I

103D CONGRESS

2D SESSION H. R. 5204

To amend the Internal Revenue Code of 1986 to provide incentives for

awards to an employee under a performance-based reward plan and

to direct the Administrator of the Small Business Administration to

establish a program to promote implementation of performance-based

reward plans and employee decisionmaking participation programs, and

for other purposes.

IN THE HOUSE OF REPRESENTATIVES

OCTOBER 6, 1994

Mr. WYDEN introduced the following bill; which was referred jointly to the

Committees on Ways and Means, Education and Labor, and Small Business

A BILL

To amend the Internal Revenue Code of 1986 to provide

incentives for awards to an employee under a performance-based reward plan and to direct the Administrator

of the Small Business Administration to establish a program to promote implementation of performance-based

reward plans and employee decisionmaking participation

programs, and for other purposes.

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 ‘‘Employee Partnership

5 Reward Act of 1994’’.
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1 TITLE I—REFUNDABLE INCOME

2 TAX CREDIT FOR

3 NONDEFERRED DISTRIBU4 TIONS FROM PERFORMANCE5 BASED REWARD PLANS.

6 SEC. 101. REFUNDABLE INCOME TAX CREDIT FOR

7 NONDEFERRED DISTRIBUTIONS FROM PER8 FORMANCE-BASED REWARD PLANS.

9 (a) IN GENERAL.—Subpart C of part IV of sub10 chapter A of chapter 1 of the Internal Revenue Code of

11 1986 (relating to refundable credits) is amended by redes12 ignating section 35 as section 36 and by inserting after

13 section 34 the following new section:

14 ‘‘SEC. 35. NONDEFERRED DISTRIBUTIONS FROM PERFORM15 ANCE-BASED REWARD PLANS.

16 ‘‘(a) GENERAL RULE.—In the case of an eligible em17 ployee, there shall be allowed as a credit against the tax

18 imposed by this subtitle for the taxable year an amount

19 equal to 10 percent of the value of the rewards received

20 by such employee from a qualified performance-based re21 ward plan for any plan year ending with or within such

22 taxable year. The preceding sentence shall not apply to

23 any reward with respect to a plan year which is made more

24 than 2 months following the close of such plan year.

25 ‘‘(b) LIMITATIONS ON AMOUNT OF CREDIT.—
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1 ‘‘(1) MAXIMUM CREDIT.—The credit allowed by

2 subsection (a) for the taxable year shall not exceed

3 $500 with respect to each eligible employee.

4 ‘‘(2) MINIMUM CREDIT.—The credit allowed by

5 subsection (a) for the taxable year shall not be less

6 than $100.

7 ‘‘(3) COST-OF-LIVING ADJUSTMENT.—In the

8 case of any calendar year after 1994, each dollar

9 amount in paragraph (1) or (2) shall be increased

10 by an amount equal to—

11 ‘‘(A) such dollar amount, multiplied by

12 ‘‘(B) the cost-of-living adjustment deter13 mined under section 1(f)(3) for such calendar

14 year by substituting ‘1993’ for ‘1992’ in sub15 paragraph (B) thereof.

16 If any increase under the preceding sentence is not

17 a multiple of $50, such increase shall be rounded to

18 the nearest multiple of $50.

19 ‘‘(c) ELIGIBLE EMPLOYEE.—For purposes of this

20 section, the term ‘eligible employee’ means any employee

21 of an employer who is a participant in a qualified perform22 ance-based reward plan of such employer. Such term shall

23 not include any highly compensated employee (within the

24 meaning of section 414(q)) and shall not include any em25 ployee engaged in sales.
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1 ‘‘(d) QUALIFIED PERFORMANCE-BASED REWARD

2 PLAN.—For purposes of this section, the term ‘qualified

3 performance-based reward plan’ means a written plan

4 maintained by an employer—

5 ‘‘(1) the principal purpose of which is to im6 prove the performance of the organization and re7 ward employees as a function of that improvement,

8 and

9 ‘‘(2) which meets—

10 ‘‘(A) the determination requirements of

11 subsection (e),

12 ‘‘(B) the allocation requirements of sub13 section (f),

14 ‘‘(C) the distribution requirements of sub15 section (g),

16 ‘‘(D) the nondiscrimination requirements

17 of subsection (h), and

18 ‘‘(E) the plan approval requirements of

19 subsection (i).

20 ‘‘(e) DETERMINATION REQUIREMENTS.—A plan

21 meets the requirements of this subsection if the amount

22 to be distributed under the plan for any year is determined

23 in accordance with a fixed formula set forth in the plan

24 which is based on a measurable and auditable indicator

25 of the employer’s performance or, at the election of the
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1 employer, of the organizational unit in which the employ2 ees covered by the plan perform services.

3 ‘‘(f) ALLOCATION REQUIREMENTS.—

4 ‘‘(1) IN GENERAL.—A plan meets the require5 ments of this subsection if, under the plan, amounts

6 are distributed to employees of the employer main7 taining the plan only in accordance with a fixed for8 mula set forth in the plan.

9 ‘‘(2) CHANGE IN FORMULA.—For purposes of

10 paragraph (1), a formula shall be treated as a fixed

11 formula only if under the plan any change in the

12 formula may not take effect until the plan year fol13 lowing the plan year in which the change is adopted

14 by the plan.

15 ‘‘(g) DISTRIBUTION REQUIREMENTS.—

16 ‘‘(1) IN GENERAL.—A plan meets the require17 ments of this subsection if the plan requires that,

18 for each year, the total value of rewards made under

19 the plan to nonhighly compensated employees is not

20 less than the lesser of—

21 ‘‘(A) 2 percent of the total wages paid to

22 such employees during such year by the em23 ployer maintaining such plan, or

24 ‘‘(B) the amount which, when added to the

25 total rewards made under the plan to such em-
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1 ployees during the 2 preceding years, is equal

2 to 2 percent of the sum of the total wages paid

3 to such employees by such employer during

4 such year and such 2 preceding years.

5 ‘‘(2) WAGES.—For purposes of paragraph (1),

6 the term ‘wages’ has the meaning given such term

7 by section 3306(b), except that—

8 ‘‘(A) any dollar limitation in such section

9 shall be disregarded, and

10 ‘‘(B) rewards from a qualified perform11 ance-based reward plan shall not be taken into

12 account.

13 ‘‘(h) ANTIDISCRIMINATION REQUIREMENTS.—

14 ‘‘(1) IN GENERAL.—A plan meets the require15 ments of this subsection if the plan benefits such

16 employees as qualify under a classification set up by

17 the employer and found by the Secretary not to be

18 discriminatory in favor of highly compensated em19 ployees (within the meaning of section 414(q)).

20 ‘‘(2) EXCLUDED EMPLOYEES.—In determining

21 whether the requirements of paragraph (1) are met,

22 there shall be excluded from consideration employees

23 described in section 414(q)(8).

24 ‘‘(3) BENEFITS MAY BEAR UNIFORM RELATION25 SHIP TO COMPENSATION.—A plan shall not be con-
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1 sidered discriminatory merely because the benefits

2 under the plan bear a uniform relationship to the

3 compensation (within the meaning of section 414(s))

4 of the employees.

5 ‘‘(i) PLAN APPROVAL REQUIREMENTS.—A plan

6 meets the requirements of this subsection if the plan—

7 ‘‘(1) is submitted to the Secretary in such form

8 and manner as the Secretary may provide, and

9 ‘‘(2) is approved by the Secretary.

10 ‘‘(j) SPECIAL RULE AND DEFINITION.—For purposes

11 of this subsection—

12 ‘‘(1) PLANS WHICH ARE PART OF DEFERRED

13 PLAN.—A plan shall not be treated as failing to be

14 a qualified performance-based reward plan merely

15 because such plan includes a qualified cash or de16 ferred arrangement (as defined in section

17 401(k)(2)).

18 ‘‘(2) SELF-EMPLOYED INDIVIDUALS.—The term

19 ‘employee’ does not include an individual who is an

20 employee (within the meaning of section 401(c)(1)).

21 ‘‘(k) EMPLOYEE RIGHTS.—For purposes of section

22 502 of Employee Retirement Income Security Act of 1974,

23 a qualified performance-based reward plan shall be treated

24 as a welfare benefit plan.’’

25 (b) CONFORMING AMENDMENT.—
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1 (1) Paragraph (2) of section 1324(b) of title

2 31, United States Code, is amended by inserting be3 fore the period ‘‘or from section 35 of such Code’’.

4 (2) The table of sections for subpart C of part

5 IV of subchapter A of chapter 1 of such Code is

6 amended by striking the item relating to section 35

7 and inserting the following new items:

‘‘Sec. 35. Nondeferred distributions from performance-based reward plans.

‘‘Sec. 36. Overpayments of tax.’’

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

9 this section shall apply to taxable years beginning after

10 the date of the enactment of this Act.

11 SEC. 102. ADDITIONAL DEDUCTION TO EMPLOYERS FOR

12 PERFORMANCE-BASED REWARDS.

13 (a) IN GENERAL.—Section 162 of the Internal Reve14 nue Code of 1986 is amended by redesignating subsection

15 (o) as subsection (p) and by inserting after subsection (n)

16 the following new subsection:

17 ‘‘(o) PERFORMANCE-BASED REWARDS.—In addition

18 to the deduction otherwise allowed under this chapter for

19 rewards under a performance-based reward plan (as de20 fined in section 35(c)), there shall be allowed an additional

21 deduction equal to 10 percent of the amount allowed as

22 a deduction under this chapter (other than this sub23 section) for the taxable year for such awards.’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to taxable years beginning after

3 the date of the enactment of this Act.

4 SEC. 103. STUDY OF EFFECT OF CREDIT.

5 The Secretary of the Treasury, in consultation with

6 the Secretary of Commerce and the Secretary of Labor,

7 shall—

8 (1) conduct a study of the effect of the credit

9 under section 35 of the Internal Revenue Code of

10 1986 (as added by this Act) in stimulating produc11 tivity and full employment, and

12 (2) report the results of such study to the Con13 gress no later than January 1, 2002.

14 SEC. 104. COLLECTION OF STATISTICS.

15 (a) PERFORMANCE-BASED REWARD PLANS.—The

16 Secretary of Labor and the Director of the Federal Medi17 ation and Conciliation Service each shall—

18 (1) collect statistics on the extent of perform19 ance-based reward plans in the United States; and

20 (2) prepare studies which describe the nature

21 and terms of these performance-based reward plans.

22 Such studies shall differentiate between various types of

23 such plans and between plans which do and do not have

24 fixed formulas for determining amounts payable to

25 employees.
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1 (b) PROFIT-SHARING AND EMPLOYEE STOCK OWN2 ERSHIP PLANS.—The Director of the Office of Manage3 ment and Budget shall publish annually estimates of the

4 annual tax expenditures for deferred profit-sharing plans

5 and employee stock ownership plans.

6 TITLE II—ESTABLISHMENT OF

7 PROGRAM TO PROMOTE PER8 FORMANCE-BASED REWARD

9 PLANS AND EMPLOYEE DECI10 SIONMAKING PARTICIPATION

11 PROGRAMS

12 SEC. 201. EMPLOYEE PARTNERSHIP PILOT PROGRAM.

13 (a) ESTABLISHMENT.—The Administrator, in con14 sultation with the Secretary of Labor, shall establish and

15 carry out an Employee Partnership Pilot Program (in this

16 section referred to as the ‘‘program’’) in accordance with

17 the requirements of this section.

18 (b) GRANT AWARDS.—Under the program, the Ad19 ministrator shall make grants to not to exceed 5 eligible

20 entities for the purpose of promoting implementation of

21 performance-based reward plans and employee decision22 making participation programs.

23 (c) SELECTION OF GRANT RECIPIENTS.—The Ad24 ministrator shall select eligible entities to receive grants

25 under the program on the basis of competitive, merit-
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1 based criteria to be established by the Administrator, in

2 consultation with the Secretary of Labor. Such criteria,

3 at a minimum, shall provide for consideration of the

4 following:

5 (1) The ability of an applicant to carry out the

6 purposes of the program.

7 (2) The ability of an applicant to integrate im8 plementation of the program with existing Federal

9 and State business assistance resources.

10 (3) The ability of an applicant to continue to

11 carry out the purposes of the program after termi12 nation of the program.

13 (d) USE OF GRANT AMOUNTS.—Amounts from

14 grants received under the program shall be used for activi15 ties which promote the purposes of the program, including

16 the following:

17 (1) The collection and dissemination of infor18 mation regarding successful implementation of per19 formance-based reward plans and employee decision20 making participation programs.

21 (2) The development of best practices guidelines

22 concerning performance-based reward plans and em23 ployee decisionmaking participation programs.

24 (3) The provision of technical assistance and

25 training to aid firms in designing and implementing
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1 performance-based reward plans and employee deci2 sionmaking participation programs.

3 (4) Proactive education and outreach to key

4 groups such as business owners, unions, managers,

5 trade associations, and community associations to

6 inform such groups about the benefits of perform7 ance-based reward plans and employee decisionmak8 ing participation programs.

9 (e) NON-FEDERAL SHARE.—In order to be eligible

10 for a grant under the program, an eligible entity shall

11 agree to provide from non-Federal sources for activities

12 described in subsection (d) an amount at least equal to

13 the amount of the grant.

14 (f) TERM OF PROGRAM.—The program shall termi15 nate on the last day of the 5th fiscal year beginning after

16 the date of the enactment of this Act.

17 (g) REPORT.—The Administrator shall transmit to

18 Congress a report containing an evaluation of the pro19 gram, together with recommendations for appropriate leg20 islative and administrative actions.

21 (h) DEFINITIONS.—For the purposes of this section,

22 the following definitions apply:

23 (1) ADMINISTRATOR.—The term ‘‘Adminis24 trator’’ means the Administrator of the Small Busi25 ness Administration.
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1 (2) ELIGIBLE ENTITY.—The term ‘‘eligible en2 tity’’ means an educational institution, a non-profit

3 organization, or a unit of State or local government.

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