions and to open Small Business Development
Centers on campus to serve local businesses.
The goal of this program is to target students in highly skilled
fields such as engineering, manufacturing, science and technology, and
guide them towards entrepreneurship as a career option. Traditionally,
minority-owned businesses are disproportionately represented in the
service sectors. Promoting entrepreneurial education to undergraduate
students will help expand business ownership beyond the service sectors
to higher yielding technical and financial sectors.
Third, this legislation will create the Minority Access to
Information Distance Learning Pilot Program. This program will offer
competitive grants to well established national minority non-profit and
business organizations to create distance learning programs for small
business owners who are interested in doing business with the federal
government.
The goal of this program is to provide low cost training to the many
small business owners who cannot afford to pay a consultant thousands
of dollars for advice or training on how to prepare themselves to
contract with the federal government. There are thousands of small
businesses in this country that are excellent and efficient. They are
primed to provide the goods and services that this nation needs to stay
competitive. This program will help prepare them to do just that.
Finally, this legislation will extend the Socially and Economically
Disadvantaged Business Program which expired in 2003. This program
provides a Price Evaluation Adjustment for Socially and Economically
Disadvantaged businesses as a way of increasing their competitiveness
when bidding against larger firms. This is one more tool to increase
opportunities for our minority small business owners.
I have outlined several ways that we can create a more positive
environment for our minority small business community. These are
reasonable steps that we ought to take without delay. Moreover, these
are important steps that will help bolster a movement that is already
underway. According to U.S. Census data, Hispanics are opening
businesses 3 times faster than the national average. Also, business
development and entrepreneurship have played a significant role in the
expansion of the black middle class in this country for over a century.
These business owners are embodying the entrepreneurial spirit that our
forefathers carried with them as they established this nation.
With this legislation, we will help to extend that spirit to the next
generation. Not only is this vital for our minority communities, but it
is vital for America. I urge my colleagues to join with me in support
of the Minority Entrepreneurship Development Act of 2006.
______

By Mr. KENNEDY (for himself and Mr. Menendez):
S. 3954. A bill to amend title XVIII of the Social Security Act to
require monthly reporting regarding the number of individuals who have
fallen into the part D donut hole and the amount such individuals are
spending on covered part D drugs while in the donut hole; to the
Committee on Finance.
Mr. KENNEDY. Mr. President, more and more seniors are waking each day
and learning they've fallen into the dreaded ``donut hole''--the gap in
prescription drug coverage that leaves them with large drug costs to
pay by themselves until coverage resumes. As a result, millions of
seniors can't afford the drugs they urgently need, even though they're
paying for Medicare coverage.
It's important to have a full accounting of how many seniors are
affected, so that Congress and the public can make sensible choices
about Medicare. Senator Menendez and I intend to introduce legislation
to require Medicare to track and publicly report how many enrollees
fall into the donut hole, and how much they are spending themselves for
their needed prescriptions.
We wouldn't be facing this problem if the administration and the
Republican Congress had cared more about seniors than about drug
industry profits when Medicare prescription drug coverage was enacted.
They refused to let Medicare negotiate drug prices, which the Veterans
Administration is allowed to do for veterans. Instead of allocating
adequate Federal funds to the drug benefit, they made sure that HMOs
received large overpayments, which enable them to force Medicare
beneficiaries into their plans by offering extra benefits, while still
allowing the plans to make large profits.
It's long past time to correct this glaring defect in Medicare drug
coverage. Once we have up-to-date information on the damage being done
by the donut hole, we can correct the problem and give seniors the
Medicare coverage they deserve.
I ask by unanimous consent that the text of the bill be printed in
the Record.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:

S. 3954

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 ``Honest Medicare Act of
2006''.

SEC. 2. MONTHLY REPORTING REGARDING THE NUMBER OF INDIVIDUALS
WHO HAVE FALLEN INTO THE PART D DONUT HOLE AND
THE AMOUNT SUCH INDIVIDUALS ARE SPENDING ON
COVERED PART D DRUGS WHILE IN THE DONUT HOLE.

Section 1860D-1 of the Social Security Act (42 U.S.C.
1395w-101) is amended by adding at the end the following new
subsection:
``(d) Information Regarding Individuals Who Have Reached
the Initial Coverage Limit.--Not later than the 15th of each
month (beginning with February 2007), the Secretary shall
make available to the public information on--
``(1) the number of individuals enrolled in a prescription
drug plan or an MA-PD plan who have reached the initial
coverage limit applicable under the plan but who have not
reached the annual out-of-pocket threshold specified in
section 1860D-2(b)(4)(B); and
``(2) the amount such individuals are spending on covered
part D drugs after they have reached such limit and before
they have reached such threshold.''.
______

By Mr. DeWINE:
S 3956. A bill to create a grant program for collaboration programs
that ensure coordination among criminal justice agencies, adult
protective service agencies, victim assistance programs, and other
agencies or organizations providing services to individuals with
disabilities in the investigation and response to abuse of or crimes
committed against such individuals; to the Committee on the Judiciary.
Mr. DeWINE. Mr. President, it is a well-known fact that people with
disabilities face a great risk of abuse and victimization--in fact,
studies indicate that disabled adults experience violence or abuse at
least twice as often as those without disabilities. This shameful
situation is made even worse by the fact that far too often these
crimes are not reported, or if they are reported, they are not
effectively prosecuted--with the result that crime victims with
disabilities are left vulnerable to further victimization. This is a
tragic situation and one which requires action.
The good news is that we have a model to follow, a response which
works. Massachusetts has set up an excellent program to enhance
cooperation and coordination between law enforcement and the State
officials and programs which provide services and care to the disabled,
and this coordination has greatly improved the ability of the criminal
justice system to prosecute these offenders and protect those with
disabilities from crime. In fact, since the implementation of the
program, criminal referrals in these types of cases in Massachusetts
went up from 32 before the program began to 880 in 2004, the most
recent year for which we have statistics.
We should try to extend the success of the Massachusetts program
around the country. Accordingly, today I am introducing the Crime
Victims with Disabilities Act of 2006. This legislation would establish
a $10 million Federal grant program to make money available to States
and localities which are

[[Page S10304]]

interested in setting up similar programs to enhance training,
coordination, and cooperation within the law enforcement and
disabilities services communities order to address this problem.
The legislation would require a State or local government to design a
cooperative plan to improve the reporting and prosecution of crimes
against people with disabilities, including within the system at least
one criminal justice agency and at least one agency or organization
which provides services to individuals with disabilities. The
legislation encourages local innovation; as long as the application
meets the basic goals of protecting people with disabilities from crime
and prosecuting those who attempt to victimize them, it can be designed
in whatever way the applicants decide will work best in the affected
community. The grants would be for a maximum of $300,000 over 2 years,
with a potential for a one-time renewal.
I have worked closely with the creators of the Massachusetts program
and many others who work in law enforcement and who provide services to
crime victims and people with disabilities, and I believe this
legislation will help States and localities create programs that can
address the problem of violence against people with disabilities. This
is a serious problem, and I encourage my colleagues to support this
effort to help address it.
______

By Mr. INHOFE:
S. 3957. A bill to protect freedom of speech exercisable by houses of
worship or mediation and affiliated organizations; to the Committee on
Finance.
Mr. INHOFE. Mr. President, I rise today to introduce legislation
which will protect the Constitutionally-guaranteed exercise of free
speech and exercise of religion, the Religious Freedom Act of 2006.
The American people may be surprised to learn a few things about
their government's relationship with religion. They may be surprised to
learn that the Federal Government of the United States of America, in
the land of the free, does not allow religious leaders in houses of
worship of all religious orders to say anything that might be construed
as political in nature. The American people may further be surprised to
learn that the federal agency tasked with enforcing the absolute ban on
political speech for houses of worship is the Internal Revenue Service.
It is the IRS that reviews the content of sermons and homilies and
threatens to revoke those institutions' tax-exempt status if they dare
to speak out on the political matters of the day. Many times, the only
evidence on which the IRS will base their case is a third-party
complaint and may move forward with threatening letters and the
revocation of their tax-exempt status even if the prohibited
activities--the exercise of their First Amendment Rights--were
incidental or unintentional. Furthermore, the IRS admits that it
applies a ``coded language'' policy to political speech. That is,
discussion of a moral issue, if it happens to be a matter discussed in
our public debates, is a political issue and is consequently banned by
the IRS. The American people may even be more surprised to learn that
the IRS is stepping up the enforcement of the ban on political speech
in houses of worship and has recently emphasized the ``coded language''
policy.
A skeptic might assert that something as serious as an IRS-enforced
ban on political discourse in a church must have a tenured legislative
history buttressed by decades of sound First Amendment jurisprudence.
The American people may be surprised to learn that the exact opposite
is true. The First Amendment freedoms of houses of worship were
stripped away in 1954 by the ``Johnson Amendment,'' a floor amendment
named for then-Senator Lyndon Johnson, which placed an absolute ban on
political speech by tax exempt organizations. Although the legislative
record is relatively silent on this matter, the amendment and its
subsequent ban were enacted without a hearing, any debate, or any
public comment. History also indicates that Senator Johnson enacted
this ban as a means of silencing some anticommunist nonprofits that
were mobilizing against his political campaign. It now silences
important comment on the issues of the day. Although the Supreme Court
has affirmed and reaffirmed a ``profound national commitment'' to the
proposition that debate on issues should be ``uninhibited, robust, and
wide-open,'' the debate has been unconstitutionally restricted for
nearly 50 years.
Whereas the legislative history of the Johnson Amendment is dubious
where it even exists, the history of the relationship between politics
and the pulpit is a history of a positive force for change in momentous
times in our history when we as a nation have reaffirmed our commitment
to an open and tolerant society. From slavery to segregation, religious
leaders in America clearly have been effective forces for good, and
they are also for more modern issues such as abortion, assisted
suicide, and human trafficking. Perhaps no one could better articulate
an important aspect of the history of politics and the pulpit than
Martin Luther King, Jr.: ``The church must be reminded that it is not
the master or the servant of the state, but rather the conscience of
the state. It must be the guide and the critic of the state, and never
its tool . . . [or] it will become an irrelevant social club without
moral or spiritual authority.'' The Johnson Amendment silences the
``conscience of the state.'' It's difficult to see how religious
leaders can in any way continue to function as Martin Luther King Jr.'s
ideal of the church as the ``conscience of the state,'' as the church
has done so effectively during trying times for our state, when houses
of worship are banned absolutely from discussing matters of the state.

The moral questions of the day are more often than not also
fundamental social and political questions--questions that concern what
we value as a nation. It is truly astounding that today, in America,
religious leaders are banned from any comment on those moral issues. It
is not partisan; this ban on speech makes no distinction between the
ideological divide of left versus right in America: one church leader
is investigated for publicly opposing abortion and another for
discussing the morality of the Iraq War. Indeed, the American people
may be surprised to learn this about their country.
The American people would allowing religious leaders, of all kinds,
to speak their consciences on the issues facing our nation, and to do
so without the threat of IRS punishment through the revocation of their
tax-exempt status. This is why I am introducing legislation that will
do just that. The Religious Freedom Act of 2006 simply states that
religious leaders may discuss political matters, as a Constitutionally
protected right, without the threat of an IRS investigation. Upon
enactment, this bill will reaffirm the Supreme Court's holding that
this country has a ``profound national commitment'' to a national
debate that is ``uninhibited, robust, and wide-open.'' It will also
reaffirm Martin Luther King, Jr.'s ideal of churches as the
``conscience of the state.'' I ask that the text of this statement be
included in the Congressional Record by unanimous consent.
I ask unanimous consent that the text of the bill be printed in the
Record.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:

S. 3957

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 ``Religious Freedom Act of
2006''.

SEC. 2. PROTECTION OF FREEDOM OF SPEECH FOR HOUSES OF WORSHIP
OR MEDITATION.

(a) In General.--Notwithstanding any other provision of
law, no organization described in subsection (b) may be
denied its Federal tax exemption under the Internal Revenue
Code of 1986 by administrative or judicial action, nor shall
donors to such organization be denied the deductibility of
their contributions under such Code, because such
organization engages in an activity that is protected by the
United States Constitution, including comment on public
issues, election contests, and pending legislation made in
the theological or philosophical context of such
organization.
(b) Houses of Worship or Meditation and Affiliated
Organizations.--For purposes of subsection (a), an
organization described in this subsection is a church,
synagogue, mosque, temple, or other house of worship or
meditation (including any organization affiliated with any of
the foregoing)--

[[Page S10305]]

(1) with an established form of worship or meditation and a
recognizable creed that minimally acknowledges the right of
others to freely accept or reject such form and creed, and
(2) which meets 2 or more of the following indicia:
definite and distinct ecclesiastical government; formal code
of doctrine and discipline; distinct religious history;
membership not axiomatically associated with any other
organization; organization of ordained ministers; ordained
ministers selected after completing prescribed courses of
study; a literature of its own; established places of worship
or meditation; regular congregations; regular religious
services; classes for the religious instruction of youth or
seniors or both; auxiliaries to provide relief and sustenance
to the poor and deprived; and auxiliaries to provide youth
with morally-structured community service and supervised
opportunities to compete in sport and intellect-expanding
activities as an alternative to destructive behavior such as
crime and drug use.
(c) Construction.--This section shall not be construed so
as to exempt any organization described in subsection (b)
from the operation of any other law generally applicable to
all organizations and individuals.
______

By Mrs. CLINTON (for herself, Mr. Specter, Mr. Kennedy, and Ms.
Mikulski):
S. 3958. A bill to establish the United States Public Service
Academy; to the Committee on Homeland Security and Governmental
Affairs.
Mrs. CLINTON. Mr. President, I rise today to introduce legislation
that will create an undergraduate institution designed to cultivate a
generation of young leaders dedicated to public service. The U.S.
Public Service Academy Act, the PSA Act, will establish a national
academy, modeled after the military service academies, to serve as an
extraordinary example of effective, national public education.
The tragic events of September 11 and the devastation of natural
disasters Hurricanes Katrina and Rita have demonstrated just how
critical it is for our Nation to improve its ability to respond to
future emergencies and to confront daily challenges. These events also
underscore how much our Nation depends upon strong public institutions
and competent civilian leadership at all levels of society.
Our country must improve its ability to groom future public servants
to fill the pipeline as the baby boomer generation approaches
retirement from critical public sector careers. Recent studies have
shown that 2 million teachers are approaching retirement this decade
alone, and more than 80 percent of law enforcement agencies are unable
to fill positions due to a lack of qualified candidates.
The PSA Act will establish the U.S. Public Service Academy to provide
a 4-year, federally subsidized college education for more than 5,000
students a year in exchange for a 5-year commitment to public service
following graduation. Academy graduates will help to fill the void in
public service our Nation will soon face by serving for 5 years in
areas such as public education, public health, law enforcement, and the
nonprofit sector.
Not only has the public service sector expressed a need for a young,
talented, and high-qualified workforce, many college students today
have already expressed a strong desire to serve. A recent study
conducted by the Higher Education Research Institute found that more
than two-thirds of the 2005 freshman class expressed a desire to serve
others, the highest rate in a generation.
Unfortunately, as thousands of American youth seek to serve their
Nation in a civilian capacity, many are often priced out of public
service due to rising college debts. Over the past decade, the average
debt burden for a college graduate has increased by 58 percent. Many of
the students who want to serve our country owe more than $20,000 in
student loans after graduating from college.
By providing a quality college education at no cost to the student,
the U.S. Public Service Academy would tap into the renewed sense of
patriotism and civic obligation among young people and create a corps
of competent civilian leaders.
The establishment of a U.S. Public Service Academy is an innovative
way to strengthen and protect America by creating a corps of well-
trained, highly qualified civilian leaders. I am hopeful that my Senate
colleagues from both sides of the aisle will join me today to move this
legislation to the floor without delay.
______

By Mr. WARNER (for himself and Mr. Allen):
S. 3959. A bill to amend the Internal Revenue Code of 1986 to exclude
from gross income certain combat zone compensation of civilian
employees of the United States; to the Committee on Finance.
Mr. WARNER. Mr. President, I rise today along with my colleague
Senator George Allen to introduce the Federal Employee Combat Zone Tax
Parity Act, which would provide parity to civilian Federal employees by
extending the tax credit currently received by military personnel in
combat zones to the civilian Federal employees working along side them.
My fellow Virginian, Congressman Frank Wolf, has introduced a similar
bill in the House of Representatives.
In addition, several Federal employee organizations, such as the
American Federation of Government Employees (AFGE), the National
Treasury Employees Union (NTEU), the Financial Management Association
(FMA), the Senior Executives Association (SEA), the American Foreign
Service Association (AFSA), and the National Federation of Federal
Employees (NFFE), strongly support this legislation.
As of today, I have made eleven separate trips to Iraq and
Afghanistan to see firsthand the work of our military personnel, which
is essential to success in these regions. In addition, the work of our
Federal civilian employees in these regions is significantly important.
At the moment, a majority of the work in the reconstruction of these
countries is being done by the military and the Department of State
(DOS). These dedicated men and women deserve our gratitude. However, as
I have said on a number of occasions, our challenging task requires the
coordination and work of Federal agencies across the spectrum.
Regardless of whether one is in the military or a civilian, there are
certain risks and hardships associated with working overseas. As a
result, the Federal Government provides certain incentives to
individuals when they take on extremely challenging jobs. For example,
those in the military working in a combat zone receive the Combat Zone
Tax Credit.
This tax credit permits military personnel working in combat zones to
exclude a certain amount of income from their Federal income taxes.
This benefit for the military was established in 1913.
Private contractors working in Iraq and Afghanistan get a similar
benefit. Under the Foreign Earned Income Tax Credit, contractors are
allowed to exclude a portion of their income from taxes while they work
abroad, like in Iraq and Afghanistan.
To date, however, no similar benefit exists for Federal employees
serving in the same combat zones. I do not believe it is fair for our
Federal employees to be excluded from the same benefits available to
military personnel and private contractors in the same combat zone.
The Commonwealth of Virginia, of which I have been honored to serve
for the last 28 years in the Senate, is home to over 200,000 Federal
employees. I have long been a strong supporter of our Federal employees
as I have been for our military personnel.
Our efforts in the war on terrorism can only be successful with a
highly skilled and experienced workforce. I can personally attest to
the dedication of civil service employees throughout the Federal
Government. Since the September 11th attacks, Federal employees have
been relocated, reassigned, and worked long hours under strenuous
circumstances without complaints, proving time and again their loyalty
to their country is first and foremost.
During my service as Secretary of the Navy during which I was
privileged to have some 650,000 civilian employees working side by side
with the uniformed Navy, I valued very highly the sense of teamwork
between the civilian and uniformed members of the United States Navy.
Teamwork is an intrinsic military value, in my judgment, and essential
to mission accomplishment. A sense of parity and fairness is important
for developing this teamwork.
In Iraq and Afghanistan, the teamwork of the entire Federal
Government is essential to harness our overall efforts to secure a
measure of democracy for the peoples of those countries, and

[[Page S10306]]

we need to make it easier for our Federal employees to participate.
I recently offered additional legislation to achieve this goal. My
bill, S. 2600, would provide the heads of agencies other than DOS and
the Department of Defense (DOD) with the authority, at their
discretion, to give their employees who serve in Iraq and Afghanistan
allowances, benefits, and gratuities comparable to those provided to
State Department and DOD employees serving in those countries.
Currently, the agency heads of non-DOD and DOS agencies do not have
such authority, and it is essential, as part of the U.S. effort to
bring democracy and freedom to Iraq and Afghanistan, that agency heads
be able to give their workers in those countries the same benefits as
those they work beside.
In the last estimate, there are almost 2,000 Federal employees
working a variety of jobs in Iraq and Afghanistan. I am grateful for
their hard work in potentially dangerous situations. And, I know there
are many other Federal employees who are anxious to serve their country
and engage in these efforts, but it is a lot to risk.
Providing parity in this important tax credit would provide a
significant incentive for individuals to take on this challenge--a
challenge that America desperately needs Federal employees to
undertake.
Throughout the world, America's civil servants are serving our
government and our people, often in dangerous situations. They are on
the ground in the war on terrorism taking over new roles to relieve
military personnel of tasks civilian employees can perform. They are
playing a vital role in the reconstruction of Iraq and Afghanistan.
We have a long tradition in Congress of recognizing the valuable
contributions of our Federal employees in both the military service and
in the civil service by providing fair and equitable treatment. This
bill gives us the ability to continue this tradition while at the same
time providing an important incentive to help America meet its needs.
I urge my colleagues to join with me in support of this legislation.
______

By Mr. STEVENS (for himself, Mr. Inouye, Mr. Lott, and Mr.
Lautenberg):
S. 3961. A bill to provide for enhanced safety in pipeline
transportation, and for other purposes; to the Committee on Commerce,
Science, and Transportation.
Mr. STEVENS. Mr. President, I am pleased to introduce the Pipeline
Inspection, Protection, Enforcement, and Safety Act of 2006. I am
joined by my colleagues from the Commerce, Science, and Transportation
Committee, Senators Inouye, Lott and Lautenberg.
Pipelines are one of the safest forms of transportation, and in most
cases their safety record has been steadily improving. Unfortunately
however, as recent events in my State demonstrate, there is still much
to be done. This bill addresses the problems that have occurred in
Alaska and other safety issues that have been brought to the
Committee's attention.
The bill reauthorizes the pipeline safety programs of the Pipeline
and Hazardous Materials Safety Administration (PHMSA) for Fiscal Years
2007 through 2010.
Highlights of the bill include:
Increased Department of Transportation Resources Dedicated to
Overseeing Pipeline Safety--The bill provides an additional 45 Federal
inspectors (a 50 percent increase) over the 4 years of the bill at a
cost of $6 million in Fiscal Year 2010. Currently PHMSA has 90
inspectors, but the DOT Inspector General has stated in the past that
these relatively low staffing levels are a matter for concern. Ninety
inspectors translate to one inspector for every 18,000 miles of
pipeline in this country.
Strengtened Programs to Reduce Construction Related Damage to
Pipelines--The bill includes new civil enforcement authority against
excavators and pipeline operators responsible for third-party damage
incidents and provides grants to states that have damage prevention
programs in place. Construction related damage, such as damage caused
by excavation for a highway project, is the greatest cause of pipeline
accidents that result in death or injury. This occurs most often on the
distribution systems that run through the neighborhoods where people
live and work. These incidents have increased by 49 percent since 1996.
Applying DOT Safety Standards to the Currently Unregulated Low Stress
Pipelines--On August 31, the DOT announced proposed rules to cover low
stress pipelines in unusually sensitive areas. Pipeline operators will
have to meet new safety requirements, including cleaning and continuous
monitoring, along more than 1,200 miles of pipelines. However, low-
stress lines that aren't in such sensitive areas would continue to be
unregulated. The bill goes further than the regulation and requires DOT
oversight of all low-stress pipelines.
Increased Accountability of Pipeline Company Officials--The bill
includes a provision that would require senior officials at pipeline
companies to certify that the information they are providing to
regulators is accurate.
Enhanced Pipeline Research--The bill would also boost PHMSA's
research and technology development budget for pipeline safety issues
such as corrosion by $10 million over the length of the bill.
A Study of Pipelines Critical to Energy Supply--The bill includes a
study of oil pipelines that are critical to the nation's energy supply
in order to determine if there are sufficient safety regulations in
place to ensure their safety.
The House Transportation and Infrastructure Committee and the House
Energy and Commerce Committee are also working on pipeline safety
legislation. I hope that our three Committees can work together over
the next month while the Congress is out of session to develop a joint
legislative product that we can pass and have signed into law when we
return in November. Many of the provisions in the three bills are
similar and we should have enough common ground to achieve this goal.
______

By Mr. DOMENICI (for himself and Mr. Craig):
S. 3962. A bill to enhance the management and disposal of spent
nuclear fuel and high-level radioactive waste, to assure protection of
public health and safety, to ensure the territorial integrity and
security of the repository at Yucca Mountain, and for other purposes;
to the Committee on Energy and Natural Resources.
Mr. DOMENICI. Mr. President, I note the arrival on the floor of the
distinguished Senator from Nevada. The legislation that I will be
talking about is of significant interest to the Senator from Nevada.
But it will take many months on the floor of the Senate before we
finish.
Today my fellow Senators I am introducing legislation that I believe
will place the Department of Energy's nuclear waste program back on
track.
As we all know, the history of the Yucca Mountain project has been
rocky at best. The Yucca Mountain project has a very long pedigree,
starting back to the late 1950's when the National Academy of Sciences
reported to the Atomic Energy Commission suggesting that burying
radioactive high-level waste in geologic formations should receive
consideration.
In the 1980s, when Congress decided to pursue a geologic repository,
we were quite optimistic--so optimistic that we told the Department of
Energy--DOE--to enter into contracts with utilities that promised that
we would begin taking nuclear waste off their hands by 1998. Well,
obviously that didn't happen. What did happen was that the courts found
that the government is liable for its failure to meet its contractual
obligation.

While moving more slowly than planned, DOE's nuclear waste program
has made progress toward making the goal of a permanent geologic
repository for nuclear waste a reality. In 2002, the President and
Congress approved the Yucca Mountain site, and instructed DOE to file a
license application for the repository with the Nuclear Regulatory
Commission--NRC. That decision has been made.
With the siting decision made, it will now be up to the NRC to
evaluate the scientific data and determine whether the repository will
permanently, and safely, isolate nuclear waste.
Yucca Mountain is the cornerstone of our national comprehensive spent
nuclear fuel management strategy for

[[Page S10307]]

this country. Let me be clear: We need Yucca Mountain. We must make
this program work. I believe the bill introduced today will do that.
This bill will remove legal barriers that will allow DOE to meet its
obligation to accept and store spent nuclear fuel as soon as possible,
without prejudging the outcome of the NRC's repository licensing
decision.
The bill I will introduce today authorizes the DOE to permanently
withdraw 147,000 acres currently controlled by the Bureau of Land
Management, the Air Force, and the Nevada Test Site, a license
condition of the NRC.

This legislation will repeal the arbitrary 70,000 metric ton
statutory limit on emplacement of radioactive material at Yucca
Mountain. The capacity of the mountain will be determined by scientific
and technical analysis.
The DOE may also begin construction of needed infrastructure for the
repository and surface storage facilities as soon as they complete an
environmental impact statement that evaluates these activities.
This legislation will begin to consolidate the defense waste and
spent nuclear fuel at Yucca Mountain. The bill requires DOE to file for
a permit to build a surface storage facility at the Nevada Test Site at
the same time it files its license application for a repository at
Yucca Mountain.
As soon as the department receives the permit for the surface storage
facilities from the NRC, the department may begin moving defense fuel
and waste to the Nevada Test Site. The spent nuclear fuel from our Navy
and defense activities that kept us safe during the Cold War will be
consolidated and secure at the site.
Only after the NRC issues a construction permit for Yucca Mountain,
may the department begin moving civilian spent fuel to the Nevada Test
Site.
This bill will withdraw the land for the rail route for Yucca, a
vital transportation component. There is a provision that also provides
that appropriations from the Nuclear Waste Fund will not count against
the allocations for discretionary spending. The DOE will have access to
the full funds in the Nuclear Waste Fund, monies collected from our
constituents, to complete this project.

This bill compliments the short, medium, and long term components of
the nuclear fuel cycle that I began to talk about this past summer. The
thinking of how to handle nuclear spent fuel in the late 1970s and
early 1980s and the way we approached its management is changing, we
need to acknowledge that change.
In the short term, according to DOE's most optimistic schedule, the
NRC's construction permit will not be issued until 2011. The
Consolidated and Preparation ``CAP'' proposal in the Energy and Water
Appropriations bill begins to enable DOE to fulfill its contractual
liability for spent fuel storage before DOE can move spent fuel to
Yucca Mountain by providing new authorities for DOE to accept and store
civilian spent nuclear fuel within the states in which it was
generated.
In the mid term, this legislation lays the foundation to integrate
Yucca Mountain and Global Nuclear Energy Partnership--GNEP--by
providing that before spent fuel is shipped to Nevada, the Secretary of
Energy determines if it can be recycled within a reasonable amount of
time. Current plans for GNEP do not include recycling all 55,000 metric
tons of civilian spent fuel that has already been generated. This
proposal will avoid moving waste to Nevada that should be shipped
instead to a GNEP facility.
In the long term, this measure provides DOE with the authorities
needed to execute the Yucca Mountain project, and to begin long term
emplacement, while the GNEP program will reduce the volume of material
to be emplaced in the mountain, eliminating the need for a second
repository program.
The three pieces of the fuel cycle that I have discussed today--
interim storage, GNEP and Yucca Mountain--will establish a
comprehensive program that will provide confidence that our nation's
nuclear waste will be managed safely both for current and future
reactors.
We can solve this problem and I hope we can move forward together.
I send to the desk a bill which does all of the things that I have
just spoken to. I am sure many Senators and their staffs will be
interested. This will certainly not proceed in any hurry; it will take
a while. But I intend to move it as best I can. There will be
opportunities to stop the movement at every opportunity. I am just
hopeful that we will carry all the way through, as we have in the past,
and go to conference and take something to the President and see where
we are.
The PRESIDING OFFICER. The Senator from Mississippi.
Mr. LOTT. Mr. President, I want to again express my appreciation to
the distinguished Senator from New Mexico--I know this is a feeling
shared by a lot of Senators--for his efforts and leadership over many
years in the Senate but particularly in the energy area. He has been
persistent.
We did pass a good energy policy bill last year. Obviously, he would
like for it to have been, perhaps, even broader, but we got it done. It
is making a contribution and will continue to have a positive
contribution into more diverse energy policy in this country from which
the American people will benefit.
I thank the Senator for his leadership on this particular area of the
nuclear repository. We must deal with this issue. We can do it. His
input was critical. I thank him.
Mr. DOMENICI. I thank the Senator. It is a pleasure working with him.
When I have legislation such as the legislation I just described,
which is very difficult, and I know we are going to come to spots in
the Senate, stopovers where we will have to vote because it is good for
the country, I am counting in the column that if I have done my work,
will this Senator vote for it, the Senator's name. I believe if we do
our work and get our votes properly and line up what we propose, a
Senator such as Senator Lott will not be running around asking people
what is going on in his State.
This matter deserves his attention, as it deserves my attention. I
believe we will get that.
I thank the Senator.
Mr. CRAIG. Mr. President, I rise today to express my strong support
for the Nuclear Fuel Management and Disposal Act introduced today by
Senator Pete Domenici. Senator Domenici has long been a courageous
supporter of dependable, emissions-free nuclear energy, and he is
largely responsible for the current renaissance of nuclear power in
this country--with upwards of 30 new nuclear reactors on the drawing
board to be licensed in the next several years. Senator Domenici's
landmark legislation will help assure the future of nuclear power in
this country by providing the necessary legislation for moving forward
on the long-stalled Yucca Mountain repository and authorizing much-
needed interim storage for spent fuel and high-level waste that has
been accumulating around the country. For used nuclear fuel that will
eventually be recycled, the Senate Energy and Water Appropriations bill
approved by the Appropriations Committee earlier this year provides for
interim storage of commercial spent fuel at Consolidation and
Preparation--CAP--facilities. Senator Domenici's legislation introduced
today addresses defense spent fuel and high-level waste that cannot be
recycled, so that these wastes will be sent to Yucca Mountain for
storage and eventual disposal. In this way, this bill removes the final
roadblock to developing new nuclear power in this country.
And let me say a few words about this ``roadblock'' to Yucca that has
persisted for so many years. The Federal Government made a promise to
take possession of spent nuclear fuel in order to safely and
permanently dispose of it in a geologic repository. We promised to
begin taking this fuel back in 1998--8 years ago. However, through
concerted efforts by the state of Nevada and its congressional
delegation, progress on Yucca has often slowed to a crawl. This is the
classic NIMBY attitude--``not in my backyard.'' And yet my colleague
from Nevada, Mr. Reid, has repeatedly called for this Congress and the
administration to do something to help reduce emissions of greenhouse
gases because of his concerns about global warming.
This Congress and this administration have done a great deal to
promote emission-free power generation. This Congress passed the Energy
Policy Act last year, which provided financial incentives for new,
emission-free sources

[[Page S10308]]

of energy, including wind, solar, clean coal--and nuclear. And earlier
this year, this administration introduced the Advanced Energy
Initiative--AEI--to support research and development of new energy
sources--including nuclear power. In fact, the Global Nuclear Energy
Partnership--GNEP--is one part of the AEI. One goal of GNEP is to
reduce the amount and toxicity of nuclear waste ultimately destined for
disposal at Yucca Mountain; another goal is to eventually help expand
the deployment of emission-free nuclear power in developing countries
that otherwise would need to depend on burning fossil fuels for their
growing energy demands. Contrary to Senator Reid's comments about doing
nothing to help reduce greenhouse gas emissions, we have done a great
deal to develop emission-free energy in this country and abroad. But
the deployment of nuclear power requires that we manage the spent fuel
from nuclear power plants in a safe and responsible manner. One aspect
of that management strategy must be to open the Yucca Mountain
repository as soon as possible.
As Senator Domenici has said, Yucca Mountain is the cornerstone of a
comprehensive spent-fuel management strategy for this country, but
Yucca alone cannot meet the government's spent-fuel obligations.
Through GNEP we will also explore technologies that promise to reduce
the volume and toxicity of spent fuel. Thus, GNEP, interim storage and
Yucca Mountain together provide a comprehensive program for safely
managing our Nation's Nuclear waste.

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