Small Business Employee Retirement Savings Act of 2016

Summary: Small Business Employee Retirement Savings Act of 2016  This bill amends the Internal Revenue Code to modify the tax treatment of retirement plans for small employers with no more than 100 employees. The bill: (1) increases from $500 to $5,000 the limit on the amount of the tax credit for small employer pension plan startup costs, and (2) allows a three-year $500 business-related tax credit for small employers that include and maintain an automatic contribution arrangement in an employer-sponsored retirement plan.  The bill also removes the 10% cap on the amount of an employee's wages that an employer may contribute to a retirement plan under an automatic contribution arrangement.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Employee Retirement 
Savings Act of 2016''.

SEC. 2. INCREASE IN CREDIT LIMITATION FOR SMALL EMPLOYER PENSION PLAN 
              STARTUP COSTS.

    (a) In General.--Paragraph (1) of section 45E(b) of the Internal 
Revenue Code of 1986 is amended to read as follows:
            ``(1) for the first credit year and each of the 2 taxable 
        years immediately following the first credit year, the greater 
        of--
                    ``(A) $500, or
                    ``(B) the lesser of--
                            ``(i) $250 for each employee of the 
                        eligible employer who is not a highly 
                        compensated employee (as defined in section 
                        415(q)) and who is eligible to participate in 
                        the eligible employer plan maintained by the 
                        eligible employer, or
                            ``(ii) $5,000, and''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2015.

SEC. 3. CREDIT FOR SMALL EMPLOYERS ADOPTING AUTO-ENROLLMENT OPTIONS.

    (a) In General.--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 section:

``SEC. 45S. AUTO-ENROLLMENT OPTION FOR RETIREMENT SAVINGS OPTIONS 
              PROVIDED BY SMALL EMPLOYERS.

    ``(a) In General.--For purposes of section 38, in the case of a 
small employer, the retirement auto-enrollment credit determined under 
this section is an amount equal to $500 for any taxable year in the 
credit period.
    ``(b) Credit Period.--For purposes of subsection (a)--
            ``(1) In general.--The credit period with respect to any 
        small employer is the 3-taxable-year period beginning with the 
        first taxable year for which the employer includes an eligible 
        automatic contribution arrangement (as defined in section 
        414(w)(3)) in a qualified retirement plan (as defined in 
        section 4974(c)) sponsored by the employer, but only if the 
        plan maintains such arrangement throughout such period.
            ``(2) Credit permissible in start-up year.--The first 
        taxable year in the credit period may be the same taxable year 
        as the first credit year (as defined in section 45E(d)(3)).
            ``(3) Employer must remain small employer.--Notwithstanding 
        paragraph (1), the credit period with respect to any small 
        employer shall end with the earlier of--
                    ``(A) the last taxable year in such period 
                determined without regard to this paragraph, or
                    ``(B) the last taxable year in which such employer 
                is a small employer.
    ``(c) Small Employer.--For purposes of this section, the term 
`small employer' means any employer for any taxable year if the number 
of employees employed by such employer during such taxable year does 
not exceed 100. All employers treated as a single employer under 
section (a) or (b) of section 52 shall be treated as a single employer 
for purposes of this section.''.
    (b) Credit To Be Part of General Business Credit.--Subsection (b) 
of section 38 of the Internal Revenue Code of 1986 is amended by 
striking ``plus'' at the end of paragraph (35), by striking the period 
at the end of paragraph (36) and inserting ``, plus'', and by adding at 
the end the following new paragraph:
            ``(37) in the case of a small employer (as defined in 
        section 45S(c)), the retirement auto-enrollment credit 
        determined under section 45S(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, as amended by section 2, is amended by inserting after the item 
relating to section 45R the following new item:

``Sec. 45S. Auto-enrollment option for retirement savings options 
                            provided by small employers.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 4. REMOVAL OF 10 PERCENT CAP AFTER FIRST PLAN YEAR FROM AUTOMATIC 
              ENROLLMENT SAFE HARBOR.

    (a) In General.--Clause (iii) of section 401(k)(13)(C) of the 
Internal Revenue Code of 1986 is amended by striking ``, does not 
exceed 10 percent, and is at least'' and inserting ``and is''.
    (b) Conforming Amendments.--
            (1) Subclause (I) of section 401(k)(13)(C)(iii) of the 
        Internal Revenue Code of 1986 is amended by striking ``3 
        percent'' and inserting ``at least 3 percent, but not greater 
        than 10 percent,''.
            (2) Subclause (II) of section 401(k)(13)(C)(iii) of such 
        Code is amended by striking ``4 percent'' and inserting ``at 
        least 4 percent''.
            (3) Subclause (III) of section 401(k)(13)(C)(iii) of such 
        Code is amended by striking ``5 percent'' and inserting ``at 
        least 5 percent''.
            (4) Subclause (IV) of section 401(k)(13)(C)(iii) of such 
        Code is amended by striking ``6 percent'' and inserting ``at 
        least 6 percent''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after the date of enactment of this Act.