I

103D CONGRESS

2D SESSION H. R. 4534

To amend the Internal Revenue Code of 1986 to facilitate portability, enhance

pension coverage, and provide employers an optional simplified method

of complying with certain pension requirements.

IN THE HOUSE OF REPRESENTATIVES

MAY 26, 1994

Mr. WHEAT 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 facilitate

portability, enhance pension coverage, and provide employers an optional simplified method of complying with

certain pension requirements.

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

3 SECTION 1. SIMPLIFIED METHOD FOR COMPLYING WITH

4 PENSION REQUIREMENTS.

5 (a) GENERAL RULE.—Subpart B of part I of sub6 chapter D of chapter 1 of the Internal Revenue Code of

7 1986 is amended by adding at the end the following new

8 section:
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1 ‘‘SEC. 417A. SIMPLIFIED METHOD FOR COMPLYING WITH

2 PENSION REQUIREMENTS.

3 ‘‘(a) GENERAL RULE.—An employer is entitled to the

4 benefits of this section for any year if—

5 ‘‘(1) such employer maintains a qualified sim6 plified defined contribution plan during such year,

7 and

8 ‘‘(2) such employer maintains a qualified sim9 plified defined benefit plan during such year.

10 ‘‘(b) BENEFITS OF SECTION.—If an employer is enti11 tled to the benefits of this section for any year—

12 ‘‘(1) INCREASE IN PERMITTED COMPENSA13 TION.—In applying sections 401(a)(17) and 404(l)

14 to the qualified simplified defined contribution plan

15 and the qualified simplified defined benefit plan, the

16 dollar limitation contained in such sections shall be

17 $200,000. The Secretary shall adjust the $200,000

18 amount contained in the preceding sentence at the

19 same time and in the same manner as the adjust20 ment under section 401(a)(17)(B).

21 ‘‘(2) MODIFICATION OF FUNDING RULES.—

22 ‘‘(A) INCREASE IN FULL FUNDING LIMITA23 TION.—The full funding limitation for the

24 qualified simplified defined benefit plan shall be

25 determined under section 412(c)(7)(A) as if
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1 such section did not include subclause (I) of

2 clause (i) thereof.

3 ‘‘(B) WAIVER OF QUARTERLY CONTRIBU4 TION REQUIREMENTS.—Section 412(m) shall

5 not apply to the qualified simplified defined

6 benefit plan.

7 ‘‘(3) WAIVER OF CERTAIN DISCRIMINATION

8 RULES.—The requirements of section 401(k)(3)

9 shall be treated as satisfied with respect to any cash

10 or deferred arrangement maintained by the employer

11 during such year and the requirements of section

12 401(m) shall be treated as satisfied with respect to

13 any plan maintained by the employer during such

14 year.

15 ‘‘(4) COMBINED LIMIT WAIVED.—The require16 ments of section 415(e) shall be treated as satisfied

17 with respect to the qualified simplified defined con18 tribution plan and the qualified simplified defined

19 benefit plan.

20 ‘‘(5) OTHER REQUIREMENTS DEEMED SATIS21 FIED.—The requirements of the following provisions

22 shall be treated as satisfied with respect to the

23 qualified simplified defined contribution plan and the

24 qualified simplified defined benefit plan:

25 ‘‘(A) Section 401(a)(4).
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1 ‘‘(B) Section 401(a)(26).

2 ‘‘(C) Section 401(l).

3 ‘‘(D) Subsections (a) and (b) of section

4 410.

5 ‘‘(E) Subsection (b) of section 411.

6 ‘‘(F) Section 416.

7 ‘‘(c) SIMPLIFIED DEFINED CONTRIBUTION PLAN.—

8 ‘‘(1) IN GENERAL.—A defined contribution plan

9 is a qualified simplified defined contribution plan

10 if—

11 ‘‘(A) all employees of the employer (not ex12 cluded pursuant to paragraph (2)) are eligible

13 to participate in such plan,

14 ‘‘(B) the employer contribution for each

15 year for each participant in the plan is a uni16 form percentage (which is not less than 3 per17 cent) of such participant’s compensation (within

18 the meaning of section 414(s)),

19 ‘‘(C) such plan provides that each em20 ployee covered by the plan has a nonforfeitable

21 right to 100 percent of such employee’s accrued

22 benefit derived from employer contributions,

23 and

24 ‘‘(D) the balance to the credit of the em25 ployee under such plan—
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1 ‘‘(i) except as required by section

2 401(a)(9), may not be distributed earlier

3 than separation from service, death, or dis4 ability, and

5 ‘‘(ii) in the case of any distribution

6 other than by reason of death, such dis7 tribution may be made only in the form

8 of—

9 ‘‘(I) an annuity for the life of the

10 employee (or a joint and survivor an11 nuity as provided in section 417),

12 ‘‘(II) a direct trustee-to-trustee

13 transfer as provided in section

14 401(a)(31), or

15 ‘‘(III) a distribution to a pension

16 portability clearinghouse (if any) es17 tablished to accept distributions.

18 ‘‘(2) CERTAIN EXCLUSIONS PERMITTED.—For

19 purposes of paragraph (1), an employee may be ex20 cluded until such employee has completed 6 months

21 of service for the employer.

22 ‘‘(d) SIMPLIFIED DEFINED BENEFIT PLAN.—

23 ‘‘(1) IN GENERAL.—A defined benefit plan is a

24 qualified simplified defined benefit plan if—
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1 ‘‘(A) all employees of the employer (not ex2 cluded pursuant to paragraph (3)) are eligible

3 to participate in such plan, and

4 ‘‘(B) the accrued benefit derived from em5 ployer contributions for each participant, when

6 expressed as an annual retirement benefit, is

7 equal to the required benefit determined under

8 paragraph (2).

9 ‘‘(2) AMOUNT OF REQUIRED BENEFIT.—

10 ‘‘(A) IN GENERAL.—The required benefit

11 determined under this paragraph is an amount

12 equal to the product of—

13 ‘‘(i) the plan’s qualified accrual rate

14 multiplied by the number of years of serv15 ice with the employer, and

16 ‘‘(ii) the participant’s average com17 pensation for the testing period.

18 ‘‘(B) QUALIFIED ACCRUAL RATE.—For

19 purposes of subparagraph (A):

20 ‘‘(i) A plan’s qualified accrual rate is

21 the uniform accrual rate set forth in such

22 plan so long as such rate exceeds 0.5 per23 cent.

24 ‘‘(ii) A plan may provide that the ac25 crual rate with respect to so much of the
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1 participant’s average compensation for the

2 testing period as does not exceed covered

3 compensation (as defined in section

4 401(l)(5)(E)) shall be less than the accrual

5 rate for compensation above covered com6 pensation (as so defined) so long as such

7 difference is not greater than 1 percentage

8 point. Nothing in the preceding sentence

9 shall be construed as permitting an accrual

10 rate of less than 0.5 percent.

11 ‘‘(C) YEARS OF SERVICE.—For purposes of

12 this paragraph, years of service shall be deter13 mined under the rules of paragraphs (4), (5),

14 and (6) of section 411(a).

15 ‘‘(D) ANNUAL RETIREMENT BENEFIT.—

16 For purposes of this paragraph, the term ‘an17 nual retirement benefit’ means a benefit pay18 able annually in the form of a single life annu19 ity (with no ancillary benefits) beginning at the

20 normal retirement age under the plan.

21 ‘‘(E) TESTING PERIOD.—For purposes of

22 this paragraph—

23 ‘‘(i) IN GENERAL.—A participant’s

24 testing period shall be the period of years

25 (not less than 3 nor exceeding 5) during
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1 which the participant has the greatest ag2 gregate compensation from the employer.

3 ‘‘(ii) YEAR MUST BE INCLUDED IN

4 YEAR OF SERVICE.—The years taken into

5 account under clause (i) shall be properly

6 adjusted for years not included in a year of

7 service.

8 ‘‘(3) EXCLUDED EMPLOYEES.—For purposes of

9 this subsection—

10 ‘‘(A) IN GENERAL.—The employer may ex11 clude—

12 ‘‘(i) employees who have not com13 pleted 6 months of service,

14 ‘‘(ii) employees who normally work

less than 171 15 ⁄2 hours per week,

16 ‘‘(iii) employees who normally work

17 during not more than 6 months during the

18 year,

19 ‘‘(iv) employees who have not attained

20 age 21, and

21 ‘‘(v) employees who are included in a

22 unit of employees covered by an agreement

23 which the Secretary of Labor finds to be a

24 collective bargaining agreement between

25 employee representatives and the employer.
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1 ‘‘(B) EMPLOYEES COVERED BY EXISTING

2 DEFINED BENEFIT PLAN.—The employer may

3 exclude employees who are covered under an4 other defined benefit plan maintained by the

5 employer if—

6 ‘‘(i) such plan was in existence on the

7 date of the enactment of this section, and

8 ‘‘(ii) such plan meets the applicable

9 requirements of this part without regard to

10 this section.

11 The employer may exclude employees under the

12 preceding sentence only if all employees de13 scribed in the preceding sentence are so ex14 cluded.

15 ‘‘(C) SPECIAL RULE.—If accruals under

16 any defined benefit plan referred to in subpara17 graph (B) cease and the employees covered by

18 such defined benefit plan are covered by an19 other plan which would otherwise qualify under

20 this subsection, such other plan shall not be

21 treated as meeting the requirements of this sub22 section unless, in determining the annual retire23 ment benefit of each such employee under the

24 plan referred to in subparagraph (B), such em25 ployee’s average compensation for the testing
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1 period (determined by treating such plans as 1

2 plan) is used.

3 ‘‘(e) SPECIAL RULES.—

4 ‘‘(1) AGGREGATION RULES.—All employees

5 treated as employed by a single employer under sub6 sections (a) and (b) of section 414 shall be so treat7 ed for purposes of this section.

8 ‘‘(2) INTEGRATION WITH SOCIAL SECURITY NOT

9 COMMITTED.—Except as provided in subsection

10 (d)(2)(B), a plan shall not be treated as meeting the

11 requirements of subsection (c) or (d) unless such

12 plan meets such requirements without taking into

13 account contributions or benefits under chapter 2

14 (relating to tax on self-employment income), chapter

15 21 (relating to Federal Insurance Contribution Act),

16 title II of the Social Security Act, or any other Fed17 eral or State law.’’

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

19 for subpart B of part I of subchapter B of chapter 1 of

20 such Code is amended by adding at the end the following

21 new item:

‘‘Sec. 417A. Simplified method for complying with pension requirements.’’

22 SEC. 2. STUDY.

23 (a) GENERAL RULE.—The Secretary of Labor and

24 the Secretary of the Treasury shall conduct a joint study
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1 on the feasibility of establishing a pension portability

2 clearinghouse to accept rollovers from tax-qualified pen3 sion plans as well as to receive tax deductible contributions

4 from employers not maintaining qualified pension plans.

5 Such study shall also determine the feasibility of having

6 participant-directed accounts with various investment op7 tions with varying degrees of risk.

8 (b) REPORT.—Not later than the date 1 year after

9 the date of the enactment of this Act, the Secretaries re10 ferred to in subsection (a) shall submit a report to the

11 Congress on the study conducted under subsection (a), to12 gether with such recommendations as such Secretaries

13 may deem advisable.

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