I

106TH CONGRESS

1ST SESSION H. R. 874

To reform Social Security by creating individual Social Security retirement

accounts.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 25, 1999

Mr. PORTER (for himself, Mr. BACHUS, Mr. SANFORD, Mr. ISTOOK, Mr.

SHAYS, and Mr. SMITH of Michigan) introduced the following bill; which

was referred to the Committee on Ways and Means

A BILL

To reform Social Security by creating individual Social

Security retirement accounts.

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 ‘‘Individual Social Secu5 rity Retirement Accounts Act of 1999’’.
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1 SEC. 2. REDUCTION AND ELIMINATION OF SOCIAL SECU2 RITY TAXES ON INDIVIDUALS ELECTING TO

3 PARTICIPATE IN INDIVIDUAL RETIREMENT

4 PROGRAM.

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

6 3101 of the Internal Revenue Code of 1986 (relating to

7 OASDI tax on employees) is amended to read as follows:

8 ‘‘(a) OLD-AGE, SURVIVORS, AND DISABILITY INSUR9 ANCE.—

10 ‘‘(1) INDIVIDUALS COVERED UNDER PART A OF

11 TITLE II OF THE SOCIAL SECURITY ACT.—In addi12 tion to other taxes, there is hereby imposed on the

13 income of every individual who is not a part B eligi14 ble individual a tax equal to 6.2 percent of the wages

15 (as defined in section 3121(a)) received by him with

16 respect to employment (as defined in section

17 3121(b)).

18 ‘‘(2) TRANSITIONAL TAX FOR PART B ELIGIBLE

19 INDIVIDUALS.—In addition to other taxes, there is

20 hereby imposed on the income of every individual

21 who is a part B eligible individual a tax equal to 1.2

22 percent with respect to wages (as defined in section

23 3121(a)) received by him with respect to employ24 ment (as defined in section 3121(b)), in the case of

25 wages received during the period of 10 years begin-
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1 ning with the first calendar year for which such indi2 vidual is a part B eligible individual.’’

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

4 3111 of the Internal Revenue Code of 1986 (relating to

5 OASDI tax on employers) is amended to read as follows:

6 ‘‘(a) OLD-AGE, SURVIVORS, AND DISABILITY INSUR7 ANCE.—

8 ‘‘(1) INDIVIDUALS COVERED UNDER PART A OF

9 THE SOCIAL SECURITY ACT.—In addition to other

10 taxes, there is hereby imposed on every employer,

11 with respect to having in the employer’s employ indi12 viduals who are not part B eligible individuals, an

13 excise tax equal to 6.2 percent of the wages (as de14 fined in section 3121(a)) paid by him with respect

15 to employment (as defined in section 3121(b)).

16 ‘‘(2) TRANSITIONAL TAX FOR PART B ELIGIBLE

17 INDIVIDUALS.—In addition to other taxes, there is

18 hereby imposed on every employer an excise tax,

19 with respect to having in the employer’s employ indi20 viduals who are part B eligible individuals, equal to

21 1.2 percent of the wages (as defined in section

22 3121(a)) paid by him with respect to employment

23 (as defined in section 3121(b)), in the case of wages

24 received during the period of 10 years beginning
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1 with the first calendar year for which such individual

2 is a part B eligible individual.’’

3 (c) SELF-EMPLOYMENT TAX.—Subsection (a) of sec4 tion 1401 of such Code (relating to OASDI tax on self5 employment income) is amended to read as follows:

6 ‘‘(a) OLD-AGE, SURVIVORS, AND DISABILITY INSUR7 ANCE.—

8 ‘‘(1) INDIVIDUALS COVERED UNDER PART A OF

9 THE SOCIAL SECURITY ACT.—In addition to other

10 taxes, there shall be imposed for each taxable year,

11 on the self-employment income of every individual

12 who is not a part B eligible individual for the cal13 endar year ending with or during such taxable year,

14 a tax equal to 12.40 percent of the amount of the

15 self-employment income for such taxable year.

16 ‘‘(2) TRANSITIONAL TAX FOR PART B ELIGIBLE

17 INDIVIDUALS.—In addition to other taxes, there

18 shall be imposed for each taxable year, on the self19 employment income of every part B eligible individ20 ual for the calendar year ending with or during such

21 taxable year, a tax equal to 2.40 percent of the

22 amount of the self-employment income for such tax23 able year, in the case of a taxable year ending dur24 ing the period of 10 years beginning with the first
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1 calendar year for which such individual is a part B

2 eligible individual.’’

3 (d) PART B ELIGIBLE INDIVIDUAL.—

4 (1) TAXES ON EMPLOYEES AND EMPLOYERS.—

5 Section 3121 of such Code (relating to definitions)

6 is amended by inserting after subsection (s) the fol7 lowing new subsection:

8 ‘‘(t) PART B ELIGIBLE INDIVIDUAL.—For purposes

9 of this chapter, the term ‘part B eligible individual’ means,

10 for any calendar year, an individual who is an eligible indi11 vidual (as defined in section 257(3) of the Social Security

12 Act) for such calendar year.’’.

13 (2) SELF-EMPLOYMENT TAX.—Section 1402 of

14 such Code (relating to definitions) is amended by

15 adding at the end the following new subsection:

16 ‘‘(k) PART B ELIGIBLE INDIVIDUAL.—The term

17 ‘part B eligible individual’ means, for any calendar year,

18 an individual who is an eligible individual (as defined in

19 section 257(3) of the Social Security Act) for such cal20 endar year.’’.

21 (e) EFFECTIVE DATES.—

22 (1) IN GENERAL.—Except as otherwise pro23 vided in this subsection, the amendments made by

24 this section shall apply to remuneration paid after

25 December 31, 2001.
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1 (2) SELF-EMPLOYMENT TAX.—The amend2 ments made by subsections (c) and (d)(2) shall

3 apply to taxable years ending after December 31,

4 2001.

5 SEC. 3. INDIVIDUAL SOCIAL SECURITY RETIREMENT AC6 COUNTS FUNDED BY SOCIAL SECURITY PAY7 ROLL DEDUCTION PLANS AND CONTRIBU8 TIONS BY SELF-EMPLOYED INDIVIDUALS.

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

10 is amended—

11 (1) by inserting before section 201 the follow12 ing:

13 ‘‘PART A—INSURANCE BENEFITS’’;

14 and

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

16 ‘‘PART B—INDIVIDUAL RETIREMENT PROGRAM

17 ‘‘SOCIAL SECURITY PAYROLL DEDUCTION PLANS

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

19 a covered employer for any calendar year shall have in

20 effect throughout such calendar year a social security pay21 roll deduction plan for such person’s employees who are

22 eligible individuals and with respect to whose employment

23 by such employer during such calendar year there is, or

24 would be (but for the amendments made by section 2 of

25 the Individual Social Security Retirement Accounts Act of
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1 1999), imposed an excise tax under section 3111 of the

2 Internal Revenue Code of 1986.

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

4 term ‘social security payroll deduction plan’ means a writ5 ten plan of a covered employer if—

6 ‘‘(1) under such plan, 5 percent of the employ7 ee’s wages is deducted by the employer and paid to

8 the employee’s individual social security retirement

9 account within 10 business days after the date of

10 payment of such wages,

11 ‘‘(2) under such plan, the covered employer

12 pays to the individual social security retirement ac13 count, together with the contribution paid pursuant

14 to paragraph (1), an additional amount equal to 5

15 percent of the employee’s wages, and

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

17 the cost of administering such plan.

18 ‘‘DESIGNATION OF INDIVIDUAL SOCIAL SECURITY

19 RETIREMENT ACCOUNTS

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

21 subsection (b), the individual social security retirement ac22 count to which contributions with respect to any eligible

23 individual are required to be paid by a covered employer

24 under section 251 shall be such an account designated by

25 such individual to such employer not later than 10 busi26 ness days after the date on which such individual becomes
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1 an employee of such employer. Each employer of an eligi2 ble individual shall require the individual to designate such

3 account as provided under this subsection as a pre4 requisite for continued employment. Any such designation

5 shall be made in such form and manner as shall be pre6 scribed in regulations of the Commissioner of Social Secu7 rity.

8 ‘‘(b) SUBSEQUENT DESIGNATION OF OTHER AC9 COUNTS.—The Commissioner shall provide by regulation

10 for subsequent designation from time to time of another

11 individual social security retirement account of an eligible

12 individual in lieu of the account previously designated

13 under this section.

14 ‘‘SELF-EMPLOYED INDIVIDUALS

15 ‘‘SEC. 253. (a) IN GENERAL.—Not later than 30

16 days after the close of any taxable year for which an eligi17 ble individual has self-employment income, such individual

18 shall pay to an individual social security retirement ac19 count designated by such individual an amount equal to

20 at least 10 percent of such income.

21 ‘‘(b) DESIGNATION OF ACCOUNT.—The designation

22 of an individual social security retirement account for pay23 ment of contributions under this section shall be made in

24 such form and manner as shall be prescribed in regula25 tions of the Commissioner of Social Security.
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1 ‘‘ELECTION TO BECOME AN ELIGIBLE INDIVIDUAL

2 ‘‘SEC. 254. (a) IN GENERAL.—An individual—

3 ‘‘(1) who has attained age 18 and has not at4 tained age 62, and

5 ‘‘(2) who is not entitled to disability insurance

6 benefits under section 223,

7 may elect to become an eligible individual for purposes of

8 this part. An election under this section is an election filed

9 in such form and manner as shall be prescribed in regula10 tions of the Commissioner, consisting of a written and

11 signed declaration of such individual’s intention to become

12 an eligible individual for purposes of this part.

13 ‘‘(b) REQUIREMENTS.—Any election under sub14 section (a) may take effect for any calendar year after

15 2001 and must be so filed not later than December 15

16 preceding the calendar year for which the election is to

17 take effect (or December 31 preceding such calendar year

18 in the case of an individual attaining age 18 after such

19 December 15 and before such calendar year).

20 ‘‘(c) IRREVOCABILITY.—Any election under sub21 section (a) shall be irrevocable and shall be effective with

22 respect to wages paid in calendar years following the elec23 tion and with respect to self-employment income for tax24 able years ending during such calendar years.
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1 ‘‘DISABILITY INSURANCE AND PRERETIREMENT

2 SURVIVOR BENEFITS

3 ‘‘SEC. 255. (a) IN GENERAL.—A trustee of an indi4 vidual social security retirement account shall purchase,

5 from amounts available in the account, disability insur6 ance and preretirement survivor benefits for each account

7 holder in accordance with this section.

8 ‘‘(b) DISABILITY INSURANCE.—Under regulations of

9 the Commissioner of Social Security, any policy for dis10 ability insurance purchased pursuant to subsection (a)

11 shall meet at least the same standards for eligibility and

12 benefit levels for account holders and their spouses, surviv13 ing spouses, former spouses, and children, as are applica14 ble for beneficiaries under the disability insurance pro15 gram under part A, except that such benefits shall not

16 terminate by reason of retirement.

17 ‘‘(c) PRERETIREMENT SURVIVOR BENEFITS.—Under

18 regulations of the Commissioner of Social Security, any

19 policy for preretirement survivor benefits purchased pur20 suant to subsection (a) shall provide benefits to bene21 ficiaries of the account holders in such form and in such

22 amounts as are necessary, taking into account distribu23 tions from the account, to meet at least the same stand24 ards for eligibility and benefit levels applicable for wid-
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1 ow’s, widower’s, and child’s insurance benefits under part

2 A.

3 ‘‘ENTITLEMENT TO SUPPLEMENTAL MINIMUM BENEFIT

4 PAYMENT TO ACCOUNT

5 ‘‘SEC. 256. (a) IN GENERAL.—In any case in

6 which—

7 ‘‘(1) an eligible individual attains age 62,

8 ‘‘(2) as of the date on which the individual at9 tains age 62, no distributions have been made by the

10 individual from any individual social security retire11 ment account, and

12 ‘‘(3) on such date, the balance in such individ13 ual’s individual social security retirement account

14 (before any distributions on such date) is less than

15 the minimum retirement annuity amount,

16 such individual, upon application to the Commissioner of

17 Social Security filed on or after such date in such form

18 and manner as shall be prescribed by the Commissioner,

19 shall be entitled to a supplemental minimum benefit pay20 ment to such account. Upon receipt of such application,

21 the Commissioner shall certify to the Secretary of the

22 Treasury the amount of such payment, and the Secretary

23 shall pay the amount of such payment to such account

24 in accordance with such certification from funds otherwise

25 available in the general fund of the Treasury.
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1 ‘‘(b) AMOUNT OF SUPPLEMENTAL MINIMUM BENE2 FIT PAYMENT.—The amount of a supplemental minimum

3 benefit payment payable to an eligible individual’s account

4 under subsection (a) is the excess (if any) of—

5 ‘‘(1) the minimum retirement annuity amount,

6 over

7 ‘‘(2) the balance in such account as of such

8 date (taking into account the present value of the

9 future proceeds of any contribution recognition bond

10 issued to the trustee of the individual’s account pur11 suant to section 6 of the Individual Social Security

12 Retirement Accounts Act of 1999).

13 ‘‘(c) DEFINITIONS.—For purposes of this section—

14 ‘‘(1) MINIMUM RETIREMENT ANNUITY

15 AMOUNT.—The term ‘minimum retirement annuity

16 amount’ means the amount (determined under regu17 lations of the Commissioner of Social Security) nec18 essary to purchase a minimum retirement annuity

19 on the date of the application filed pursuant to sub20 section (a).

21 ‘‘(2) MINIMUM RETIREMENT ANNUITY.—The

22 term ‘minimum retirement annuity’ means an imme23 diate annuity making payments over the life expect24 ancy of the account holder which (on a monthly

25 basis) are equal to the lesser of—
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1 ‘‘(A) an amount equal to 95 percent of the

2 account holder’s initial primary insurance

3 amount (determined under section 215 as if

4 section 202(y) did not apply and the account

5 holder applied for old-age insurance benefits on

6 the date of the application filed pursuant to

7 subsection (a)), or

8 ‘‘(B) 40 percent of the account holder’s av9 erage indexed monthly earnings (as so deter10 mined),

11 ‘‘(3) IMMEDIATE ANNUITY.—The term ‘imme12 diate annuity’ means an annuity—

13 ‘‘(A) which is purchased with a single pre14 mium, and

15 ‘‘(B) the annuity starting date (as defined

16 in paragraph (4) of section 72(c) of the Inter17 nal Revenue Code of 1986) of which commences

18 on the 1st day of the month beginning after the

19 date of the purchase of the annuity.

20 ‘‘DEFINITIONS

21 ‘‘SEC. 257. For purposes of this part—

22 ‘‘(1) INDIVIDUAL SOCIAL SECURITY RETIRE23 MENT ACCOUNT.—The term ‘individual social secu24 rity retirement account’ means any individual social

25 security retirement account (as defined in section

26 408B of the Internal Revenue Code of 1986).
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1 ‘‘(2) COVERED EMPLOYER.—

2 ‘‘(A) IN GENERAL.—The term ‘covered em3 ployer’ means, for any calendar year, any per4 son on whom an excise tax is, or would be (but

5 for the amendments made by the Individual So6 cial Security Retirement Accounts Act of 1999),

7 imposed under section 3111 of the Internal

8 Revenue Code of 1986 with respect to having

9 an individual in his employ to whom wages were

10 paid by such person during such calendar year.

11 ‘‘(B) GOVERNMENTAL ENTITIES.—Under

12 regulations of the Commissioner of Social Secu13 rity, in applying subparagraph (A) with respect

14 to employment by governmental entities, each

15 such governmental entity shall be treated as a

16 person described in subparagraph (A) in the

17 same manner and to the same extent as such

18 person is treated under chapter 21 of the Inter19 nal Revenue Code of 1986 for purposes of sec20 tion 3111 of such Code.

21 ‘‘(3) ELIGIBLE INDIVIDUAL.—The term ‘eligible

22 individual’ means, with respect to a calendar year,

23 an individual with respect to whom an election, filed

24 with the Commissioner of Social Security under sec25 tion 254, is in effect for such calendar year.
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1 ‘‘(4) BUSINESS DAY.—The term ‘business day’

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

3 legal holiday in the area involved.

4 ‘‘PENALTIES

5 ‘‘SEC. 258. (a) FAILURE TO ESTABLISH SOCIAL SE6 CURITY PAYROLL DEDUCTION PLAN.—Any covered em7 ployer who fails to meet the requirements of section 251

8 or 252 for any calendar year shall be subject to a civil

9 penalty of not to exceed the greater of—

10 ‘‘(1) $50,000, or

11 ‘‘(2) $1,000 for each eligible individual of such

12 employer as of the beginning of such calendar year.

13 ‘‘(b) FAILURE TO MAKE DEDUCTIONS REQUIRED

14 UNDER PLAN.—Any covered employer who fails to timely

15 deduct in full the amount from the wages of an eligible

16 individual required under an applicable social security pay17 roll deduction plan shall be subject to a civil penalty of

18 not to exceed $50 for each such failure.

19 ‘‘(c) FAILURE TO PAY DEDUCTED WAGES TO INDI20 VIDUAL SOCIAL SECURITY RETIREMENT ACCOUNT.—If

21 an amount deducted from the wages of an eligible individ22 ual under a social security payroll deduction plan is not

23 timely paid in full to the designated individual social secu24 rity retirement account in accordance with section 251—

25 ‘‘(1) the covered employer failing to make such

26 payment shall be subject to a civil penalty of not to
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1 exceed 20 percent of the unpaid amount, in addition

2 to any penalty under subsection (a), and

3 ‘‘(2) shall be liable to the eligible individual for

4 interest on the unpaid amount at a rate equal to

5 133 percent of the Federal short-term rate under

6 section 1274(d)(1) of the Internal Revenue Code of

7 1986, calculated from the last day by which such

8 amount was required to be so paid to the date on

9 which such amount is paid into the designated indi10 vidual social security retirement account.

11 ‘‘(d) FAILURE BY SELF-EMPLOYED INDIVIDUALS TO

12 PAY CONTRIBUTIONS.—Any individual failing to timely

13 pay in full a prescribed social security self-employment

14 contribution to a designated individual social security re15 tirement account as required under section 253 shall be

16 subject to a civil penalty of not to exceed 20 percent of

17 the unpaid amount, plus interest on the unpaid amount

18 at a rate equal to 133 percent of the Federal short-term

19 rate under section 1274(d)(1) of the Internal Revenue

20 Code of 1986, calculated from the last day by which such

21 amount was required to be so paid to the date on which

22 such amount is paid into the designated individual social

23 security retirement account.

24 ‘‘(e) RULES FOR APPLICATION OF SECTION.—
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1 ‘‘(1) PENALTIES ASSESSED BY COMMISSIONER

2 OF SOCIAL SECURITY.—Any civil penalty assessed by

3 this section shall be imposed by the Commissioner of

4 Social Security and collected in a civil action.

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

6 compromise the amount of any civil penalty imposed

7 by this section.

8 ‘‘(3) AUTHORITY TO WAIVE PENALTY IN CER9 TAIN CASES.—The Commissioner may waive the ap10 plication of this section with respect to any failure

11 if the Commissioner determines that such failure is

12 due to reasonable cause and not to intentional dis13 regard of rules and regulations.’’.

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

15 STATEMENTS.—Subsection (a) of section 6051 of the In16 ternal Revenue Code of 1986 (relating to receipts for em17 ployees) is amended—

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

19 (8),

20 (2) by striking the period at the end of para21 graph (9) and inserting ‘‘, and’’, and

22 (3) by inserting after paragraph (9) the follow23 ing new paragraph:

24 ‘‘(10) the total amount deducted from the em25 ployee’s wages under a social security payroll deduc-
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1 tion plan established under part B of title II of the

2 Social Security Act.’’.

3 (c) EXEMPTION FROM ERISA REQUIREMENTS.—

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

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

6 amended—

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

8 (4);

9 (2) by striking the period at the end of para10 graph (5) and inserting ‘‘; or’’; and

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

12 paragraph:

13 ‘‘(6) such plan is a social security payroll de14 duction plan established under part B of title II of

15 the Social Security Act.’’.

16 (d) CONFORMING AMENDMENTS.—Section 201(h) of

17 such Act (42 U.S.C. 401(h)) is amended—

18 (1) by striking ‘‘All other’’ in the second sen19 tence and inserting ‘‘Except as provided in section

20 256, all other’’; and

21 (2) by adding at the end the following new sen22 tence: ‘‘Any reference in this part to benefits under

23 this title shall be deemed a reference to benefits en24 titlement to which arises under this part.’’.
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1 SEC. 4. TAX TREATMENT OF INDIVIDUAL SOCIAL SECURITY

2 RETIREMENT ACCOUNTS.

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

4 D of chapter 1 of the Internal Revenue Code of 1986 (re5 lating to pension, profit-sharing, stock bonus plans, etc.)

6 is amended by inserting after section 408A the following

7 new section:

8 ‘‘SEC. 408B. INDIVIDUAL SOCIAL SECURITY RETIREMENT

9 ACCOUNTS.

10 ‘‘(a) GENERAL RULE.—Gross income shall not

11 include—

12 ‘‘(1) any amount paid to an individual social se13 curity retirement account as the employer’s con14 tribution under section 251(b)(3) of the Social Secu15 rity Act, or

‘‘(2) 1 16 ⁄2 of the amount paid to an individual so17 cial security retirement account under section 253(a)

18 of the Social Security Act.

19 ‘‘(b) INDIVIDUAL SOCIAL SECURITY RETIREMENT

20 ACCOUNT.—For purposes of this title, the term ‘individual

21 social security retirement account’ means a trust created

22 or organized in the United States for the exclusive benefit

23 of an eligible individual (as defined in section 257(3) of

24 the Social Security Act) or his beneficiaries, but only if

25 the written governing instrument creating the trust meets

26 the following requirements:
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1 ‘‘(1) No contribution will be accepted, other

2 than—

3 ‘‘(A) a contribution under paragraph (1)

4 or (2) of section 251(b), or subsection (a) of

5 section 253, of the Social Security Act,

6 ‘‘(B) in any taxable year, an aggregate

7 amount not exceeding twice the total amount of

8 contributions described in subparagraph (A)

9 made in such taxable year,

10 ‘‘(C) a contribution recognition bond, and

11 the proceeds thereof, issued under section 6 of

12 the Individual Social Security Retirement Ac13 counts Act of 1999, and

14 ‘‘(D) a supplemental minimum benefit pay15 ment under section 256 of the Social Security

16 Act.

17 ‘‘(2) Except as provided in paragraph (12), no

18 amount may be paid or distributed from such

19 trust—

20 ‘‘(A) before the earlier of the date on

which the account holder attains age 591 21 ⁄2 or

22 the date on which the account holder dies, or

23 ‘‘(B) if the account holder has not died

24 and the balance in the account immediately

25 after the payment or distribution of such
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1 amount would be less than the early distribu2 tion annuity amount (as defined in subsection

3 (c)(2)).

4 Nothing in subparagraph (B) shall be construed to

5 preclude the distribution of all or any portion of the

6 balance in the account if such distribution is used

7 exclusively for the purpose of purchasing an annuity

8 under which payments are made in substantially

9 equal periodic payments (not less frequently than

10 annually) made for the life expectancy of the ac11 count holder.

12 ‘‘(3) The trustee is a bank (as defined in sec13 tion 408(n)) or such other person who demonstrates

14 to the satisfaction of the Secretary that the manner

15 in which such other person will administer the trust

16 will be consistent with the requirements of this sec17 tion.

18 ‘‘(4) The trustee has registered with the Com19 missioner of Social Security (in such form and man20 ner as the Commissioner may require) as a trustee

21 of individual social security retirement accounts.

22 ‘‘(5) No part of the trust fund is invested in life

23 insurance contracts.

24 ‘‘(6) The interest of an individual in the bal25 ance in his account is nonforfeitable.
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1 ‘‘(7) The assets of the trust will not be commin2 gled with other property except in a common trust

3 fund or common investment fund, which fund is

4 comprised only of assets of individual social security

5 retirement accounts.

6 ‘‘(8) Under the terms governing the account,

7 contributions will be accepted irrespective of the

8 amount of the contribution.

9 ‘‘(9) The same requirements as are applicable

10 with respect to trusts under paragraph (9) of section

11 401(a) (relating to required distributions) are met

12 with respect to the account.

13 ‘‘(10) The same requirements as are applicable

14 with respect to trusts under paragraph (11) of sec15 tion 401(a) (relating to joint and survivor annuity

16 and preretirement survivor annuity) are met with re17 spect to the account (disregarding subparagraph (B)

18 thereof), as if the annuity starting date with respect

19 to the account holder is the earliest date on which

20 amounts may be distributed under paragraph (2).

21 ‘‘(11) The account holder certifies that such

22 trust is the only individual social security retirement

23 account of the holder.

24 ‘‘(12) Under terms governing the account,

25 amounts may be distributed from such trust to pur-
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1 chase disability insurance or a policy providing for

2 preretirement survivor benefits under section 255 of

3 the Social Security Act.

4 Paragraphs (1), (2), and (10) shall not apply to a direct

5 trustee-to-trustee transfer to a successor individual social

6 security retirement account of the same individual.

7 ‘‘(c) REQUIREMENTS.—

8 ‘‘(1) REQUIREMENTS RELATING TO TRUSTEE.—

9 ‘‘(A) TRUSTEE.—A trustee meets the re10 quirements of subsection (b)(3) if—

11 ‘‘(i) the trustee is in business exclu12 sively as a trustee of individual social secu13 rity retirement accounts, and

14 ‘‘(ii) the trustee is of good character

15 and is a substantial concern, produces evi16 dence of financial capability, demonstrates

17 financial soundness, and provides appro18 priate surety.

19 ‘‘(B) REPLACEMENT OF TRUSTEE IN CASE

20 OF BANKRUPTCY.—In the case of a trustee of

21 an individual social security retirement account

22 with respect to which there is filed a bank23 ruptcy petition (or upon the initiation of a simi24 lar judicial proceeding) against the trustee, the

25 Secretary shall designate a successor trustee.
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1 ‘‘(C) STATUS AS FIDUCIARY.—Under the

2 terms of an individual social security retirement

3 account, the trustee of the account shall, with

4 respect to the account, have the status of a fi5 duciary (within the meaning of the first sen6 tence of section 3(21)(A) of the Employee Re7 tirement Income Security Act of 1974). The

8 trustee shall, with respect to the account, be

9 treated as a fiduciary for purposes of section

10 4975(e) (as applicable under subsection (f)(3)).

11 ‘‘(2) EARLY DISTRIBUTION ANNUITY

12 AMOUNT.—For purposes of subsection (b)(2)—

13 ‘‘(A) IN GENERAL.—The term ‘early dis14 tribution annuity amount’ means the amount

15 (determined under regulations of the Secretary)

16 necessary to purchase a minimum annuity on

17 the date of the payment or distribution referred

18 to in subsection (b)(2).

19 ‘‘(B) MINIMUM ANNUITY.—For purposes

20 of subparagraph (A), the term ‘minimum annu21 ity’ means an immediate annuity making pay22 ments over the life expectancy of the account

23 holder which (on a monthly basis) are equal to

24 the lesser of—
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1 ‘‘(i) an amount equal to 95 percent of

2 the account holder’s initial primary insur3 ance amount, determined under section

4 215 of the Social Security Act—

5 ‘‘(I) as if section 202(y) of such

6 Act did not apply, and

7 ‘‘(II) as if the account holder ap8 plied for old-age insurance benefits on

9 the date of the payment or distribu10 tion referred to in subsection (b)(2),

11 or

12 ‘‘(ii) 40 percent of the account hold13 er’s average indexed monthly earnings (as

14 so determined),

15 ‘‘(C) IMMEDIATE ANNUITY.—For purposes

16 of subparagraph (B), the term ‘immediate an17 nuity’ means an annuity—

18 ‘‘(i) which is purchased with a single

19 premium, and

20 ‘‘(ii) the annuity starting date (as de21 fined in paragraph (4) of section 72(c) of

22 the Internal Revenue Code of 1986) of

23 which commences on the 1st day of the

24 month beginning after the date of the pur25 chase of the annuity.
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1 ‘‘(3) INVESTMENT IN COLLECTIBLES TREATED

2 AS A DISTRIBUTION.—For purposes of this section,

3 subsection (m) of section 408 shall apply.

4 ‘‘(d) ACCOUNT EXEMPT FROM TAX.—

5 ‘‘(1) GENERAL RULE.—Except as provided in

6 paragraph (2), any individual social security retire7 ment account is exempt from taxation under this

8 subtitle. Notwithstanding the preceding sentence,

9 any such account is subject to the taxes imposed by

10 section 511 (relating to imposition of tax on unre11 lated business income of charitable, etc. organiza12 tions).

13 ‘‘(2) APPLICATION OF PROHIBITED TRANS14 ACTIONS RULES, ETC.—Rules similar to the rules of

15 paragraphs (2), (3), and (4) of section 408(e) shall

16 apply to individual social security retirement ac17 counts.

18 ‘‘(e) TAXATION OF DISTRIBUTIONS.—

19 ‘‘(1) IN GENERAL.—

20 ‘‘(A) INCOME EXCLUSION.—In the case of

21 any amount paid or distributed from an individ22 ual social security retirement account—

23 ‘‘(i) the social security benefit amount

24 shall be includible in gross income only if

25 so includible under section 86, determined
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1 by treating the social security benefit

2 amount as social security benefits (as de3 fined in such section), and

4 ‘‘(ii) the supplemental retirement

5 amount shall be includible in gross income

6 to the extent that such amount is so in7 cludible under section 72, determined by

8 treating the individual social security re9 tirement account as an individual retire10 ment plan in accordance with section

11 408(d)(2).

12 ‘‘(B) SOCIAL SECURITY BENEFIT

13 AMOUNT.—For purposes of subparagraph (A),

14 the term ‘social security benefit amount’ means

15 the amount which bears the same ratio to the

16 amount of the payment or distribution as the

17 sum of the amounts contributed to the individ18 ual social security retirement account under

19 subparagraphs (A), (C), and (D) of subsection

20 (b)(1) bears to the total amount contributed to

21 such account under subsection (b)(1).

22 ‘‘(C) SUPPLEMENTAL RETIREMENT

23 AMOUNT.—For purposes of subparagraph (A),

24 the term ‘supplemental retirement amount’

25 means the amount which bears the same ratio
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1 to the amount of the payment or distribution as

2 the sum of the amounts contributed to the indi3 vidual social security retirement account under

4 subparagraph (B) of subsection (b)(1) bears to

5 the total amount contributed to such account

6 under subsection (b)(1).

7 ‘‘(2) TREATMENT OF ROLLOVERS.—No amount

8 shall be includible in gross income by reason of a di9 rect trustee-to-trustee transfer from an individual

10 social security retirement account of an individual to

11 a successor individual social security retirement ac12 count of the same individual if such transfer is made

13 in accordance with section 408(d)(3)(A)(i).

14 ‘‘(3) TREATMENT OF DISABILITY INSURANCE

15 AND PRERETIREMENT BENEFIT POLICY PRE16 MIUMS.—No amount shall be includible in gross in17 come to the extent that such amount is a premium

18 for the purchase of disability insurance or a policy

19 providing for preretirement survivor benefits pursu20 ant to section 255 of the Social Security Act.

21 ‘‘(4) TREATMENT OF COLLECTIBLES.—

22 Amounts treated as a distribution under subsection

23 (c)(3) shall be includible in gross income and para24 graph (1) of section 72(t) shall apply to such

25 amounts.
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1 ‘‘(f) CERTAIN OTHER RULES TO APPLY.—The fol2 lowing rules shall apply to individual social security retire3 ment accounts in the same manner that such rules apply

4 to individual retirement accounts:

5 ‘‘(1) Section 408(h) (relating to custodial ac6 counts).

7 ‘‘(2) Sections 408(i) and 6693 (relating to re8 ports).

9 ‘‘(3) Section 4975 (relating to prohibited trans10 actions).’’.

11 (b) EXCESS CONTRIBUTIONS.—

12 (1) IN GENERAL.—Subsection (a) of section

13 4973 of the Internal Revenue Code of 1986 is

14 amended by striking ‘‘or’’ at the end of paragraph

15 (3), by inserting ‘‘or’’ at the end of paragraph (4),

16 and by inserting after paragraph (4) the following

17 new paragraph:

18 ‘‘(5) an individual social security retirement ac19 count (as defined in section 408B),’’.

20 (2) EXCESS CONTRIBUTIONS DEFINED.—Sec21 tion 4973 of such Code is amended by adding at the

22 end the following new subsection:

23 ‘‘(g) EXCESS CONTRIBUTIONS TO INDIVIDUAL SO24 CIAL SECURITY RETIREMENT ACCOUNTS.—For purposes

25 of this section, in the case of contributions to an individual
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1 social security retirement account (within the meaning of

2 section 408B(b)), the term ‘excess contributions’ means

3 with respect to a taxable year the sum of—

4 ‘‘(1) the excess (if any) of—

5 ‘‘(A) the amount contributed for the tax6 able year to such account (other than a quali7 fied rollover contribution described in section

8 408B(e)(2)), over

9 ‘‘(B) the amount allowable as a contribu10 tion for that taxable year under section

11 408B(b)(1), and

12 ‘‘(2) the amount determined under this sub13 section for the preceding taxable year, reduced by

14 the sum of—

15 ‘‘(A) the distributions out of the account

16 for such taxable year, and

17 ‘‘(B) the excess (if any) of the maximum

18 amount allowable as a contribution under sec19 tion 408B(b)(1) for such taxable year over the

20 amount contributed to the account for the tax21 able year.

22 For purposes of this subsection, any contribution which

23 is distributed from an individual social security retirement

24 account in a distribution described in section 408(d)(4)

25 shall be treated as an amount not contributed.’’.
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1 (c) CLERICAL AMENDMENT.—The table of sections

2 for subpart A of part I of subchapter D of chapter 1 of

3 such Code is amended by inserting after the item relating

4 to section 408A the following new item:

‘‘Sec. 408B. Individual social security retirement accounts.’’.

5 (d) EFFECTIVE DATE.—The amendments made by

6 this section shall apply to taxable years beginning after

7 December 31, 2001.

8 SEC. 5. NO COVERAGE UNDER OASDI UPON ELECTION TO

9 BE ELIGIBLE INDIVIDUAL UNDER PART B.

10 (a) OLD-AGE AND SURVIVORS INSURANCE BENE11 FITS.—Section 202 of the Social Security Act (42 U.S.C.

12 402) is amended by adding at the end the following new

13 subsection:

14 ‘‘(y) Notwithstanding the preceding provisions of this

15 section, an individual who has made an election under sec16 tion 254 to be an eligible individual under part B shall

17 be deemed (except for purposes of sections 226 and 226A)

18 not entitled to benefits under this section for any month

19 ending after the date of the election, and (except for pur20 poses of sections 226 and 226A) no other individual shall

21 be deemed entitled to benefits under this section for any

22 month ending after the date of the election based on the

23 wages or self-employment income of the individual who

24 made the election.’’.
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1 (b) DISABILITY INSURANCE BENEFITS.—Section 223

2 of such Act (42 U.S.C. 423) is amended by adding at the

3 end the following new subsection:

4 ‘‘(j) Notwithstanding the preceding provisions of this

5 section, an individual who has made an election under sec6 tion 254 to be an eligible individual under part B shall

7 be deemed (except for purposes of sections 226 and 226A)

8 not entitled to benefits under this section for any month

9 ending after the date of the election, and (except for pur10 poses of sections 226 and 226A) no other individual shall

11 be deemed entitled to benefits under section 202 for any

12 month ending after the date of the election based on the

13 wages or self-employment income of an individual who has

14 made such an election.’’.

15 SEC. 6. CONTRIBUTION RECOGNITION BONDS.

16 (a) CERTIFICATION OF CREDITED WAGES AND SELF17 EMPLOYMENT INCOME.—Not later than July 1 of the first

18 calendar year for which an individual is an eligible individ19 ual (as defined in section 257(3) of the Social Security

20 Act), the Commissioner of Social Security shall certify to

21 the Secretary of the Treasury whether such individual

22 was, as of immediately before such first calendar year,

23 credited with wages and self-employment income under

24 part A of title II of the Social Security Act.
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1 (b) ISSUANCE OF BOND.—Immediately upon receipt

2 of certification under subsection (a) that such individual

3 is so credited, the Secretary of the Treasury shall issue

4 a contribution recognition bond to the trustee of the indi5 vidual social security retirement account held by such indi6 vidual. Such bond shall consist of an obligation of the

7 United States to pay each month into the individual social

8 security retirement account held by such individual, com9 mencing with the applicable initial month, an amount

10 equal to such individual’s primary insurance amount, de11 termined under section 215 of the Social Security Act as

12 if section 202(y) of such Act did not apply and such indi13 vidual had applied for old-age insurance benefits under

14 section 202(a) of such Act for such month, and by taking

15 into account average indexed monthly earnings based sole16 ly on those wages and self-employment income that were

17 credited as described in subsection (a).

18 (c) APPLICABLE INITIAL MONTH.—For purposes of

19 subsection (b), the applicable initial month in connection

20 with any individual is the later of—

21 (1) the month in which such individual attains

22 age 62, or

23 (2) the month in which such individual first

24 commences distributions from such individual’s indi25 vidual social security retirement account.
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1 (d) ADDITIONAL PROVISIONS.—The purposes for

2 which obligations of the United States may be issued

3 under chapter 31 of title 31, United States Code, are here4 by extended to authorize the issuance of public debt obli5 gations consisting of contribution recognition bonds issued

6 under this section. Each such obligation shall be evidenced

7 by a paper instrument in the form of a bond issued by

8 the Secretary setting forth the terms specified in this sub9 section, and stating on its face that the obligation shall

10 be incontestable in the hands of the trustee of such ac11 count, that the obligation is supported by the full faith

12 and credit of the United States, and that the United

13 States is pledged to the payment of the obligation, to the

14 credit of such account, in accordance with the provisions

15 of this section.

16 SEC. 7. PHASED IN INCREASE IN SOCIAL SECURITY RETIRE17 MENT AGE.

18 Section 216(l) of the Social Security Act (42 U.S.C.

19 416(l) is amended—

20 (1) by striking subparagraphs (B), (C), (D),

21 and (E) of paragraph (1) and inserting the following

22 new subparagraphs:

23 ‘‘(B) with respect to an individual who attains

24 early retirement age (as determined under para25 graph (2)) after December 31, 1999, and before
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January 1, 2029, 65 years of age plus 2 1 ⁄12 of the

2 number of months in the period beginning with Jan3 uary 2000 and ending with December of the year in

4 which the individual attains early retirement age (as

5 so determined); and

6 ‘‘(C) with respect to an individual who attains

7 early retirement age after December 31, 2028, 70

8 years of age.’’; and

9 (2) by striking paragraph (3).

10 SEC. 8. ADJUSTED PERCENTAGES APPLIED TO AVERAGE

11 INDEXED MONTHLY EARNINGS IN DETERMIN12 ING PRIMARY INSURANCE AMOUNTS.

13 (a) IN GENERAL.—Section 215(a)(1)(B) of the So14 cial Security Act (42 U.S.C. 415(a)(1)(B)) is amended by

15 adding at the end the following new clause:

16 ‘‘(iii) For purposes of determinations made under

17 this subsection taking effect in each calendar year after

18 2001, each percentage specified in clauses (i), (ii), and (iii)

19 of subparagraph (A) shall be replaced with a percentage

20 equal to the product derived by multiplying—

21 ‘‘(I) the percentage in effect for purposes of de22 terminations made under this subsection in the prior

23 calendar year, by

24 ‘‘(II) the applicable index ratio,

25 rounded to the nearest one-tenth of 1 percent.
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1 ‘‘(iv) For purposes of clause (iii), the applicable index

2 ratio in connection with determinations made under this

3 subsection in any calendar year, means a ratio—

4 ‘‘(I) the numerator of which is 100 percent plus

5 the percentage (rounded to the nearest one-tenth of

6 1 percent) by which the Consumer Price Index for

7 December of the preceding calendar year exceeds the

8 Consumer Price Index for December of the next

9 prior calendar year, and

10 ‘‘(II) the denominator of which is 100 percent

11 plus the percentage (rounded to the nearest one12 tenth of 1 percent) by which the national average

13 wage index (as defined in section 209(k)(1)) for the

14 preceding calendar year exceeds such index for the

15 next prior calendar year.’’.

16 (b) CONFORMING AMENDMENT.—Section 209(k)(1)

17 of such Act (42 U.S.C. 409(k)(1)) is amended by inserting

18 ‘‘215(a)(1)(B)(iii),’’ after ‘‘215(a)(1)(B)(ii),’’.

19 SEC. 9. OFF-BUDGET TREATMENT FOR SOCIAL SECURITY

20 REFORMS.

21 (a) IN GENERAL.—In determining any new budget

22 authority, outlays, receipts, deficit, or surplus for purposes

23 of—

24 (1) the budget of the United States Govern25 ment as submitted by the President,
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1 (2) the congressional budget, or

2 (3) the Balanced Budget and Emergency Defi3 cit Control Act of 1985,

4 any receipts or disbursements of the general fund of the

5 Treasury and any indebtedness incurred by the Federal

6 Government pursuant to the operation of the provisions

7 of this Act or the amendments made thereby (other than

8 administrative expenses of the Social Security Administra9 tion or the Department of the Treasury) shall not be taken

10 into account.

11 (b) RULES OF CONSTRUCTION.—Nothing in this Act

12 (or the amendments made thereby) shall—

13 (1) affect the status as private property of

14 amounts contributed to individual social security re15 tirement accounts pursuant to section 251 or 253 of

16 the Social Security Act (added by this Act) and any

17 income attributable to such contributions, or

18 (2) supersede or otherwise affect the provisions

19 of section 710 of the Social Security Act (relating to

20 budgetary treatment of the social security trust

21 funds) or section 13301 of the Budget Enforcement

22 Act of 1990 (relating to off-budget status of OASDI

23 trust funds).

24 (c) EXCLUSION OF PROGRAM FOR SOCIAL SECURITY

25 REFORMS FROM CONGRESSIONAL BUDGET.—Section
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1 301(a) of the Congressional Budget Act of 1974 is amend2 ed in the last sentence by inserting ‘‘or of the operation

3 of the provisions of the Individual Social Security Retire4 ment Accounts Act of 1999 (and the amendments made

5 thereby)’’ after ‘‘1986’’.

6 SEC. 10. STUDY RELATING TO FEDERAL CIVILIAN AND

7 MILITARY PERSONNEL.

8 (a) IN GENERAL.—Not later than December 31,

9 2000, the Office of Personnel Management, after appro10 priate study, shall submit to the President and each House

11 of the Congress a written report containing recommenda12 tions for the most appropriate and feasible means of pro13 viding for the application of this Act with respect to Fed14 eral civilian and military personnel.

15 (b) REQUIREMENTS.—The report—

16 (1) shall be prepared in consultation with the

17 Social Security Administration and other appro18 priate agencies, and

19 (2) shall be accompanied by draft legislation

20 which, if enacted, would carry out the recommenda21 tions contained in such report.

Æ