I

104TH CONGRESS

2D SESSION H. R. 2971

To amend the Internal Revenue Code of 1986 and the Social Security Act

to reduce social security taxes and to provide for social security individual

retirement accounts funded by social security payroll deductions.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 23, 1996

Mr. THOMAS introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Economic

and Educational Opportunities, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions

as fall within the jurisdiction of the committee concerned

A BILL

To amend the Internal Revenue Code of 1986 and the Social

Security Act to reduce social security taxes and to provide for social security individual retirement accounts

funded by social security payroll deductions.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Social Security Individ5 ual Retirement Act of 1996’’.
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1 SEC. 2. REDUCTION OF SOCIAL SECURITY TAXES.

2 (a) TAX ON EMPLOYEES.—Subsection (a) of section

3 3101 of the Internal Revenue Code of 1986 (relating to

4 OASDI tax on employees) is amended—

5 (1) by striking the last item in the table and in6 serting the following:

‘‘1990, 1991, 1992, 1993, 1994, 1995, or 1996 ...................... 6.20 percent

‘‘1997 or thereafter .................................................................. 6.06 percent;’’;

7 and

8 (2) by adding after and below the table the fol9 lowing:

10 ‘‘except that, in the case of an eligible employee (as de11 fined in section 255(3) of the Social Security Act), the

12 rate of tax under this subsection shall be 0.0 percent with

13 respect to wages paid after December 31, 1996, for pay

14 periods ending after such date.’’

15 (b) TAX ON EMPLOYERS.—Subsection (a) of section

16 3111 of such Code (relating to OASDI tax on employers)

17 is amended by striking the last item in the table and in18 serting the following:

‘‘1990, 1991, 1992, 1993, 1994, 1995, or 1996 ...................... 6.20 percent

‘‘1997 or thereafter .................................................................. 6.06 percent.’’

19 (c) SELF-EMPLOYMENT TAX.—Subsection (a) of sec20 tion 1401 of such Code (relating to OASDI tax on self21 employment income) is amended—
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1 (1) by striking the last item in the table and in2 serting the following:

‘‘December 31, 1989 ............. January 1, 1997 ................... 12.40

‘‘December 31, 1996 ............. ................................................ 12.12;’’

3 and

4 (2) by adding after and below the table the fol5 lowing:

6 ‘‘except that, in the case of an eligible self-employed indi7 vidual (as defined in section 255(4) of the Social Security

8 Act), the rate of tax under this subsection shall be 6.6

9 percent of the amount of the self-employment income in

10 the case of a taxable year after December 31, 1996.’’

11 (d) EFFECTIVE DATES.—

12 (1) IN GENERAL.—Except as otherwise pro13 vided in this subsection, the amendments made by

14 this section shall apply to remuneration paid after

15 December 31, 1996.

16 (2) SELF-EMPLOYMENT TAX.—The amend17 ments made by subsection (c) shall apply to taxable

18 years beginning after December 31, 1996.

19 SEC. 3. INDIVIDUAL RETIREMENT PROGRAM AND SOCIAL

20 SECURITY INDIVIDUAL RETIREMENT AC21 COUNTS.

22 (a) IN GENERAL.—Title II of the Social Security Act

23 is amended—
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1 (1) by inserting before section 201 the follow2 ing:

3 ‘‘PART A—INSURANCE BENEFITS’’;

4 and

5 (2) by adding at the end the following new part:

6 ‘‘PART B—INDIVIDUAL RETIREMENT PROGRAM

7 ‘‘SOCIAL SECURITY PAYROLL DEDUCTION PLANS

8 ‘‘SEC. 251. (a) IN GENERAL.—Each person who is

9 a covered employer for a calendar year shall have in effect

10 a social security payroll deduction plan for such calendar

11 year for such person’s eligible employees.

12 ‘‘(b) REQUIREMENTS.—For purposes of this part, the

13 term ‘social security payroll deduction plan’ means a writ14 ten plan of an employer if—

15 ‘‘(1) the plan applies only with respect to wages

16 of eligible employees,

17 ‘‘(2) under such plan, the prescribed social se18 curity contributions will be deducted from the em19 ployee’s wages and paid to a social security individ20 ual retirement account designated in accordance

21 with section 252(a),

22 ‘‘(3) under such plan, the employer is required

23 to pay the amount so deducted to the specified social

24 security individual retirement account within 10
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1 business days after the payment of the wages from

2 which the amount was deducted,

3 ‘‘(4) the employer receives no compensation for

4 the cost of administering such plan, and

5 ‘‘(5) in the case of a plan under which there is

6 more than 1 social security individual retirement ac7 count, the employer does not make any endorsement

8 with respect to any such accounts.

9 ‘‘(c) AMOUNTS DEDUCTED MAY BE ACCUMULATED

10 BY EMPLOYER IN CERTAIN CASES.—If, under the terms

11 of a social security individual retirement account des12 ignated under section 252(a), contributions below a speci13 fied amount will not be accepted, the requirements of sub14 section (b)(2) shall be treated as met if amounts deducted

15 from the wages of such employee are accumulated by the

16 employer and paid to such plan not later than 10 business

17 days after the first day on which the accumulated amount

18 exceeds such specified amount.

19 ‘‘DESIGNATION OF ACCOUNTS UNDER PAYROLL

20 DEDUCTION PLAN

21 ‘‘SEC. 252. (a) IN GENERAL.—Except as provided in

22 subsection (b), the social security individual retirement ac23 count to which the prescribed social security contributions

24 with respect to any employee are required to be paid under

25 section 251 shall be a social security individual retirement
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1 account designated by the employee to the employer not

2 later than the later of—

3 ‘‘(1) 10 business days after the date on which

4 the employee becomes an employee of such employer,

5 or

6 ‘‘(2) December 31, 1996.

7 Any such designation shall be made in such form and

8 manner as may be prescribed in regulations of the Com9 missioner of Social Security.

10 ‘‘(b) DESIGNATION IN ABSENCE OF TIMELY DES11 IGNATION BY EMPLOYEE.—In any case in which no timely

12 designation of the social security individual retirement ac13 count is made, the employer shall make the designation

14 of the social security individual retirement account in ac15 cordance with regulations of the Commissioner of Social

16 Security.

17 ‘‘PARTICIPATION BY SELF-EMPLOYED INDIVIDUALS

18 ‘‘SEC. 253. (a) IN GENERAL.—Each eligible self-em19 ployed individual who receives self-employment income for

20 any taxable year beginning after December 31, 1996,

21 shall, in such form and manner as shall be prescribed in

22 regulations of the Commissioner of Social Security, de23 posit in a social security individual retirement account

24 maintained by such individual the prescribed social secu25 rity contribution for such taxable year. Such deposit shall
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1 be made within 10 business days after the receipt by such

2 individual of such self-employment income.

3 ‘‘(b) AMOUNTS PAYABLE MAY BE ACCUMULATED IN

4 CERTAIN CASES.—If, under the terms of a social security

5 individual retirement account maintained under subsection

6 (a), contributions below a specified amount will not be ac7 cepted, the requirements of subsection (a) shall be treated

8 as met if amounts otherwise payable under subsection (a)

9 are accumulated by the individual and paid to such ac10 count not later than 10 business days after the first day

11 on which the accumulated amount exceeds such specified

12 amount.

13 ‘‘DESIGNATION OF ACCOUNTS OF SURVIVING SPOUSES

14 AND SURVIVING DIVORCED SPOUSES

15 ‘‘SEC. 254. (a) IN GENERAL.—Except as provided in

16 subsection (b), in the case of a deceased individual with

17 respect to whom a social security individual retirement ac18 count was established and maintained pursuant to section

19 252 or 253, the trustee of such account shall transfer the

20 balance in such account to a social security individual re21 tirement account maintained by an eligible survivor if such

22 account is designated by the eligible survivor to the trustee

23 not later than 20 business days after the date of such indi24 vidual’s death. Any such designation shall be made in such

25 form and manner as may be prescribed in regulations of

26 the Commissioner of Social Security.
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1 ‘‘(b) DESIGNATION IN ABSENCE OF TIMELY DES2 IGNATION BY ELIGIBLE SURVIVOR.—In any case in which,

3 upon the expiration of such 20-day period, there is an eli4 gible survivor but no timely designation of a social security

5 individual retirement account is made by the eligible survi6 vor under subsection (a), the trustee shall make the des7 ignation of the social security individual retirement ac8 count under subsection (a) on behalf of such eligible survi9 vor, in accordance with regulations of the Commissioner

10 of Social Security.

11 ‘‘(c) DISPOSITION OF ACCOUNT BALANCE WHERE

12 NO ELIGIBLE SURVIVOR EXISTS.—In any case in which,

13 upon the expiration of such 20-day period no timely des14 ignation under subsection (b) has been made and there

15 is no eligible survivor, the trustee of the deceased individ16 ual’s account shall transfer the balance in such account

17 to the Federal Old-Age and Survivors Insurance Trust

18 Fund within the period of 20 business days following the

19 expiration of such 20-day period.

20 ‘‘DEFINITIONS

21 ‘‘SEC. 255. For purposes of this part—

22 ‘‘(1) SOCIAL SECURITY INDIVIDUAL RETIRE23 MENT ACCOUNT.—The term ‘social security individ24 ual retirement account’ means any individual retire25 ment account (as defined in section 408(a) of the

26 Internal Revenue Code of 1986) which is adminis-
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1 tered or issued by a bank (as defined in section

2 408(n) of such Code) under terms which restrict de3 posits to prescribed social security contributions

4 made to the account pursuant to section 251 or 253

5 and transfers made to the account pursuant to sec6 tion 254.

7 ‘‘(2) COVERED EMPLOYER.—The term ‘covered

8 employer’ means, for any calendar year, any person

9 on whom an excise tax is imposed under section

10 3111 of the Internal Revenue Code of 1986 with re11 spect to having an individual in his employ to whom

12 wages are paid by such person during such calendar

13 year.

14 ‘‘(3) ELIGIBLE EMPLOYEE.—

15 ‘‘(A) IN GENERAL.—Subject to subpara16 graph (B), the term ‘eligible employee’ means,

17 in connection with any person who is a covered

18 employer for any calendar year, any individ19 ual—

20 ‘‘(i) with respect to whose employment

21 by such employer during such calendar

22 year there is imposed an excise tax under

23 section 3111 of the Internal Revenue Code

24 of 1986, and
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1 ‘‘(ii) who, as of January 1, 1997, has

2 not been credited under part A with any

3 quarters of coverage (within the meaning

4 of section 213(a)(2)).

5 ‘‘(B) ELECTION OF PARTICIPATION.—

6 ‘‘(i) IN GENERAL.—The requirements

7 of subparagraph (A)(ii) shall be deemed

8 satisfied in the case of an individual who

9 does not otherwise meet such requirements

10 if such individual files with the employer

11 and the Commissioner of Social Security,

12 in such form and manner as shall be pre13 scribed in regulations of the Commissioner,

14 a written and signed declaration of such

15 individual’s intention to be treated as an

16 eligible employee for purposes of this title

17 and such election meets the requirements

18 of clause (ii).

19 ‘‘(ii) REQUIREMENTS.—Any election

20 under clause (i) must be so filed not later

21 than December 15, 1996, and must des22 ignate the social security individual retire23 ment account to which the prescribed so24 cial security contributions with respect to

25 such individual are to be paid.
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1 ‘‘(iii) IRREVOCABILITY.—Any election

2 under clause (i) shall be irrevocable and

3 shall be effective with respect to wages

4 paid after December 31, 1996, for pay pe5 riods ending after such date.

6 ‘‘(4) ELIGIBLE SELF-EMPLOYED INDIVIDUAL.—

7 ‘‘(A) IN GENERAL.—Subject to subpara8 graph (B), the term ‘eligible self-employed indi9 vidual’ means any individual—

10 ‘‘(i) on whose self-employment income

11 for a taxable year beginning after Decem12 ber 31, 1996, there is imposed a tax under

13 section 1401(a) of the Internal Revenue

14 Code of 1986, and

15 ‘‘(ii) who, as of January 1, 1997, has

16 not been credited under part A with any

17 quarters of coverage (within the meaning

18 of section 213(a)(2)).

19 ‘‘(B) ELECTION OF PARTICIPATION.—

20 ‘‘(i) IN GENERAL.—The requirements

21 of subparagraph (A)(ii) shall be deemed

22 satisfied in the case of an individual who

23 does not otherwise meet such requirements

24 if such individual files with the Commis25 sioner of Social Security, in such form and
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1 manner as shall be prescribed in regula2 tions of the Commissioner, a written and

3 signed declaration of such individual’s in4 tention to be treated as an eligible self-em5 ployed individual for purposes of this title

6 and such election meets the requirements

7 of clause (ii).

8 ‘‘(ii) REQUIREMENTS.—Any election

9 under clause (i) must be so filed not later

10 than December 15, 1996, and must des11 ignate the social security individual retire12 ment account to which the prescribed so13 cial security contributions with respect to

14 such individual are to be paid.

15 ‘‘(iii) IRREVOCABILITY.—Any election

16 under clause (i) shall be irrevocable and

17 shall be effective with respect to self-em18 ployment income for taxable years begin19 ning after December 31, 1996.

20 ‘‘(5) PRESCRIBED SOCIAL SECURITY CONTRIBU21 TION.—The term ‘prescribed social security con22 tribution’ means—

23 ‘‘(A) with respect to wages paid to an em24 ployee, an amount equal to the amount of tax

25 payable by the employer based on such wages
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1 under section 3111 of the Internal Revenue

2 Code of 1986 with respect to having such em3 ployee in his employ, and

4 ‘‘(B) with respect to self-employment in5 come received by an individual, an amount

6 equal to the amount of tax payable by the indi7 vidual based on such self-employment income

8 under section 1401(a) of such Code.

9 ‘‘(6) ELIGIBLE SURVIVOR.—The term ‘eligible

10 survivor’ of a deceased individual means such indi11 vidual’s widow or, if there is no such widow, such in12 dividual’s last surviving divorced wife or surviving

13 divorced husband. Such term shall not include any

14 such surviving divorced wife or surviving divorced

15 husband who is married on the date of the deceased

16 individual’s death.

17 ‘‘(7) BUSINESS DAY.—The term ‘business day’

18 means any day other than a Saturday, Sunday, or

19 legal holiday in the area involved.

20 ‘‘PENALTIES

21 ‘‘SEC. 256. (a) FAILURE TO ESTABLISH INDIVIDUAL

22 RETIREMENT PAYROLL DEDUCTION PLAN.—Any covered

23 employer who fails to meet the requirements of section

24 251 for any calendar year shall be subject to a civil penalty

25 of not to exceed the greater of—

26 ‘‘(1) $5,000, or
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1 ‘‘(2) $100 for each eligible employee of such

2 employer as of the beginning of such calendar year.

3 ‘‘(b) FAILURE TO MAKE DEDUCTIONS REQUIRED

4 UNDER PLAN.—Any covered employer who fails to deduct

5 an amount from the wages of an eligible employee in ac6 cordance with an applicable social security payroll deduc7 tion plan shall be subject to a civil penalty of not to exceed

8 $500 for each such failure.

9 ‘‘(c) FAILURE BY EMPLOYER TO MAKE TIMELY PAY10 MENTS TO SOCIAL SECURITY INDIVIDUAL RETIREMENT

11 ACCOUNT.—If an amount deducted from the wages of an

12 eligible employee under a social security payroll deduction

13 plan is not paid to the specified social security individual

14 retirement account within the time prescribed by section

15 251—

16 ‘‘(1) the employer shall be subject to a civil

17 penalty of not to exceed 50 percent of the amount

18 so deducted, and

19 ‘‘(2) shall be liable to the employee for interest

20 on the amount so deducted at the underpayment

21 rate determined under section 6621 of the Internal

22 Revenue Code of 1986 from the last day by which

23 such amount was required to be so paid to the date

24 on which such amount is paid into the specified so25 cial security individual retirement account.
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1 ‘‘(d) FAILURE BY ELIGIBLE SELF-EMPLOYED INDI2 VIDUAL TO MAKE TIMELY PAYMENTS TO SOCIAL SECU3 RITY INDIVIDUAL RETIREMENT ACCOUNT.—If a pre4 scribed social security contribution is not paid by an eligi5 ble self-employed individual to a social security individual

6 retirement account maintained by the individual within

7 the time prescribed by section 253, such individual shall

8 be subject to a civil penalty of not to exceed 50 percent

9 of the amount of such contribution.

10 ‘‘(e) FAILURE BY TRUSTEE TO MAKE TIMELY

11 TRANSFERS.—If the balance in the social security individ12 ual retirement account of a deceased individual is not

13 transferred by the trustee within the time prescribed by

14 section 254—

15 ‘‘(1) the trustee shall be subject to a civil pen16 alty of not to exceed 50 percent of the amount of

17 the balance, and

18 ‘‘(2) shall be liable—

19 ‘‘(A) in the case of a transfer required to

20 be made to another social security individual re21 tirement account, to the widow or the surviving

22 divorced wife or surviving divorced husband (as

23 the case may be), or
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1 ‘‘(B) in the case of a transfer required to

2 be made to the Federal Old-Age and Survivors

3 Insurance Trust Fund, to such Trust Fund,

4 for interest on the balance at the underpayment rate

5 determined under section 6621 of the Internal Reve6 nue Code of 1986 from the last day by which such

7 balance was required to be so transferred to the date

8 on which such balance is transferred to the des9 ignated social security individual retirement account.

10 ‘‘(f) RULES FOR APPLICATION OF SECTION.—

11 ‘‘(1) PENALTIES ASSESSED BY COMMISSIONER

12 OF SOCIAL SECURITY.—Any civil penalty assessed by

13 this section shall be imposed by the Commissioner of

14 Social Security and collected in a civil action.

15 ‘‘(2) COMPROMISES.—The Commissioner may

16 compromise the amount of any civil penalty imposed

17 by this section.

18 ‘‘(3) AUTHORITY TO WAIVE PENALTY IN CER19 TAIN CASES.—The Commissioner may waive the ap20 plication of this section with respect to any failure

21 if the Commissioner determines that such failure is

22 due to reasonable cause and not to intentional dis23 regard of rules and regulations.’’

24 (b) AMOUNTS DEDUCTED TO BE SHOWN ON W–2

25 STATEMENTS.—Subsection (a) of section 6051 of the In-
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1 ternal Revenue Code of 1986 (relating to receipts for em2 ployees) is amended—

3 (1) by striking ‘‘and’’ at the end of paragraph

4 (9);

5 (2) by striking the period at the end of para6 graph (10) and inserting ‘‘, and’’; and

7 (3) by adding at the end the following new

8 paragraph:

9 ‘‘(11) the total amount deducted from the em10 ployee’s wages under a social security payroll deduc11 tion plan established under part B of title II of the

12 Social Security Act.’’

13 (c) EXEMPTION FROM ERISA REQUIREMENTS.—

14 Subsection (b) of section 4 of the Employee Retirement

15 Income Security Act of 1974 (29 U.S.C. 1003(b)) is

16 amended—

17 (1) by striking ‘‘or’’ at the end of paragraph

18 (4);

19 (2) by striking the period at the end of para20 graph (5) and inserting ‘‘; or’’; and

21 (3) by adding at the end the following new

22 paragraph:

23 ‘‘(6) such plan is a social security payroll de24 duction plan established under part B of title II of
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1 the Social Security Act and does not provide for em2 ployer contributions.’’

3 (d) EFFECTIVE DATE AND NOTICE REQUIRE4 MENTS.—

5 (1) EFFECTIVE DATE.—The amendments made

6 by subsection (a) (and any social security payroll de7 duction plan required thereunder) shall apply with

8 respect to wages paid after December 31, 1996, for

9 pay periods ending after such date and self-employ10 ment income for taxable years beginning after such

11 date.

12 (2) NOTICE REQUIREMENTS.—

13 (A) IN GENERAL.—Not later than October

14 1, 1996, the Commissioner of Social Security

15 shall—

16 (i) send to the last known address of

17 each eligible individual a description of the

18 program established by the amendments

19 made by this Act, which shall be written in

20 the form of a pamphlet in language which

21 may be readily understood by the average

22 worker,

23 (ii) provide for toll-free access by tele24 phone from all localities in the United

25 States to the Social Security Administra-
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1 tion through which individuals may obtain

2 information and answers to questions re3 garding such program, and

4 (iii) provide information to the media

5 in all localities of the United States about

6 such program and such toll-free access by

7 telephone.

8 (B) ELIGIBLE INDIVIDUAL.—For purposes

9 of this paragraph, the term ‘‘eligible individual’’

10 means an individual who, as of the date of the

11 pamphlet sent pursuant to subparagraph (A), is

12 indicated within the records of the Social Secu13 rity Administration as—

14 (i) not having attained age 65, and

15 (ii) being credited with one or more

16 quarters of coverage under section 213 of

17 the Social Security Act.

18 (C) MATTERS TO BE INCLUDED.—The

19 Commissioner of Social Security shall include

20 with the pamphlet sent to each eligible individ21 ual pursuant to subparagraph (A)—

22 (i) a statement of the number of quar23 ters of coverage indicated in the records of

24 the Social Security Administration as of

25 the date of the description as credited to
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1 such individual under section 213 of the

2 Social Security Act and the date as of

3 which such records may be considered ac4 curate, and

5 (ii) the number for toll-free access by

6 telephone established by the Commissioner

7 pursuant to subparagraph (A).

8 SEC. 4. ADJUSTMENTS TO PRIMARY INSURANCE AMOUNTS

9 UNDER PART A OF TITLE II OF THE SOCIAL

10 SECURITY ACT.

11 (a) IN GENERAL.—Section 215 of the Social Security

12 Act (42 U.S.C. 415) is amended by adding at the end the

13 following new subsection:

14 ‘‘Adjustment of Primary Insurance Amount of Eligible

15 Employees and Eligible Self-Employed Individuals

16 Under Part B

17 ‘‘(j)(1) Except as provided in paragraph (3), in the

18 case of an individual who is—

19 ‘‘(A) an eligible employee, as defined under

20 paragraph (3)(A) of section 255 without regard to

21 paragraph (3)(B) of such section, or

22 ‘‘(B) an eligible self-employed individual, as de23 fined under paragraph (4)(A) of section 255 without

24 regard to paragraph (4)(B) of such section,
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1 such individual’s primary insurance amount as determined

2 in accordance with this section (before adjustments made

3 under subsection (i)) shall be equal to 50 percent of the

4 amount which would be so determined if this subsection

5 did not apply.

6 ‘‘(2) Except as provided in paragraph (3), in the case

7 of an individual who is—

8 ‘‘(A) an eligible employee as defined in para9 graph (3) of section 255 solely by reason of an elec10 tion under paragraph (3)(B) of such section, or

11 ‘‘(B) an eligible self-employed individual as de12 fined in paragraph (4) of section 255 solely by rea13 son of an election under paragraph (4)(B) of such

14 section,

15 such individual’s primary insurance amount as determined

16 in accordance with this section (before adjustments made

17 under subsection (i)) shall be equal to the product derived

18 by multiplying—

19 ‘‘(i) the amount which would be so determined

20 if this subsection did not apply, by

21 ‘‘(ii) the applicable percentage determined

22 under the following table:

‘‘If the number of such individual’s

quarters of coverage (within the

meaning of section 213(a)(2)) as of The applicable

January 1, 1997, is: percentage is:

Less than 21 ............................................................. 50 percent.

More than 20 but less than 61 ................................. 60 percent.

More than 60 but less than 101 ............................... 70 percent.
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More than 100 but less than 141 ............................. 80 percent.

More than 141 ........................................................... 90 percent.

1 ‘‘(3)(A) In the case of an individual who is an eligible

2 employee as defined in paragraph (3) of section 255 or

3 an eligible self-employed individual as defined in para4 graph (4) of section 255 becomes entitled to disability in5 surance benefits under section 223, such individual’s pri6 mary insurance amount shall be determined without re7 gard to paragraphs (1) and (2).

8 ‘‘(B) Effective upon the attainment by an individual

9 described in subparagraph (A) of retirement age (as de10 fined in section 216(l)(1)), such individual’s primary in11 surance amount as determined in accordance with this sec12 tion (before subsequent adjustments made under sub13 section (i)) shall be equal the product derived by multiply14 ing—

15 ‘‘(i) the amount which would be so determined

16 if this subsection did not apply, by

17 ‘‘(ii) the applicable percentage determined

18 under the following table:

‘‘If the number of such individual’s

quarters of coverage (within the

meaning of section 213(a)(2)) as of

the date on which such individual The applicable

attains normal retirement age is: percentage is:

Less than 9 ............................................................... 100 percent.

More than 8 but less than 21 ................................... 90 percent.

More than 20 but less than 61 ................................. 80 percent.

More than 60 but less than 101 ............................... 70 percent.

More than 100 but less than 141 ............................. 60 percent.

More than 140 ........................................................... 50 percent.’’
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1 (b) CONFORMING AMENDMENT TO RAILROAD RE2 TIREMENT ACT OF 1974.—Section 1 of the Railroad Re3 tirement Act of 1974 (45 U.S.C. 231) is amended by add4 ing at the end the following:

5 ‘‘(s) In applying applicable provisions of the Social

6 Security Act for purposes of determining the amount of

7 the annuity to which an individual is entitled under this

8 Act, such individual shall not be treated as an ‘eligible

9 individual’ as defined in section 253(4) of the Social Secu10 rity Act.’’

11 (c) EFFECTIVE DATE.—The amendments made by

12 this section shall apply with respect to months after De13 cember 1996.

14 SEC. 5. TAX TREATMENT OF SOCIAL SECURITY INDIVIDUAL

15 RETIREMENT ACCOUNTS.

16 (a) IN GENERAL.—Subpart A of part I of subchapter

17 D of chapter 1 of the Internal Revenue Code of 1986 (re18 lating to pension, profit-sharing, stock bonus plans, etc.)

19 is amended by inserting after section 408 the following

20 new section:

21 ‘‘SEC. 408A. SOCIAL SECURITY INDIVIDUAL RETIREMENT

22 ACCOUNTS.

23 ‘‘(a) GENERAL RULE.—A social security individual

24 retirement account shall be treated under this title in the
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1 same manner as any individual retirement plan, except to

2 the extent otherwise provided in this section.

3 ‘‘(b) SOCIAL SECURITY INDIVIDUAL RETIREMENT

4 ACCOUNT.—For purposes of this title, the term ‘social se5 curity individual retirement account’ means an individual

6 retirement account (as defined in section 408(a)) which

7 is administered or issued by a bank (as defined in section

8 408(n)) under terms which restrict deposits to prescribed

9 social security contributions made to the account pursuant

10 to section 251 or 253 of the Social Security Act and trans11 fers made to the account pursuant to section 254 of such

12 Act.

13 ‘‘(c) TAX TREATMENT OF DISTRIBUTIONS.—For

14 purposes of this title—

15 ‘‘(1) EXCLUSION FOR QUALIFIED DISTRIBU16 TIONS.—

17 ‘‘(A) IN GENERAL.—In the case of a quali18 fied distribution from a social security individ19 ual retirement account, the amount of such dis20 tribution shall not be includable in gross in21 come.

22 ‘‘(B) QUALIFIED DISTRIBUTION.—For

23 purposes of subparagraph (A), the term ‘quali24 fied distribution’ means any distribution made

25 on or after the date on which the individual at-
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1 tains retirement age (as defined in section

2 216(l)(1) of the Social Security Act).

3 ‘‘(2) PENALTY FOR NONQUALIFIED DISTRIBU4 TIONS.—In the case of a distribution not subject to

5 paragraph (1), section 72(t) shall be applied—

6 ‘‘(A) by substituting ‘50 percent’ for ‘10

7 percent’ in paragraph (1) thereof, and

8 ‘‘(B) without regard to paragraph (2)

9 thereof.

10 ‘‘(3) ROLLOVERS.—Section 408(d)(3)(A)(i)

11 shall apply to any amount distributed from a social

12 security individual retirement account only to the ex13 tent such amount is paid into another such account

14 for the benefit of the individual for whom the ac15 count from which such amount is transferred was

16 maintained.’’

17 (b) CLERICAL AMENDMENT.—The table of sections

18 for such subpart A is amended by inserting after the item

19 relating to section 408 the following new item:

‘‘Sec. 408A. Social security individual retirement accounts.’’

20 (c) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to taxable years beginning after

22 December 31, 1996.

Æ

HR 2971 IH——2