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[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[H.R. 7293 Introduced in House (IH)]

<DOC>

118th CONGRESS
  2d Session
                                H. R. 7293

    To amend the Internal Revenue Code of 1986 to provide rules for 
       automatic contribution retirement plans and arrangements.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                            February 7, 2024

   Mr. Neal introduced the following bill; which was referred to the 
                      Committee on Ways and Means

_______________________________________________________________________

                                 A BILL

 
    To amend the Internal Revenue Code of 1986 to provide rules for 
       automatic contribution retirement plans and arrangements.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS, ETC.

    (a) Short Title.--This Act may be cited as the ``Automatic IRA Act 
of 2024''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents, etc.
Sec. 2. Automatic contribution plan or arrangement.
Sec. 3. Credit for certain small employer automatic IRA arrangements.
Sec. 4. Treatment of automatic IRA arrangements under State law.
    (c) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this subtitle an amendment or repeal is expressed 
in terms of an amendment to, or repeal of, a section or other 
provision, the reference shall be considered to be made to a section or 
other provision of the Internal Revenue Code of 1986.

SEC. 2. AUTOMATIC CONTRIBUTION PLAN OR ARRANGEMENT.

    (a) Automatic Contribution Plan or Arrangement.--
            (1) In general.--Section 414 is amended by adding at the 
        end the following:
    ``(dd) Automatic Contribution Plan or Arrangement.--For purposes of 
this title--
            ``(1) In general.--The term `automatic contribution plan or 
        arrangement' means--
                    ``(A) a defined contribution plan that--
                            ``(i) is described in clause (i), (ii), or 
                        (iv) of section 219(g)(5)(A),
                            ``(ii) includes a qualified cash or 
                        deferred arrangement or a salary reduction 
                        arrangement, and
                            ``(iii) meets the notice, eligibility, 
                        contribution, fee, and lifetime income 
                        requirements of paragraphs (2), (3), (4), (6), 
                        and (7), respectively,
                    ``(B) an automatic IRA arrangement described in 
                paragraph (8),
                    ``(C) an arrangement described in section 408(p) 
                that meets the notice, contribution, investment, and 
                fee requirements described in paragraphs (2), (4), (5), 
                (6), respectively, and
                    ``(D) a plan described in clause (i), (ii), (iv), 
                (v), or (vi) of section 219(g)(5)(A) that is 
                established and maintained by an employer as of the 
                date of enactment of the Automatic IRA Act of 2024, or 
                a plan described in section 219(g)(5)(A)(iv) that is 
                not subject to title I of the Employee Retirement 
                Income Security Act of 1974 and offers annuity 
                contracts, or makes custodial accounts available to 
                employees, as of such date.
            ``(2) Notice requirements.--A plan or arrangement shall be 
        treated as meeting the notice requirements of this paragraph 
        with respect to an employee if the plan or arrangement meets 
        notice requirements similar to the notice requirements of 
        section 401(k)(13)(E).
            ``(3) Eligibility requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph shall be treated as met if all employees of 
                the employer are eligible to participate in an 
                automatic contribution plan or arrangement maintained 
                or facilitated by the employer.
                    ``(B) Certain exclusions.--The following employees 
                may be excluded from consideration in determining 
                whether the requirements of this paragraph are met:
                            ``(i) Individuals less than 21 years old.--
                        Any employee who has not attained age 21.
                            ``(ii) Certain other employees.--Any 
                        employee described in section 410(b)(3).
                            ``(iii) Service requirements.--Any employee 
                        who has completed neither of the following 
                        periods of service with the employer 
                        maintaining or facilitating the plan or 
                        arrangement:
                                    ``(I) The period permitted under 
                                section 410(a)(1) (determined without 
                                regard to subparagraph (B)(i) thereof).
                                    ``(II) A period of 2 consecutive 
                                12-month periods during each of which 
                                the employee has at least 500 hours of 
                                service.
                        For purposes of subclause (II), 12-month 
                        periods shall be determined in the same manner 
                        as under the last sentence of section 
                        410(a)(3)(A).
                            ``(iv) Certain students in case of a 403(b) 
                        plans.--In the case of an annuity contract 
                        described in section 403(b), employees who are 
                        students, but only to the extent such employees 
                        may be excluded under the last sentence of 
                        403(b)(12)(A).
                    ``(C) Special rules for controlled groups.--All 
                eligible employees of an employer need not be eligible 
                to participate in the same automatic contribution plan 
                or arrangement. For purposes of this subsection, the 
                term `employer' shall include all employers treated as 
                a single employer under subsection (b), (c), (m), or 
                (o) of section 414.
                    ``(D) Entry dates.--Rules similar to the rules of 
                section 410(a)(4) shall apply with respect to employees 
                who have satisfied the age and service requirements 
                referenced in subparagraph (B) and who are otherwise 
                entitled to participate in a plan or arrangement.
                    ``(E) Automatic iras for non-employees.--The 
                Secretary shall by regulation or other guidance provide 
                for making available automatic IRAs to individuals who 
                provide services that do not constitute employment.
            ``(4) Contribution requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph shall be treated as met if, under the plan or 
                arrangement, each employee eligible to participate in 
                the plan or arrangement is treated as having elected to 
                have the employer make elective contributions in an 
                amount equal to the qualified percentage of 
                compensation.
                    ``(B) Election out.--The election treated as having 
                been made under subparagraph (A) shall cease to apply 
                with respect to any employee if such employee makes an 
                affirmative election--
                            ``(i) not to have such contributions made, 
                        or
                            ``(ii) to make elective contributions at a 
                        level specified in such affirmative election.
                    ``(C) Qualified percentage.--For purposes of this 
                paragraph, and except as provided in subparagraph 
                (D)(i), the term `qualified percentage' means, with 
                respect to any employee, any percentage determined 
                under the plan or arrangement if such percentage is 
                applied uniformly, does not exceed 15 percent (10 
                percent during the period described in clause (i)), and 
                is at least--
                            ``(i) 6 percent during the period beginning 
                        on the date on which the first elective 
                        contribution described in subparagraph (A) is 
                        made with respect to such employee and ending 
                        on the last day of the first plan year which 
                        begins after such date,
                            ``(ii) 7 percent during the first plan year 
                        following the plan year described in clause 
                        (i),
                            ``(iii) 8 percent during the first plan 
                        year following the plan year described in 
                        clause (ii),
                            ``(iv) 9 percent during the first plan year 
                        following the plan year described in clause 
                        (iii), and
                            ``(v) 10 percent during any subsequent plan 
                        year.
                    ``(D) Rules relating to automatic IRA 
                arrangements.--For purposes of this paragraph--
                            ``(i) Qualified percentage.--In the case of 
                        an automatic IRA arrangement, the term 
                        `qualified percentage' means, with respect to 
                        an employee for any taxable year, a percentage 
                        equal to the minimum percentage described for 
                        the taxable year under subparagraph (C) 
                        determined by substituting `taxable year of the 
                        employee' for `the plan year' each place it 
                        appears.
                            ``(ii) Payroll deduction contributions.--In 
                        the case of an automatic IRA arrangement, any 
                        reference in this paragraph to elective 
                        contributions shall be treated as including a 
                        reference to payroll deduction contributions.
            ``(5) Investment requirements.--
                    ``(A) In general.--
                            ``(i) Default investments.--A plan or 
                        arrangement shall be treated as meeting the 
                        requirements of this paragraph if in the 
                        absence of an investment election by a 
                        participant or beneficiary, amounts are 
                        invested only in the class of assets or funds 
                        described in subparagraph (B).
                            ``(ii) Required investment options in 
                        automatic ira arrangement.--In addition to the 
                        default investment requirement of clause (i), 
                        an automatic IRA arrangement shall be treated 
                        as meeting the requirements of this paragraph 
                        if the arrangement provides the option of 
                        investing in each of the classes of assets or 
                        funds described in subparagraphs (B), (C), (D), 
                        and (E), and no other investment options.
                    ``(B) Target date/lifecycle option.--The class of 
                assets or funds described in this clause is the class 
                of assets or funds that constitutes an investment fund 
                product or model portfolio described in Department of 
                Labor regulation section 2550.404c-5(e)(4)(i).
                    ``(C) Principal preservation.--The class of assets 
                or funds described in this clause is the class of 
                assets or funds that is designed to protect the 
                principal of the individual on an ongoing basis.
                    ``(D) Balanced option.--The class of assets or 
                funds described in this clause is the class of assets 
                or funds that constitutes a qualified default 
                investment alternative under Department of Labor 
                regulation section 2550.404c-5(e)(4)(ii).
                    ``(E) Other.--Any other class of assets or funds 
                determined by the Secretary to be a qualified 
                investment for purposes of this section.
            ``(6) Fee requirements.--In the case of any plan or 
        arrangement not otherwise subject to title I of the Employee 
        Retirement Income Security Act of 1974, under the fee 
        requirements of this paragraph, no participant, beneficiary, 
        employer, individual retirement account, plan, or arrangement 
        may be charged unreasonable fees or expenses.
            ``(7) Lifetime income requirements.--
                    ``(A) In general.--Except in the case of a plan 
                maintained by an eligible employer (as defined in 
                section 408(p)(2)(C)(i)), a plan or arrangement shall 
                be treated as meeting the lifetime income requirement 
                described in this paragraph if the plan or arrangement 
                permits participants to elect to receive at least 50 
                percent of their vested account balance in a form of 
                distribution described in section 401(a)(38)(B)(iii).
                    ``(B) Exception.--
                            ``(i) In general.--This paragraph shall not 
                        apply with respect to any participant whose 
                        vested account balance is $200,000 or less at 
                        the time of distribution.
                            ``(ii) Not treated as discriminatory in 
                        favor of highly compensated employees.--A plan 
                        shall not be treated as failing to meet the 
                        requirements of section 401(a)(4) solely by 
                        reason of applying the exception of clause (i) 
                        to the requirements of subparagraph (A).
            ``(8) Automatic ira arrangement.--
                    ``(A) In general.--For purposes of this paragraph, 
                the term `automatic IRA arrangement' means, with 
                respect to an employer (and trustee or issuer 
                designated by the employer), an arrangement facilitated 
                by the employer which meets the requirements of this 
                paragraph and the contribution, investment, and fee 
                requirements of paragraphs (4), (5), and (6), 
                respectively, and under which an employee--
                            ``(i) may elect--
                                    ``(I) to have the employer make 
                                payroll deduction deposits on behalf of 
                                the individual as payroll deduction 
                                contributions to an individual 
                                retirement account, or
                                    ``(II) to have such payments paid 
                                to the employee directly in cash,
                            ``(ii) is treated as having made the 
                        election under clause (i)(I) at the level 
                        determined under paragraph (4)(D) until the 
                        individual makes an affirmative election not to 
                        have such contributions made (or to have such 
                        contributions made at a level specified in the 
                        affirmative election), and
                            ``(iii) may elect to modify prospectively 
                        the level at which contributions are made and 
                        the manner in which such contributions are 
                        invested for such year.
                    ``(B) Administrative requirements.--
                            ``(i) Payments.--The requirements of this 
                        paragraph shall not be treated as met with 
                        respect to any automatic IRA arrangement unless 
                        the employer makes the payments elected or 
                        treated as elected under subparagraph (A)(i) on 
                        or before the last day of the month following 
                        the month in which the compensation otherwise 
                        would have been payable to the employee in 
                        cash.
                            ``(ii) Notice of election period.--The 
                        requirements of this paragraph shall not be 
                        treated as met with respect to any year unless 
                        the employer notifies each employee eligible to 
                        participate, within a reasonable period of time 
                        before the beginning of such year (and, for the 
                        first year the employee is so eligible, a 
                        reasonable period of time before the first day 
                        such employee is so eligible), of--
                                    ``(I) the opportunity to elect to 
                                have contributions made, or to be 
                                treated as so electing, under clause 
                                (i)(I), or (ii), of subparagraph (A),
                                    ``(II) the opportunity to elect not 
                                to have payroll deduction contributions 
                                made or to have such contributions made 
                                at a different percentage or in a 
                                different amount, and
                                    ``(III) the opportunity under 
                                subparagraph (A)(iii) to modify the 
                                manner in which such amounts are 
                                invested for such year.
                        The employer shall provide such notice in paper 
                        form or, if the employee so elects, in 
                        electronic form.
                    ``(C) Eligibility requirements.--
                            ``(i) In general.--The requirements of this 
                        paragraph shall not be treated as met with 
                        respect to an automatic IRA arrangement 
                        facilitated by the employer unless all 
                        employees of the employer are eligible to 
                        participate in the arrangement.
                            ``(ii) Certain exclusions.--The following 
                        employees may be excluded from consideration in 
                        determining whether the requirements of this 
                        paragraph are met:
                                    ``(I) Individuals less than 18 
                                years old.--Any employee who has not 
                                attained age 18.
                                    ``(II) Certain other employees.--
                                Any employee described in section 
                                410(b)(3).
                                    ``(III) Service requirements.--Any 
                                employee who has not completed at least 
                                3 months of service with the employer 
                                facilitating the arrangement.
                            ``(iii) Special rules for controlled 
                        groups.--For purposes of this subparagraph, all 
                        eligible employees of an employer need not be 
                        eligible to participate in the same 
                        arrangement. For purposes of this clause, the 
                        term `employer' shall include all employers 
                        treated as a single employer under subsection 
                        (b), (c), (m), or (o) of section 414.
                            ``(iv) Automatic iras for non-employees.--
                        The Secretary shall by regulation or other 
                        guidance provide for making available automatic 
                        IRAs to individuals who provide services that 
                        do not constitute employment.
                    ``(D) Limits on contributions.--An employer shall 
                not be treated as failing to satisfy the requirements 
                of this section or any other provision of this title 
                merely because--
                            ``(i) aggregate payroll deduction 
                        contributions by or on behalf of an individual 
                        to individual retirement accounts of the 
                        individual exceed the deductible amount in 
                        effect under section 219(b)(5) (determined 
                        without regard to subparagraph (B) thereof) for 
                        any taxable year in which any payroll deduction 
                        contributions by the employer under an 
                        automatic IRA arrangement are made, or
                            ``(ii) the employer chooses to limit the 
                        payroll deduction contributions under this 
                        subsection on behalf of an employee for any 
                        calendar year in a manner reasonably designed 
                        to avoid exceeding such deductible amount.
                    ``(E) Default treatment as roth ira.--An employee 
                on whose behalf payroll deduction contributions are 
                made to an individual retirement account under 
                subparagraph (A) may elect, at such time and in such 
                manner and form as the Secretary may prescribe, whether 
                to treat the individual retirement account as 
                designated as a Roth IRA. If no such election is made, 
                the account shall be treated as designated as a Roth 
                IRA.
                    ``(F) Deposits to individual retirement accounts of 
                a designated trustee or issuer.--
                            ``(i) In general.--An employer shall not be 
                        treated as failing to satisfy the requirements 
                        of this section, or any other provision of this 
                        title, merely because the employer makes all 
                        payroll deduction contributions on behalf of 
                        all employees (or all employees who do not 
                        specify an individual retirement account, 
                        trustee, or issuer to receive the 
                        contributions) to individual retirement 
                        accounts specified in clause (ii).
                            ``(ii) Individual retirement accounts other 
                        than those selected by employee.--
                                    ``(I) In general.--An employer may 
                                elect to have payroll deduction 
                                contributions for all employees 
                                participating in an automatic IRA 
                                arrangement made to individual 
                                retirement accounts of a trustee or 
                                issuer under the arrangement that has 
                                been designated by the employer, but 
                                only if the provider of such accounts, 
                                and the investments therein, are 
                                identified on the website established 
                                under subparagraph (G)(iii).
                                    ``(II) Notice.--Subclause (I) shall 
                                not apply unless each participant is 
                                notified in writing that the 
                                participant may direct the 
                                participant's balance be transferred 
                                without cost or penalty to another 
                                individual retirement account 
                                established by or on behalf of the 
                                participant. Such notice shall be in 
                                paper form or, if the employee so 
                                elects, electronic form.
                            ``(iii) Employers may permit employee to 
                        choose ira.--If the employer so elects, the 
                        arrangement may provide for an employee 
                        election to have payroll deduction 
                        contributions made to any individual retirement 
                        account specified by the employee.
                            ``(iv) Regulations.--The Secretary may 
                        issue such regulations as are necessary to 
                        carry out the purposes of this subparagraph, 
                        including establishment of procedures to assist 
                        employers and individuals in connecting with 
                        certified and available providers of individual 
                        retirement accounts and to communicate to 
                        individuals the importance of investment 
                        diversification.
                    ``(G) Model notice, etc.--The Secretary shall--
                            ``(i) provide a model notice, written in a 
                        manner calculated to be understandable to the 
                        average worker, that is simple to use--
                                    ``(I) to notify employees of the 
                                requirement under this section for the 
                                employer to provide certain employees 
                                with the opportunity to participate in 
                                an automatic IRA arrangement, and
                                    ``(II) to satisfy the requirements 
                                of subparagraph (B)(ii),
                            ``(ii) provide model forms for enrollment, 
                        including automatic enrollment, in an automatic 
                        IRA arrangement,
                            ``(iii) establish a website or other 
                        electronic means that small employers and 
                        individuals can access and use to obtain 
                        information on automatic IRA arrangements 
                        (including clear, standardized, easy-to-compare 
                        information on fees and expenses, investment 
                        options and returns, and defaults in a format 
                        prescribed by the Secretary) and to obtain 
                        notices and forms, and
                            ``(iv) establish a process--
                                    ``(I) for the provider of an 
                                automatic IRA arrangement to 
                                demonstrate to the Secretary that the 
                                arrangement is described in this 
                                paragraph and meets the requirements 
                                specified in paragraph (1)(B), and
                                    ``(II) to certify any arrangement 
                                that the Secretary determines so 
                                demonstrates, to regularly monitor 
                                compliance and update such 
                                determinations and certifications, and 
                                to list all arrangements so certified 
                                on the website described in clause 
                                (iii) as appropriate for use by 
                                employers and participants.
                The information referred to in clause (iii) shall be 
                provided in a manner designed to assist employers and 
                providers by facilitating the identification by 
                employers of private-sector providers of individual 
                retirement accounts, including the provider's 
                investment options, that are appropriate for use in 
                automatic IRA arrangements.
                    ``(H) Certain state-based arrangements.--An 
                arrangement facilitated by an employer shall not fail 
                to be treated as an automatic IRA arrangement merely 
                because such arrangement is required, provided for, 
                facilitated, or otherwise offered, in whole or in part, 
                by a State (or a political subdivision, agency, or 
                instrumentality thereof).
                    ``(I) Individual retirement account.--For purposes 
                of this paragraph, the term `individual retirement 
                account' shall have the meaning given such term by 
                section 408(a), except that such term shall include 
                individual retirement annuities (as defined in section 
                408(b)).''.
            (2) Other rules applicable to automatic IRA arrangements.--
                    (A) Penalty for failure to timely remit 
                contributions to automatic ira arrangements.--Section 
                4975(c) is amended by adding at the end the following 
                new paragraph:
            ``(7) Special rule for automatic IRA arrangements.--For 
        purposes of paragraph (1), if an employer is required under an 
        automatic IRA arrangement (as defined in section 414(dd)(1)(B)) 
        to deposit amounts withheld from an employee's compensation 
        into an individual retirement account (within the meaning of 
        section 414(dd)(8)(I)) but fails to do so within the time 
        prescribed under section 414(dd)(8)(B)(i), such amounts shall 
        be treated as assets of the individual retirement account.''.
                    (B) Waiver of early withdrawal penalty for certain 
                distributions following initial election to participate 
                in automatic ira arrangement.--Section 72(t) is amended 
                by adding at the end the following new paragraph:
            ``(11) Distribution following initial election to 
        participate in automatic ira arrangement.--Paragraph (1) shall 
        not apply in the case of a distribution--
                    ``(A) to an individual from an individual 
                retirement account (within the meaning of section 
                414(dd)(8)(I)) that is part of an automatic IRA 
                arrangement (as defined in section 414(dd)(8)(A)), and
                    ``(B) made not later than 90 days after the 
                individual is first treated under clause (ii) of 
                section 414(dd)(8)(A) as having made an election under 
                clause (i)(I) of such section.''.
                    (C) Automatic IRA advisory group.--
                            (i) In general.--Not later than 90 days 
                        after the date of the enactment of this Act, 
                        the Secretary of the Treasury shall establish 
                        an Automatic IRA Advisory Group (hereinafter in 
                        this subparagraph referred to as the ``Advisory 
                        Group''). The purpose of the Advisory Group 
                        shall be to make recommendations, advise, and 
                        assist in the Secretary's implementation and 
                        administration of paragraphs (5), (6), and (8) 
                        of section 414(dd) of the Internal Revenue Code 
                        of 1986 with respect to automatic IRA 
                        arrangements in the best financial interest of 
                        savers, including--
                                    (I) the procedures and criteria for 
                                the periodic certification, website 
                                listing, and monitoring of arrangements 
                                and investment options that meet the 
                                requirements of those paragraphs,
                                    (II) user-friendly disclosure 
                                regarding investment returns and risks, 
                                terms, fees, and expenses to facilitate 
                                comparison,
                                    (III) the use of low-cost 
                                investment options,
                                    (IV) the appropriate use of 
                                electronic and paper methods to provide 
                                notice and disclosure,
                                    (V) any possible learnings or 
                                efficiencies based on the Secretary's 
                                procedures and experience in approving 
                                nonbank individual retirement account 
                                trustees, and
                                    (VI) such other related matters as 
                                may be determined by the Secretary.
                            (ii) Membership.--The Advisory Group shall 
                        consist of not more than 15 members and shall 
                        be composed of--
                                    (I) such individuals as the 
                                Secretary may consider appropriate to 
                                provide expertise regarding the 
                                financial needs and challenges of 
                                lower- and middle-income households,
                                    (II) at least one individual who is 
                                an expert in retirement-related 
                                consumer protections or who represents 
                                the general public, and
                                    (III) at least one representative 
                                of the Department of the Treasury.
                            (iii) Compensation.--The members of the 
                        Advisory Group shall serve without 
                        compensation.
                            (iv) Administrative support.--The 
                        Department of the Treasury shall provide 
                        appropriate administrative support to the 
                        Advisory Group, including technical assistance. 
                        The Advisory Group may use the services and 
                        facilities of such Department, with or without 
                        reimbursement, as determined by such 
                        Department.
                            (v) Report by advisory group.--Not later 
                        than 1 year after the date of the enactment of 
                        this Act, the Advisory Group shall submit to 
                        the Secretary of the Treasury a report 
                        containing its recommendations. The Secretary 
                        may request that the Advisory Group submit 
                        subsequent reports.
            (3) Conforming amendment relating to qualified cash or 
        deferred arrangements.--Section 401(k)(15)(B)(i) is amended by 
        inserting ``or section 414(dd)(3)(B)(iii)(II)'' after 
        ``paragraph (2)(D)(ii)'' in the matter preceding subclause (I) 
        thereof.
    (b) Excise Tax for Failure To Maintain or Facilitate Automatic 
Contribution Plans or Arrangements.--
            (1) In general.--Chapter 43 is amended by adding at the end 
        the following new section:

``SEC. 4980J. FAILURE TO MAINTAIN OR FACILITATE AUTOMATIC CONTRIBUTION 
              PLANS OR ARRANGEMENTS.

    ``(a) General Rule.--
            ``(1) In general.--There is hereby imposed a tax on the 
        failure of an employer to maintain or facilitate an automatic 
        contribution plan or arrangement.
            ``(2) Exception for arrangements under qualified state 
        law.--Paragraph (1) shall not apply to an employer to the 
        extent such employer facilitates an arrangement described in 
        subsection (f)(3)(B) under a qualified State law.
    ``(b) Amount of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure with respect to an employee shall 
        be $10 for each day in the noncompliance period with respect to 
        such failure.
            ``(2) Noncompliance period.--For purposes of this section, 
        the term `noncompliance period' means, with respect to any 
        failure, the period--
                    ``(A) beginning on the date such failure first 
                occurs, and
                    ``(B) ending on the earlier of--
                            ``(i) the date such failure is corrected, 
                        or
                            ``(ii) with respect to any employer, the 
                        date that is 3 months after the last date on 
                        which the employee is required to be eligible 
                        to participate in an automatic contribution 
                        plan or arrangement maintained or facilitated 
                        by such employer.
            ``(3) Adjustment for inflation.--
                    ``(A) In general.--In the case of any failure 
                relating to maintaining or facilitating a plan or 
                arrangement in a calendar year beginning after 2026, 
                the $10 amount under paragraph (1) shall be increased 
                by an amount equal to such dollar amount multiplied by 
                the cost-of-living adjustment determined under section 
                1(f)(3) for the calendar year determined by 
                substituting `calendar year 2025' for `calendar year 
                2016' in subparagraph (A)(ii) thereof.
                    ``(B) Rounding.--If any amount adjusted under 
                subparagraph (A) is not a whole dollar amount, such 
                amount shall be rounded to the nearest whole dollar 
                amount.
    ``(c) Limitations on Amount of Tax.--
            ``(1) Tax not to apply where failure not discovered 
        exercising reasonable diligence.--No tax shall be imposed by 
        subsection (a) on any failure during any period for which it is 
        established to the satisfaction of the Secretary that none of 
        the persons referred to in subsection (e) knew, nor exercising 
        reasonable diligence would have known, that such failure 
        existed.
            ``(2) Tax not to apply to failures corrected within 9\1/2\ 
        months.--No tax shall be imposed by subsection (a) on any 
        failure if--
                    ``(A) such failure was due to reasonable cause and 
                not to willful neglect, and
                    ``(B) such failure is corrected during the 9\1/2\-
                month period beginning on the first date any of the 
                persons referred to in subsection (e) knew that such 
                failure existed, or exercising reasonable diligence 
                would have known.
            ``(3) Overall limitation for unintentional failures.--In 
        the case of failures which are due to reasonable cause and not 
        to willful neglect--
                    ``(A) General rule.--The tax imposed by subsection 
                (a) for failures during the taxable year of the 
                employer shall not exceed $500,000.
                    ``(B) Taxable years in the case of certain 
                controlled groups.--For purposes of this subparagraph, 
                if not all persons who are treated as a single employer 
                for purposes of this section have the same taxable 
                year, the taxable years taken into account shall be 
                determined under principles similar to the principles 
                of section 1561.
            ``(4) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive relative to the failure involved.
    ``(d) Tax Not to Apply in Certain Cases.--This section shall not 
apply in the case of--
            ``(1) any employer that employed no more than 10 employees 
        each of whom received at least $5,000 of compensation from the 
        employer during the prior calendar year,
            ``(2) any employer with respect to a governmental plan 
        (within the meaning of section 414(d)),
            ``(3) any employer with respect to a church plan (within 
        the meaning of section 414(e)), or
            ``(4) any employer that has been in existence for fewer 
        than 2 years, taking into account all predecessor employers.
    ``(e) Liability for Tax.--The employer shall be liable for the tax 
imposed by subsection (a) on a failure. All employers, determined 
without regard to subsection (f)(2), shall be jointly and severally 
liable for the liability of any other employer with which they are 
aggregated under subsection (f)(2).
    ``(f) Definitions.--For purposes of this section--
            ``(1) Automatic contribution plan or arrangement.--The term 
        `automatic contribution plan or arrangement' has the meaning 
        given such term under section 414(dd), and
            ``(2) Employer.--The term `employer' includes all employers 
        treated as a single employer under subsection (b), (c), (m), or 
        (o) of section 414.
            ``(3) Qualified state law.--The term `qualified State law' 
        means a State law (as it may be amended from time to time) 
        that--
                    ``(A) was enacted before January 1, 2027, and
                    ``(B) requires certain employers to facilitate an 
                automatic IRA arrangement pursuant to a payroll 
                deduction savings program of the State.''.
            (2) Clerical amendment.--The table of sections for chapter 
        43 is amended by adding at the end the following new item:

``Sec. 4980J. Failure to maintain or facilitate automatic contribution 
                            plans or arrangements.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2026.

SEC. 3. CREDIT FOR CERTAIN SMALL EMPLOYER AUTOMATIC IRA ARRANGEMENTS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
is amended by adding at the end the following new section:

``SEC. 45BB. CREDIT FOR CERTAIN SMALL EMPLOYER AUTOMATIC IRA 
              ARRANGEMENTS.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible employer, the small employer automatic IRA arrangement credit 
determined under this section for any taxable year in the credit period 
is $500.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Eligible employer.--The term `eligible employer' 
        means, with respect to the calendar year in which the taxable 
        year begins, an employer which--
                    ``(A)(i) facilitates an automatic IRA arrangement 
                (as defined in section 414(dd)(8)), or an arrangement 
                described in 4980J(a)(2), and
                    ``(ii) is described in 408(p)(2)(C)(i), and
                    ``(B) did not maintain an eligible employer plan 
                during the portion of the calendar year preceding the 
                commencement of such arrangement and the 2 preceding 
                calendar years.
            ``(2) Credit period.--The term `credit period' means the 
        first 3 calendar years beginning after the date of the 
        enactment of this section in which the eligible employer 
        participates in the arrangement.
            ``(3) Eligible employer plan.--The term `eligible employer 
        plan' means a qualified employer plan within the meaning of 
        section 4972(d).
    ``(c) Other Rules.--For purposes of this section, rules similar to 
the rules of section 45E(e)(2) shall apply.''.
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) is amended by striking ``plus'' at the end of paragraph (40), by 
striking the period at the end of paragraph (41) and inserting ``, 
plus'', and by adding at the end the following new paragraph:
            ``(42) the small employer automatic IRA arrangement credit 
        determined under section 45BB(a).''.
    (c) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by adding at the end 
the following new item:

``Sec. 45BB. Credit for certain small employer automatic IRA 
                            arrangements.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2024.

SEC. 4. TREATMENT OF AUTOMATIC IRA ARRANGEMENTS UNDER STATE LAW.

    (a) Preemption of State Law.--This Act, and the amendments made 
thereby, shall supersede any law of a State which would directly or 
indirectly prohibit or restrict an automatic IRA arrangement (as 
defined in section 414(dd)(8) of the Internal Revenue Code of 1986).
    (b) Employers Maintaining Automatic IRA Arrangement.--
            (1) In general.--Any employer maintaining such an 
        arrangement shall not be subject to any requirement imposed by 
        a State or political subdivision thereof to facilitate a 
        payroll deduction savings program of a State or political 
        subdivision thereof.
            (2) Qualified state law exception.--Paragraph (1) shall not 
        apply with respect to any employer to the extent that such 
        employer facilitates an arrangement under a qualified State law 
        (as defined in section 4980J(f)(3) of the Internal Revenue Code 
        of 1986) for employees with respect to whom such qualified 
        State law applies.
                                 <all>
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