To amend the Internal Revenue Code of 1986 to assist in the recovery and development of the Virgin Islands by providing for a reduction in the tax imposed on distributions from certain retirement plans' assets which are invested for at least 30 years, subject to defined withdrawals, under a Virgin Islands investment program.

Summary: Derek M. Hodge Virgin Islands Improvement Act of 2011 - Amends the Internal Revenue Code to provide for a reduction of taxes on distributions from certain retirement savings plans designated by an individual under the age of 61 as being under investment by the Virgin Islands Investment Program for at least 30 years. Defines "Virgin Islands Investment Program" for purposes of this Act as a fund with managed amounts of $50 billion or less. Imposes a 1.5% annual tax for 10 years, and 1% thereafter, on managed funds to benefit Virgin Island infrastructure development.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Derek M. Hodge Virgin Islands 
Improvement Act of 2011''.

SEC. 2. TAX-FREE DISTRIBUTIONS FROM CERTAIN RETIREMENT PLAN ASSETS 
              INVESTED UNDER A VIRGIN ISLANDS INVESTMENT PROGRAM.

    (a) In General.--Part I of subchapter D of chapter 1 of the 
Internal Revenue Code of 1986 (relating to pension, profit-sharing, 
stock bonus plans, etc.) is amended by adding at the end the following 
new section:

``SEC. 409B. TREATMENT OF DISTRIBUTIONS FROM CERTAIN RETIREMENT PLAN 
              ASSETS INVESTED UNDER A VIRGIN ISLANDS INVESTMENT 
              PROGRAM.

    ``(a) In General.--If an individual under the age of 61 makes a 
one-time designation of an amount of qualified retirement savings as 
being under investment by the Virgin Islands Investment Program for at 
least 30 years, then, as of the close of the 10th year, such amount 
(and any earnings properly allocable to such amount) shall be treated 
for purposes of this title--
            ``(1) as a designated Roth account in the case of qualified 
        retirement savings described in subsection (b)(1), or
            ``(2) as a Roth IRA in the case of qualified retirement 
        savings described in subsection (b)(2).
No amount shall be includible in gross income by reason of the change 
in treatment under the preceding sentence.
    ``(b) Qualified Retirement Savings.--For purposes of this section, 
the term `qualified retirement savings' means--
            ``(1) amounts attributable to elective deferrals under an 
        applicable retirement plan, and
            ``(2) amounts held in an individual retirement plan which 
        is not a Roth IRA.
    ``(c) Virgin Islands Investment Program.--For purposes of this 
section--
            ``(1) In general.--The term `Virgin Islands Investment 
        Program' means a program of the Virgin Islands which meets the 
        requirements of paragraphs (2), (3), (4), and (5).
            ``(2) Maximum amount accepted for management.--A program 
        meets the requirements of this paragraph if the amount accepted 
        for management under the program does not exceed 
        $50,000,000,000.
            ``(3) Fees and taxes.--A program meets the requirements of 
        this paragraph if--
                    ``(A) the fees charged by investment managers under 
                the program do not exceed the fees customarily imposed 
                by investment managers for managing like qualified 
                retirement savings outside the Virgin Islands 
                Investment Program,
                    ``(B) the program imposes an annual tax (in 
                addition to the fees permitted under subparagraph (A)) 
                equal to--
                            ``(i) 1.5 percent of the amount designated 
                        for management under the program for the first 
                        10 years of the account, and
                            ``(ii) 1 percent of the amount designated 
                        for management under the program for the 
                        remainder of the life of the account without 
                        regard to account balance, and
                    ``(C) the 1 percent tax is imposed notwithstanding 
                the Roth designation.
            ``(4) Investment manager.--A program meets the requirements 
        of this paragraph if the investment managers under the program 
        are chosen by the Governor of the Virgin Islands.
            ``(5) Separate accounting.--A program meets the 
        requirements of this paragraph if the program--
                    ``(A) establishes separate accounts for each type 
                of qualified retirement savings held for the benefit of 
                each individual and any earnings properly allocable to 
                such assets, and
                    ``(B) maintains separate recordkeeping with respect 
                to each account.
    ``(d) Use of 1 Percent Annual Tax.--
            ``(1) Revenues to the virgin islands during first 20 
        years.--
                    ``(A) In general.--Revenues from the tax referred 
                to in subsection (c)(3)(B) shall be collected, held, 
                and distributed for the benefit of the Virgin Islands 
                in a manner similar to section 7652(b) (relating to rum 
                excise tax).
                    ``(B) Distributions to virgin islands.--Funds and 
                accrued interest described in subsection (d)(1)(A) may 
                be paid from escrow to the Virgin Islands for 
                expenditure only if--
                            ``(i) the expenditure is pursuant to a 
                        qualified infrastructure development plan, and
                            ``(ii) the expenditure is approved by the 
                        Secretary of the Interior as being pursuant to 
                        such plan.
                    ``(C) Qualified infrastructure development plan.--
                For purposes of this paragraph, the term `qualified 
                infrastructure development plan' means a plan for 
                improving and enhancing the infrastructure of the 
                Virgin Islands which is--
                            ``(i) developed and approved by the 
                        committee described in subparagraph (D), and
                            ``(ii) approved by the Governor of the 
                        Virgin Islands.
                    ``(D) Committee.--The committee described in this 
                subparagraph is a committee--
                            ``(i) comprised of 5 members, each serving 
                        a term of either three or five years--
                                    ``(I) 2 of whom are appointed by 
                                the Governor of the Virgin Islands, one 
                                for a 3-year and one for a 5-year term,
                                    ``(II) 2 of whom are appointed by 
                                the Virgin Islands legislature, one for 
                                a 3-year and one for a 5-year term, and
                                    ``(III) 1 of whom is appointed by 
                                the Secretary of the Interior for a 5-
                                year term, and
                            ``(ii) with respect to which a vacancy is 
                        filled in the manner in which the original 
                        appointment was made.
            ``(2) Revenues to the united states and the virgin 
        islands.--
                    ``(A) During first 20 years.--Revenues from the fee 
                referred to in subsection (c)(3)(B) imposed on 
                designated assets after the first 10 years under 
                management by the Virgin Islands Investment Program 
                shall be collected by the United States Treasury in a 
                manner similar to section 7652, upon which--
                            ``(i) \1/3\ of the proceeds shall be 
                        distributed to the Virgin Islands for the first 
                        10 years of management, and
                            ``(ii) half of the proceeds shall be 
                        distributed to the Virgin Islands for the next 
                        10 years of management.
                    ``(B) After the first 20 years.--Beginning in the 
                21st year, the entire 1 percent tax collected shall be 
                retained by the United States Treasury.
                    ``(C) Minimum holding period.--No withdrawals may 
                be made by an investor from the account during the 
                minimum holding period of ten years. Should the 
                investor choose to withdraw money from the account 
                during the minimum holding period, the investor would 
                forfeit the tax advantages of the Fund. Any funds so 
                withdrawn would be included in gross income and subject 
                to Federal income tax, minus payments of the 1 percent 
                tax.
            ``(3) Early withdrawal.--Should an investor withdraw the 
        entire balance of the funds after the 10-year minimum holding 
        period but before the end of the 30 years, his account will be 
        liable for the entire 1 percent tax for each of the remaining 
        years.
    ``(e) Other Definitions.--For purposes of this section--
            ``(1) Elective deferrals; applicable retirement plan.--The 
        terms `elective deferrals' and `applicable retirement plan' 
        have the respective meanings given such terms by section 402A.
            ``(2) Virgin islands.--The term `Virgin Islands' means the 
        United States Virgin Islands.
            ``(3) Secretary of the interior.--The term `Secretary of 
        the Interior' means the Secretary of the Interior or his 
        designee.''.
    (b) Clerical Amendment.--The table of sections for such part I is 
amended by adding at the end the following new item:

``Sec. 409B. Treatment of distributions from certain retirement plan 
                            assets invested under a Virgin Islands 
                            investment program.''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.