II 

111TH CONGRESS 

1ST SESSION S. 1240 

To provide for the reform of health care, the Social Security system, the 

tax code for individuals and business, and the budget process. 

IN THE SENATE OF THE UNITED STATES 

JUNE 11, 2009 

Mr. DEMINT introduced the following bill; which was read twice and referred 

to the Committee on Finance 

A BILL 

To provide for the reform of health care, the Social Security 

system, the tax code for individuals and business, and 

the budget process. 

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; TABLE OF CONTENTS. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Roadmap for America’s Future Act of 2009’’. 

6 (b) TABLE OF CONTENTS.—The table of contents of 

7 this Act is as follows: 

Sec. 1. Short title; table of contents. 

Sec. 2. Findings and purpose. 

TITLE I—HEALTH CARE REFORM 

Subtitle A—Tax Changes 


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Sec. 101. Refundable credit for health insurance coverage. 

Sec. 102. Changes to existing tax preferences for medical coverage, etc., for individuals eligible for qualified health insurance credit. 

Subtitle B—Health Plan Choice; Small Business Health Fairness 

Sec. 111. Cooperative governing of individual health insurance coverage. 

Sec. 112. Small business health fairness. 

Subtitle C—Health Care Services Commission 

PART 1—ESTABLISHMENT AND GENERAL DUTIES

Sec. 121. Establishment. 

Sec. 122. General authorities and duties. 

Sec. 123. Dissemination. 

PART 2—FORUM FOR QUALITY AND EFFECTIVENESS IN HEALTH CARE

Sec. 131. Establishment of office. 

Sec. 132. Membership. 

Sec. 133. Duties. 

Sec. 134. Adoption and enforcement of guidelines and standards. 

Sec. 135. Additional requirements. 

PART 3—GENERAL PROVISIONS

Sec. 141. Certain administrative authorities. 

Sec. 142. Funding. 

Sec. 143. Definitions. 

PART 4—TERMINATIONS AND TRANSITION

Sec. 151. Termination of Agency for Healthcare Research and Quality. 

Sec. 152. Transition. 

PART 5—INDEPENDENT HEALTH RECORD TRUST

Sec. 161. Short title of Part. 

Sec. 162. Purpose. 

Sec. 163. Definitions. 

Sec. 164. Establishment, certification, and membership of independent health 

record trusts. 

Sec. 165. Duties of IHRT to IHRT participants. 

Sec. 166. Availability and use of information from records in IHRT consistent 

with privacy protections and agreements. 

Sec. 167. Voluntary nature of trust participation and information sharing. 

Sec. 168. Financing of activities. 

Sec. 169. Regulatory oversight. 

TITLE II—MEDICAID AND SCHIP REFORM 

Sec. 201. Medicaid reform. 

Sec. 202. SCHIP Reform. 

TITLE III—MEDICARE REFORM 

Subtitle A—New Medicare Program 


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Sec. 301. Benefit changes. 

Sec. 302. Unified Medicare Trust Fund. 

Subtitle B—Changes in Current Medicare Program 

Sec. 311. Income-related reduction in Part D premium subsidy. 

Sec. 312. Reduction in hospital market basket increases. 

Sec. 313. Elimination of indexing of income thresholds for Part B income-related premiums. 

TITLE IV—SOCIAL SECURITY REFORM 

Sec. 401. Short title and table of contents of title. 

Sec. 402. Establishment of Personal Social Security Savings Program. 

Sec. 403. Monthly insurance benefits for participating individuals. 

Sec. 404. Tax treatment of accounts. 

Sec. 405. Self-Liquidating Social Security Transition Fund. 

Sec. 406. Budgetary treatment of Social Security. 

Sec. 407. Accounting for the Old-Age, Survivors, and Disability Insurance Program and the Personal Social Security Savings Program. 

Sec. 408. Progressive indexing of benefits for old-age, wife’s, and husband’s insurance benefits. 

Sec. 409. Enhancements to Part A benefits. 

TITLE V—SIMPLIFIED INCOME TAX 

Sec. 501. Short title. 

Sec. 502. Repeal of alternative minimum tax for noncorporate taxpayers. 

Sec. 503. Simplified income tax system. 

Sec. 504. Exclusion for capital gains, dividends, and interest. 

Sec. 505. Repeal of estate and gift taxes. 

TITLE VI—BUSINESS CONSUMPTION TAX 

Sec. 601. Short title. 

Sec. 602. Repeal of corporate income tax; new tax paid by corporations and 

other businesses. 

Sec. 603. Repeal of Chapter 6. 

Sec. 604. Revisions to the Code. 

Sec. 605. Application of Subtitle F. 

Sec. 606. Effective dates. 

TITLE VII—BUDGET ENFORCEMENT 

Sec. 701. Short title; table of contents; definitions. 

Sec. 702. Long-term projections. 

Sec. 703. Preview spending reduction order. 

Sec. 704. Final spending reduction order. 

Sec. 705. Eliminating excess spending amounts. 

Sec. 706. Special procedures. 

Sec. 707. Suspension in the event of war or low growth. 

Sec. 708. Alternate spending reduction legislation in the House of Representatives. 

Sec. 709. Alternate spending reduction legislation in the Senate. 

Sec. 710. General provisions. 

Sec. 711. Effective date. 


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1 SEC. 2. FINDINGS AND PURPOSE. 

2 (a) FINDINGS.—The Congress finds as follows: 

3 (1) The social insurance strategies of the past 

4 century, which sprang from the New Deal, expanded 

5 in the Great Society, and continue to dominate the 

6 terms of public debate, are headed toward collapse. 

7 (2) Although Americans remain committed to 

8 the missions of these initiatives, the goals can no 

9 longer be met on models created nearly 80 years 

10 ago—with large, centralized institutions, especially 

11 government, serving as sole providers for an increas12 ingly dependent population. 

13 (3) The failure of this approach will not occur 

14 immediately, it will unfold over the next several dec15 ades, becoming more intractable with each suc16 ceeding year; but it is inevitable, and policies in 

17 place right now, today, are leading inexorably toward 

18 it. 

19 (4) Among the inescapable signs are the fol20 lowing: an unsustainable path of Government spend21 ing; levels of projected debt that threaten to bank22 rupt the country; trillions of dollars of unfunded li23 abilities in the Government’s major benefit pro24 grams; and the erosion of Americans’ security and 

25 confidence in health care and retirement. 


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1 (5) These conditions pose significant potential 

2 burdens not only for the Government, but for the 

3 United States economy as well, threatening its abil4 ity to continue raising standards of living, and its 

5 leadership in an increasingly international market6 place. 

7 (6) A comprehensive plan is needed, and this 

8 legislation aims to energize the productive capacities 

9 of Americans to generate sustained economic 

10 growth. 

11 (b) PURPOSE.—The purpose of this Act is as follows: 

12 (1) HEALTH CARE REFORM.—To provide access 

13 to health care coverage to 47 million uninsured 

14 Americans by establishing a new tax credit; to re15 form health insurance markets, high-risk pools, and 

16 electronic health records; and to create a new agency 

17 to promote the dissemination of industry-defined 

18 health care price and quality data. 

19 (2) MEDICAID AND SCHIP REFORM.—To im20 prove health care coverage for those who need it 

21 most by establishing a new option for States’ Med22 icaid and SCHIP programs. 

23 (3) MEDICARE REFORM.—To ensure the Medi24 care benefit continues to provide health care cov25 erage for seniors by establishing a new methodology 


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1 to make the program solvent and fiscally sustain2 able. 

3 (4) SOCIAL SECURITY REFORM.—To reform So4 cial Security to ensure retirement security for future 

5 generations and to make it solvent for the foresee6 able future; to address inequities in the system and 

7 provide millions of Americans with the opportunity 

8 to build a retirement nest egg that they can pass on 

9 to their heirs. 

10 (5) INDIVIDUAL INCOME TAX REFORM.—To 

11 offer taxpayers a choice in paying their Federal in12 come taxes; to allow individuals to choose between 

13 the current tax code or a highly simplified tax sys14 tem with virtually no deductions or credits (apart 

15 from an individual health care credit), two low tax 

16 rates and a generous standard deduction and per17 sonal exemption; to fully repeal the alternative min18 imum tax (AMT), eliminate the tax on interest, cap19 ital gains and dividends in order to promote saving; 

20 and to repeal the estate tax. 

21 (6) BUSINESS TAX REFORM.—To eliminate the 

22 United States corporate income tax and establishes 

23 a border-adjustable business consumption tax in its 

24 place; to provide a new method of business taxation 

25 that will level the playing field for United States 


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1 businesses to compete with foreign businesses and 

2 will promote sustained economic growth, investment 

3 and job creation in America. 

4 (7) BUDGET PROCESS.—To keep total spending 

5 of the Government under control, a limit on total 

6 outlays as a percentage of the gross domestic 

7 produce is established; and enforced by automatic 

8 spending controls if it is exceeded. 

9 TITLE I—HEALTH CARE REFORM 

10 Subtitle A—Tax Changes 

11 SEC. 101. REFUNDABLE CREDIT FOR HEALTH INSURANCE 

12 COVERAGE. 

13 (a) IN GENERAL.—Subpart C of part IV of sub14 chapter A of chapter 1 of the Internal Revenue Code of 

15 1986 (relating to refundable credits) is amended by insert16 ing after section 36A the following new section: 

17 ‘‘SEC. 36B. QUALIFIED HEALTH INSURANCE CREDIT. 

18 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in19 dividual, there shall be allowed as a credit against the tax 

20 imposed by this chapter for the taxable year the sum of 

21 the monthly limitations determined under subsection (b) 

22 for the taxpayer and the taxpayer’s spouse and depend23 ents. 

24 ‘‘(b) MONTHLY LIMITATION.— 


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1 ‘‘(1) IN GENERAL.—The monthly limitation for 

2 each month during the taxable year for an eligible 

individual is 1 3 ⁄12th of— 

4 ‘‘(A) the applicable adult amount, in the 

5 case that the eligible individual is the taxpayer 

6 or the taxpayer’s spouse, 

7 ‘‘(B) the applicable adult amount, in the 

8 case that the eligible individual is an adult de9 pendent, and 

10 ‘‘(C) the applicable child amount, in the 

11 case that the eligible individual is a child de12 pendent. 

13 ‘‘(2) LIMITATION ON AGGREGATE AMOUNT.— 

14 Notwithstanding paragraph (1), the aggregate 

15 monthly limitations for the taxpayer and the tax16 payer’s spouse and dependents for any month shall 

not exceed 1 17 ⁄12th of the applicable aggregate amount. 

18 ‘‘(3) NO CREDIT FOR INELIGIBLE MONTHS.— 

19 With respect to any individual, the monthly limita20 tion shall be zero for any month for which such indi21 vidual is not an eligible individual. 

22 ‘‘(c) APPLICABLE AMOUNTS.—For purposes of this 

23 section— 

24 ‘‘(1) APPLICABLE ADULT AMOUNT.—The term 

25 ‘applicable adult amount’ means $2,500. 


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1 ‘‘(2) APPLICABLE CHILD AMOUNT.—The term 

2 ‘applicable child amount’ means $1,000. 

3 ‘‘(3) APPLICABLE AGGREGATE AMOUNT.—The 

4 term ‘applicable aggregate amount’ means $5,000. 

5 ‘‘(d) ELIGIBLE INDIVIDUAL.—For purposes of this 

6 section— 

7 ‘‘(1) IN GENERAL.—The term ‘eligible indi8 vidual’ means, with respect to any month, an indi9 vidual who— 

10 ‘‘(A) is the taxpayer, the taxpayer’s 

11 spouse, or the taxpayer’s dependent, and 

12 ‘‘(B) is covered under qualified health in13 surance as of the 1st day of such month. 

14 ‘‘(2) COVERAGE UNDER MEDICARE, MEDICAID, 

15 SCHIP, MILITARY COVERAGE.—The term ‘eligible in16 dividual’ shall not include any individual for a month 

17 if, as of the first day of such month, such individual 

18 is— 

19 ‘‘(A) entitled to benefits under part A of 

20 title XVIII of the Social Security Act or en21 rolled under part B of such title, and the indi22 vidual is not a participant or beneficiary in a 

23 group health plan or large group health plan 

24 that is a primary plan (as defined in section 

25 1862(b)(2)(A) of such Act), 


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1 ‘‘(B) in the case of a State that has not 

2 made the election described in section 

3 1939(a)(1)(B) of the Social Security Act, en4 rolled in the program under title XIX of such 

5 Act (other than under section 1928 of such 

6 Act), or 

7 ‘‘(C) entitled to benefits under chapter 55 

8 of title 10, United States Code. 

9 ‘‘(3) IDENTIFICATION REQUIREMENTS.—The 

10 term ‘eligible individual’ shall not include any indi11 vidual for any month unless the policy number asso12 ciated with the qualified refund eligible health insur13 ance and the TIN of each eligible individual covered 

14 under such health insurance for such month are in15 cluded on the return of tax for the taxable year in 

16 which such month occurs. 

17 ‘‘(4) PRISONERS.—The term ‘eligible individual’ 

18 shall not include any individual for a month if, as 

19 of the first day of such month, such individual is im20 prisoned under Federal, State, or local authority. 

21 ‘‘(5) ALIENS.—The term ‘eligible individual’ 

22 shall not include any alien individual for a month if, 

23 as of the first day of such month, such individual is 

24 not a lawful permanent resident of the United 

25 States. 


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1 ‘‘(e) QUALIFIED HEALTH INSURANCE.—For pur2 poses of this section, the term ‘qualified health insurance’ 

3 means any insurance constituting medical care which (as 

4 determined under regulations prescribed by the Secretary) 

5 provides coverage for inpatient and outpatient care, emer6 gency benefits, and physician care. Such term does not 

7 include any insurance substantially all of the coverage of 

8 which is coverage described in section 223(c)(1)(B). 

9 ‘‘(f) OTHER DEFINITIONS.—For purposes of this sec10 tion— 

11 ‘‘(1) DEPENDENT.—The term ‘dependent’ has 

12 the meaning given such term by section 152 (deter13 mined without regard to subsections (b)(1), (b)(2), 

14 and (d)(1)(B) thereof). An individual who is a child 

15 to whom section 152(e) applies shall be treated as 

16 a dependent of the custodial parent for a coverage 

17 month unless the custodial and noncustodial parent 

18 agree otherwise. 

19 ‘‘(2) ADULT.—The term ‘adult’ means an indi20 vidual who is not a child. 

21 ‘‘(3) CHILD.—The term ‘child’ means a quali22 fying child (as defined in section 152(c)). 

23 ‘‘(g) SPECIAL RULES.— 

24 ‘‘(1) COORDINATION WITH MEDICAL DEDUC25 TION, ETC.—Any amount paid by a taxpayer for inVerDate Nov 24 2008 05:08 Jun 12, 2009 Jkt 079200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S1240.IS S1240

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1 surance to which subsection (a) applies shall not be 

2 taken into account in computing the amount allow3 able to the taxpayer as a credit under section 35 or 

4 as a deduction under section 213(a). 

5 ‘‘(2) MEDICAL AND HEALTH SAVINGS AC6 COUNTS.—The credit allowed under subsection (a) 

7 for any taxable year shall be reduced by the aggre8 gate amount distributed from Archer MSAs (as de9 fined in section 220(d)) and health savings accounts 

10 (as defined in section 223(d)) which are excludable 

11 from gross income for such taxable years by reason 

12 of being used to pay premiums for coverage of an 

13 eligible individual (as defined in section 25E(e)) 

14 under qualified health insurance (as defined in sec15 tion 25E(f)) for any month. 

16 ‘‘(3) DENIAL OF CREDIT TO DEPENDENTS.—No 

17 credit shall be allowed under this section to any indi18 vidual with respect to whom a deduction under sec19 tion 151 is allowable to another taxpayer for a tax20 able year beginning in the calendar year in which 

21 such individual’s taxable year begins. 

22 ‘‘(4) MARRIED COUPLES MUST FILE JOINT RE23 TURN.— 

24 ‘‘(A) IN GENERAL.—If the taxpayer is 

25 married at the close of the taxable year, the 


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1 credit shall be allowed under subsection (a) only 

2 if the taxpayer and his spouse file a joint return 

3 for the taxable year. 

4 ‘‘(B) MARITAL STATUS; CERTAIN MARRIED

5 INDIVIDUALS LIVING APART.—Rules similar to 

6 the rules of paragraphs (3) and (4) of section 

7 21(e) shall apply for purposes of this para8 graph. 

9 ‘‘(5) VERIFICATION OF COVERAGE, ETC.—No 

10 credit shall be allowed under this section with re11 spect to any individual unless such individual’s cov12 erage (and such related information as the Secretary 

13 may require) is verified in such manner as the Sec14 retary may prescribe. 

15 ‘‘(6) INSURANCE WHICH COVERS OTHER INDI16 VIDUALS; TREATMENT OF PAYMENTS.—Rules similar 

17 to the rules of paragraphs (7) and (8) of section 

18 35(g) shall apply for purposes of this section. 

19 ‘‘(h) COORDINATION WITH ADVANCE PAYMENTS.— 

20 ‘‘(1) REDUCTION IN CREDIT FOR ADVANCE PAY21 MENTS.—With respect to any taxable year, the 

22 amount which would (but for this subsection) be al23 lowed as a credit to the taxpayer under subsection 

24 (a) shall be reduced (but not below zero) by the ag25 gregate amount paid on behalf of such taxpayer 


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1 under section 7527A for months beginning in such 

2 taxable year. 

3 ‘‘(2) RECAPTURE OF EXCESS ADVANCE PAY4 MENTS.—If the aggregate amount paid on behalf of 

5 the taxpayer under section 7527A for months begin6 ning in the taxable year exceeds the sum of the 

7 monthly limitations determined under subsection (b) 

8 for the taxpayer and the taxpayer’s spouse and de9 pendents for such months, then the tax imposed by 

10 this chapter for such taxable year shall be increased 

11 by the sum of— 

12 ‘‘(A) such excess, plus 

13 ‘‘(B) interest on such excess determined at 

14 the underpayment rate established under sec15 tion 6621 for the period from the date of the 

16 payment under section 7527A to the date such 

17 excess is paid. 

18 For purposes of subparagraph (B), an equal part of 

19 the aggregate amount of the excess shall be deemed 

20 to be attributable to payments made under section 

21 7527A on the first day of each month beginning in 

22 such taxable year, unless the taxpayer establishes 

23 the date on which each such payment giving rise to 

24 such excess occurred, in which case subparagraph 


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1 (B) shall be applied with respect to each date so es2 tablished. 

3 ‘‘(i) ANNUAL INFLATION ADJUSTMENT.—In the case 

4 of any taxable year beginning in a calendar year after 

5 2010 each of the dollar amounts contained in subsection 

6 (c) shall be annually increased by the annual inflation ad7 justment determined under subparagraph (B) section 

8 1809(c)(2) of the Social Security Act for such calendar 

9 year. Any adjustment under the preceding sentence shall 

10 be rounded in the manner described in subparagraph (A) 

11 of such section.’’. 

12 (b) ADVANCE PAYMENT OF CREDIT.—Chapter 77 

13 (relating to miscellaneous provisions) of such Code is 

14 amended by inserting after section 7527 the following new 

15 section: 

16 ‘‘SEC. 7527A. ADVANCE PAYMENT OF QUALIFIED HEALTH 

17 INSURANCE CREDIT. 

18 ‘‘(a) IN GENERAL.—The Secretary shall establish a 

19 program for making payments on behalf of individuals to 

20 providers of qualified health insurance (as defined in sec21 tion 36(f)) for such individuals. 

22 ‘‘(b) LIMITATION.—The Secretary may make pay23 ments under subsection (a) only to the extent that the Sec24 retary determines that the amount of such payments made 

25 on behalf of any taxpayer for any month does not exceed 


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1 the sum of the monthly limitations determined under sec2 tion 36 for the taxpayer and taxpayer’s spouse and de3 pendents for such month.’’. 

4 (c) INFORMATION REPORTING.— 

5 (1) IN GENERAL.—Subpart B of part III of 

6 subchapter A of chapter 61 of such Code (relating 

7 to information concerning transactions with other 

8 persons) is amended by inserting after section 

9 6050V the following new section: 

10 ‘‘SEC. 6050W. RETURNS RELATING TO QUALIFIED HEALTH 

11 INSURANCE CREDIT. 

12 ‘‘(a) REQUIREMENT OF REPORTING.—Every person 

13 who is entitled to receive payments for any month of any 

14 calendar year under section 7527A (relating to advance 

15 payment of qualified health insurance credit) with respect 

16 to any individual shall, at such time as the Secretary may 

17 prescribe, make the return described in subsection (b) with 

18 respect to each such individual. 

19 ‘‘(b) FORM AND MANNER OF RETURNS.—A return 

20 is described in this subsection if such return— 

21 ‘‘(1) is in such form as the Secretary may pre22 scribe, and 

23 ‘‘(2) contains, with respect to each individual 

24 referred to in subsection (a)— 


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1 ‘‘(A) the name, address, and TIN of each 

2 such individual, 

3 ‘‘(B) the months for which amounts pay4 ments under section 7527A were received, 

5 ‘‘(C) the amount of each such payment, 

6 ‘‘(D) the type of insurance coverage pro7 vide by such person with respect to such indi8 vidual and the policy number associated with 

9 such coverage, 

10 ‘‘(E) the name, address, and TIN of the 

11 spouse and each dependent covered under such 

12 coverage, and 

13 ‘‘(F) such other information as the Sec14 retary may prescribe. 

15 ‘‘(c) STATEMENTS TO BE FURNISHED TO INDIVID16 UALS WITH RESPECT TO WHOM INFORMATION IS RE17 QUIRED.—Every person required to make a return under 

18 subsection (a) shall furnish to each individual whose name 

19 is required to be set forth in such return a written state20 ment showing— 

21 ‘‘(1) the name and address of the person re22 quired to make such return and the phone number 

23 of the information contact for such person, and 

24 ‘‘(2) the information required to be shown on 

25 the return with respect to such individual. 


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1 The written statement required under the preceding sen2 tence shall be furnished on or before January 31 of the 

3 year following the calendar year for which the return 

4 under subsection (a) is required to be made. 

5 ‘‘(d) RETURNS WHICH WOULD BE REQUIRED TO BE

6 MADE BY 2 OR MORE PERSONS.—Except to the extent 

7 provided in regulations prescribed by the Secretary, in the 

8 case of any amount received by any person on behalf of 

9 another person, only the person first receiving such 

10 amount shall be required to make the return under sub11 section (a).’’. 

12 (2) ASSESSABLE PENALTIES.— 

13 (A) Subparagraph (B) of section 

14 6724(d)(1) (relating to definitions) of such 

15 Code is amended by redesignating clauses (xv) 

16 through (xxi) as clauses (xvi) through (xxii), re17 spectively, and by inserting after clause (xiv) 

18 the following new clause: 

19 ‘‘(xv) section 6050W (relating to re20 turns relating to qualified health insurance 

21 credit),’’. 

22 (B) Paragraph (2) of section 6724(d) of 

23 such Code is amended by striking the period at 

24 the end of subparagraph (CC) and inserting ‘‘, 


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1 or’’ and by inserting after subparagraph (CC) 

2 the following new subparagraph: 

3 ‘‘(DD) section 6050W (relating to returns 

4 relating to qualified health insurance credit).’’. 

5 (d) CONFORMING AMENDMENTS.— 

6 (1) Paragraph (2) of section 1324(b) of title 

7 31, United States Code, is amended by inserting 

8 ‘‘36B,’’ after ‘‘36A,’’. 

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

10 IV of subchapter A of chapter 1 of the Internal Rev11 enue Code of 1986 is amended by inserting after the 

12 item relating to section 36A the following new item: 

‘‘Sec. 36B. Qualified health insurance credit.’’. 

13 (3) The table of sections for chapter 77 of such 

14 Code is amended by inserting after the item relating 

15 to section 7527 the following new item: 

‘‘Sec. 7527A. Advance payment of qualified health insurance credit.’’. 

16 (4) The table of sections for subpart B of part 

17 III of subchapter A of chapter 61 of such Code is 

18 amended by adding at the end the following new 

19 item: 

‘‘Sec. 6050W. Returns relating to qualified health insurance credit.’’. 

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

21 this section shall apply to taxable years beginning after 

22 December 31, 2009. 


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1 SEC. 102. CHANGES TO EXISTING TAX PREFERENCES FOR 

2 MEDICAL COVERAGE, ETC., FOR INDIVIDUALS 

3 ELIGIBLE FOR QUALIFIED HEALTH INSUR4 ANCE CREDIT. 

5 (a) EXCLUSION FOR CONTRIBUTIONS BY EMPLOYER

6 TO ACCIDENT AND HEALTH PLANS.— 

7 (1) IN GENERAL.—Section 106 of the Internal 

8 Revenue Code of 1986 (relating to contributions by 

9 employer to accident and health plans) is amended 

10 by adding at the end the following new subsection: 

11 ‘‘(f) NO EXCLUSION FOR INDIVIDUALS ELIGIBLE

12 FOR QUALIFIED HEALTH INSURANCE CREDIT.—Sub13 section (a) shall not apply with respect to any employer14 provided coverage under an accident or health plan for any 

15 individual for any month unless such individual is de16 scribed in paragraph (2) or (5) of section 36(e) for such 

17 month. The amount includible in gross income by reason 

18 of this subsection shall be determined under rules similar 

19 to the rules of section 4980B(f)(4).’’. 

20 (2) CONFORMING AMENDMENTS.— 

21 (A) Section 106(b)(1) of such Code is 

22 amended— 

23 (i) by inserting ‘‘gross income does 

24 not include’’ before ‘‘amounts contrib25 uted’’, and 


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1 (ii) by striking ‘‘shall be treated as 

2 employer-provided coverage for medical ex3 penses under an accident or health plan’’. 

4 (B) Section 106(d)(1) of such Code is 

5 amended— 

6 (i) by inserting ‘‘gross income does 

7 not include’’ before ‘‘amounts contrib8 uted’’, and 

9 (ii) by striking ‘‘shall be treated as 

10 employer-provided coverage for medical ex11 penses under an accident or health plan’’. 

12 (b) AMOUNTS RECEIVED UNDER ACCIDENT AND

13 HEALTH PLANS.— 

14 (1) IN GENERAL.—Section 105 of such Code 

15 (relating to amounts received under accident and 

16 health plans) is amended by adding at the end the 

17 following new subsection: 

18 ‘‘(k) NO EXCLUSION FOR INDIVIDUALS ELIGIBLE

19 FOR QUALIFIED HEALTH INSURANCE CREDIT.—Sub20 section (b) shall not apply with respect to any employer21 provided coverage under an accident or health plan for any 

22 individual for any month unless such individual is de23 scribed in paragraph (2) or (5) of section 36(e) for such 

24 month.’’. 


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1 (c) SPECIAL RULES FOR HEALTH INSURANCE COSTS

2 OF SELF-EMPLOYED INDIVIDUALS.—Subsection (l) of 

3 section 162 of such Code (relating to special rules for 

4 health insurance costs of self-employed individuals) is 

5 amended by adding at the end the following new para6 graph: 

7 ‘‘(6) NO DEDUCTION TO INDIVIDUALS ELIGIBLE

8 FOR QUALIFIED HEALTH INSURANCE.—Paragraph 

9 (1) shall not apply for any individual for any month 

10 unless such individual is described in paragraph (2) 

11 or (5) of section 36(e) for such month.’’. 

12 (d) EARNED INCOME CREDIT UNAFFECTED BY RE13 PEALED EXCLUSIONS.—Subparagraph (B) of section 

14 32(c)(2) of such Code is amended by redesignating clauses 

15 (v) and (vi) as clauses (vi) and (vii), respectively, and by 

16 inserting after clause (iv) the following new clause: 

17 ‘‘(v) the earned income of an indi18 vidual shall be computed without regard to 

19 sections 105(k) and 106(f),’’. 

20 (e) MODIFICATION OF DEDUCTION FOR MEDICAL

21 EXPENSES.—Subsection (d) of section 213 of such Code 

22 is amended by adding at the end the following new para23 graph: 

24 ‘‘(12) PREMIUMS FOR QUALIFIED HEALTH IN25 SURANCE.—The term ‘medical care’ does not include 


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1 any amount paid as a premium for coverage of an 

2 eligible individual (as defined in section 36(e)) under 

3 qualified health insurance (as defined in section 

4 36(f)) for any month.’’. 

5 (f) REPORTING REQUIREMENT.—Subsection (a) of 

6 section 6051 of such Code is amended by striking ‘‘and’’ 

7 at the end of paragraph (12), by striking the period at 

8 the end of paragraph (13) and inserting ‘‘and’’, and by 

9 inserting after paragraph (13) the following new para10 graph: 

11 ‘‘(14) the total amount of employer-provided 

12 coverage under an accident or health plan which is 

13 includible in gross income by reason of sections 

14 105(k) and 106(f).’’. 

15 (g) RETIRED PUBLIC SAFETY OFFICERS.—Section 

16 402(l)(4)(D) of such Code is amended by adding at the 

17 end the following: ‘‘Such term shall not include any pre18 mium for coverage by an accident or health insurance plan 

19 for any month unless such individual is described in para20 graph (2) or (5) of section 36(e) for such month.’’. 

21 (h) EMPLOYER DEDUCTION AS TRADE OR BUSINESS

22 EXPENSE UNAFFECTED.—For the allowance of a deduc23 tion for amounts paid or incurred by an employer for em24 ployee health benefits, see section 162 of the Internal RevVerDate Nov 24 2008 05:08 Jun 12, 2009 Jkt 079200 PO 00000 Frm 00023 Fmt 6652 Sfmt 6201 E:\BILLS\S1240.IS S1240

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1 enue Code of 1986 (relating to trade or business ex2 penses). 

3 (i) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to taxable years beginning after 

5 December 31, 2009. 

6 Subtitle B—Health Plan Choice; 

7 Small Business Health Fairness 

8 SEC. 111. COOPERATIVE GOVERNING OF INDIVIDUAL 

9 HEALTH INSURANCE COVERAGE. 

10 (a) IN GENERAL.—Title XXVII of the Public Health 

11 Service Act (42 U.S.C. 300gg et seq.) is amended by add12 ing at the end the following new part: 

13 ‘‘PART D—COOPERATIVE GOVERNING OF 

14 INDIVIDUAL HEALTH INSURANCE COVERAGE 

15 ‘‘SEC. 2795. DEFINITIONS. 

16 ‘‘In this part: 

17 ‘‘(1) PRIMARY STATE.—The term ‘primary 

18 State’ means, with respect to individual health insur19 ance coverage offered by a health insurance issuer, 

20 the State designated by the issuer as the State 

21 whose covered laws shall govern the health insurance 

22 issuer in the sale of such coverage under this part. 

23 An issuer, with respect to a particular policy, may 

24 only designate one such State as its primary State 

25 with respect to all such coverage it offers. Such an 


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1 issuer may not change the designated primary State 

2 with respect to individual health insurance coverage 

3 once the policy is issued, except that such a change 

4 may be made upon renewal of the policy. With re5 spect to such designated State, the issuer is deemed 

6 to be doing business in that State. 

7 ‘‘(2) SECONDARY STATE.—The term ‘secondary 

8 State’ means, with respect to individual health insur9 ance coverage offered by a health insurance issuer, 

10 any State that is not the primary State. In the case 

11 of a health insurance issuer that is selling a policy 

12 in, or to a resident of, a secondary State, the issuer 

13 is deemed to be doing business in that secondary 

14 State. 

15 ‘‘(3) HEALTH INSURANCE ISSUER.—The term 

16 ‘health insurance issuer’ has the meaning given such 

17 term in section 2791(b)(2), except that such an 

18 issuer must be licensed in the primary State and be 

19 qualified to sell individual health insurance coverage 

20 in that State. 

21 ‘‘(4) INDIVIDUAL HEALTH INSURANCE COV22 ERAGE.—The term ‘individual health insurance cov23 erage’ means health insurance coverage offered in 

24 the individual market, as defined in section 

25 2791(e)(1). 


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1 ‘‘(5) APPLICABLE STATE AUTHORITY.—The 

2 term ‘applicable State authority’ means, with respect 

3 to a health insurance issuer in a State, the State in4 surance commissioner or official or officials des5 ignated by the State to enforce the requirements of 

6 this title for the State with respect to the issuer. 

7 ‘‘(6) HAZARDOUS FINANCIAL CONDITION.—The 

8 term ‘hazardous financial condition’ means that, 

9 based on its present or reasonably anticipated finan10 cial condition, a health insurance issuer is unlikely 

11 to be able— 

12 ‘‘(A) to meet obligations to policyholders 

13 with respect to known claims and reasonably 

14 anticipated claims; or 

15 ‘‘(B) to pay other obligations in the normal 

16 course of business. 

17 ‘‘(7) COVERED LAWS.— 

18 ‘‘(A) IN GENERAL.—The term ‘covered 

19 laws’ means the laws, rules, regulations, agree20 ments, and orders governing the insurance busi21 ness pertaining to— 

22 ‘‘(i) individual health insurance cov23 erage issued by a health insurance issuer; 

24 ‘‘(ii) the offer, sale, rating (including 

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1 ance of individual health insurance cov2 erage to an individual; 

3 ‘‘(iii) the provision to an individual in 

4 relation to individual health insurance cov5 erage of health care and insurance related 

6 services; 

7 ‘‘(iv) the provision to an individual in 

8 relation to individual health insurance cov9 erage of management, operations, and in10 vestment activities of a health insurance 

11 issuer; and 

12 ‘‘(v) the provision to an individual in 

13 relation to individual health insurance cov14 erage of loss control and claims adminis15 tration for a health insurance issuer with 

16 respect to liability for which the issuer pro17 vides insurance. 

18 ‘‘(B) EXCEPTION.—Such term does not in19 clude any law, rule, regulation, agreement, or 

20 order governing the use of care or cost manage21 ment techniques, including any requirement re22 lated to provider contracting, network access or 

23 adequacy, health care data collection, or quality 

24 assurance. 


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1 ‘‘(8) STATE.—The term ‘State’ means the 50 

2 States and includes the District of Columbia, Puerto 

3 Rico, the Virgin Islands, Guam, American Samoa, 

4 and the Northern Mariana Islands. 

5 ‘‘(9) UNFAIR CLAIMS SETTLEMENT PRAC6 TICES.—The term ‘unfair claims settlement prac7 tices’ means only the following practices: 

8 ‘‘(A) Knowingly misrepresenting to claim9 ants and insured individuals relevant facts or 

10 policy provisions relating to coverage at issue. 

11 ‘‘(B) Failing to acknowledge with reason12 able promptness pertinent communications with 

13 respect to claims arising under policies. 

14 ‘‘(C) Failing to adopt and implement rea15 sonable standards for the prompt investigation 

16 and settlement of claims arising under policies. 

17 ‘‘(D) Failing to effectuate prompt, fair, 

18 and equitable settlement of claims submitted in 

19 which liability has become reasonably clear. 

20 ‘‘(E) Refusing to pay claims without con21 ducting a reasonable investigation. 

22 ‘‘(F) Failing to affirm or deny coverage of 

23 claims within a reasonable period of time after 

24 having completed an investigation related to 

25 those claims. 


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1 ‘‘(G) A pattern or practice of compelling 

2 insured individuals or their beneficiaries to in3 stitute suits to recover amounts due under its 

4 policies by offering substantially less than the 

5 amounts ultimately recovered in suits brought 

6 by them. 

7 ‘‘(H) A pattern or practice of attempting 

8 to settle or settling claims for less than the 

9 amount that a reasonable person would believe 

10 the insured individual or his or her beneficiary 

11 was entitled by reference to written or printed 

12 advertising material accompanying or made 

13 part of an application. 

14 ‘‘(I) Attempting to settle or settling claims 

15 on the basis of an application that was materi16 ally altered without notice to, or knowledge or 

17 consent of, the insured. 

18 ‘‘(J) Failing to provide forms necessary to 

19 present claims within 15 calendar days of a re20 quests with reasonable explanations regarding 

21 their use. 

22 ‘‘(K) Attempting to cancel a policy in less 

23 time than that prescribed in the policy or by the 

24 law of the primary State. 


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1 ‘‘(10) FRAUD AND ABUSE.—The term ‘fraud 

2 and abuse’ means an act or omission committed by 

3 a person who, knowingly and with intent to defraud, 

4 commits, or conceals any material information con5 cerning, one or more of the following: 

6 ‘‘(A) Presenting, causing to be presented 

7 or preparing with knowledge or belief that it 

8 will be presented to or by an insurer, a rein9 surer, broker or its agent, false information as 

10 part of, in support of or concerning a fact ma11 terial to one or more of the following: 

12 ‘‘(i) An application for the issuance or 

13 renewal of an insurance policy or reinsur14 ance contract. 

15 ‘‘(ii) The rating of an insurance policy 

16 or reinsurance contract. 

17 ‘‘(iii) A claim for payment or benefit 

18 pursuant to an insurance policy or reinsur19 ance contract. 

20 ‘‘(iv) Premiums paid on an insurance 

21 policy or reinsurance contract. 

22 ‘‘(v) Payments made in accordance 

23 with the terms of an insurance policy or 

24 reinsurance contract. 


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1 ‘‘(vi) A document filed with the com2 missioner or the chief insurance regulatory 

3 official of another jurisdiction. 

4 ‘‘(vii) The financial condition of an in5 surer or reinsurer. 

6 ‘‘(viii) The formation, acquisition, 

7 merger, reconsolidation, dissolution or 

8 withdrawal from one or more lines of in9 surance or reinsurance in all or part of a 

10 State by an insurer or reinsurer. 

11 ‘‘(ix) The issuance of written evidence 

12 of insurance. 

13 ‘‘(x) The reinstatement of an insur14 ance policy. 

15 ‘‘(B) Solicitation or acceptance of new or 

16 renewal insurance risks on behalf of an insurer 

17 reinsurer or other person engaged in the busi18 ness of insurance by a person who knows or 

19 should know that the insurer or other person 

20 responsible for the risk is insolvent at the time 

21 of the transaction. 

22 ‘‘(C) Transaction of the business of insur23 ance in violation of laws requiring a license, cer24 tificate of authority or other legal authority for 

25 the transaction of the business of insurance. 


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1 ‘‘(D) Attempt to commit, aiding or abet2 ting in the commission of, or conspiracy to com3 mit the acts or omissions specified in this para4 graph. 

5 ‘‘SEC. 2796. APPLICATION OF LAW. 

6 ‘‘(a) IN GENERAL.—The covered laws of the primary 

7 State shall apply to individual health insurance coverage 

8 offered by a health insurance issuer in the primary State 

9 and in any secondary State, but only if the coverage and 

10 issuer comply with the conditions of this section with re11 spect to the offering of coverage in any secondary State. 

12 ‘‘(b) EXEMPTIONS FROM COVERED LAWS IN A SEC13 ONDARY STATE.—Except as provided in this section, a 

14 health insurance issuer with respect to its offer, sale, rat15 ing (including medical underwriting), renewal, and 

16 issuance of individual health insurance coverage in any 

17 secondary State is exempt from any covered laws of the 

18 secondary State (and any rules, regulations, agreements, 

19 or orders sought or issued by such State under or related 

20 to such covered laws) to the extent that such laws would— 

21 ‘‘(1) make unlawful, or regulate, directly or in22 directly, the operation of the health insurance issuer 

23 operating in the secondary State, except that any 

24 secondary State may require such an issuer— 


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1 ‘‘(A) to pay, on a nondiscriminatory basis, 

2 applicable premium and other taxes (including 

3 high risk pool assessments) which are levied on 

4 insurers and surplus lines insurers, brokers, or 

5 policyholders under the laws of the State; 

6 ‘‘(B) to register with and designate the 

7 State insurance commissioner as its agent solely 

8 for the purpose of receiving service of legal doc9 uments or process; 

10 ‘‘(C) to submit to an examination of its fi11 nancial condition by the State insurance com12 missioner in any State in which the issuer is 

13 doing business to determine the issuer’s finan14 cial condition, if— 

15 ‘‘(i) the State insurance commissioner 

16 of the primary State has not done an ex17 amination within the period recommended 

18 by the National Association of Insurance 

19 Commissioners; and 

20 ‘‘(ii) any such examination is con21 ducted in accordance with the examiners’ 

22 handbook of the National Association of 

23 Insurance Commissioners and is coordi24 nated to avoid unjustified duplication and 

25 unjustified repetition; 


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1 ‘‘(D) to comply with a lawful order 

2 issued— 

3 ‘‘(i) in a delinquency proceeding com4 menced by the State insurance commis5 sioner if there has been a finding of finan6 cial impairment under subparagraph (C); 

7 or 

8 ‘‘(ii) in a voluntary dissolution pro9 ceeding; 

10 ‘‘(E) to comply with an injunction issued 

11 by a court of competent jurisdiction, upon a pe12 tition by the State insurance commissioner al13 leging that the issuer is in hazardous financial 

14 condition; 

15 ‘‘(F) to participate, on a nondiscriminatory 

16 basis, in any insurance insolvency guaranty as17 sociation or similar association to which a 

18 health insurance issuer in the State is required 

19 to belong; 

20 ‘‘(G) to comply with any State law regard21 ing fraud and abuse (as defined in section 

22 2795(10)), except that if the State seeks an in23 junction regarding the conduct described in this 

24 subparagraph, such injunction must be obtained 

25 from a court of competent jurisdiction; 


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1 ‘‘(H) to comply with any State law regard2 ing unfair claims settlement practices (as de3 fined in section 2795(9)); or 

4 ‘‘(I) to comply with the applicable require5 ments for independent review under section 

6 2798 with respect to coverage offered in the 

7 State; 

8 ‘‘(2) require any individual health insurance 

9 coverage issued by the issuer to be countersigned by 

10 an insurance agent or broker residing in that Sec11 ondary State; or 

12 ‘‘(3) otherwise discriminate against the issuer 

13 issuing insurance in both the primary State and in 

14 any secondary State. 

15 ‘‘(c) CLEAR AND CONSPICUOUS DISCLOSURE.—A 

16 health insurance issuer shall provide the following notice, 

17 in 12-point bold type, in any insurance coverage offered 

18 in a secondary State under this part by such a health in19 surance issuer and at renewal of the policy, with the 5 

20 blank spaces therein being appropriately filled with the 

21 name of the health insurance issuer, the name of primary 

22 State, the name of the secondary State, the name of the 

23 secondary State, and the name of the secondary State, re24 spectively, for the coverage concerned: 

25 ‘‘ ‘Notice 


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1 ‘‘ ‘This policy is issued by lllll and is 

2 governed by the laws and regulations of the 

3 State of lllll, and it has met all the laws 

4 of that State as determined by that State’s De5 partment of Insurance. This policy may be 

6 less expensive than others because it is not 

7 subject to all of the insurance laws and regu8 lations of the State of lllll, including 

9 coverage of some services or benefits man10 dated by the law of the State of lllll. Ad11 ditionally, this policy is not subject to all of 

12 the consumer protection laws or restrictions 

13 on rate changes of the State of lllll. As 

14 with all insurance products, before pur15 chasing this policy, you should carefully re16 view the policy and determine what health 

17 care services the policy covers and what bene18 fits it provides, including any exclusions, limi19 tations, or conditions for such services or ben20 efits.’. 

21 ‘‘(d) PROHIBITION ON CERTAIN RECLASSIFICATIONS

22 AND PREMIUM INCREASES.— 

23 ‘‘(1) IN GENERAL.—For purposes of this sec24 tion, a health insurance issuer that provides indi25 vidual health insurance coverage to an individual 


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•S 1240 IS

1 under this part in a primary or secondary State may 

2 not upon renewal— 

3 ‘‘(A) move or reclassify the individual in4 sured under the health insurance coverage from 

5 the class such individual is in at the time of 

6 issue of the contract based on the health-status 

7 related factors of the individual; or 

8 ‘‘(B) increase the premiums assessed the 

9 individual for such coverage based on a health 

10 status-related factor or change of a health sta11 tus-related factor or the past or prospective 

12 claim experience of the insured individual. 

13 ‘‘(2) CONSTRUCTION.—Nothing in paragraph 

14 (1) shall be construed to prohibit a health insurance 

15 issuer— 

16 ‘‘(A) from terminating or discontinuing 

17 coverage or a class of coverage in accordance 

18 with subsections (b) and (c) of section 2742; 

19 ‘‘(B) from raising premium rates for all 

20 policy holders within a class based on claims ex21 perience; 

22 ‘‘(C) from changing premiums or offering 

23 discounted premiums to individuals who engage 

24 in wellness activities at intervals prescribed by 


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1 the issuer, if such premium changes or incen2 tives— 

3 ‘‘(i) are disclosed to the consumer in 

4 the insurance contract; 

5 ‘‘(ii) are based on specific wellness ac6 tivities that are not applicable to all indi7 viduals; and 

8 ‘‘(iii) are not obtainable by all individ9 uals to whom coverage is offered; 

10 ‘‘(D) from reinstating lapsed coverage; or 

11 ‘‘(E) from retroactively adjusting the rates 

12 charged an insured individual if the initial rates 

13 were set based on material misrepresentation by 

14 the individual at the time of issue. 

15 ‘‘(e) PRIOR OFFERING OF POLICY IN PRIMARY

16 STATE.—A health insurance issuer may not offer for sale 

17 individual health insurance coverage in a secondary State 

18 unless that coverage is currently offered for sale in the 

19 primary State. 

20 ‘‘(f) LICENSING OF AGENTS OR BROKERS FOR

21 HEALTH INSURANCE ISSUERS.—Any State may require 

22 that a person acting, or offering to act, as an agent or 

23 broker for a health insurance issuer with respect to the 

24 offering of individual health insurance coverage obtain a 

25 license from that State, with commissions or other comVerDate Nov 24 2008 05:08 Jun 12, 2009 Jkt 079200 PO 00000 Frm 00038 Fmt 6652 Sfmt 6201 E:\BILLS\S1240.IS S1240

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1 pensation subject to the provisions of the laws of that 

2 State, except that a State may not impose any qualifica3 tion or requirement which discriminates against a non4 resident agent or broker. 

5 ‘‘(g) DOCUMENTS FOR SUBMISSION TO STATE IN6 SURANCE COMMISSIONER.—Each health insurance issuer 

7 issuing individual health insurance coverage in both pri8 mary and secondary States shall submit— 

9 ‘‘(1) to the insurance commissioner of each 

10 State in which it intends to offer such coverage, be11 fore it may offer individual health insurance cov12 erage in such State— 

13 ‘‘(A) a copy of the plan of operation or fea14 sibility study or any similar statement of the 

15 policy being offered and its coverage (which 

16 shall include the name of its primary State and 

17 its principal place of business); 

18 ‘‘(B) written notice of any change in its 

19 designation of its primary State; and 

20 ‘‘(C) written notice from the issuer of the 

21 issuer’s compliance with all the laws of the pri22 mary State; and 

23 ‘‘(2) to the insurance commissioner of each sec24 ondary State in which it offers individual health in25 surance coverage, a copy of the issuer’s quarterly fiVerDate Nov 24 2008 05:08 Jun 12, 2009 Jkt 079200 PO 00000 Frm 00039 Fmt 6652 Sfmt 6201 E:\BILLS\S1240.IS S1240

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1 nancial statement submitted to the primary State, 

2 which statement shall be certified by an independent 

3 public accountant and contain a statement of opin4 ion on loss and loss adjustment expense reserves 

5 made by— 

6 ‘‘(A) a member of the American Academy 

7 of Actuaries; or 

8 ‘‘(B) a qualified loss reserve specialist. 

9 ‘‘(h) POWER OF COURTS TO ENJOIN CONDUCT.— 

10 Nothing in this section shall be construed to affect the 

11 authority of any Federal or State court to enjoin— 

12 ‘‘(1) the solicitation or sale of individual health 

13 insurance coverage by a health insurance issuer to 

14 any person or group who is not eligible for such in15 surance; or 

16 ‘‘(2) the solicitation or sale of individual health 

17 insurance coverage that violates the requirements of 

18 the law of a secondary State which are described in 

19 subparagraphs (A) through (H) of section 

20 2796(b)(1). 

21 ‘‘(i) POWER OF SECONDARY STATES TO TAKE AD22 MINISTRATIVE ACTION.—Nothing in this section shall be 

23 construed to affect the authority of any State to enjoin 

24 conduct in violation of that State’s laws described in sec25 tion 2796(b)(1). 


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1 ‘‘(j) STATE POWERS TO ENFORCE STATE LAWS.— 

2 ‘‘(1) IN GENERAL.—Subject to the provisions of 

3 subsection (b)(1)(G) (relating to injunctions) and 

4 paragraph (2), nothing in this section shall be con5 strued to affect the authority of any State to make 

6 use of any of its powers to enforce the laws of such 

7 State with respect to which a health insurance issuer 

8 is not exempt under subsection (b). 

9 ‘‘(2) COURTS OF COMPETENT JURISDICTION.— 

10 If a State seeks an injunction regarding the conduct 

11 described in paragraphs (1) and (2) of subsection 

12 (h), such injunction must be obtained from a Fed13 eral or State court of competent jurisdiction. 

14 ‘‘(k) STATES’ AUTHORITY TO SUE.—Nothing in this 

15 section shall affect the authority of any State to bring ac16 tion in any Federal or State court. 

17 ‘‘(l) GENERALLY APPLICABLE LAWS.—Nothing in 

18 this section shall be construed to affect the applicability 

19 of State laws generally applicable to persons or corpora20 tions. 

21 ‘‘(m) GUARANTEED AVAILABILITY OF COVERAGE TO

22 HIPAA ELIGIBLE INDIVIDUALS.—To the extent that a 

23 health insurance issuer is offering coverage in a primary 

24 State that does not accommodate residents of secondary 

25 States or does not provide a working mechanism for resiVerDate Nov 24 2008 05:08 Jun 12, 2009 Jkt 079200 PO 00000 Frm 00041 Fmt 6652 Sfmt 6201 E:\BILLS\S1240.IS S1240

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•S 1240 IS

1 dents of a secondary State, and the issuer is offering cov2 erage under this part in such secondary State which has 

3 not adopted a qualified high risk pool as its acceptable 

4 alternative mechanism (as defined in section 2744(c)(2)), 

5 the issuer shall, with respect to any individual health in6 surance coverage offered in a secondary State under this 

7 part, comply with the guaranteed availability requirements 

8 for eligible individuals in section 2741. 

9 ‘‘SEC. 2797. PRIMARY STATE MUST MEET FEDERAL FLOOR 

10 BEFORE ISSUER MAY SELL INTO SECONDARY 

11 STATES. 

12 ‘‘A health insurance issuer may not offer, sell, or 

13 issue individual health insurance coverage in a secondary 

14 State if the State insurance commissioner does not use 

15 a risk-based capital formula for the determination of cap16 ital and surplus requirements for all health insurance 

17 issuers. 

18 ‘‘SEC. 2798. INDEPENDENT EXTERNAL APPEALS PROCE19 DURES. 

20 ‘‘(a) RIGHT TO EXTERNAL APPEAL.—A health insur21 ance issuer may not offer, sell, or issue individual health 

22 insurance coverage in a secondary State under the provi23 sions of this title unless— 

24 ‘‘(1) both the secondary State and the primary 

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1 lishing an independent review process for individuals 

2 who are covered by individual health insurance cov3 erage, or 

4 ‘‘(2) in any case in which the requirements of 

5 subparagraph (A) are not met with respect to the ei6 ther of such States, the issuer provides an inde7 pendent review mechanism substantially identical (as 

8 determined by the applicable State authority of such 

9 State) to that prescribed in the ‘Health Carrier Ex10 ternal Review Model Act’ of the National Association 

11 of Insurance Commissioners for all individuals who 

12 purchase insurance coverage under the terms of this 

13 part, except that, under such mechanism, the review 

14 is conducted by an independent medical reviewer, or 

15 a panel of such reviewers, with respect to whom the 

16 requirements of subsection (b) are met. 

17 ‘‘(b) QUALIFICATIONS OF INDEPENDENT MEDICAL

18 REVIEWERS.—In the case of any independent review 

19 mechanism referred to in subsection (a)(2)— 

20 ‘‘(1) IN GENERAL.—In referring a denial of a 

21 claim to an independent medical reviewer, or to any 

22 panel of such reviewers, to conduct independent 

23 medical review, the issuer shall ensure that— 


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1 ‘‘(A) each independent medical reviewer 

2 meets the qualifications described in paragraphs 

3 (2) and (3); 

4 ‘‘(B) with respect to each review, each re5 viewer meets the requirements of paragraph (4) 

6 and the reviewer, or at least 1 reviewer on the 

7 panel, meets the requirements described in 

8 paragraph (5); and 

9 ‘‘(C) compensation provided by the issuer 

10 to each reviewer is consistent with paragraph 

11 (6). 

12 ‘‘(2) LICENSURE AND EXPERTISE.—Each inde13 pendent medical reviewer shall be a physician 

14 (allopathic or osteopathic) or health care profes15 sional who— 

16 ‘‘(A) is appropriately credentialed or li17 censed in 1 or more States to deliver health 

18 care services; and 

19 ‘‘(B) typically treats the condition, makes 

20 the diagnosis, or provides the type of treatment 

21 under review. 

22 ‘‘(3) INDEPENDENCE.— 

23 ‘‘(A) IN GENERAL.—Subject to subpara24 graph (B), each independent medical reviewer 

25 in a case shall— 


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1 ‘‘(i) not be a related party (as defined 

2 in paragraph (7)); 

3 ‘‘(ii) not have a material familial, fi4 nancial, or professional relationship with 

5 such a party; and 

6 ‘‘(iii) not otherwise have a conflict of 

7 interest with such a party (as determined 

8 under regulations). 

9 ‘‘(B) EXCEPTION.—Nothing in subpara10 graph (A) shall be construed to— 

11 ‘‘(i) prohibit an individual, solely on 

12 the basis of affiliation with the issuer, 

13 from serving as an independent medical re14 viewer if— 

15 ‘‘(I) a non-affiliated individual is 

16 not reasonably available; 

17 ‘‘(II) the affiliated individual is 

18 not involved in the provision of items 

19 or services in the case under review; 

20 ‘‘(III) the fact of such an affili21 ation is disclosed to the issuer and the 

22 enrollee (or authorized representative) 

23 and neither party objects; and 

24 ‘‘(IV) the affiliated individual is 

25 not an employee of the issuer and 


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•S 1240 IS

1 does not provide services exclusively or 

2 primarily to or on behalf of the issuer; 

3 ‘‘(ii) prohibit an individual who has 

4 staff privileges at the institution where the 

5 treatment involved takes place from serv6 ing as an independent medical reviewer 

7 merely on the basis of such affiliation if 

8 the affiliation is disclosed to the issuer and 

9 the enrollee (or authorized representative), 

10 and neither party objects; or 

11 ‘‘(iii) prohibit receipt of compensation 

12 by an independent medical reviewer from 

13 an entity if the compensation is provided 

14 consistent with paragraph (6). 

15 ‘‘(4) PRACTICING HEALTH CARE PROFESSIONAL

16 IN SAME FIELD.— 

17 ‘‘(A) IN GENERAL.—In a case involving 

18 treatment, or the provision of items or serv19 ices— 

20 ‘‘(i) by a physician, a reviewer shall be 

21 a practicing physician (allopathic or osteo22 pathic) of the same or similar specialty, as 

23 a physician who, acting within the appro24 priate scope of practice within the State in 

25 which the service is provided or rendered, 


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•S 1240 IS

1 typically treats the condition, makes the 

2 diagnosis, or provides the type of treat3 ment under review; or 

4 ‘‘(ii) by a non-physician health care 

5 professional, the reviewer, or at least 1 

6 member of the review panel, shall be a 

7 practicing non-physician health care pro8 fessional of the same or similar specialty 

9 as the non-physician health care profes10 sional who, acting within the appropriate 

11 scope of practice within the State in which 

12 the service is provided or rendered, typi13 cally treats the condition, makes the diag14 nosis, or provides the type of treatment 

15 under review. 

16 ‘‘(B) PRACTICING DEFINED.—For pur17 poses of this paragraph, the term ‘practicing’ 

18 means, with respect to an individual who is a 

19 physician or other health care professional, that 

20 the individual provides health care services to 

21 individual patients on average at least 2 days 

22 per week. 

23 ‘‘(5) PEDIATRIC EXPERTISE.—In the case of an 

24 external review relating to a child, a reviewer shall 

25 have expertise under paragraph (2) in pediatrics. 


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1 ‘‘(6) LIMITATIONS ON REVIEWER COMPENSA2 TION.—Compensation provided by the issuer to an 

3 independent medical reviewer in connection with a 

4 review under this section shall— 

5 ‘‘(A) not exceed a reasonable level; and 

6 ‘‘(B) not be contingent on the decision ren7 dered by the reviewer. 

8 ‘‘(7) RELATED PARTY DEFINED.—For purposes 

9 of this section, the term ‘related party’ means, with 

10 respect to a denial of a claim under a coverage relat11 ing to an enrollee, any of the following: 

12 ‘‘(A) The issuer involved, or any fiduciary, 

13 officer, director, or employee of the issuer. 

14 ‘‘(B) The enrollee (or authorized represent15 ative). 

16 ‘‘(C) The health care professional that pro17 vides the items or services involved in the de18 nial. 

19 ‘‘(D) The institution at which the items or 

20 services (or treatment) involved in the denial 

21 are provided. 

22 ‘‘(E) The manufacturer of any drug or 

23 other item that is included in the items or serv24 ices involved in the denial. 


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1 ‘‘(F) Any other party determined under 

2 any regulations to have a substantial interest in 

3 the denial involved. 

4 ‘‘(8) DEFINITIONS.—For purposes of this sub5 section: 

6 ‘‘(A) ENROLLEE.—The term ‘enrollee’ 

7 means, with respect to health insurance cov8 erage offered by a health insurance issuer, an 

9 individual enrolled with the issuer to receive 

10 such coverage. 

11 ‘‘(B) HEALTH CARE PROFESSIONAL.—The 

12 term ‘health care professional’ means an indi13 vidual who is licensed, accredited, or certified 

14 under State law to provide specified health care 

15 services and who is operating within the scope 

16 of such licensure, accreditation, or certification. 

17 ‘‘SEC. 2799. ENFORCEMENT. 

18 ‘‘(a) IN GENERAL.—Subject to subsection (b), with 

19 respect to specific individual health insurance coverage the 

20 primary State for such coverage has sole jurisdiction to 

21 enforce the primary State’s covered laws in the primary 

22 State and any secondary State. 

23 ‘‘(b) SECONDARY STATE’S AUTHORITY.—Nothing in 

24 subsection (a) shall be construed to affect the authority 


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1 of a secondary State to enforce its laws as set forth in 

2 the exception specified in section 2796(b)(1). 

3 ‘‘(c) COURT INTERPRETATION.—In reviewing action 

4 initiated by the applicable secondary State authority, the 

5 court of competent jurisdiction shall apply the covered 

6 laws of the primary State. 

7 ‘‘(d) NOTICE OF COMPLIANCE FAILURE.—In the case 

8 of individual health insurance coverage offered in a sec9 ondary State that fails to comply with the covered laws 

10 of the primary State, the applicable State authority of the 

11 secondary State may notify the applicable State authority 

12 of the primary State.’’. 

13 (b) EFFECTIVE DATE.—The amendment made by 

14 subsection (a) shall apply to individual health insurance 

15 coverage offered, issued, or sold after the date that is one 

16 year after the date of the enactment of this Act. 

17 (c) GAO ONGOING STUDY AND REPORTS.— 

18 (1) STUDY.—The Comptroller General of the 

19 United States shall conduct an ongoing study con20 cerning the effect of the amendment made by sub21 section (a) on— 

22 (A) the number of uninsured and under-in23 sured; 


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1 (B) the availability and cost of health in2 surance policies for individuals with pre-existing 

3 medical conditions; 

4 (C) the availability and cost of health in5 surance policies generally; 

6 (D) the elimination or reduction of dif7 ferent types of benefits under health insurance 

8 policies offered in different States; and 

9 (E) cases of fraud or abuse relating to 

10 health insurance coverage offered under such 

11 amendment and the resolution of such cases. 

12 (2) ANNUAL REPORTS.—The Comptroller Gen13 eral shall submit to Congress an annual report, after 

14 the end of each of the 5 years following the effective 

15 date of the amendment made by subsection (a), on 

16 the ongoing study conducted under paragraph (1). 

17 (d) SEVERABILITY.—If any provision of this title or 

18 the application of such provision to any person or cir19 cumstance is held to be unconstitutional, the remainder 

20 of this title and the application of the provisions of such 

21 to any other person or circumstance shall not be affected. 

22 SEC. 112. SMALL BUSINESS HEALTH FAIRNESS. 

23 (a) RULES GOVERNING ASSOCIATION HEALTH

24 PLANS.— 


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1 (1) IN GENERAL.—Subtitle B of title I of the 

2 Employee Retirement Income Security Act of 1974 

3 is amended by adding after part 7 the following new 

4 part: 

5 ‘‘PART 8—RULES GOVERNING ASSOCIATION 

6 HEALTH PLANS 

7 ‘‘SEC. 801. ASSOCIATION HEALTH PLANS. 

8 ‘‘(a) IN GENERAL.—For purposes of this part, the 

9 term ‘association health plan’ means a group health plan 

10 whose sponsor is (or is deemed under this part to be) de11 scribed in subsection (b). 

12 ‘‘(b) SPONSORSHIP.—The sponsor of a group health 

13 plan is described in this subsection if such sponsor— 

14 ‘‘(1) is organized and maintained in good faith, 

15 with a constitution and bylaws specifically stating its 

16 purpose and providing for periodic meetings on at 

17 least an annual basis, as a bona fide trade associa18 tion, a bona fide industry association (including a 

19 rural electric cooperative association or a rural tele20 phone cooperative association), a bona fide profes21 sional association, or a bona fide chamber of com22 merce (or similar bona fide business association, in23 cluding a corporation or similar organization that 

24 operates on a cooperative basis (within the meaning 

25 of section 1381 of the Internal Revenue Code of 


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1 1986)), for substantial purposes other than that of 

2 obtaining or providing medical care; 

3 ‘‘(2) is established as a permanent entity which 

4 receives the active support of its members and re5 quires for membership payment on a periodic basis 

6 of dues or payments necessary to maintain eligibility 

7 for membership in the sponsor; and 

8 ‘‘(3) does not condition membership, such dues 

9 or payments, or coverage under the plan on the 

10 basis of health status-related factors with respect to 

11 the employees of its members (or affiliated mem12 bers), or the dependents of such employees, and does 

13 not condition such dues or payments on the basis of 

14 group health plan participation. 

15 Any sponsor consisting of an association of entities which 

16 meet the requirements of paragraphs (1), (2), and (3) 

17 shall be deemed to be a sponsor described in this sub18 section. 

19 ‘‘SEC. 802. CERTIFICATION OF ASSOCIATION HEALTH 

20 PLANS. 

21 ‘‘(a) IN GENERAL.—The applicable authority shall 

22 prescribe by regulation a procedure under which, subject 

23 to subsection (b), the applicable authority shall certify as24 sociation health plans which apply for certification as 

25 meeting the requirements of this part. 


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1 ‘‘(b) STANDARDS.—Under the procedure prescribed 

2 pursuant to subsection (a), in the case of an association 

3 health plan that provides at least one benefit option which 

4 does not consist of health insurance coverage, the applica5 ble authority shall certify such plan as meeting the re6 quirements of this part only if the applicable authority is 

7 satisfied that the applicable requirements of this part are 

8 met (or, upon the date on which the plan is to commence 

9 operations, will be met) with respect to the plan. 

10 ‘‘(c) REQUIREMENTS APPLICABLE TO CERTIFIED

11 PLANS.—An association health plan with respect to which 

12 certification under this part is in effect shall meet the ap13 plicable requirements of this part, effective on the date 

14 of certification (or, if later, on the date on which the plan 

15 is to commence operations). 

16 ‘‘(d) REQUIREMENTS FOR CONTINUED CERTIFI17 CATION.—The applicable authority may provide by regula18 tion for continued certification of association health plans 

19 under this part. 

20 ‘‘(e) CLASS CERTIFICATION FOR FULLY INSURED

21 PLANS.—The applicable authority shall establish a class 

22 certification procedure for association health plans under 

23 which all benefits consist of health insurance coverage. 

24 Under such procedure, the applicable authority shall pro25 vide for the granting of certification under this part to 


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1 the plans in each class of such association health plans 

2 upon appropriate filing under such procedure in connec3 tion with plans in such class and payment of the pre4 scribed fee under section 807(a). 

5 ‘‘(f) CERTIFICATION OF SELF-INSURED ASSOCIATION

6 HEALTH PLANS.—An association health plan which offers 

7 one or more benefit options which do not consist of health 

8 insurance coverage may be certified under this part only 

9 if such plan consists of any of the following: 

10 ‘‘(1) a plan which offered such coverage on the 

11 date of the enactment of this part, 

12 ‘‘(2) a plan under which the sponsor does not 

13 restrict membership to one or more trades and busi14 nesses or industries and whose eligible participating 

15 employers represent a broad cross-section of trades 

16 and businesses or industries, or 

17 ‘‘(3) a plan whose eligible participating employ18 ers represent one or more trades or businesses, or 

19 one or more industries, consisting of any of the fol20 lowing: agriculture; equipment and automobile deal21 erships; barbering and cosmetology; certified public 

22 accounting practices; child care; construction; dance, 

23 theatrical and orchestra productions; disinfecting 

24 and pest control; financial services; fishing; food 

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1 tions; logging; manufacturing (metals); mining; med2 ical and dental practices; medical laboratories; pro3 fessional consulting services; sanitary services; trans4 portation (local and freight); warehousing; whole5 saling/distributing; or any other trade or business or 

6 industry which has been indicated as having average 

7 or above-average risk or health claims experience by 

8 reason of State rate filings, denials of coverage, pro9 posed premium rate levels, or other means dem10 onstrated by such plan in accordance with regula11 tions. 

12 ‘‘SEC. 803. REQUIREMENTS RELATING TO SPONSORS AND 

13 BOARDS OF TRUSTEES. 

14 ‘‘(a) SPONSOR.—The requirements of this subsection 

15 are met with respect to an association health plan if the 

16 sponsor has met (or is deemed under this part to have 

17 met) the requirements of section 801(b) for a continuous 

18 period of not less than 3 years ending with the date of 

19 the application for certification under this part. 

20 ‘‘(b) BOARD OF TRUSTEES.—The requirements of 

21 this subsection are met with respect to an association 

22 health plan if the following requirements are met: 

23 ‘‘(1) FISCAL CONTROL.—The plan is operated, 

24 pursuant to a trust agreement, by a board of trust25 ees which has complete fiscal control over the plan 


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1 and which is responsible for all operations of the 

2 plan. 

3 ‘‘(2) RULES OF OPERATION AND FINANCIAL

4 CONTROLS.—The board of trustees has in effect 

5 rules of operation and financial controls, based on a 

6 3-year plan of operation, adequate to carry out the 

7 terms of the plan and to meet all requirements of 

8 this title applicable to the plan. 

9 ‘‘(3) RULES GOVERNING RELATIONSHIP TO

10 PARTICIPATING EMPLOYERS AND TO CONTRAC11 TORS.— 

12 ‘‘(A) BOARD MEMBERSHIP.— 

13 ‘‘(i) IN GENERAL.—Except as pro14 vided in clauses (ii) and (iii), the members 

15 of the board of trustees are individuals se16 lected from individuals who are the owners, 

17 officers, directors, or employees of the par18 ticipating employers or who are partners in 

19 the participating employers and actively 

20 participate in the business. 

21 ‘‘(ii) LIMITATION.— 

22 ‘‘(I) GENERAL RULE.—Except as 

23 provided in subclauses (II) and (III), 

24 no such member is an owner, officer, 

25 director, or employee of, or partner in, 


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1 a contract administrator or other 

2 service provider to the plan. 

3 ‘‘(II) LIMITED EXCEPTION FOR

4 PROVIDERS OF SERVICES SOLELY ON

5 BEHALF OF THE SPONSOR.—Officers 

6 or employees of a sponsor which is a 

7 service provider (other than a contract 

8 administrator) to the plan may be 

9 members of the board if they con10 stitute not more than 25 percent of 

11 the membership of the board and they 

12 do not provide services to the plan 

13 other than on behalf of the sponsor. 

14 ‘‘(III) TREATMENT OF PRO15 VIDERS OF MEDICAL CARE.—In the 

16 case of a sponsor which is an associa17 tion whose membership consists pri18 marily of providers of medical care, 

19 subclause (I) shall not apply in the 

20 case of any service provider described 

21 in subclause (I) who is a provider of 

22 medical care under the plan. 

23 ‘‘(iii) CERTAIN PLANS EXCLUDED.— 

24 Clause (i) shall not apply to an association 


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1 health plan which is in existence on the 

2 date of the enactment of this part. 

3 ‘‘(B) SOLE AUTHORITY.—The board has 

4 sole authority under the plan to approve appli5 cations for participation in the plan and to con6 tract with a service provider to administer the 

7 day-to-day affairs of the plan. 

8 ‘‘(c) TREATMENT OF FRANCHISE NETWORKS.—In 

9 the case of a group health plan which is established and 

10 maintained by a franchiser for a franchise network con11 sisting of its franchisees— 

12 ‘‘(1) the requirements of subsection (a) and sec13 tion 801(a) shall be deemed met if such require14 ments would otherwise be met if the franchiser were 

15 deemed to be the sponsor referred to in section 

16 801(b), such network were deemed to be an associa17 tion described in section 801(b), and each franchisee 

18 were deemed to be a member (of the association and 

19 the sponsor) referred to in section 801(b); and 

20 ‘‘(2) the requirements of section 804(a)(1) shall 

21 be deemed met. 

22 The Secretary may by regulation define for purposes of 

23 this subsection the terms ‘franchiser’, ‘franchise network’, 

24 and ‘franchisee’. 


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1 ‘‘SEC. 804. PARTICIPATION AND COVERAGE REQUIRE2 MENTS. 

3 ‘‘(a) COVERED EMPLOYERS AND INDIVIDUALS.—The 

4 requirements of this subsection are met with respect to 

5 an association health plan if, under the terms of the 

6 plan— 

7 ‘‘(1) each participating employer must be— 

8 ‘‘(A) a member of the sponsor, 

9 ‘‘(B) the sponsor, or 

10 ‘‘(C) an affiliated member of the sponsor 

11 with respect to which the requirements of sub12 section (b) are met, 

13 except that, in the case of a sponsor which is a pro14 fessional association or other individual-based asso15 ciation, if at least one of the officers, directors, or 

16 employees of an employer, or at least one of the in17 dividuals who are partners in an employer and who 

18 actively participates in the business, is a member or 

19 such an affiliated member of the sponsor, partici20 pating employers may also include such employer; 

21 and 

22 ‘‘(2) all individuals commencing coverage under 

23 the plan after certification under this part must 

24 be— 

25 ‘‘(A) active or retired owners (including 

26 self-employed individuals), officers, directors, or 


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1 employees of, or partners in, participating em2 ployers; or 

3 ‘‘(B) the beneficiaries of individuals de4 scribed in subparagraph (A). 

5 ‘‘(b) COVERAGE OF PREVIOUSLY UNINSURED EM6 PLOYEES.—In the case of an association health plan in 

7 existence on the date of the enactment of this part, an 

8 affiliated member of the sponsor of the plan may be of9 fered coverage under the plan as a participating employer 

10 only if— 

11 ‘‘(1) the affiliated member was an affiliated 

12 member on the date of certification under this part; 

13 or 

14 ‘‘(2) during the 12-month period preceding the 

15 date of the offering of such coverage, the affiliated 

16 member has not maintained or contributed to a 

17 group health plan with respect to any of its employ18 ees who would otherwise be eligible to participate in 

19 such association health plan. 

20 ‘‘(c) INDIVIDUAL MARKET UNAFFECTED.—The re21 quirements of this subsection are met with respect to an 

22 association health plan if, under the terms of the plan, 

23 no participating employer may provide health insurance 

24 coverage in the individual market for any employee not 

25 covered under the plan which is similar to the coverage 


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1 contemporaneously provided to employees of the employer 

2 under the plan, if such exclusion of the employee from cov3 erage under the plan is based on a health status-related 

4 factor with respect to the employee and such employee 

5 would, but for such exclusion on such basis, be eligible 

6 for coverage under the plan. 

7 ‘‘(d) PROHIBITION OF DISCRIMINATION AGAINST

8 EMPLOYERS AND EMPLOYEES ELIGIBLE TO PARTICI9 PATE.—The requirements of this subsection are met with 

10 respect to an association health plan if— 

11 ‘‘(1) under the terms of the plan, all employers 

12 meeting the preceding requirements of this section 

13 are eligible to qualify as participating employers for 

14 all geographically available coverage options, unless, 

15 in the case of any such employer, participation or 

16 contribution requirements of the type referred to in 

17 section 2711 of the Public Health Service Act are 

18 not met; 

19 ‘‘(2) upon request, any employer eligible to par20 ticipate is furnished information regarding all cov21 erage options available under the plan; and 

22 ‘‘(3) the applicable requirements of sections 

23 701, 702, and 703 are met with respect to the plan. 


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1 ‘‘SEC. 805. OTHER REQUIREMENTS RELATING TO PLAN 

2 DOCUMENTS, CONTRIBUTION RATES, AND 

3 BENEFIT OPTIONS. 

4 ‘‘(a) IN GENERAL.—The requirements of this section 

5 are met with respect to an association health plan if the 

6 following requirements are met: 

7 ‘‘(1) CONTENTS OF GOVERNING INSTRU8 MENTS.—The instruments governing the plan in9 clude a written instrument, meeting the require10 ments of an instrument required under section 

11 402(a)(1), which— 

12 ‘‘(A) provides that the board of trustees 

13 serves as the named fiduciary required for plans 

14 under section 402(a)(1) and serves in the ca15 pacity of a plan administrator (referred to in 

16 section 3(16)(A)); 

17 ‘‘(B) provides that the sponsor of the plan 

18 is to serve as plan sponsor (referred to in sec19 tion 3(16)(B)); and 

20 ‘‘(C) incorporates the requirements of sec21 tion 806. 

22 ‘‘(2) CONTRIBUTION RATES MUST BE NON23 DISCRIMINATORY.— 

24 ‘‘(A) The contribution rates for any par25 ticipating small employer do not vary on the 

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1 tion to employees of such employer or their 

2 beneficiaries and do not vary on the basis of the 

3 type of business or industry in which such em4 ployer is engaged. 

5 ‘‘(B) Nothing in this title or any other pro6 vision of law shall be construed to preclude an 

7 association health plan, or a health insurance 

8 issuer offering health insurance coverage in 

9 connection with an association health plan, 

10 from— 

11 ‘‘(i) setting contribution rates based 

12 on the claims experience of the plan; or 

13 ‘‘(ii) varying contribution rates for 

14 small employers in a State to the extent 

15 that such rates could vary using the same 

16 methodology employed in such State for 

17 regulating premium rates in the small 

18 group market with respect to health insur19 ance coverage offered in connection with 

20 bona fide associations (within the meaning 

21 of section 2791(d)(3) of the Public Health 

22 Service Act), 

23 subject to the requirements of section 702(b) 

24 relating to contribution rates. 


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1 ‘‘(3) FLOOR FOR NUMBER OF COVERED INDI2 VIDUALS WITH RESPECT TO CERTAIN PLANS.—If 

3 any benefit option under the plan does not consist 

4 of health insurance coverage, the plan has as of the 

5 beginning of the plan year not fewer than 1,000 par6 ticipants and beneficiaries. 

7 ‘‘(4) MARKETING REQUIREMENTS.— 

8 ‘‘(A) IN GENERAL.—If a benefit option 

9 which consists of health insurance coverage is 

10 offered under the plan, State-licensed insurance 

11 agents shall be used to distribute to small em12 ployers coverage which does not consist of 

13 health insurance coverage in a manner com14 parable to the manner in which such agents are 

15 used to distribute health insurance coverage. 

16 ‘‘(B) STATE-LICENSED INSURANCE

17 AGENTS.—For purposes of subparagraph (A), 

18 the term ‘State-licensed insurance agents’ 

19 means one or more agents who are licensed in 

20 a State and are subject to the laws of such 

21 State relating to licensure, qualification, test22 ing, examination, and continuing education of 

23 persons authorized to offer, sell, or solicit 

24 health insurance coverage in such State. 


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1 ‘‘(5) REGULATORY REQUIREMENTS.—Such 

2 other requirements as the applicable authority deter3 mines are necessary to carry out the purposes of this 

4 part, which shall be prescribed by the applicable au5 thority by regulation. 

6 ‘‘(b) ABILITY OF ASSOCIATION HEALTH PLANS TO

7 DESIGN BENEFIT OPTIONS.—Subject to section 514(d), 

8 nothing in this part or any provision of State law (as de9 fined in section 514(c)(1)) shall be construed to preclude 

10 an association health plan, or a health insurance issuer 

11 offering health insurance coverage in connection with an 

12 association health plan, from exercising its sole discretion 

13 in selecting the specific items and services consisting of 

14 medical care to be included as benefits under such plan 

15 or coverage, except (subject to section 514) in the case 

16 of (1) any law to the extent that it is not preempted under 

17 section 731(a)(1) with respect to matters governed by sec18 tion 711, 712, or 713, or (2) any law of the State with 

19 which filing and approval of a policy type offered by the 

20 plan was initially obtained to the extent that such law pro21 hibits an exclusion of a specific disease from such cov22 erage. 


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1 ‘‘SEC. 806. MAINTENANCE OF RESERVES AND PROVISIONS 

2 FOR SOLVENCY FOR PLANS PROVIDING 

3 HEALTH BENEFITS IN ADDITION TO HEALTH 

4 INSURANCE COVERAGE. 

5 ‘‘(a) IN GENERAL.—The requirements of this section 

6 are met with respect to an association health plan if— 

7 ‘‘(1) the benefits under the plan consist solely 

8 of health insurance coverage; or 

9 ‘‘(2) if the plan provides any additional benefit 

10 options which do not consist of health insurance cov11 erage, the plan— 

12 ‘‘(A) establishes and maintains reserves 

13 with respect to such additional benefit options, 

14 in amounts recommended by the qualified actu15 ary, consisting of— 

16 ‘‘(i) a reserve sufficient for unearned 

17 contributions; 

18 ‘‘(ii) a reserve sufficient for benefit li19 abilities which have been incurred, which 

20 have not been satisfied, and for which risk 

21 of loss has not yet been transferred, and 

22 for expected administrative costs with re23 spect to such benefit liabilities; 

24 ‘‘(iii) a reserve sufficient for any other 

25 obligations of the plan; and 


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1 ‘‘(iv) a reserve sufficient for a margin 

2 of error and other fluctuations, taking into 

3 account the specific circumstances of the 

4 plan; and 

5 ‘‘(B) establishes and maintains aggregate 

6 and specific excess/stop loss insurance and sol7 vency indemnification, with respect to such ad8 ditional benefit options for which risk of loss 

9 has not yet been transferred, as follows: 

10 ‘‘(i) The plan shall secure aggregate 

11 excess/stop loss insurance for the plan with 

12 an attachment point which is not greater 

13 than 125 percent of expected gross annual 

14 claims. The applicable authority may by 

15 regulation provide for upward adjustments 

16 in the amount of such percentage in speci17 fied circumstances in which the plan spe18 cifically provides for and maintains re19 serves in excess of the amounts required 

20 under subparagraph (A). 

21 ‘‘(ii) The plan shall secure specific ex22 cess/stop loss insurance for the plan with 

23 an attachment point which is at least equal 

24 to an amount recommended by the plan’s 

25 qualified actuary. The applicable authority 


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1 may by regulation provide for adjustments 

2 in the amount of such insurance in speci3 fied circumstances in which the plan spe4 cifically provides for and maintains re5 serves in excess of the amounts required 

6 under subparagraph (A). 

7 ‘‘(iii) The plan shall secure indem8 nification insurance for any claims which 

9 the plan is unable to satisfy by reason of 

10 a plan termination. 

11 Any person issuing to a plan insurance described in clause 

12 (i), (ii), or (iii) of subparagraph (B) shall notify the Sec13 retary of any failure of premium payment meriting can14 cellation of the policy prior to undertaking such a cancella15 tion. Any regulations prescribed by the applicable author16 ity pursuant to clause (i) or (ii) of subparagraph (B) may 

17 allow for such adjustments in the required levels of excess/ 

18 stop loss insurance as the qualified actuary may rec19 ommend, taking into account the specific circumstances 

20 of the plan. 

21 ‘‘(b) MINIMUM SURPLUS IN ADDITION TO CLAIMS

22 RESERVES.—In the case of any association health plan de23 scribed in subsection (a)(2), the requirements of this sub24 section are met if the plan establishes and maintains sur25 plus in an amount at least equal to— 


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1 ‘‘(1) $500,000, or 

2 ‘‘(2) such greater amount (but not greater than 

3 $2,000,000) as may be set forth in regulations pre4 scribed by the applicable authority, considering the 

5 level of aggregate and specific excess/stop loss insur6 ance provided with respect to such plan and other 

7 factors related to solvency risk, such as the plan’s 

8 projected levels of participation or claims, the nature 

9 of the plan’s liabilities, and the types of assets avail10 able to assure that such liabilities are met. 

11 ‘‘(c) ADDITIONAL REQUIREMENTS.—In the case of 

12 any association health plan described in subsection (a)(2), 

13 the applicable authority may provide such additional re14 quirements relating to reserves, excess/stop loss insurance, 

15 and indemnification insurance as the applicable authority 

16 considers appropriate. Such requirements may be provided 

17 by regulation with respect to any such plan or any class 

18 of such plans. 

19 ‘‘(d) ADJUSTMENTS FOR EXCESS/STOP LOSS INSUR20 ANCE.—The applicable authority may provide for adjust21 ments to the levels of reserves otherwise required under 

22 subsections (a) and (b) with respect to any plan or class 

23 of plans to take into account excess/stop loss insurance 

24 provided with respect to such plan or plans. 


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1 ‘‘(e) ALTERNATIVE MEANS OF COMPLIANCE.—The 

2 applicable authority may permit an association health plan 

3 described in subsection (a)(2) to substitute, for all or part 

4 of the requirements of this section (except subsection 

5 (a)(2)(B)(iii)), such security, guarantee, hold-harmless ar6 rangement, or other financial arrangement as the applica7 ble authority determines to be adequate to enable the plan 

8 to fully meet all its financial obligations on a timely basis 

9 and is otherwise no less protective of the interests of par10 ticipants and beneficiaries than the requirements for 

11 which it is substituted. The applicable authority may take 

12 into account, for purposes of this subsection, evidence pro13 vided by the plan or sponsor which demonstrates an as14 sumption of liability with respect to the plan. Such evi15 dence may be in the form of a contract of indemnification, 

16 lien, bonding, insurance, letter of credit, recourse under 

17 applicable terms of the plan in the form of assessments 

18 of participating employers, security, or other financial ar19 rangement. 

20 ‘‘(f) MEASURES TO ENSURE CONTINUED PAYMENT

21 OF BENEFITS BY CERTAIN PLANS IN DISTRESS.— 

22 ‘‘(1) PAYMENTS BY CERTAIN PLANS TO ASSO23 CIATION HEALTH PLAN FUND.— 

24 ‘‘(A) IN GENERAL.—In the case of an as25 sociation health plan described in subsection 


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1 (a)(2), the requirements of this subsection are 

2 met if the plan makes payments into the Asso3 ciation Health Plan Fund under this subpara4 graph when they are due. Such payments shall 

5 consist of annual payments in the amount of 

6 $5,000, and, in addition to such annual pay7 ments, such supplemental payments as the Sec8 retary may determine to be necessary under 

9 paragraph (2). Payments under this paragraph 

10 are payable to the Fund at the time determined 

11 by the Secretary. Initial payments are due in 

12 advance of certification under this part. Pay13 ments shall continue to accrue until a plan’s as14 sets are distributed pursuant to a termination 

15 procedure. 

16 ‘‘(B) PENALTIES FOR FAILURE TO MAKE

17 PAYMENTS.—If any payment is not made by a 

18 plan when it is due, a late payment charge of 

19 not more than 100 percent of the payment 

20 which was not timely paid shall be payable by 

21 the plan to the Fund. 

22 ‘‘(C) CONTINUED DUTY OF THE SEC23 RETARY.—The Secretary shall not cease to 

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1 count of the failure of a plan to pay any pay2 ment when due. 

3 ‘‘(2) PAYMENTS BY SECRETARY TO CONTINUE

4 EXCESS/STOP LOSS INSURANCE COVERAGE AND IN5 DEMNIFICATION INSURANCE COVERAGE FOR CER6 TAIN PLANS.—In any case in which the applicable 

7 authority determines that there is, or that there is 

8 reason to believe that there will be: (A) a failure to 

9 take necessary corrective actions under section 

10 809(a) with respect to an association health plan de11 scribed in subsection (a)(2); or (B) a termination of 

12 such a plan under section 809(b) or 810(b)(8) (and, 

13 if the applicable authority is not the Secretary, cer14 tifies such determination to the Secretary), the Sec15 retary shall determine the amounts necessary to 

16 make payments to an insurer (designated by the 

17 Secretary) to maintain in force excess/stop loss in18 surance coverage or indemnification insurance cov19 erage for such plan, if the Secretary determines that 

20 there is a reasonable expectation that, without such 

21 payments, claims would not be satisfied by reason of 

22 termination of such coverage. The Secretary shall, to 

23 the extent provided in advance in appropriation 

24 Acts, pay such amounts so determined to the insurer 

25 designated by the Secretary. 


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1 ‘‘(3) ASSOCIATION HEALTH PLAN FUND.— 

2 ‘‘(A) IN GENERAL.—There is established 

3 on the books of the Treasury a fund to be 

4 known as the ‘Association Health Plan Fund’. 

5 The Fund shall be available for making pay6 ments pursuant to paragraph (2). The Fund 

7 shall be credited with payments received pursu8 ant to paragraph (1)(A), penalties received pur9 suant to paragraph (1)(B); and earnings on in10 vestments of amounts of the Fund under sub11 paragraph (B). 

12 ‘‘(B) INVESTMENT.—Whenever the Sec13 retary determines that the moneys of the fund 

14 are in excess of current needs, the Secretary 

15 may request the investment of such amounts as 

16 the Secretary determines advisable by the Sec17 retary of the Treasury in obligations issued or 

18 guaranteed by the United States. 

19 ‘‘(g) EXCESS/STOP LOSS INSURANCE.—For purposes 

20 of this section— 

21 ‘‘(1) AGGREGATE EXCESS/STOP LOSS INSUR22 ANCE.—The term ‘aggregate excess/stop loss insur23 ance’ means, in connection with an association 

24 health plan, a contract— 


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1 ‘‘(A) under which an insurer (meeting such 

2 minimum standards as the applicable authority 

3 may prescribe by regulation) provides for pay4 ment to the plan with respect to aggregate 

5 claims under the plan in excess of an amount 

6 or amounts specified in such contract; 

7 ‘‘(B) which is guaranteed renewable; and 

8 ‘‘(C) which allows for payment of pre9 miums by any third party on behalf of the in10 sured plan. 

11 ‘‘(2) SPECIFIC EXCESS/STOP LOSS INSUR12 ANCE.—The term ‘specific excess/stop loss insur13 ance’ means, in connection with an association 

14 health plan, a contract— 

15 ‘‘(A) under which an insurer (meeting such 

16 minimum standards as the applicable authority 

17 may prescribe by regulation) provides for pay18 ment to the plan with respect to claims under 

19 the plan in connection with a covered individual 

20 in excess of an amount or amounts specified in 

21 such contract in connection with such covered 

22 individual; 

23 ‘‘(B) which is guaranteed renewable; and 


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1 ‘‘(C) which allows for payment of pre2 miums by any third party on behalf of the in3 sured plan. 

4 ‘‘(h) INDEMNIFICATION INSURANCE.—For purposes 

5 of this section, the term ‘indemnification insurance’ 

6 means, in connection with an association health plan, a 

7 contract— 

8 ‘‘(1) under which an insurer (meeting such min9 imum standards as the applicable authority may pre10 scribe by regulation) provides for payment to the 

11 plan with respect to claims under the plan which the 

12 plan is unable to satisfy by reason of a termination 

13 pursuant to section 809(b) (relating to mandatory 

14 termination); 

15 ‘‘(2) which is guaranteed renewable and 

16 noncancellable for any reason (except as the applica17 ble authority may prescribe by regulation); and 

18 ‘‘(3) which allows for payment of premiums by 

19 any third party on behalf of the insured plan. 

20 ‘‘(i) RESERVES.—For purposes of this section, the 

21 term ‘reserves’ means, in connection with an association 

22 health plan, plan assets which meet the fiduciary stand23 ards under part 4 and such additional requirements re24 garding liquidity as the applicable authority may prescribe 

25 by regulation. 


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1 ‘‘(j) SOLVENCY STANDARDS WORKING GROUP.— 

2 ‘‘(1) IN GENERAL.—Within 90 days after the 

3 date of the enactment of this part, the applicable au4 thority shall establish a Solvency Standards Working 

5 Group. In prescribing the initial regulations under 

6 this section, the applicable authority shall take into 

7 account the recommendations of such Working 

8 Group. 

9 ‘‘(2) MEMBERSHIP.—The Working Group shall 

10 consist of not more than 15 members appointed by 

11 the applicable authority. The applicable authority 

12 shall include among persons invited to membership 

13 on the Working Group at least one of each of the 

14 following: 

15 ‘‘(A) a representative of the National Asso16 ciation of Insurance Commissioners; 

17 ‘‘(B) a representative of the American 

18 Academy of Actuaries; 

19 ‘‘(C) a representative of the State govern20 ments, or their interests; 

21 ‘‘(D) a representative of existing self-in22 sured arrangements, or their interests; 

23 ‘‘(E) a representative of associations of the 

24 type referred to in section 801(b)(1), or their 

25 interests; and 


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1 ‘‘(F) a representative of multiemployer 

2 plans that are group health plans, or their in3 terests. 

4 ‘‘SEC. 807. REQUIREMENTS FOR APPLICATION AND RE5 LATED REQUIREMENTS. 

6 ‘‘(a) FILING FEE.—Under the procedure prescribed 

7 pursuant to section 802(a), an association health plan 

8 shall pay to the applicable authority at the time of filing 

9 an application for certification under this part a filing fee 

10 in the amount of $5,000, which shall be available in the 

11 case of the Secretary, to the extent provided in appropria12 tion Acts, for the sole purpose of administering the certifi13 cation procedures applicable with respect to association 

14 health plans. 

15 ‘‘(b) INFORMATION TO BE INCLUDED IN APPLICA16 TION FOR CERTIFICATION.—An application for certifi17 cation under this part meets the requirements of this sec18 tion only if it includes, in a manner and form which shall 

19 be prescribed by the applicable authority by regulation, at 

20 least the following information: 

21 ‘‘(1) IDENTIFYING INFORMATION.—The names 

22 and addresses of— 

23 ‘‘(A) the sponsor; and 

24 ‘‘(B) the members of the board of trustees 

25 of the plan. 


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1 ‘‘(2) STATES IN WHICH PLAN INTENDS TO DO

2 BUSINESS.—The States in which participants and 

3 beneficiaries under the plan are to be located and 

4 the number of them expected to be located in each 

5 such State. 

6 ‘‘(3) BONDING REQUIREMENTS.—Evidence pro7 vided by the board of trustees that the bonding re8 quirements of section 412 will be met as of the date 

9 of the application or (if later) commencement of op10 erations. 

11 ‘‘(4) PLAN DOCUMENTS.—A copy of the docu12 ments governing the plan (including any bylaws and 

13 trust agreements), the summary plan description, 

14 and other material describing the benefits that will 

15 be provided to participants and beneficiaries under 

16 the plan. 

17 ‘‘(5) AGREEMENTS WITH SERVICE PRO18 VIDERS.—A copy of any agreements between the 

19 plan and contract administrators and other service 

20 providers. 

21 ‘‘(6) FUNDING REPORT.—In the case of asso22 ciation health plans providing benefits options in ad23 dition to health insurance coverage, a report setting 

24 forth information with respect to such additional 

25 benefit options determined as of a date within the 


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1 120-day period ending with the date of the applica2 tion, including the following: 

3 ‘‘(A) RESERVES.—A statement, certified 

4 by the board of trustees of the plan, and a 

5 statement of actuarial opinion, signed by a 

6 qualified actuary, that all applicable require7 ments of section 806 are or will be met in ac8 cordance with regulations which the applicable 

9 authority shall prescribe. 

10 ‘‘(B) ADEQUACY OF CONTRIBUTION

11 RATES.—A statement of actuarial opinion, 

12 signed by a qualified actuary, which sets forth 

13 a description of the extent to which contribution 

14 rates are adequate to provide for the payment 

15 of all obligations and the maintenance of re16 quired reserves under the plan for the 12- 

17 month period beginning with such date within 

18 such 120-day period, taking into account the 

19 expected coverage and experience of the plan. If 

20 the contribution rates are not fully adequate, 

21 the statement of actuarial opinion shall indicate 

22 the extent to which the rates are inadequate 

23 and the changes needed to ensure adequacy. 

24 ‘‘(C) CURRENT AND PROJECTED VALUE OF

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1 tuarial opinion signed by a qualified actuary, 

2 which sets forth the current value of the assets 

3 and liabilities accumulated under the plan and 

4 a projection of the assets, liabilities, income, 

5 and expenses of the plan for the 12-month pe6 riod referred to in subparagraph (B). The in7 come statement shall identify separately the 

8 plan’s administrative expenses and claims. 

9 ‘‘(D) COSTS OF COVERAGE TO BE

10 CHARGED AND OTHER EXPENSES.—A state11 ment of the costs of coverage to be charged, in12 cluding an itemization of amounts for adminis13 tration, reserves, and other expenses associated 

14 with the operation of the plan. 

15 ‘‘(E) OTHER INFORMATION.—Any other 

16 information as may be determined by the appli17 cable authority, by regulation, as necessary to 

18 carry out the purposes of this part. 

19 ‘‘(c) FILING NOTICE OF CERTIFICATION WITH

20 STATES.—A certification granted under this part to an 

21 association health plan shall not be effective unless written 

22 notice of such certification is filed with the applicable 

23 State authority of each State in which at least 25 percent 

24 of the participants and beneficiaries under the plan are 

25 located. For purposes of this subsection, an individual 


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1 shall be considered to be located in the State in which a 

2 known address of such individual is located or in which 

3 such individual is employed. 

4 ‘‘(d) NOTICE OF MATERIAL CHANGES.—In the case 

5 of any association health plan certified under this part, 

6 descriptions of material changes in any information which 

7 was required to be submitted with the application for the 

8 certification under this part shall be filed in such form 

9 and manner as shall be prescribed by the applicable au10 thority by regulation. The applicable authority may re11 quire by regulation prior notice of material changes with 

12 respect to specified matters which might serve as the basis 

13 for suspension or revocation of the certification. 

14 ‘‘(e) REPORTING REQUIREMENTS FOR CERTAIN AS15 SOCIATION HEALTH PLANS.—An association health plan 

16 certified under this part which provides benefit options in 

17 addition to health insurance coverage for such plan year 

18 shall meet the requirements of section 103 by filing an 

19 annual report under such section which shall include infor20 mation described in subsection (b)(6) with respect to the 

21 plan year and, notwithstanding section 104(a)(1)(A), shall 

22 be filed with the applicable authority not later than 90 

23 days after the close of the plan year (or on such later date 

24 as may be prescribed by the applicable authority). The apVerDate Nov 24 2008 05:08 Jun 12, 2009 Jkt 079200 PO 00000 Frm 00082 Fmt 6652 Sfmt 6201 E:\BILLS\S1240.IS S1240

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1 plicable authority may require by regulation such interim 

2 reports as it considers appropriate. 

3 ‘‘(f) ENGAGEMENT OF QUALIFIED ACTUARY.—The 

4 board of trustees of each association health plan which 

5 provides benefits options in addition to health insurance 

6 coverage and which is applying for certification under this 

7 part or is certified under this part shall engage, on behalf 

8 of all participants and beneficiaries, a qualified actuary 

9 who shall be responsible for the preparation of the mate10 rials comprising information necessary to be submitted by 

11 a qualified actuary under this part. The qualified actuary 

12 shall utilize such assumptions and techniques as are nec13 essary to enable such actuary to form an opinion as to 

14 whether the contents of the matters reported under this 

15 part— 

16 ‘‘(1) are in the aggregate reasonably related to 

17 the experience of the plan and to reasonable expecta18 tions; and 

19 ‘‘(2) represent such actuary’s best estimate of 

20 anticipated experience under the plan. 

21 The opinion by the qualified actuary shall be made with 

22 respect to, and shall be made a part of, the annual report. 


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1 ‘‘SEC. 808. NOTICE REQUIREMENTS FOR VOLUNTARY TER2 MINATION. 

3 ‘‘Except as provided in section 809(b), an association 

4 health plan which is or has been certified under this part 

5 may terminate (upon or at any time after cessation of ac6 cruals in benefit liabilities) only if the board of trustees, 

7 not less than 60 days before the proposed termination 

8 date— 

9 ‘‘(1) provides to the participants and bene10 ficiaries a written notice of intent to terminate stat11 ing that such termination is intended and the pro12 posed termination date; 

13 ‘‘(2) develops a plan for winding up the affairs 

14 of the plan in connection with such termination in 

15 a manner which will result in timely payment of all 

16 benefits for which the plan is obligated; and 

17 ‘‘(3) submits such plan in writing to the appli18 cable authority. 

19 Actions required under this section shall be taken in such 

20 form and manner as may be prescribed by the applicable 

21 authority by regulation. 

22 ‘‘SEC. 809. CORRECTIVE ACTIONS AND MANDATORY TERMI23 NATION. 

24 ‘‘(a) ACTIONS TO AVOID DEPLETION OF RE25 SERVES.—An association health plan which is certified 

26 under this part and which provides benefits other than 


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1 health insurance coverage shall continue to meet the re2 quirements of section 806, irrespective of whether such 

3 certification continues in effect. The board of trustees of 

4 such plan shall determine quarterly whether the require5 ments of section 806 are met. In any case in which the 

6 board determines that there is reason to believe that there 

7 is or will be a failure to meet such requirements, or the 

8 applicable authority makes such a determination and so 

9 notifies the board, the board shall immediately notify the 

10 qualified actuary engaged by the plan, and such actuary 

11 shall, not later than the end of the next following month, 

12 make such recommendations to the board for corrective 

13 action as the actuary determines necessary to ensure com14 pliance with section 806. Not later than 30 days after re15 ceiving from the actuary recommendations for corrective 

16 actions, the board shall notify the applicable authority (in 

17 such form and manner as the applicable authority may 

18 prescribe by regulation) of such recommendations of the 

19 actuary for corrective action, together with a description 

20 of the actions (if any) that the board has taken or plans 

21 to take in response to such recommendations. The board 

22 shall thereafter report to the applicable authority, in such 

23 form and frequency as the applicable authority may speci24 fy to the board, regarding corrective action taken by the 

25 board until the requirements of section 806 are met. 


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1 ‘‘(b) MANDATORY TERMINATION.—In any case in 

2 which— 

3 ‘‘(1) the applicable authority has been notified 

4 under subsection (a) (or by an issuer of excess/stop 

5 loss insurance or indemnity insurance pursuant to 

6 section 806(a)) of a failure of an association health 

7 plan which is or has been certified under this part 

8 and is described in section 806(a)(2) to meet the re9 quirements of section 806 and has not been notified 

10 by the board of trustees of the plan that corrective 

11 action has restored compliance with such require12 ments; and 

13 ‘‘(2) the applicable authority determines that 

14 there is a reasonable expectation that the plan will 

15 continue to fail to meet the requirements of section 

16 806, 

17 the board of trustees of the plan shall, at the direction 

18 of the applicable authority, terminate the plan and, in the 

19 course of the termination, take such actions as the appli20 cable authority may require, including satisfying any 

21 claims referred to in section 806(a)(2)(B)(iii) and recov22 ering for the plan any liability under subsection 

23 (a)(2)(B)(iii) or (e) of section 806, as necessary to ensure 

24 that the affairs of the plan will be, to the maximum extent 


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1 possible, wound up in a manner which will result in timely 

2 provision of all benefits for which the plan is obligated. 

3 ‘‘SEC. 810. TRUSTEESHIP BY THE SECRETARY OF INSOL4 VENT ASSOCIATION HEALTH PLANS PRO5 VIDING HEALTH BENEFITS IN ADDITION TO 

6 HEALTH INSURANCE COVERAGE. 

7 ‘‘(a) APPOINTMENT OF SECRETARY AS TRUSTEE FOR

8 INSOLVENT PLANS.—Whenever the Secretary determines 

9 that an association health plan which is or has been cer10 tified under this part and which is described in section 

11 806(a)(2) will be unable to provide benefits when due or 

12 is otherwise in a financially hazardous condition, as shall 

13 be defined by the Secretary by regulation, the Secretary 

14 shall, upon notice to the plan, apply to the appropriate 

15 United States district court for appointment of the Sec16 retary as trustee to administer the plan for the duration 

17 of the insolvency. The plan may appear as a party and 

18 other interested persons may intervene in the proceedings 

19 at the discretion of the court. The court shall appoint such 

20 Secretary trustee if the court determines that the trustee21 ship is necessary to protect the interests of the partici22 pants and beneficiaries or providers of medical care or to 

23 avoid any unreasonable deterioration of the financial con24 dition of the plan. The trusteeship of such Secretary shall 

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1 tence of this subsection are remedied or the plan is termi2 nated. 

3 ‘‘(b) POWERS AS TRUSTEE.—The Secretary, upon 

4 appointment as trustee under subsection (a), shall have 

5 the power— 

6 ‘‘(1) to do any act authorized by the plan, this 

7 title, or other applicable provisions of law to be done 

8 by the plan administrator or any trustee of the plan; 

9 ‘‘(2) to require the transfer of all (or any part) 

10 of the assets and records of the plan to the Sec11 retary as trustee; 

12 ‘‘(3) to invest any assets of the plan which the 

13 Secretary holds in accordance with the provisions of 

14 the plan, regulations prescribed by the Secretary, 

15 and applicable provisions of law; 

16 ‘‘(4) to require the sponsor, the plan adminis17 trator, any participating employer, and any employee 

18 organization representing plan participants to fur19 nish any information with respect to the plan which 

20 the Secretary as trustee may reasonably need in 

21 order to administer the plan; 

22 ‘‘(5) to collect for the plan any amounts due the 

23 plan and to recover reasonable expenses of the trust24 eeship; 


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1 ‘‘(6) to commence, prosecute, or defend on be2 half of the plan any suit or proceeding involving the 

3 plan; 

4 ‘‘(7) to issue, publish, or file such notices, state5 ments, and reports as may be required by the Sec6 retary by regulation or required by any order of the 

7 court; 

8 ‘‘(8) to terminate the plan (or provide for its 

9 termination in accordance with section 809(b)) and 

10 liquidate the plan assets, to restore the plan to the 

11 responsibility of the sponsor, or to continue the 

12 trusteeship; 

13 ‘‘(9) to provide for the enrollment of plan par14 ticipants and beneficiaries under appropriate cov15 erage options; and 

16 ‘‘(10) to do such other acts as may be nec17 essary to comply with this title or any order of the 

18 court and to protect the interests of plan partici19 pants and beneficiaries and providers of medical 

20 care. 

21 ‘‘(c) NOTICE OF APPOINTMENT.—As soon as prac22 ticable after the Secretary’s appointment as trustee, the 

23 Secretary shall give notice of such appointment to— 

24 ‘‘(1) the sponsor and plan administrator; 

25 ‘‘(2) each participant; 


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1 ‘‘(3) each participating employer; and 

2 ‘‘(4) if applicable, each employee organization 

3 which, for purposes of collective bargaining, rep4 resents plan participants. 

5 ‘‘(d) ADDITIONAL DUTIES.—Except to the extent in6 consistent with the provisions of this title, or as may be 

7 otherwise ordered by the court, the Secretary, upon ap8 pointment as trustee under this section, shall be subject 

9 to the same duties as those of a trustee under section 704 

10 of title 11, United States Code, and shall have the duties 

11 of a fiduciary for purposes of this title. 

12 ‘‘(e) OTHER PROCEEDINGS.—An application by the 

13 Secretary under this subsection may be filed notwith14 standing the pendency in the same or any other court of 

15 any bankruptcy, mortgage foreclosure, or equity receiver16 ship proceeding, or any proceeding to reorganize, conserve, 

17 or liquidate such plan or its property, or any proceeding 

18 to enforce a lien against property of the plan. 

19 ‘‘(f) JURISDICTION OF COURT.— 

20 ‘‘(1) IN GENERAL.—Upon the filing of an appli21 cation for the appointment as trustee or the issuance 

22 of a decree under this section, the court to which the 

23 application is made shall have exclusive jurisdiction 

24 of the plan involved and its property wherever lo25 cated with the powers, to the extent consistent with 


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1 the purposes of this section, of a court of the United 

2 States having jurisdiction over cases under chapter 

3 11 of title 11, United States Code. Pending an adju4 dication under this section such court shall stay, and 

5 upon appointment by it of the Secretary as trustee, 

6 such court shall continue the stay of, any pending 

7 mortgage foreclosure, equity receivership, or other 

8 proceeding to reorganize, conserve, or liquidate the 

9 plan, the sponsor, or property of such plan or spon10 sor, and any other suit against any receiver, conser11 vator, or trustee of the plan, the sponsor, or prop12 erty of the plan or sponsor. Pending such adjudica13 tion and upon the appointment by it of the Sec14 retary as trustee, the court may stay any proceeding 

15 to enforce a lien against property of the plan or the 

16 sponsor or any other suit against the plan or the 

17 sponsor. 

18 ‘‘(2) VENUE.—An action under this section 

19 may be brought in the judicial district where the 

20 sponsor or the plan administrator resides or does 

21 business or where any asset of the plan is situated. 

22 A district court in which such action is brought may 

23 issue process with respect to such action in any 

24 other judicial district. 


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1 ‘‘(g) PERSONNEL.—In accordance with regulations 

2 which shall be prescribed by the Secretary, the Secretary 

3 shall appoint, retain, and compensate accountants, actu4 aries, and other professional service personnel as may be 

5 necessary in connection with the Secretary’s service as 

6 trustee under this section. 

7 ‘‘SEC. 811. STATE ASSESSMENT AUTHORITY. 

8 ‘‘(a) IN GENERAL.—Notwithstanding section 514, a 

9 State may impose by law a contribution tax on an associa10 tion health plan described in section 806(a)(2), if the plan 

11 commenced operations in such State after the date of the 

12 enactment of this part. 

13 ‘‘(b) CONTRIBUTION TAX.—For purposes of this sec14 tion, the term ‘contribution tax’ imposed by a State on 

15 an association health plan means any tax imposed by such 

16 State if— 

17 ‘‘(1) such tax is computed by applying a rate to 

18 the amount of premiums or contributions, with re19 spect to individuals covered under the plan who are 

20 residents of such State, which are received by the 

21 plan from participating employers located in such 

22 State or from such individuals; 

23 ‘‘(2) the rate of such tax does not exceed the 

24 rate of any tax imposed by such State on premiums 

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1 tenance organizations for health insurance coverage 

2 offered in such State in connection with a group 

3 health plan; 

4 ‘‘(3) such tax is otherwise nondiscriminatory; 

5 and 

6 ‘‘(4) the amount of any such tax assessed on 

7 the plan is reduced by the amount of any tax or as8 sessment otherwise imposed by the State on pre9 miums, contributions, or both received by insurers or 

10 health maintenance organizations for health insur11 ance coverage, aggregate excess/stop loss insurance 

12 (as defined in section 806(g)(1)), specific excess/stop 

13 loss insurance (as defined in section 806(g)(2)), 

14 other insurance related to the provision of medical 

15 care under the plan, or any combination thereof pro16 vided by such insurers or health maintenance organi17 zations in such State in connection with such plan. 

18 ‘‘SEC. 812. DEFINITIONS AND RULES OF CONSTRUCTION. 

19 ‘‘(a) DEFINITIONS.—For purposes of this part— 

20 ‘‘(1) GROUP HEALTH PLAN.—The term ‘group 

21 health plan’ has the meaning provided in section 

22 733(a)(1) (after applying subsection (b) of this sec23 tion). 

24 ‘‘(2) MEDICAL CARE.—The term ‘medical care’ 

25 has the meaning provided in section 733(a)(2). 


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1 ‘‘(3) HEALTH INSURANCE COVERAGE.—The 

2 term ‘health insurance coverage’ has the meaning 

3 provided in section 733(b)(1). 

4 ‘‘(4) HEALTH INSURANCE ISSUER.—The term 

5 ‘health insurance issuer’ has the meaning provided 

6 in section 733(b)(2). 

7 ‘‘(5) APPLICABLE AUTHORITY.—The term ‘ap8 plicable authority’ means the Secretary, except that, 

9 in connection with any exercise of the Secretary’s 

10 authority regarding which the Secretary is required 

11 under section 506(d) to consult with a State, such 

12 term means the Secretary, in consultation with such 

13 State. 

14 ‘‘(6) HEALTH STATUS-RELATED FACTOR.—The 

15 term ‘health status-related factor’ has the meaning 

16 provided in section 733(d)(2). 

17 ‘‘(7) INDIVIDUAL MARKET.— 

18 ‘‘(A) IN GENERAL.—The term ‘individual 

19 market’ means the market for health insurance 

20 coverage offered to individuals other than in 

21 connection with a group health plan. 

22 ‘‘(B) TREATMENT OF VERY SMALL

23 GROUPS.— 

24 ‘‘(i) IN GENERAL.—Subject to clause 

25 (ii), such term includes coverage offered in 


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1 connection with a group health plan that 

2 has fewer than 2 participants as current 

3 employees or participants described in sec4 tion 732(d)(3) on the first day of the plan 

5 year. 

6 ‘‘(ii) STATE EXCEPTION.—Clause (i) 

7 shall not apply in the case of health insur8 ance coverage offered in a State if such 

9 State regulates the coverage described in 

10 such clause in the same manner and to the 

11 same extent as coverage in the small group 

12 market (as defined in section 2791(e)(5) of 

13 the Public Health Service Act) is regulated 

14 by such State. 

15 ‘‘(8) PARTICIPATING EMPLOYER.—The term 

16 ‘participating employer’ means, in connection with 

17 an association health plan, any employer, if any indi18 vidual who is an employee of such employer, a part19 ner in such employer, or a self-employed individual 

20 who is such employer (or any dependent, as defined 

21 under the terms of the plan, of such individual) is 

22 or was covered under such plan in connection with 

23 the status of such individual as such an employee, 

24 partner, or self-employed individual in relation to the 

25 plan. 


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1 ‘‘(9) APPLICABLE STATE AUTHORITY.—The 

2 term ‘applicable State authority’ means, with respect 

3 to a health insurance issuer in a State, the State in4 surance commissioner or official or officials des5 ignated by the State to enforce the requirements of 

6 title XXVII of the Public Health Service Act for the 

7 State involved with respect to such issuer. 

8 ‘‘(10) QUALIFIED ACTUARY.—The term ‘quali9 fied actuary’ means an individual who is a member 

10 of the American Academy of Actuaries. 

11 ‘‘(11) AFFILIATED MEMBER.—The term ‘affili12 ated member’ means, in connection with a sponsor— 

13 ‘‘(A) a person who is otherwise eligible to 

14 be a member of the sponsor but who elects an 

15 affiliated status with the sponsor, 

16 ‘‘(B) in the case of a sponsor with mem17 bers which consist of associations, a person who 

18 is a member of any such association and elects 

19 an affiliated status with the sponsor, or 

20 ‘‘(C) in the case of an association health 

21 plan in existence on the date of the enactment 

22 of this part, a person eligible to be a member 

23 of the sponsor or one of its member associa24 tions. 


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1 ‘‘(12) LARGE EMPLOYER.—The term ‘large em2 ployer’ means, in connection with a group health 

3 plan with respect to a plan year, an employer who 

4 employed an average of at least 51 employees on 

5 business days during the preceding calendar year 

6 and who employs at least 2 employees on the first 

7 day of the plan year. 

8 ‘‘(13) SMALL EMPLOYER.—The term ‘small em9 ployer’ means, in connection with a group health 

10 plan with respect to a plan year, an employer who 

11 is not a large employer. 

12 ‘‘(b) RULES OF CONSTRUCTION.— 

13 ‘‘(1) EMPLOYERS AND EMPLOYEES.—For pur14 poses of determining whether a plan, fund, or pro15 gram is an employee welfare benefit plan which is an 

16 association health plan, and for purposes of applying 

17 this title in connection with such plan, fund, or pro18 gram so determined to be such an employee welfare 

19 benefit plan— 

20 ‘‘(A) in the case of a partnership, the term 

21 ‘employer’ (as defined in section 3(5)) includes 

22 the partnership in relation to the partners, and 

23 the term ‘employee’ (as defined in section 3(6)) 

24 includes any partner in relation to the partner25 ship; and 


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1 ‘‘(B) in the case of a self-employed indi2 vidual, the term ‘employer’ (as defined in sec3 tion 3(5)) and the term ‘employee’ (as defined 

4 in section 3(6)) shall include such individual. 

5 ‘‘(2) PLANS, FUNDS, AND PROGRAMS TREATED

6 AS EMPLOYEE WELFARE BENEFIT PLANS.—In the 

7 case of any plan, fund, or program which was estab8 lished or is maintained for the purpose of providing 

9 medical care (through the purchase of insurance or 

10 otherwise) for employees (or their dependents) cov11 ered thereunder and which demonstrates to the Sec12 retary that all requirements for certification under 

13 this part would be met with respect to such plan, 

14 fund, or program if such plan, fund, or program 

15 were a group health plan, such plan, fund, or pro16 gram shall be treated for purposes of this title as an 

17 employee welfare benefit plan on and after the date 

18 of such demonstration.’’. 

19 (2) CONFORMING AMENDMENTS TO PREEMP20 TION RULES.— 

21 (A) Section 514(b)(6) of such Act (29 

22 U.S.C. 1144(b)(6)) is amended by adding at 

23 the end the following new subparagraph: 

24 ‘‘(E) The preceding subparagraphs of this paragraph 

25 do not apply with respect to any State law in the case 


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1 of an association health plan which is certified under part 

2 8.’’. 

3 (B) Section 514 of such Act (29 U.S.C. 

4 1144) is amended— 

5 (i) in subsection (b)(4), by striking 

6 ‘‘Subsection (a)’’ and inserting ‘‘Sub7 sections (a) and (d)’’; 

8 (ii) in subsection (b)(5), by striking 

9 ‘‘subsection (a)’’ in subparagraph (A) and 

10 inserting ‘‘subsection (a) of this section 

11 and subsections (a)(2)(B) and (b) of sec12 tion 805’’, and by striking ‘‘subsection (a)’’ 

13 in subparagraph (B) and inserting ‘‘sub14 section (a) of this section or subsection 

15 (a)(2)(B) or (b) of section 805’’; 

16 (iii) by redesignating subsection (d) as 

17 subsection (e); and 

18 (iv) by inserting after subsection (c) 

19 the following new subsection: 

20 ‘‘(d)(1) Except as provided in subsection (b)(4), the 

21 provisions of this title shall supersede any and all State 

22 laws insofar as they may now or hereafter preclude, or 

23 have the effect of precluding, a health insurance issuer 

24 from offering health insurance coverage in connection with 


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1 an association health plan which is certified under part 

2 8. 

3 ‘‘(2) Except as provided in paragraphs (4) and (5) 

4 of subsection (b) of this section— 

5 ‘‘(A) In any case in which health insurance cov6 erage of any policy type is offered under an associa7 tion health plan certified under part 8 to a partici8 pating employer operating in such State, the provi9 sions of this title shall supersede any and all laws 

10 of such State insofar as they may preclude a health 

11 insurance issuer from offering health insurance cov12 erage of the same policy type to other employers op13 erating in the State which are eligible for coverage 

14 under such association health plan, whether or not 

15 such other employers are participating employers in 

16 such plan. 

17 ‘‘(B) In any case in which health insurance cov18 erage of any policy type is offered in a State under 

19 an association health plan certified under part 8 and 

20 the filing, with the applicable State authority (as de21 fined in section 812(a)(9)), of the policy form in 

22 connection with such policy type is approved by such 

23 State authority, the provisions of this title shall su24 persede any and all laws of any other State in which 

25 health insurance coverage of such type is offered, inVerDate Nov 24 2008 05:08 Jun 12, 2009 Jkt 079200 PO 00000 Frm 00100 Fmt 6652 Sfmt 6201 E:\BILLS\S1240.IS S1240

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1 sofar as they may preclude, upon the filing in the 

2 same form and manner of such policy form with the 

3 applicable State authority in such other State, the 

4 approval of the filing in such other State. 

5 ‘‘(3) Nothing in subsection (b)(6)(E) or the preceding 

6 provisions of this subsection shall be construed, with re7 spect to health insurance issuers or health insurance cov8 erage, to supersede or impair the law of any State— 

9 ‘‘(A) providing solvency standards or similar 

10 standards regarding the adequacy of insurer capital, 

11 surplus, reserves, or contributions, or 

12 ‘‘(B) relating to prompt payment of claims. 

13 ‘‘(4) For additional provisions relating to association 

14 health plans, see subsections (a)(2)(B) and (b) of section 

15 805. 

16 ‘‘(5) For purposes of this subsection, the term ‘asso17 ciation health plan’ has the meaning provided in section 

18 801(a), and the terms ‘health insurance coverage’, ‘par19 ticipating employer’, and ‘health insurance issuer’ have 

20 the meanings provided such terms in section 812, respec21 tively.’’. 

22 (C) Section 514(b)(6)(A) of such Act (29 

23 U.S.C. 1144(b)(6)(A)) is amended— 

24 (i) in clause (i)(II), by striking ‘‘and’’ 

25 at the end; 


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1 (ii) in clause (ii), by inserting ‘‘and 

2 which does not provide medical care (with3 in the meaning of section 733(a)(2)),’’ 

4 after ‘‘arrangement,’’, and by striking 

5 ‘‘title.’’ and inserting ‘‘title, and’’; and 

6 (iii) by adding at the end the fol7 lowing new clause: 

8 ‘‘(iii) subject to subparagraph (E), in the case 

9 of any other employee welfare benefit plan which is 

10 a multiple employer welfare arrangement and which 

11 provides medical care (within the meaning of section 

12 733(a)(2)), any law of any State which regulates in13 surance may apply.’’. 

14 (D) Section 514(e) of such Act (as redesig15 nated by subparagraph (B)(iii)) is amended— 

16 (i) by striking ‘‘Nothing’’ and insert17 ing ‘‘(1) Except as provided in paragraph 

18 (2), nothing’’; and 

19 (ii) by adding at the end the following 

20 new paragraph: 

21 ‘‘(2) Nothing in any other provision of law enacted 

22 on or after the date of the enactment of part 8 shall be 

23 construed to alter, amend, modify, invalidate, impair, or 

24 supersede any provision of this title, except by specific 

25 cross-reference to the affected section.’’. 


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1 (3) PLAN SPONSOR.—Section 3(16)(B) of such 

2 Act (29 U.S.C. 102(16)(B)) is amended by adding 

3 at the end the following new sentence: ‘‘Such term 

4 also includes a person serving as the sponsor of an 

5 association health plan under part 8.’’. 

6 (4) DISCLOSURE OF SOLVENCY PROTECTIONS

7 RELATED TO SELF-INSURED AND FULLY INSURED

8 OPTIONS UNDER ASSOCIATION HEALTH PLANS.— 

9 Section 102(b) of such Act (29 U.S.C. 102(b)) is 

10 amended by adding at the end the following: ‘‘An as11 sociation health plan shall include in its summary 

12 plan description, in connection with each benefit op13 tion, a description of the form of solvency or guar14 antee fund protection secured pursuant to this Act 

15 or applicable State law, if any.’’. 

16 (5) SAVINGS CLAUSE.—Section 731(c) of such 

17 Act is amended by inserting ‘‘or part 8’’ after ‘‘this 

18 part’’. 

19 (6) REPORT TO THE CONGRESS REGARDING

20 CERTIFICATION OF SELF-INSURED ASSOCIATION

21 HEALTH PLANS.—Not later than January 1, 2013, 

22 the Secretary of Labor shall report to the Committee 

23 on Education and the Workforce of the House of 

24 Representatives and the Committee on Health, Edu25 cation, Labor, and Pensions of the Senate the effect 


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1 association health plans have had, if any, on reduc2 ing the number of uninsured individuals. 

3 (7) CLERICAL AMENDMENT.—The table of con4 tents in section 1 of the Employee Retirement In5 come Security Act of 1974 is amended by inserting 

6 after the item relating to section 734 the following 

7 new items: 

‘‘PART 8—RULES GOVERNING ASSOCIATION HEALTH PLANS

‘‘801. Association health plans. 

‘‘802. Certification of association health plans. 

‘‘803. Requirements relating to sponsors and boards of trustees. 

‘‘804. Participation and coverage requirements. 

‘‘805. Other requirements relating to plan documents, contribution rates, and 

benefit options. 

‘‘806. Maintenance of reserves and provisions for solvency for plans providing 

health benefits in addition to health insurance coverage. 

‘‘807. Requirements for application and related requirements. 

‘‘808. Notice requirements for voluntary termination. 

‘‘809. Corrective actions and mandatory termination. 

‘‘810. Trusteeship by the Secretary of insolvent association health plans providing health benefits in addition to health insurance coverage. 

‘‘811. State assessment authority. 

‘‘812. Definitions and rules of construction.’’. 

8 (b) CLARIFICATION OF TREATMENT OF SINGLE EM9 PLOYER ARRANGEMENTS.—Section 3(40)(B) of the Em10 ployee Retirement Income Security Act of 1974 (29 

11 U.S.C. 1002(40)(B)) is amended— 

12 (1) in clause (i), by inserting after ‘‘control 

13 group,’’ the following: ‘‘except that, in any case in 

14 which the benefit referred to in subparagraph (A) 

15 consists of medical care (as defined in section 

16 812(a)(2)), two or more trades or businesses, wheth17 er or not incorporated, shall be deemed a single emVerDate Nov 24 2008 05:08 Jun 12, 2009 Jkt 079200 PO 00000 Frm 00104 Fmt 6652 Sfmt 6201 E:\BILLS\S1240.IS S1240

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1 ployer for any plan year of such plan, or any fiscal 

2 year of such other arrangement, if such trades or 

3 businesses are within the same control group during 

4 such year or at any time during the preceding 1-year 

5 period,’’; 

6 (2) in clause (iii), by striking ‘‘(iii) the deter7 mination’’ and inserting the following: 

8 ‘‘(iii)(I) in any case in which the benefit re9 ferred to in subparagraph (A) consists of medical 

10 care (as defined in section 812(a)(2)), the deter11 mination of whether a trade or business is under 

12 ‘common control’ with another trade or business 

13 shall be determined under regulations of the Sec14 retary applying principles consistent and coextensive 

15 with the principles applied in determining whether 

16 employees of two or more trades or businesses are 

17 treated as employed by a single employer under sec18 tion 4001(b), except that, for purposes of this para19 graph, an interest of greater than 25 percent may 

20 not be required as the minimum interest necessary 

21 for common control, or 

22 ‘‘(II) in any other case, the determination’’; 

23 (3) by redesignating clauses (iv) and (v) as 

24 clauses (v) and (vi), respectively; and 


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1 (4) by inserting after clause (iii) the following 

2 new clause: 

3 ‘‘(iv) in any case in which the benefit referred 

4 to in subparagraph (A) consists of medical care (as 

5 defined in section 812(a)(2)), in determining, after 

6 the application of clause (i), whether benefits are 

7 provided to employees of two or more employers, the 

8 arrangement shall be treated as having only one par9 ticipating employer if, after the application of clause 

10 (i), the number of individuals who are employees and 

11 former employees of any one participating employer 

12 and who are covered under the arrangement is 

13 greater than 75 percent of the aggregate number of 

14 all individuals who are employees or former employ15 ees of participating employers and who are covered 

16 under the arrangement,’’. 

17 (c) ENFORCEMENT PROVISIONS RELATING TO ASSO18 CIATION HEALTH PLANS.— 

19 (1) CRIMINAL PENALTIES FOR CERTAIN WILL20 FUL MISREPRESENTATIONS.—Section 501 of the 

21 Employee Retirement Income Security Act of 1974 

22 (29 U.S.C. 1131) is amended— 

23 (A) by inserting ‘‘(a)’’ after ‘‘Sec. 501.’’; 

24 and 


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1 (B) by adding at the end the following new 

2 subsection: 

3 ‘‘(b) Any person who willfully falsely represents, to 

4 any employee, any employee’s beneficiary, any employer, 

5 the Secretary, or any State, a plan or other arrangement 

6 established or maintained for the purpose of offering or 

7 providing any benefit described in section 3(1) to employ8 ees or their beneficiaries as— 

9 ‘‘(1) being an association health plan which has 

10 been certified under part 8; 

11 ‘‘(2) having been established or maintained 

12 under or pursuant to one or more collective bar13 gaining agreements which are reached pursuant to 

14 collective bargaining described in section 8(d) of the 

15 National Labor Relations Act (29 U.S.C. 158(d)) or 

16 paragraph Fourth of section 2 of the Railway Labor 

17 Act (45 U.S.C. 152, paragraph Fourth) or which are 

18 reached pursuant to labor-management negotiations 

19 under similar provisions of State public employee re20 lations laws; or 

21 ‘‘(3) being a plan or arrangement described in 

22 section 3(40)(A)(i), 

23 shall, upon conviction, be imprisoned not more than 5 

24 years, be fined under title 18, United States Code, or 

25 both.’’. 


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1 (2) CEASE ACTIVITIES ORDERS.—Section 502 

2 of such Act (29 U.S.C. 1132) is amended by adding 

3 at the end the following new subsection: 

4 ‘‘(n) ASSOCIATION HEALTH PLAN CEASE AND DE5 SIST ORDERS.— 

6 ‘‘(1) IN GENERAL.—Subject to paragraph (2), 

7 upon application by the Secretary showing the oper8 ation, promotion, or marketing of an association 

9 health plan (or similar arrangement providing bene10 fits consisting of medical care (as defined in section 

11 733(a)(2))) that— 

12 ‘‘(A) is not certified under part 8, is sub13 ject under section 514(b)(6) to the insurance 

14 laws of any State in which the plan or arrange15 ment offers or provides benefits, and is not li16 censed, registered, or otherwise approved under 

17 the insurance laws of such State; or 

18 ‘‘(B) is an association health plan certified 

19 under part 8 and is not operating in accordance 

20 with the requirements under part 8 for such 

21 certification, 

22 a district court of the United States shall enter an 

23 order requiring that the plan or arrangement cease 

24 activities. 


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1 ‘‘(2) EXCEPTION.—Paragraph (1) shall not 

2 apply in the case of an association health plan or 

3 other arrangement if the plan or arrangement shows 

4 that— 

5 ‘‘(A) all benefits under it referred to in 

6 paragraph (1) consist of health insurance cov7 erage; and 

8 ‘‘(B) with respect to each State in which 

9 the plan or arrangement offers or provides ben10 efits, the plan or arrangement is operating in 

11 accordance with applicable State laws that are 

12 not superseded under section 514. 

13 ‘‘(3) ADDITIONAL EQUITABLE RELIEF.—The 

14 court may grant such additional equitable relief, in15 cluding any relief available under this title, as it 

16 deems necessary to protect the interests of the pub17 lic and of persons having claims for benefits against 

18 the plan.’’. 

19 (3) RESPONSIBILITY FOR CLAIMS PROCE20 DURE.—Section 503 of such Act (29 U.S.C. 1133) 

21 is amended by inserting ‘‘(a) IN GENERAL.—’’ be22 fore ‘‘In accordance’’, and by adding at the end the 

23 following new subsection: 

24 ‘‘(b) ASSOCIATION HEALTH PLANS.—The terms of 

25 each association health plan which is or has been certified 


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1 under part 8 shall require the board of trustees or the 

2 named fiduciary (as applicable) to ensure that the require3 ments of this section are met in connection with claims 

4 filed under the plan.’’. 

5 (d) COOPERATION BETWEEN FEDERAL AND STATE

6 AUTHORITIES.—Section 506 of the Employee Retirement 

7 Income Security Act of 1974 (29 U.S.C. 1136) is amended 

8 by adding at the end the following new subsection: 

9 ‘‘(d) CONSULTATION WITH STATES WITH RESPECT

10 TO ASSOCIATION HEALTH PLANS.— 

11 ‘‘(1) AGREEMENTS WITH STATES.—The Sec12 retary shall consult with the State recognized under 

13 paragraph (2) with respect to an association health 

14 plan regarding the exercise of— 

15 ‘‘(A) the Secretary’s authority under sec16 tions 502 and 504 to enforce the requirements 

17 for certification under part 8; and 

18 ‘‘(B) the Secretary’s authority to certify 

19 association health plans under part 8 in accord20 ance with regulations of the Secretary applica21 ble to certification under part 8. 

22 ‘‘(2) RECOGNITION OF PRIMARY DOMICILE

23 STATE.—In carrying out paragraph (1), the Sec24 retary shall ensure that only one State will be recog25 nized, with respect to any particular association 


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1 health plan, as the State with which consultation is 

2 required. In carrying out this paragraph— 

3 ‘‘(A) in the case of a plan which provides 

4 health insurance coverage (as defined in section 

5 812(a)(3)), such State shall be the State with 

6 which filing and approval of a policy type of7 fered by the plan was initially obtained, and 

8 ‘‘(B) in any other case, the Secretary shall 

9 take into account the places of residence of the 

10 participants and beneficiaries under the plan 

11 and the State in which the trust is main12 tained.’’. 

13 (e) EFFECTIVE DATE AND TRANSITIONAL AND

14 OTHER RULES.— 

15 (1) EFFECTIVE DATE.—The amendments made 

16 by this section shall take effect 1 year after the date 

17 of the enactment of this Act. The Secretary of Labor 

18 shall first issue all regulations necessary to carry out 

19 such amendments within 1 year after the date of the 

20 enactment of this Act. 

21 (2) TREATMENT OF CERTAIN EXISTING

22 HEALTH BENEFITS PROGRAMS.— 

23 (A) IN GENERAL.—In any case in which, 

24 as of the date of the enactment of this Act, an 

25 arrangement is maintained in a State for the 


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1 purpose of providing benefits consisting of med2 ical care for the employees and beneficiaries of 

3 its participating employers, at least 200 partici4 pating employers make contributions to such 

5 arrangement, such arrangement has been in ex6 istence for at least 10 years, and such arrange7 ment is licensed under the laws of one or more 

8 States to provide such benefits to its partici9 pating employers, upon the filing with the ap10 plicable authority (as defined in section 

11 812(a)(5) of the Employee Retirement Income 

12 Security Act of 1974 (as amended by this sub13 title)) by the arrangement of an application for 

14 certification of the arrangement under part 8 of 

15 subtitle B of title I of such Act— 

16 (i) such arrangement shall be deemed 

17 to be a group health plan for purposes of 

18 title I of such Act; 

19 (ii) the requirements of sections 

20 801(a) and 803(a) of the Employee Retire21 ment Income Security Act of 1974 shall be 

22 deemed met with respect to such arrange23 ment; 

24 (iii) the requirements of section 

25 803(b) of such Act shall be deemed met, if 


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1 the arrangement is operated by a board of 

2 directors which— 

3 (I) is elected by the participating 

4 employers, with each employer having 

5 one vote; and 

6 (II) has complete fiscal control 

7 over the arrangement and which is re8 sponsible for all operations of the ar9 rangement; 

10 (iv) the requirements of section 

11 804(a) of such Act shall be deemed met 

12 with respect to such arrangement; and 

13 (v) the arrangement may be certified 

14 by any applicable authority with respect to 

15 its operations in any State only if it oper16 ates in such State on the date of certifi17 cation. 

18 The provisions of this subparagraph shall cease 

19 to apply with respect to any such arrangement 

20 at such time after the date of the enactment of 

21 this Act as the applicable requirements of this 

22 subparagraph are not met with respect to such 

23 arrangement. 

24 (B) DEFINITIONS.—For purposes of this 

25 paragraph, the terms ‘‘group health plan’’, 


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1 ‘‘medical care’’, and ‘‘participating employer’’ 

2 shall have the meanings provided in section 812 

3 of the Employee Retirement Income Security 

4 Act of 1974, except that the reference in para5 graph (7) of such section to an ‘‘association 

6 health plan’’ shall be deemed a reference to an 

7 arrangement referred to in this paragraph. 

8 Subtitle C—Health Care Services 

9 Commission 

10 PART 1—ESTABLISHMENT AND GENERAL DUTIES 

11 SEC. 121. ESTABLISHMENT. 

12 (a) IN GENERAL.—There is hereby established a 

13 Health Care Services Commission (in this subtitle referred 

14 to as the ‘‘Commission’’) to be composed of five commis15 sioners (in this subtitle referred to as the ‘‘Commis16 sioners’’) to be appointed by the President by and with 

17 the advice and consent of the Senate. Not more than three 

18 of such commissioners shall be members of the same polit19 ical party, and in making appointments members of dif20 ferent political parties shall be appointed alternately as 

21 nearly as may be practicable. No commissioner shall en22 gage in any other business, vocation, or employment than 

23 that of serving as commissioner. Each commissioner shall 

24 hold office for a term of five years and until his successor 

25 is appointed and has qualified, except that he shall not 


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1 so continue to serve beyond the expiration of the next ses2 sion of Congress subsequent to the expiration of said fixed 

3 term of office, and except (1) any commissioner appointed 

4 to fill a vacancy occurring prior to the expiration of the 

5 term for which his predecessor was appointed shall be ap6 pointed for the remainder of such term, and (2) the terms 

7 of office of the commissioners first taking office after the 

8 enactment of this subtitle shall expire as designated by 

9 the President at the time of nomination, one at the end 

10 of one year, one at the end of two years, one at the end 

11 of three years, one at the end of four years, and one at 

12 the end of five years, after the date of the enactment of 

13 this Act. 

14 (b) PURPOSE.—The purpose of the Commission is to 

15 enhance the quality, appropriateness, and effectiveness of 

16 health care services, and access to such services, through 

17 the establishment of a broad base of scientific research 

18 and through the promotion of improvements in clinical 

19 practice and in the organization, financing, and delivery 

20 of health care services. 

21 (c) APPOINTMENT OF CHAIRMAN.—The President 

22 shall, from among the Commissioners appointed under 

23 subsection (a), designate an individual to serve as the 

24 Chairman of the Commission. 


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1 SEC. 122. GENERAL AUTHORITIES AND DUTIES. 

2 (a) IN GENERAL.—In carrying out section 121(b), 

3 the Commissioners shall conduct and support research, 

4 demonstration projects, evaluations, training, guideline de5 velopment, and the dissemination of information, on 

6 health care services and on systems for the delivery of 

7 such services, including activities with respect to— 

8 (1) the effectiveness, efficiency, and quality of 

9 health care services; 

10 (2) subject to subsection (d), the outcomes of 

11 health care services and procedures; 

12 (3) clinical practice, including primary care and 

13 practice-oriented research; 

14 (4) health care technologies, facilities, and 

15 equipment; 

16 (5) health care costs, productivity, and market 

17 forces; 

18 (6) health promotion and disease prevention; 

19 (7) health statistics and epidemiology; and 

20 (8) medical liability. 

21 (b) REQUIREMENTS WITH RESPECT TO RURAL

22 AREAS AND UNDERSERVED POPULATIONS.—In carrying 

23 out subsection (a), the Commissioners shall undertake and 

24 support research, demonstration projects, and evaluations 

25 with respect to— 


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1 (1) the delivery of health care services in rural 

2 areas (including frontier areas); and 

3 (2) the health of low-income groups, minority 

4 groups, and the elderly. 

5 SEC. 123. DISSEMINATION. 

6 (a) IN GENERAL.—The Commissioners shall— 

7 (1) promptly publish, make available, and oth8 erwise disseminate, in a form understandable and on 

9 as broad a basis as practicable so as to maximize its 

10 use, the results of research, demonstration projects, 

11 and evaluations conducted or supported under this 

12 subtitle and the guidelines, standards, and review 

13 criteria developed under this subtitle; 

14 (2) promptly make available to the public data 

15 developed in such research, demonstration projects, 

16 and evaluations; and 

17 (3) as appropriate, provide technical assistance 

18 to State and local government and health agencies 

19 and conduct liaison activities to such agencies to fos20 ter dissemination. 

21 (b) PROHIBITION AGAINST RESTRICTIONS.—Except 

22 as provided in subsection (c), the Commissioners may not 

23 restrict the publication or dissemination of data from, or 

24 the results of, projects conducted or supported under this 

25 subtitle. 


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1 (c) LIMITATION ON USE OF CERTAIN INFORMA2 TION.—No information, if an establishment or person sup3 plying the information or described in it is identifiable, 

4 obtained in the course of activities undertaken or sup5 ported under this subtitle may be used for any purpose 

6 other than the purpose for which it was supplied unless 

7 such establishment or person has consented (as deter8 mined under regulations of the Secretary) to its use for 

9 such other purpose. Such information may not be pub10 lished or released in other form if the person who supplied 

11 the information or who is described in it is identifiable 

12 unless such person has consented (as determined under 

13 regulations of the Secretary) to its publication or release 

14 in other form. 

15 (d) CERTAIN INTERAGENCY AGREEMENT.—The 

16 Commissioners and the Director of the National Library 

17 of Medicine shall enter into an agreement providing for 

18 the implementation of subsection (a)(1). 

19 PART 2—FORUM FOR QUALITY AND 

20 EFFECTIVENESS IN HEALTH CARE 

21 SEC. 131. ESTABLISHMENT OF OFFICE. 

22 There is established within the Commission an office 

23 to be known as the Office of the Forum for Quality and 

24 Effectiveness in Health Care. The office shall be headed 


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1 by a director (referred to in this subtitle as the ‘‘Direc2 tor’’), who shall be appointed by the Commissioners. 

3 SEC. 132. MEMBERSHIP. 

4 (a) IN GENERAL.—The Office of the Forum for Qual5 ity and Effectiveness in Health Care shall be composed 

6 of 15 individuals nominated by private sector health care 

7 organizations and appointed by the Commission and shall 

8 include representation from at least the following: 

9 (1) Health insurance industry. 

10 (2) Health care provider groups. 

11 (3) Non-profit organizations. 

12 (4) Rural health organizations. 

13 (b) TERMS.— 

14 (1) IN GENERAL.—Except as provided in sub15 paragraph (B), members of the Office of the Forum 

16 for Quality and Effectiveness in Health Care shall 

17 serve for a term of 5 years. 

18 (2) STAGGERED ROTATION.—Of the members 

19 first appointed to the Office of the Forum for Qual20 ity and Effectiveness in Health Care, the Commis21 sion shall appoint 5 members to serve for a term of 

22 2 years, 5 members to serve for a term of 3 years, 

23 and 5 members to serve for a term of 4 years. 

24 (c) TREATMENT OF OTHER EMPLOYMENT.—Each 

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1 tiveness in Health Care shall serve the Office independ2 ently from any other position of employment. 

3 SEC. 133. DUTIES. 

4 (a) ESTABLISHMENT OF FORUM PROGRAM.—The 

5 Commissioners, acting through the Director, shall estab6 lish a program to be known as the Forum for Quality and 

7 Effectiveness in Health Care. For the purpose of pro8 moting transparency in price, quality, appropriateness, 

9 and effectiveness of health care, the Director, using the 

10 process set forth in section 134, shall arrange for the de11 velopment and periodic review and updating of standards 

12 of quality, performance measures, and medical review cri13 teria through which health care providers and other appro14 priate entities may assess or review the provision of health 

15 care and assure the quality of such care. 

16 (b) CERTAIN REQUIREMENTS.—Guidelines, stand17 ards, performance measures, and review criteria under 

18 subsection (a) shall— 

19 (1) be based on the best available research and 

20 professional judgment regarding the effectiveness 

21 and appropriateness of health care services and pro22 cedures; and 

23 (2) be presented in formats appropriate for use 

24 by physicians, health care practitioners, providers, 

25 medical educators, and medical review organizations 


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1 and in formats appropriate for use by consumers of 

2 health care. 

3 (c) AUTHORITY FOR CONTRACTS.—In carrying out 

4 this part, the Director may enter into contracts with pub5 lic or nonprofit private entities. 

6 (d) PUBLIC DISCLOSURE OF RECOMMENDATIONS.— 

7 For each fiscal year beginning with 2011, the Director 

8 shall make publicly available the following: 

9 (1) quarterly reports for public comment that 

10 include proposed recommendations for guidelines, 

11 standards, performance measures, and review cri12 teria under subsection (a) and any updates to such 

13 guidelines, standards, performance measures, and 

14 review criteria; and 

15 (2) after consideration of such comments, a 

16 final report that contains final recommendations for 

17 such guidelines, standards, performance measures, 

18 review criteria, and updates. 

19 (e) DATE CERTAIN FOR INITIAL GUIDELINES AND

20 STANDARDS.—The Commissioners, by not later than Jan21 uary 1, 2013, shall assure the development of an initial 

22 set of guidelines, standards, performance measures, and 

23 review criteria under subsection (a). 


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1 SEC. 134. ADOPTION AND ENFORCEMENT OF GUIDELINES 

2 AND STANDARDS. 

3 (a) ADOPTION OF RECOMMENDATIONS OF FORUM

4 FOR QUALITY AND EFFECTIVENESS IN HEALTH CARE.— 

5 For each fiscal year, the Commissioners shall adopt the 

6 recommendations made for such year in the final report 

7 under subsection (d)(2) of section 133 for guidelines, 

8 standards, performance measures, and review criteria de9 scribed in subsection (a) of such section. 

10 (b) ENFORCEMENT AUTHORITY.—The Commis11 sioners, in consultation with the Secretary of Health and 

12 Human Services, have the authority to make recommenda13 tions to the Secretary to enforce compliance of health care 

14 providers with the guidelines, standards, performance 

15 measures, and review criteria adopted under subsection 

16 (a). Such recommendations may include the following, 

17 with respect to a health care provider who is not in compli18 ance with such guidelines, standards, measures, and cri19 teria: 

20 (1) Exclusion from participation in Federal 

21 health care programs (as defined in section 

22 1128B(f) of the Social Security Act). 

23 (2) Imposition of a civil money penalty on such 

24 provider. 


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1 SEC. 135. ADDITIONAL REQUIREMENTS. 

2 (a) PROGRAM AGENDA.—The Commissioners shall 

3 provide for an agenda for the development of the guide4 lines, standards, performance measures, and review cri5 teria described in section 133(a), including with respect 

6 to the standards, performance measures, and review cri7 teria, identifying specific aspects of health care for which 

8 the standards, performance measures, and review criteria 

9 are to be developed and those that are to be given priority 

10 in the development of the standards, performance meas11 ures, and review criteria. 

12 PART 3—GENERAL PROVISIONS 

13 SEC. 141. CERTAIN ADMINISTRATIVE AUTHORITIES. 

14 The Commissioners, in carrying out this subtitle, may 

15 accept voluntary and uncompensated services. 

16 SEC. 142. FUNDING. 

17 For the purpose of carrying out this subtitle, there 

18 are authorized to be appropriated such sums as may be 

19 necessary for fiscal years 2011 through 2015. 

20 SEC. 143. DEFINITIONS. 

21 For purposes of this subtitle: 

22 (1) The term ‘‘Commissioners’’ means the Com23 missioners of the Health Care Services Commission. 

24 (2) The term ‘‘Commission’’ means the Health 

25 Care Services Commission. 


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1 (3) The term ‘‘Director’’ means the Director of 

2 the Office of the Forum for Quality and Effective3 ness in Health Care. 

4 (4) The term ‘‘Secretary’’ means the Secretary 

5 of Health and Human Services. 

6 PART 4—TERMINATIONS AND TRANSITION 

7 SEC. 151. TERMINATION OF AGENCY FOR HEALTHCARE RE8 SEARCH AND QUALITY. 

9 As of the date of the enactment of this Act, the Agen10 cy for Healthcare Research and Quality is terminated, and 

11 title IX of the Public Health Service Act is repealed. 

12 SEC. 152. TRANSITION. 

13 All orders, grants, contracts, privileges, and other de14 terminations or actions of the Agency for Healthcare Re15 search and Quality that are effective as of the date before 

16 the date of the enactment of this Act, shall be transferred 

17 to the Secretary and shall continue in effect according to 

18 their terms unless changed pursuant to law. 

19 PART 5—INDEPENDENT HEALTH RECORD TRUST 

20 SEC. 161. SHORT TITLE OF PART. 

21 This part may be cited as the ‘‘Independent Health 

22 Record Trust Act of 2009’’. 


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1 SEC. 162. PURPOSE. 

2 It is the purpose of this part to provide for the estab3 lishment of a nationwide health information technology 

4 network that— 

5 (1) improves health care quality, reduces med6 ical errors, increases the efficiency of care, and ad7 vances the delivery of appropriate, evidence-based 

8 health care services; 

9 (2) promotes wellness, disease prevention, and 

10 the management of chronic illnesses by increasing 

11 the availability and transparency of information re12 lated to the health care needs of an individual; 

13 (3) ensures that appropriate information nec14 essary to make medical decisions is available in a us15 able form at the time and in the location that the 

16 medical service involved is provided; 

17 (4) produces greater value for health care ex18 penditures by reducing health care costs that result 

19 from inefficiency, medical errors, inappropriate care, 

20 and incomplete information; 

21 (5) promotes a more effective marketplace, 

22 greater competition, greater systems analysis, in23 creased choice, enhanced quality, and improved out24 comes in health care services; 

25 (6) improves the coordination of information 

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1 tive infrastructure for the secure and authorized ex2 change and use of health information; and 

3 (7) ensures that the health information privacy, 

4 security, and confidentiality of individually identifi5 able health information is protected. 

6 SEC. 163. DEFINITIONS. 

7 In this part: 

8 (1) ACCESS.—The term ‘‘access’’ means, with 

9 respect to an electronic health record, entering infor10 mation into such account as well as retrieving infor11 mation from such account. 

12 (2) ACCOUNT.—The term ‘‘account’’ means an 

13 electronic health record of an individual contained in 

14 an independent health record trust. 

15 (3) AFFIRMATIVE CONSENT.—The term ‘‘af16 firmative consent’’ means, with respect to an elec17 tronic health record of an individual contained in an 

18 IHRT, express consent given by the individual for 

19 the use of such record in response to a clear and 

20 conspicuous request for such consent or at the indi21 vidual’s own initiative. 

22 (4) AUTHORIZED EHR DATA USER.—The term 

23 ‘‘authorized EHR data user’’ means, with respect to 

24 an electronic health record of an IHRT participant 

25 contained as part of an IHRT, any entity (other 


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1 than the participant) authorized (in the form of af2 firmative consent) by the participant to access the 

3 electronic health record. 

4 (5) CONFIDENTIALITY.—The term ‘‘confiden5 tiality’’ means, with respect to individually identifi6 able health information of an individual, the obliga7 tion of those who receive such information to respect 

8 the health information privacy of the individual. 

9 (6) ELECTRONIC HEALTH RECORD.—The term 

10 ‘‘electronic health record’’ means a longitudinal col11 lection of information concerning a single individual, 

12 including medical records and personal health infor13 mation, that is stored electronically. 

14 (7) HEALTH INFORMATION PRIVACY.—The 

15 term ‘‘health information privacy’’ means, with re16 spect to individually identifiable health information 

17 of an individual, the right of such individual to con18 trol the acquisition, uses, or disclosures of such in19 formation. 

20 (8) HEALTH PLAN.—The term ‘‘health plan’’ 

21 means a group health plan (as defined in section 

22 2208(1) of the Public Health Service Act (42 U.S.C. 

23 300bb–8(1))) as well as a plan that offers health in24 surance coverage in the individual market. 


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1 (9) HIPAA PRIVACY REGULATIONS.—The term 

2 ‘‘HIPAA privacy regulations’’ means the regulations 

3 promulgated under section 264(c) of the Health In4 surance Portability and Accountability Act of 1996 

5 (42 U.S.C. 1320d–2 note). 

6 (10) INDEPENDENT HEALTH RECORD TRUST; 

7 IHRT.—The terms ‘‘independent health record trust’’ 

8 and ‘‘IHRT’’ mean a legal arrangement under the 

9 administration of an IHRT operator that meets the 

10 requirements of this part with respect to electronic 

11 health records of individuals participating in the 

12 trust or IHRT. 

13 (11) IHRT OPERATOR.—The term ‘‘IHRT op14 erator’’ means, with respect to an IHRT, the organi15 zation that is responsible for the administration and 

16 operation of the IHRT in accordance with this part. 

17 (12) IHRT PARTICIPANT.—The term ‘‘IHRT 

18 participant’’ means, with respect to an IHRT, an in19 dividual who has a participation agreement in effect 

20 with respect to the maintenance of the individual’s 

21 electronic health record by the IHRT. 

22 (13) INDIVIDUALLY IDENTIFIABLE HEALTH IN23 FORMATION.—The term ‘‘individually identifiable 

24 health information’’ has the meaning given such 


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1 term in section 1171(6) of the Social Security Act 

2 (42 U.S.C. 1320d(6)). 

3 (14) SECURITY.—The term ‘‘security’’ means, 

4 with respect to individually identifiable health infor5 mation of an individual, the physical, technological, 

6 or administrative safeguards or tools used to protect 

7 such information from unwarranted access or disclo8 sure. 

9 SEC. 164. ESTABLISHMENT, CERTIFICATION, AND MEMBER10 SHIP OF INDEPENDENT HEALTH RECORD 

11 TRUSTS. 

12 (a) ESTABLISHMENT.—Not later than one year after 

13 the date of the enactment of this Act, the Federal Trade 

14 Commission, in consultation with the National Committee 

15 on Vital and Health Statistics, shall prescribe standards 

16 for the establishment, certification, operation, and inter17 operability of IHRTs to carry out the purposes described 

18 in section 162 in accordance with the provisions of this 

19 part. 

20 (b) CERTIFICATION.— 

21 (1) CERTIFICATION BY FTC.—The Federal 

22 Trade Commission shall provide for the certification 

23 of IHRTs. No IHRT may be certified unless the 

24 IHRT is determined to meet the standards for cer25 tification established under subsection (a). 


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1 (2) DECERTIFICATION.—The Federal Trade 

2 Commission shall establish a process for the revoca3 tion of certification of an IHRT under this section 

4 in the case that the IHRT violates the standards es5 tablished under subsection (a). 

6 (c) MEMBERSHIP.— 

7 (1) IN GENERAL.—To be eligible to be a partic8 ipant in an IHRT, an individual shall— 

9 (A) submit to the IHRT information as re10 quired by the IHRT to establish an electronic 

11 health record with the IHRT; and 

12 (B) enter into a privacy protection agree13 ment described in section 166(b)(1) with the 

14 IHRT. 

15 The process to determine eligibility of an individual 

16 under this subsection shall allow for the establish17 ment by such individual of an electronic health 

18 record as expeditiously as possible if such individual 

19 is determined so eligible. 

20 (2) NO LIMITATION ON MEMBERSHIP.—Nothing 

21 in this subsection shall be construed to permit an 

22 IHRT to restrict membership, including on the basis 

23 of health condition. 


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1 SEC. 165. DUTIES OF IHRT TO IHRT PARTICIPANTS. 

2 (a) FIDUCIARY DUTY OF IHRT; PENALTIES FOR

3 VIOLATIONS OF FIDUCIARY DUTY.— 

4 (1) FIDUCIARY DUTY.—With respect to the 

5 electronic health record of an IHRT participant 

6 maintained by an IHRT, the IHRT shall have a fi7 duciary duty to act for the benefit and in the inter8 ests of such participant and of the IHRT as a whole. 

9 Such duty shall include obtaining the affirmative 

10 consent of such participant prior to the release of in11 formation in such participant’s electronic health 

12 record in accordance with the requirements of this 

13 part. 

14 (2) PENALTIES.—If the IHRT knowingly or 

15 recklessly breaches the fiduciary duty described in 

16 paragraph (1), the IHRT shall be subject to the fol17 lowing penalties: 

18 (A) Loss of certification of the IHRT. 

19 (B) A fine that is not in excess of $50,000. 

20 (C) A term of imprisonment for the indi21 viduals involved of not more than 5 years. 

22 (b) ELECTRONIC HEALTH RECORD DEEMED TO BE

23 HELD IN TRUST BY IHRT.—With respect to an indi24 vidual, an electronic health record maintained by an IHRT 

25 shall be deemed to be held in trust by the IHRT for the 


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1 benefit of the individual and the IHRT shall have no legal 

2 or equitable interest in such electronic health record. 

3 SEC. 166. AVAILABILITY AND USE OF INFORMATION FROM 

4 RECORDS IN IHRT CONSISTENT WITH PRI5 VACY PROTECTIONS AND AGREEMENTS. 

6 (a) PROTECTED ELECTRONIC HEALTH RECORDS

7 USE AND ACCESS.— 

8 (1) GENERAL RIGHTS REGARDING USES OF IN9 FORMATION.— 

10 (A) IN GENERAL.—With respect to the 

11 electronic health record of an IHRT participant 

12 maintained by an IHRT, subject to paragraph 

13 (2)(C), primary uses and secondary uses (de14 scribed in subparagraphs (B) and (C), respec15 tively) of information within such record (other 

16 than by such participant) shall be permitted 

17 only upon the authorization of such use, prior 

18 to such use, by such participant. 

19 (B) PRIMARY USES.—For purposes of sub20 paragraph (A) and with respect to an electronic 

21 health record of an individual, a primary use is 

22 a use for purposes of the individual’s self-care 

23 or care by health care professionals. 

24 (C) SECONDARY USES.—For purposes of 

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1 tronic health record of an individual, a sec2 ondary use is any use not described in subpara3 graph (B) and includes a use for purposes of 

4 public health research or other related activi5 ties. Additional authorization is required for a 

6 secondary use extending beyond the original 

7 purpose of the secondary use authorized by the 

8 IHRT participant involved. Nothing in this 

9 paragraph shall be construed as requiring au10 thorization for every secondary use that is with11 in the authorized original purpose. 

12 (2) RULES FOR PRIMARY USE OF RECORDS FOR

13 HEALTH CARE PURPOSES.—With respect to the elec14 tronic health record of an IHRT participant (or 

15 specified parts of such electronic health record) 

16 maintained by an IHRT standards for access to 

17 such record shall provide for the following: 

18 (A) ACCESS BY IHRT PARTICIPANTS TO

19 THEIR ELECTRONIC HEALTH RECORDS.— 

20 (i) OWNERSHIP.—The participant 

21 maintains ownership over the entire elec22 tronic health record (and all portions of 

23 such record) and shall have the right to 

24 electronically access and review the con25 tents of the entire record (and any portion 


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1 of such record) at any time, in accordance 

2 with this subparagraph. 

3 (ii) ADDITION OF PERSONAL INFOR4 MATION.—The participant may add per5 sonal health information to the health 

6 record of that participant, except that such 

7 participant shall not alter information that 

8 is entered into the electronic health record 

9 by any authorized EHR data user. Such 

10 participant shall have the right to propose 

11 an amendment to information that is en12 tered by an authorized EHR data user 

13 pursuant to standards prescribed by the 

14 Federal Trade Commission for purposes of 

15 amending such information. 

16 (iii) IDENTIFICATION OF INFORMA17 TION ENTERED BY PARTICIPANT.—Any ad18 ditions or amendments made by the partic19 ipant to the health record shall be identi20 fied and disclosed within such record as 

21 being made by such participant. 

22 (B) ACCESS BY ENTITIES OTHER THAN

23 IHRT PARTICIPANT.— 

24 (i) AUTHORIZED ACCESS ONLY.—Ex25 cept as provided under subparagraph (C) 


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1 and paragraph (4), access to the electronic 

2 health record (or any portion of the 

3 record)— 

4 (I) may be made only by author5 ized EHR data users and only to such 

6 portions of the record as specified by 

7 the participant; and 

8 (II) may be limited by the partic9 ipant for purposes of entering infor10 mation into such record, retrieving in11 formation from such record, or both. 

12 (ii) IDENTIFICATION OF ENTITY THAT

13 ENTERS INFORMATION.—Any information 

14 that is added by an authorized EHR data 

15 user to the health record shall be identified 

16 and disclosed within such record as being 

17 made by such user. 

18 (iii) SATISFACTION OF HIPAA PRIVACY

19 REGULATIONS.—In the case of a record of 

20 a covered entity (as defined for purposes of 

21 HIPAA privacy regulations), with respect 

22 to an individual, if such individual is an 

23 IHRT participant with an independent 

24 health record trust and such covered entity 

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1 quirement under the HIPAA privacy regu2 lations for such entity to provide the 

3 record to the participant shall be deemed 

4 met if such entity, without charge to the 

5 IHRT or the participant— 

6 (I) forwards to the trust an ap7 propriately formatted electronic copy 

8 of the record (and updates to such 

9 records) for inclusion in the electronic 

10 health record of the participant main11 tained by the trust; 

12 (II) enters such record into the 

13 electronic health record of the partici14 pant so maintained; or 

15 (III) otherwise makes such 

16 record available for electronic access 

17 by the IHRT or the individual in a 

18 manner that permits such record to 

19 be included in the account of the indi20 vidual contained in the IHRT. 

21 (iv) NOTIFICATION OF SENSITIVE IN22 FORMATION.—Any information, with re23 spect to the participant, that is sensitive 

24 information, as specified by the Federal 

25 Trade Commission, shall not be forwarded 


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1 or entered by an authorized EHR data 

2 user into the electronic health record of the 

3 participant maintained by the trust unless 

4 the user certifies that the participant has 

5 been notified of such information. 

6 (C) DEEMED AUTHORIZATION FOR ACCESS

7 FOR EMERGENCY HEALTH CARE.— 

8 (i) FINDINGS.—Congress finds that— 

9 (I) given the size and nature of 

10 visits to emergency departments in 

11 the United States, readily available 

12 health information could make the dif13 ference between life and death; and 

14 (II) because of the case mix and 

15 volume of patients treated, emergency 

16 departments are well positioned to 

17 provide information for public health 

18 surveillance, community risk assess19 ment, research, education, training, 

20 quality improvement, and other uses. 

21 (ii) USE OF INFORMATION.—With re22 spect to the electronic health record of an 

23 IHRT participant (or specified parts of 

24 such electronic health record) maintained 

25 by an IHRT, the participant shall be 


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1 deemed as providing authorization (in the 

2 form of affirmative consent) for health 

3 care providers to access, in connection with 

4 providing emergency care services to the 

5 participant, a limited, authenticated infor6 mation set concerning the participant for 

7 emergency response purposes, unless the 

8 participant specifies that such information 

9 set (or any portion of such information 

10 set) may not be so accessed. Such limited 

11 information set may include information— 

12 (I) patient identification data, as 

13 determined appropriate by the partici14 pant; 

15 (II) provider identification that 

16 includes the use of unique provider 

17 identifiers; 

18 (III) payment information; 

19 (IV) information related to the 

20 individual’s vitals, allergies, and medi21 cation history; 

22 (V) information related to exist23 ing chronic problems and active clin24 ical conditions of the participant; and 


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1 (VI) information concerning 

2 physical examinations, procedures, re3 sults, and diagnosis data. 

4 (3) RULES FOR SECONDARY USES OF RECORDS

5 FOR RESEARCH AND OTHER PURPOSES.— 

6 (A) IN GENERAL.—With respect to the 

7 electronic health record of an IHRT participant 

8 (or specified parts of such electronic health 

9 record) maintained by an IHRT, the IHRT 

10 may sell such record (or specified parts of such 

11 record) only if— 

12 (i) the transfer is authorized by the 

13 participant pursuant to an agreement be14 tween the participant and the IHRT and is 

15 in accordance with the privacy protection 

16 agreement described in subsection (b)(1) 

17 entered into between such participant and 

18 such IHRT; 

19 (ii) such agreement includes param20 eters with respect to the disclosure of in21 formation involved and a process for the 

22 authorization of the further disclosure of 

23 information in such record; 


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1 (iii) the information involved is to be 

2 used for research or other activities only as 

3 provided for in the agreement; 

4 (iv) the recipient of the information 

5 provides assurances that the information 

6 will not be further transferred or reused in 

7 violation of such agreement; and 

8 (v) the transfer otherwise meets the 

9 requirements and standards prescribed by 

10 the Federal Trade Commission. 

11 (B) TREATMENT OF PUBLIC HEALTH RE12 PORTING.—Nothing in this paragraph shall be 

13 construed as prohibiting or limiting the use of 

14 health care information of an individual, includ15 ing an individual who is an IHRT participant, 

16 for public health reporting (or other research) 

17 purposes prior to the inclusion of such informa18 tion in an electronic health record maintained 

19 by an IHRT. 

20 (4) LAW ENFORCEMENT CLARIFICATION.— 

21 Nothing in this part shall prevent an IHRT from 

22 disclosing information contained in an electronic 

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1 ure to comply with, any criminal or civil statute or 

2 any regulation, rule, or order issued pursuant to 

3 such a statute. 

4 (5) RULE OF CONSTRUCTION.—Nothing in this 

5 section shall be construed to require a health care 

6 provider that does not utilize electronic methods or 

7 appropriate levels of health information technology 

8 on the date of the enactment of this Act to adopt 

9 such electronic methods or technology as a require10 ment for participation or compliance under this part. 

11 (b) PRIVACY PROTECTION AGREEMENT; TREATMENT

12 OF STATE PRIVACY AND SECURITY LAWS.— 

13 (1) PRIVACY PROTECTION AGREEMENT.—A pri14 vacy protection agreement described in this sub15 section is an agreement, with respect to an electronic 

16 health record of an IHRT participant to be main17 tained by an independent health record trust, be18 tween the participant and the trust— 

19 (A) that is consistent with the standards 

20 described in subsection (a)(2); 

21 (B) under which the participant specifies 

22 the portions of the record that may be accessed, 

23 under what circumstances such portions may be 

24 accessed, any authorizations for indicated au25 thorized EHR data users to access information 


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1 contained in the record, and the purposes for 

2 which the information (or portions of the infor3 mation) in the record may be used; 

4 (C) which provides a process for the au5 thorization of the transfer of information con6 tained in the record to a third party, including 

7 for the sale of such information for purposes of 

8 research, by an authorized EHR data user and 

9 reuse of such information by such third party, 

10 including a provision requiring that such trans11 fer and reuse is not in violation of any privacy 

12 or transfer restrictions placed by the partici13 pant on the independent health record of such 

14 participant; and 

15 (D) under which the trust provides assur16 ances that the trust will not transfer, disclose, 

17 or provide access to the record (or any portion 

18 of the record) in violation of the parameters es19 tablished in the agreement or to any person or 

20 entity who has not agreed to use and transfer 

21 such record (or portion of such record) in ac22 cordance with such agreement. 

23 (2) TREATMENT OF STATE LAWS.— 

24 (A) IN GENERAL.—Except as provided 

25 under subparagraph (B), the provisions of a 


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1 privacy protection agreement entered into be2 tween an IHRT and an IHRT participant shall 

3 preempt any provision of State law (or any 

4 State regulation) relating to the privacy and 

5 confidentiality of individually identifiable health 

6 information or to the security of such health in7 formation. 

8 (B) EXCEPTION FOR PRIVILEGED INFOR9 MATION.—The provisions of a privacy protec10 tion agreement shall not preempt any provision 

11 of State law (or any State regulation) that rec12 ognizes privileged communications between phy13 sicians, health care practitioners, and patients 

14 of such physicians or health care practitioners, 

15 respectively. 

16 (C) STATE DEFINED.—For purposes of 

17 this section, the term ‘‘State’’ has the meaning 

18 given such term when used in title XI of the 

19 Social Security Act, as provided under section 

20 1101(a) of such Act (42 U.S.C. 1301(a)). 

21 SEC. 167. VOLUNTARY NATURE OF TRUST PARTICIPATION 

22 AND INFORMATION SHARING. 

23 (a) IN GENERAL.—Participation in an independent 

24 health record trust, or authorizing access to information 

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1 ance issuer, group health plan, health care provider, or 

2 other person may require, as a condition of employment, 

3 issuance of a health insurance policy, coverage under a 

4 group health plan, the provision of health care services, 

5 payment for such services, or otherwise, that an individual 

6 participate in, or authorize access to information from, an 

7 independent health record trust. 

8 (b) ENFORCEMENT.—The penalties provided for in 

9 subsection (a) of section 1177 of the Social Security Act 

10 (42 U.S.C. 1320d–6) shall apply to a violation of sub11 section (a) in the same manner as such penalties apply 

12 to a person in violation of subsection (a) of such section. 

13 SEC. 168. FINANCING OF ACTIVITIES. 

14 (a) IN GENERAL.—Except as provided in subsection 

15 (b), an IHRT may generate revenue to pay for the oper16 ations of the IHRT through— 

17 (1) charging IHRT participants account fees 

18 for use of the trust; 

19 (2) charging authorized EHR data users for ac20 cessing electronic health records maintained in the 

21 trust; 

22 (3) the sale of information contained in the 

23 trust (as provided for in section 166(a)(3)(A)); and 

24 (4) any other activity determined appropriate 

25 by the Federal Trade Commission. 


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1 (b) PROHIBITION AGAINST ACCESS FEES FOR

2 HEALTH CARE PROVIDERS.—For purposes of providing 

3 incentives to health care providers to access information 

4 maintained in an IHRT, as authorized by the IHRT par5 ticipants involved, the IHRT may not charge a fee for 

6 services specified by the IHRT. Such services shall include 

7 the transmittal of information from a health care provider 

8 to be included in an independent electronic health record 

9 maintained by the IHRT (or permitting such provider to 

10 input such information into the record), including the 

11 transmission of or access to information described in sec12 tion 166(a)(2)(C)(ii) by appropriate emergency respond13 ers. 

14 (c) REQUIRED DISCLOSURES.—The sources and 

15 amounts of revenue derived under subsection (a) for the 

16 operations of an IHRT shall be fully disclosed to each 

17 IHRT participant of such IHRT and to the public. 

18 (d) TREATMENT OF INCOME.—For purposes of the 

19 Internal Revenue Code of 1986, any revenue described in 

20 subsection (a) shall not be included in gross income of any 

21 IHRT, IHRT participant, or authorized EHR data user. 

22 SEC. 169. REGULATORY OVERSIGHT. 

23 (a) IN GENERAL.—In carrying out this part, the Fed24 eral Trade Commission shall promulgate regulations for 

25 independent health record trusts. 


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1 (b) ESTABLISHMENT OF INTERAGENCY STEERING

2 COMMITTEE.— 

3 (1) IN GENERAL.—The Secretary of Health and 

4 Human Services shall establish an Interagency 

5 Steering Committee in accordance with this sub6 section. 

7 (2) CHAIRPERSON.—The Secretary of Health 

8 and Human Services shall serve as the chairperson 

9 of the Interagency Steering Committee. 

10 (3) MEMBERSHIP.—The members of the Inter11 agency Steering Committee shall consist of the At12 torney General, the Chairperson of the Federal 

13 Trade Commission, the Chairperson for the National 

14 Committee for Vital and Health Statistics, a rep15 resentative of the Federal Reserve, and other Fed16 eral officials determined appropriate by the Sec17 retary of Health and Human Services. 

18 (4) DUTIES.—The Interagency Steering Com19 mittee shall coordinate the implementation of this 

20 part, including the implementation of policies de21 scribed in subsection (d) based upon the rec22 ommendations provided under such subsection, and 

23 regulations promulgated under this part. 

24 (c) FEDERAL ADVISORY COMMITTEE.— 


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1 (1) IN GENERAL.—The National Committee for 

2 Vital and Health Statistics shall serve as an advisory 

3 committee for the IHRTs. The membership of such 

4 advisory committee shall include a representative 

5 from the Federal Trade Commission and the chair6 person of the Interagency Steering Committee. Not 

7 less than 60 percent of such membership shall con8 sist of representatives of nongovernment entities, at 

9 least one of whom shall be a representative from an 

10 organization representing health care consumers. 

11 (2) DUTIES.—The National Committee for 

12 Vital and Health Statistics shall issue periodic re13 ports and review policies concerning IHRTs based 

14 on each of the following factors: 

15 (A) Privacy and security policies. 

16 (B) Economic progress. 

17 (C) Interoperability standards. 

18 (d) POLICIES RECOMMENDED BY FEDERAL TRADE

19 COMMISSION.—The Federal Trade Commission, in con20 sultation with the National Committee for Vital and 

21 Health Statistics, shall recommend policies to— 

22 (1) provide assistance to encourage the growth 

23 of independent health record trusts; 

24 (2) track economic progress as it pertains to 

25 operators of independent health records trusts and 


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1 individuals receiving nontaxable income with respect 

2 to accounts; 

3 (3) conduct public education activities regarding 

4 the creation and usage of the independent health 

5 records trusts; 

6 (4) establish standards for the interoperability 

7 of health information technology to ensure that in8 formation contained in such record may be shared 

9 between the trust involved, the participant, and au10 thorized EHR data users, including for the stand11 ardized collection and transmission of individual 

12 health records (or portions of such records) to au13 thorized EHR data users through a common inter14 face and for the portability of such records among 

15 independent health record trusts; and 

16 (5) carry out any other activities determined 

17 appropriate by the Federal Trade Commission. 

18 (e) REGULATIONS PROMULGATED BY FEDERAL

19 TRADE COMMISSION.—The Federal Trade Commission 

20 shall promulgate regulations based on, at a minimum, the 

21 following factors: 

22 (1) Requiring that an IHRT participant, who 

23 has an electronic health record that is maintained by 

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1 spect to such record, and any corrective action taken 

2 on behalf of the participant. 

3 (2) Requiring that information sent to, or re4 ceived from, an IHRT that has been designated as 

5 high-risk should be authenticated through the use of 

6 methods such as the periodic changing of passwords, 

7 the use of biometrics, the use of tokens or other 

8 technology as determined appropriate by the council. 

9 (3) Requiring a delay in releasing sensitive 

10 health care test results and other similar informa11 tion to patients directly in order to give physicians 

12 time to contact the patient. 

13 (4) Recommendations for entities operating 

14 IHRTs, including requiring analysis of the potential 

15 risk of health transaction security breeches based on 

16 set criteria. 

17 (5) The conduct of audits of IHRTs to ensure 

18 that they are in compliance with the requirements 

19 and standards established under this part. 

20 (6) Disclosure to IHRT participants of the 

21 means by which such trusts are financed, including 

22 revenue from the sale of patient data. 

23 (7) Prevention of certification of an entity seek24 ing independent heath record trust certification 

25 based on— 


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1 (A) the potential for conflicts between the 

2 interests of such entity and the security of the 

3 health information involved; and 

4 (B) the involvement of the entity in any 

5 activity that is contrary to the best interests of 

6 a patient. 

7 (8) Prevention of the use of revenue sources 

8 that are contrary to a patient’s interests. 

9 (9) Public disclosure of audits in a manner 

10 similar to financial audits required for publicly trad11 ed stock companies. 

12 (10) Requiring notification to a participating 

13 entity that the information contained in such record 

14 may not be representative of the complete or accu15 rate electronic health record of such account holder. 

16 (f) COMPLIANCE REPORT.—Not later than 1 year 

17 after the date of the enactment of this Act, and annually 

18 thereafter, the Commission shall submit to the Committee 

19 on Health, Education, Labor, and Pensions and the Com20 mittee on Finance of the Senate and the Committee on 

21 Energy and Commerce and the Committee on Ways and 

22 Means of the House of Representatives, a report on com23 pliance by and progress of independent health record 

24 trusts with this part. Such report shall describe the fol25 lowing: 


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1 (1) The number of complaints submitted about 

2 independent health record trusts, which shall be di3 vided by complaints related to security breaches, and 

4 complaints not related to security breaches, and may 

5 include other categories as the Interagency Steering 

6 Committee established under subsection (b) deter7 mines appropriate. 

8 (2) The number of enforcement actions under9 taken by the Commission against independent health 

10 record trusts in response to complaints under para11 graph (1), which shall be divided by enforcement ac12 tions related to security breaches and enforcement 

13 actions not related to security breaches and may in14 clude other categories as the Interagency Steering 

15 Committee established under subsection (b) deter16 mines appropriate. 

17 (3) The economic progress of the individual 

18 owner or institution operator as achieved through 

19 independent health record trust usage and existing 

20 barriers to such usage. 

21 (4) The progress in security auditing as pro22 vided for by the Interagency Steering Committee 

23 council under subsection (b). 

24 (5) The other core responsibilities of the Com25 mission as described in subsection (a). 


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1 (g) INTERAGENCY MEMORANDUM OF UNDER2 STANDING.—The Interagency Steering Committee shall 

3 ensure, through the execution of an interagency memo4 randum of understanding, that— 

5 (1) regulations, rulings, and interpretations 

6 issued by Federal officials relating to the same mat7 ter over which 2 or more such officials have respon8 sibility under this part are administered so as to 

9 have the same effect at all times; and 

10 (2) the memorandum provides for the coordina11 tion of policies related to enforcing the same require12 ments through such officials in order to have coordi13 nated enforcement strategy that avoids duplication 

14 of enforcement efforts and assigns priorities in en15 forcement. 

16 TITLE II—MEDICAID AND SCHIP 

17 REFORM 

18 SEC. 201. MEDICAID REFORM. 

19 (a) IN GENERAL.—Title XIX of the Social Security 

20 Act is amended by adding at the end the following new 

21 section: 

22 ‘‘REVISION OF MEDICAID PROGRAM

23 ‘‘SEC. 1943. (a) ELECTION OF BLOCK GRANT OR IM24 PLEMENTATION OF REFUNDABLE TAX CREDIT FOR MED25 ICAID POPULATION FOR ACUTE CARE SERVICES AND

26 MAINTENANCE OF EFFORT SPENDING.— 


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1 ‘‘(1) IN GENERAL.—Each State shall elect— 

2 ‘‘(A) to receive block grant funding under 

3 subsection (b); or 

4 ‘‘(B) to have Medicaid-eligible individuals 

5 eligible to receive refundable tax credits under 

6 section 36B of the Internal Revenue Code of 

7 1986 and to provide for maintenance of effort 

8 described in subsection (c). 

9 If a State fails to make such an election, the State 

10 shall be treated as making the election described in 

11 subparagraph (A). 

12 ‘‘(2) LIMITATIONS ON ELECTION.—If a State 

13 makes the election described in paragraph (1)(B), 

14 the State may not change such election. A State that 

15 makes the election described in paragraph (1)(A) 

16 may change such election with notice to the Sec17 retary. 

18 ‘‘(3) EFFECTIVE DATE; IMPLEMENTATION.— 

19 This subsection shall first take effect as of January 

20 1, 2011. For items and services furnished on or 

21 after such date, no payment shall be made under 

22 section 1903 to any State. 

23 ‘‘(b) BLOCK GRANT PAYMENT FOR ACUTE CARE

24 SERVICES.— 


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1 ‘‘(1) IN GENERAL.—The block grant payment 

2 amount under this subsection for a State— 

3 ‘‘(A) for 2011 is equal to the total Federal 

4 payments under this title and title XXI to the 

5 State for calendar quarters in 2010 (other than 

6 payments for medical assistance for long-term 

7 care services, as defined for purposes of sub8 section (e)), increased by the inflation adjust9 ment factor for the year (described in para10 graph (2)); or 

11 ‘‘(B) for a subsequent year is, subject to 

12 subsection (d), equal to the block grant pay13 ment amount under this subsection for the 

14 State for the previous year increased by the in15 flation adjustment factor for the year (described 

16 in paragraph (2)) and a population growth fac17 tor (described in paragraph (3)). 

18 ‘‘(2) INFLATION ADJUSTMENT FACTOR.—The 

19 inflation adjustment factor in this paragraph for a 

20 year is equal to the average of the projected annual 

21 rate of increase in the consumer price index for 

22 urban consumers (all items; U.S. city average) and 

23 the percentage increase in the MEI (as defined in 

24 section 1842(i)(3)) for the year. 


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1 ‘‘(3) POPULATION GROWTH FACTOR.—The Sec2 retary shall determine and apply a population 

3 growth factor based on the percentage increase in 

4 the population included in the computation of Na5 tional Health Expenditures from the calendar year 

6 in which the previous fiscal year ends to the cal7 endar year in which the fiscal year involved ends, as 

8 most recently published by the Secretary, but ad9 justed among the States so as to reflect differences 

10 in relative population growth rates among such 

11 States. 

12 ‘‘(4) LIMITATION.—Payment under this sub13 section shall only be available to States for costs of 

14 health care and related administrative costs. 

15 ‘‘(5) NO REQUIREMENT FOR STATE MATCHING

16 PAYMENT.—Nothing in this subsection shall be con17 strued as requiring a State to make any matching 

18 payments as a condition of receiving payment under 

19 this subsection. 

20 ‘‘(6) PERIODICITY OF PAYMENTS.—The Sec21 retary shall provide for making payments under this 

22 subsection on a quarterly or other appropriate basis. 

23 ‘‘(c) MAINTENANCE OF EFFORT (MOE) REQUIRE24 MENT.— 


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1 ‘‘(1) IN GENERAL.—The maintenance of effort 

2 requirement under this subsection for a State for a 

3 year is to provide for payment in the MOE amount 

4 specified in paragraph (2) for the year for purposes 

5 described in, and in accordance with, paragraph (3). 

6 ‘‘(2) MOE AMOUNT.—The MOE amount speci7 fied in this paragraph for a State— 

8 ‘‘(A) for 2011 is equal to the amount of 

9 expenditures of the State under this title and 

10 title XXI for calendar quarters in 2009, not 

11 taking into account Federal payments made to 

12 the State under the respective title and not tak13 ing into account such payments that are attrib14 utable to medical assistance for long-term care 

15 services (as defined for purposes of subsection 

16 (e)), increased by the inflation adjustment fac17 tor described in subsection (b)(2) for 2010 and 

18 further increased by such factor for 2011; or 

19 ‘‘(B) for a subsequent year is equal to the 

20 MOE amount specified in this paragraph for 

21 the State for the previous year increased by the 

22 inflation adjustment factor described in sub23 section (b)(2) for such subsequent year. 

24 ‘‘(3) APPLICATION TOWARD SPENDING.—Pay25 ments by a State shall be used for the following purVerDate Nov 24 2008 05:08 Jun 12, 2009 Jkt 079200 PO 00000 Frm 00156 Fmt 6652 Sfmt 6201 E:\BILLS\S1240.IS S1240

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1 poses, with priority given to such purposes in the 

2 following order: 

3 ‘‘(A) To develop an auto-enrollment pro4 gram for previously eligible Medicaid recipients. 

5 ‘‘(B) To assist individuals in low-income 

6 families (as defined by the State) and high-cost 

7 individuals and families (for those for whom in8 surance is unavailable or very expensive because 

9 of their health status) to purchase qualifying 

10 health insurance. Eligible expenses shall include 

11 direct assistance with premiums and cost-shar12 ing. 

13 ‘‘(C) For purposes of funding qualified 

14 high risk pools (as defined in section 2744(c)(2) 

15 of the Public Health Service Act). 

16 ‘‘(D) For establishment and funding of re17 insurance mechanisms. 

18 ‘‘(E) For establishment and maintenance 

19 of networks designed to improve consumer in20 formation, transparency in price and quality 

21 data, and reduction in transaction costs associ22 ated with enrolling individuals in health insur23 ance coverage. 

24 ‘‘(d) PHASE-OUT OF DSH PAYMENTS.— 


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1 ‘‘(1) IN GENERAL.—Notwithstanding any other 

2 provision of law, the amount of DSH allotment oth3 erwise provided under section 1923(f) for each State 

4 for a fiscal year shall be reduced— 

5 ‘‘(A) by 25 percent for fiscal year 2011; 

6 ‘‘(B) by 50 percent for fiscal year 2012; 

7 ‘‘(C) by 75 percent for fiscal year 2013; 

8 and 

9 ‘‘(D) entirely for fiscal year 2014 and each 

10 succeeding fiscal year. 

11 ‘‘(2) ADJUSTMENT IN BLOCK GRANT.—The 

12 amount of any block grant for a State under sub13 section (b) for a fiscal year shall be adjusted to re14 flect the amount of reductions in DSH allotment 

15 under paragraph (1) for the State and the fiscal 

16 year. 

17 ‘‘(e) BLOCK GRANT FOR LONG-TERM CARE SERV18 ICES.— 

19 ‘‘(1) IN GENERAL.—Notwithstanding any other 

20 provision of this title, instead of any payment under 

21 this title to a State for long-term care services (as 

22 defined by the Secretary), the Secretary shall pay to 

23 a State the long-term care block grant amount speci24 fied in paragraph (2). 


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1 ‘‘(2) LONG-TERM CARE BLOCK GRANT

2 AMOUNT.—The long-term block grant payment 

3 amount under this paragraph for a State— 

4 ‘‘(A) for 2011 is equal to the total Federal 

5 payments under this title to the State for cal6 endar quarters in 2010 for long-term care serv7 ices, as defined for purposes of paragraph (1), 

8 increased by the inflation adjustment factor for 

9 the year (described in subsection (b)(2)); or 

10 ‘‘(B) for a subsequent year is equal to the 

11 long-term care block grant payment amount 

12 under this paragraph for the State for the pre13 vious year increased by such inflation adjust14 ment factor for the year. 

15 ‘‘(3) APPLICATION OF PROVISIONS.—The provi16 sions of paragraphs (3), (4), and (5) of subsection 

17 (b) shall apply to payments under this subsection. 

18 ‘‘(4) EFFECTIVE DATE; IMPLEMENTATION.— 

19 This subsection shall first take effect as of January 

20 1, 2011. For long-term care items and services fur21 nished on or after such date, no payment shall be 

22 made under section 1903 to any State.’’. 


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1 SEC. 202. SCHIP REFORM. 

2 (a) IN GENERAL.—Effective for items and services 

3 furnished on or after January 1, 2011, title XXI of the 

4 Social Security Act is repealed. 

5 (b) CONSTRUCTION.—Subsection (a) shall not affect 

6 payment for items and services furnished before such date. 

7 TITLE III—MEDICARE REFORM 

8 Subtitle A—New Medicare Program 

9 SEC. 301. BENEFIT CHANGES. 

10 Title XVIII of the Social Security Act is amended by 

11 inserting after section 1809 the following new section: 

12 ‘‘PROGRAM FOR NEW MEDICARE BENEFICIARIES

13 BEGINNING IN 2019

14 ‘‘SEC. 1809A. (a) APPLICATION.— 

15 ‘‘(1) IN GENERAL.—Notwithstanding any other 

16 provision of law (including sections 226 and 226A), 

17 the provisions of this section shall apply to individ18 uals (other than individuals entitled to benefits only 

19 because of the application of section 1881(d)) who 

20 first become entitled to benefits under part A, or 

21 whose coverage period under part B begins, on or 

22 after January 1, 2019. 

23 ‘‘(2) NO IMPACT ON FICA/SECA TAX REVE24 NUES.—Nothing in this section shall be construed as 

25 affecting revenues through the payment of hospital 


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1 insurance taxes under sections 1401(b), 3101(b), 

2 and 3111(b) of the Internal Revenue Code of 1986. 

3 ‘‘(3) NO IMPACT ON OTHER BENEFICIARIES.— 

4 ‘‘(A) IN GENERAL.—This section shall not 

5 apply to individuals not described in paragraph 

6 (1). 

7 ‘‘(B) NO IMPACT ON COMPUTATION OF

8 MEDICARE PREMIUMS FOR OLDER MEDICARE

9 BENEFICIARIES.—Premiums under parts A, B, 

10 and D shall be computed for individuals not de11 scribed in paragraph (1) based on the average 

12 costs that the Secretary estimates would have 

13 been applicable if this section did not apply. 

14 ‘‘(b) ALTERNATIVE BENEFITS.— 

15 ‘‘(1) IN GENERAL.—An individual described in 

16 subsection (a)(1) is only entitled to benefits under 

17 this title in accordance with this section. In the case 

18 of such an individual who has qualified health insur19 ance coverage, the individual is entitled under this 

20 section— 

21 ‘‘(A) to an income-related payment under 

22 subsection (c); and 

23 ‘‘(B) in the case of a low-income individual 

24 (as defined in paragraph (3) of subsection (d)), 

25 to a contribution to a medical savings account 


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1 of the individual in the amount specified in 

2 such subsection. 

3 ‘‘(2) ALTERNATIVE PREMIUM OBLIGATIONS.— 

4 An individual described in subsection (a)(1)— 

5 ‘‘(A) is not responsible for payment of any 

6 premium otherwise applicable under part B or 

7 D; but 

8 ‘‘(B) is responsible for payment of the pre9 mium for qualified health insurance coverage 

10 referred to in paragraph (1) and may apply the 

11 income-related payment under subsection (c) to12 ward such premium. 

13 ‘‘(3) QUALIFIED HEALTH INSURANCE COV14 ERAGE DEFINED.—In this subsection, the term 

15 ‘qualified health insurance coverage’ means health 

16 benefits coverage, whether under a group health 

17 plan, health insurance coverage or otherwise, but 

18 does not include coverage under a health plan if sub19 stantially all of its coverage is coverage described in 

20 section 223(c)(1)(B) of the Internal Revenue Code 

21 of 1986. 

22 ‘‘(c) INCOME-RELATED PAYMENT.— 

23 ‘‘(1) IN GENERAL.—The amount of the income24 related payment under this subsection for an indi25 vidual for a year is equal to— 


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1 ‘‘(A) the annual amount specified for the 

2 year in paragraph (2); 

3 ‘‘(B) subject to reduction under paragraph 

4 (3) (relating to higher income individuals); 

5 ‘‘(C) further subject to adjustment under 

6 paragraph (4); and 

7 ‘‘(D) subject to pro-ration under para8 graph (5). 

9 ‘‘(2) ANNUAL AMOUNT.— 

10 ‘‘(A) IN GENERAL.—The annual amount 

11 specified in this paragraph— 

12 ‘‘(i) for 2019 is $9,500; and 

13 ‘‘(ii) for any subsequent year is the 

14 annual amount specified in this paragraph 

15 for the preceding year increased by the an16 nual inflation adjustment described in sub17 paragraph (B) for such subsequent year. 

18 Any amount computed under clause (ii) that is 

19 not a multiple of $12 shall be rounded to the 

20 nearest multiple of $12. 

21 ‘‘(B) ANNUAL INFLATION ADJUSTMENT.— 

22 The annual inflation adjustment under this 

23 subparagraph for a year is equal to the average 

24 of— 


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1 ‘‘(i) the annual rate of increase in the 

2 consumer price index for urban consumers 

3 (all items; U.S. city average) for the year, 

4 as projected by the Secretary in consulta5 tion with the Bureau of Labor Statistics 

6 before the beginning of the year; and 

7 ‘‘(ii) the annual rate of increase in the 

8 medical care component of the consumer 

9 price index for all urban consumers (U.S. 

10 city average) for the year, as projected by 

11 the Secretary in consultation with the Bu12 reau of Labor Statistics before the begin13 ning of the year. 

14 ‘‘(3) REDUCTION FOR HIGHER-INCOME INDIVID15 UALS.— 

16 ‘‘(A) IN GENERAL.—In the case of an indi17 vidual whose modified adjusted gross income 

18 exceeds the threshold amount specified in para19 graph (2) of section 1839(i), as adjusted under 

20 paragraph (5) of such section, the annual 

21 amount under paragraph (2) shall be reduced 

22 by the adjustment percentage specified in sub23 paragraph (B). 


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1 ‘‘(B) ADJUSTMENT PERCENTAGE.—In the 

2 case of an individual for whom the applicable 

3 percentage specified in section 1839(i)(3)(C)— 

4 ‘‘(i) is less than 80 percent, the ad5 justment percentage under this subpara6 graph shall be 50 percent; or 

7 ‘‘(ii) is equal to 80 percent, the ad8 justment percentage under this subpara9 graph shall be 70 percent. 

10 ‘‘(C) APPLICATION OF CERTAIN PROVI11 SIONS.—The provisions of paragraphs (4) 

12 through (6) of section 1839(i) shall apply under 

13 this paragraph in the same manner as they 

14 apply for purposes of such section. 

15 ‘‘(4) RISK, GEOGRAPHIC AREA, AND OTHER AD16 JUSTMENTS.— 

17 ‘‘(A) RISK ADJUSTMENT.—The payment 

18 amount under this subsection for an individual 

19 shall be adjusted, using a methodology specified 

20 by the Secretary, in a manner that takes into 

21 account the relative risk factors (such as those 

22 described in section 1853(a)(1)(C)(i)) associ23 ated with such individual. Such adjustment 

24 shall be made in such a manner as not to 

25 change the total amount of payments made 


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1 under this subsection as a result of such adjust2 ment. 

3 ‘‘(B) PARTIAL GEOGRAPHIC AREA ADJUST4 MENT.—Such payment amount for an indi5 vidual also shall be adjusted, using a method6 ology specified by the Secretary, in a manner 

7 that takes into account the relative differences 

8 in area health care costs for the area in which 

9 the individual resides compared to other areas. 

10 Such adjustment shall be made in such a man11 ner as not to change the total amount of pay12 ments made under this subsection as a result of 

13 such adjustment. The Secretary shall provide 

14 for a decrease over time in the adjustment 

15 made under this subparagraph. 

16 ‘‘(C) CERTAIN PART A BUY-IN INDIVID17 UALS.—Such payment amount for an individual 

18 who is not eligible for benefits under part A 

19 pursuant to section 226 or 226A shall be ad20 justed by such proportion or amount as the 

21 Secretary determines appropriate to take into 

22 account premiums that would otherwise be pay23 able under section 1818 or 1818A for benefits 

24 under part A. 


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1 ‘‘(5) PRO-RATIO FOR PARTIAL YEAR OF ELIGI2 BILITY.—In the case of an individual whose entitle3 ment under this section is for less than an entire 

4 year, the payment amount under this subsection 

5 shall be pro-rated to reflect the portion of the year 

6 included in such entitlement. 

7 ‘‘(6) PAYMENT ON PERIODIC BASIS.—The Sec8 retary shall provide for the payment under this sub9 section on an appropriate monthly or other periodic 

10 basis. 

11 ‘‘(d) CONTRIBUTION TO A MEDICAL SAVINGS AC12 COUNT (MSA) FOR LOW-INCOME INDIVIDUALS.— 

13 ‘‘(1) IN GENERAL.—The amount of the con14 tribution under subsection (b)(1)(B) to a medical 

15 savings account of a low-income individual is 

16 equal— 

17 ‘‘(A) in the case of an individual described 

18 in clause (i) or (ii) of paragraph (4)(A), to the 

19 full MSA contribution amount (as defined in 

20 paragraph (2)); or 

21 ‘‘(B) in the case of any other individual, to 

22 75 percent of the full MSA contribution 

23 amount. 

24 ‘‘(2) FULL MSA CONTRIBUTION AMOUNT.—For 

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1 tribution amount’ means, for a year for an indi2 vidual, an amount to be equivalent to the full 

3 amount of the average deductible of a high-deduct4 ible health plan (as defined in section 223(c)(2) of 

5 the Internal Revenue Code of 1986) as determined 

6 by the Secretary. 

7 ‘‘(3) NO MEDICAID COVERAGE FOR MEDICARE8 COVERED SERVICES.— 

9 ‘‘(A) IN GENERAL.—In the case of an indi10 vidual who is eligible to be provided a contribu11 tion to a medical savings account under this 

12 subsection, the individual is not entitled to any 

13 payment under a State plan under title XIX 

14 with respect to any benefits relating to items 

15 and services for which coverage is provided 

16 under this title. 

17 ‘‘(B) CONSTRUCTION.—Subparagraph (A) 

18 shall not affect the continued provision of med19 ical assistance under title XIX for items and 

20 services, such as dental, vision, or long-term 

21 care facility services, for which benefits are not 

22 provided under this title regardless of medical 

23 necessity. 

24 ‘‘(4) PERIODIC PAYMENT.—The Secretary shall 

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1 counts of amounts under this subsection on an ap2 propriate monthly or other periodic basis. 

3 ‘‘(5) LOW-INCOME INDIVIDUAL DEFINED.— 

4 ‘‘(A) IN GENERAL.—For purposes of this 

5 section, the term ‘low-income individual’ means 

6 an individual described in subsection (a)(1)— 

7 ‘‘(i) who meets the requirement of 

8 section 1936(c)(6)(A)(ii) (relating to a full9 benefit dual eligible individual); 

10 ‘‘(ii) whose income (as determined 

11 under section 1612 for purposes of the 

12 supplemental security income program, ex13 cept as provided in subparagraph (B)) 

14 does not exceed 100 percent of the official 

15 income poverty line (referred to in section 

16 1905(p)(1)) applicable to a family of the 

17 size involved; or 

18 ‘‘(iii) whose income (as so determined) 

19 exceeds 100 percent, but does not exceed 

20 150 percent, of such official income pov21 erty line applicable to a family of the size 

22 involved. 

23 ‘‘(B) APPLICATION OF SPECIAL RULE RE24 GARDING APPLICATION OF SOCIAL SECURITY IN25 CREASES.—The provisions of subparagraph (D) 


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1 of section 1905(p)(2) shall apply to determina2 tions of income under subparagraph (A) in the 

3 same manner they apply under such section. 

4 ‘‘(C) DETERMINATION PROCESS.—The 

5 Secretary shall specify a process for the deter6 mination of whether individuals are low-income 

7 individuals.’’. 

8 SEC. 302. UNIFIED MEDICARE TRUST FUND. 

9 (a) IN GENERAL.—The Federal Hospital Insurance 

10 Trust Fund (established under section 1817 of the Social 

11 Security Act) and the Federal Supplementary Medical In12 surance Trust Fund (established under section 1841 of 

13 such Act) are hereby consolidated into a unified Medicare 

14 trust fund. Such trust fund shall have separate accounts 

15 for parts A, B, and D of such title and shall be adminis16 tered by the same board of trustees that administers the 

17 current Trust Funds. 

18 (b) CONSTRUCTION.—Nothing in this section shall be 

19 construed as affecting the actual transfer of funds or com20 putations of amounts of premiums under any part of the 

21 Medicare program. 

22 (c) SOLVENCY.—The Medicare trustee shall establish 

23 a measure of program solvency for the Medicare program 

24 of total outlays as a measure of gross domestic product. 


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1 Subtitle B—Changes in Current 

2 Medicare Program 

3 SEC. 311. INCOME-RELATED REDUCTION IN PART D PRE4 MIUM SUBSIDY. 

5 (a) INCOME-RELATED REDUCTION IN PART D PRE6 MIUM SUBSIDY.— 

7 (1) IN GENERAL.—Section 1860D–13(a) of the 

8 Social Security Act (42 U.S.C. 1395w–113(a)) is 

9 amended by adding at the end the following new 

10 paragraph: 

11 ‘‘(7) REDUCTION IN PREMIUM SUBSIDY BASED

12 ON INCOME.— 

13 ‘‘(A) IN GENERAL.—In the case of an indi14 vidual whose modified adjusted gross income 

15 exceeds the threshold amount applicable under 

16 paragraph (2) of section 1839(i) (including ap17 plication of paragraph (5) of such section) for 

18 the calendar year, the monthly amount of the 

19 premium subsidy applicable to the premium 

20 under this section for a month after December 

21 2009 shall be reduced (and the monthly bene22 ficiary premium shall be increased) by the 

23 monthly adjustment amount specified in sub24 paragraph (B). 


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1 ‘‘(B) MONTHLY ADJUSTMENT AMOUNT.— 

2 The monthly adjustment amount specified in 

3 this subparagraph for an individual for a month 

4 in a year is equal to the product of— 

5 ‘‘(i) the quotient obtained by divid6 ing— 

7 ‘‘(I) the applicable percentage de8 termined under paragraph (3)(C) of 

9 section 1839(i) (including application 

10 of paragraph (5) of such section) for 

11 the individual for the calendar year 

12 reduced by 25.5 percent; by 

13 ‘‘(II) 25.5 percent; and 

14 ‘‘(ii) the base beneficiary premium (as 

15 computed under paragraph (2)). 

16 ‘‘(C) MODIFIED ADJUSTED GROSS IN17 COME.—For purposes of this paragraph, the 

18 term ‘modified adjusted gross income’ has the 

19 meaning given such term in subparagraph (A) 

20 of section 1839(i)(4), determined for the tax21 able year applicable under subparagraphs (B) 

22 and (C) of such section. 

23 ‘‘(D) DETERMINATION BY COMMISSIONER

24 OF SOCIAL SECURITY.—The Commissioner of 

25 Social Security shall make any determination 


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1 necessary to carry out the income-related reduc2 tion in premium subsidy under this paragraph. 

3 ‘‘(E) PROCEDURES TO ASSURE CORRECT

4 INCOME-RELATED REDUCTION IN PREMIUM

5 SUBSIDY.— 

6 ‘‘(i) DISCLOSURE OF BASE BENE7 FICIARY PREMIUM.—Not later than Sep8 tember 15 of each year beginning with 

9 2009, the Secretary shall disclose to the 

10 Commissioner of Social Security the 

11 amount of the base beneficiary premium 

12 (as computed under paragraph (2)) for the 

13 purpose of carrying out the income-related 

14 reduction in premium subsidy under this 

15 paragraph with respect to the following 

16 year. 

17 ‘‘(ii) ADDITIONAL DISCLOSURE.—Not 

18 later than October 15 of each year begin19 ning with 2009, the Secretary shall dis20 close to the Commissioner of Social Secu21 rity the following information for the pur22 pose of carrying out the income-related re23 duction in premium subsidy under this 

24 paragraph with respect to the following 

25 year: 


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1 ‘‘(I) The modified adjusted gross 

2 income threshold applicable under 

3 paragraph (2) of section 1839(i) (in4 cluding application of paragraph (5) 

5 of such section). 

6 ‘‘(II) The applicable percentage 

7 determined under paragraph (3)(C) of 

8 section 1839(i) (including application 

9 of paragraph (5) of such section). 

10 ‘‘(III) The monthly adjustment 

11 amount specified in subparagraph 

12 (B). 

13 ‘‘(IV) Any other information the 

14 Commissioner of Social Security de15 termines necessary to carry out the 

16 income-related reduction in premium 

17 subsidy under this paragraph. 

18 ‘‘(F) RULE OF CONSTRUCTION.—The for19 mula used to determine the monthly adjustment 

20 amount specified under subparagraph (B) shall 

21 only be used for the purpose of determining 

22 such monthly adjustment amount under such 

23 subparagraph.’’. 


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1 (2) COLLECTION OF MONTHLY ADJUSTMENT

2 AMOUNT.—Section 1860D–13(c) of the Social Secu3 rity Act (42 U.S.C. 1395w–113(c)) is amended— 

4 (A) in paragraph (1), by striking ‘‘(2) and 

5 (3)’’ and inserting ‘‘(2), (3), and (4)’’; and 

6 (B) by adding at the end the following new 

7 paragraph: 

8 ‘‘(4) COLLECTION OF MONTHLY ADJUSTMENT

9 AMOUNT.— 

10 ‘‘(A) IN GENERAL.—Notwithstanding any 

11 other provision of this subsection or section 

12 1854(d)(2), subject to subparagraph (B), the 

13 amount of the income-related reduction in pre14 mium subsidy for an individual for a month (as 

15 determined under subsection (a)(7)) shall be 

16 paid through withholding from benefit pay17 ments in the manner provided under section 

18 1840. 

19 ‘‘(B) AGREEMENTS.—In the case where 

20 the monthly benefit payments of an individual 

21 that are withheld under subparagraph (A) are 

22 insufficient to pay the amount described in such 

23 subparagraph, the Commissioner of Social Se24 curity shall enter into agreements with the Sec25 retary, the Director of the Office of Personnel 


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1 Management, and the Railroad Retirement 

2 Board as necessary in order to allow other 

3 agencies to collect the amount described in sub4 paragraph (A) that was not withheld under 

5 such subparagraph.’’. 

6 (b) CONFORMING AMENDMENTS.— 

7 (1) MEDICARE.—Part D of title XVIII of the 

8 Social Security Act (42 U.S.C. 1395w–101 et seq.) 

9 is amended— 

10 (A) in section 1860D–13(a)(1)— 

11 (i) by redesignating subparagraph (F) 

12 as subparagraph (G); 

13 (ii) in subparagraph (G), as redesig14 nated by clause (i), by striking ‘‘(D) and 

15 (E)’’ and inserting ‘‘(D), (E), and (F)’’; 

16 and 

17 (iii) by inserting after subparagraph 

18 (E) the following new subparagraph: 

19 ‘‘(F) INCREASE BASED ON INCOME.—The 

20 monthly beneficiary premium shall be increased 

21 pursuant to paragraph (7).’’; and 

22 (B) in section 1860D–15(a)(1)(B), by 

23 striking ‘‘paragraph (1)(B)’’ and inserting 

24 ‘‘paragraphs (1)(B) and (1)(F)’’. 


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1 (2) INTERNAL REVENUE CODE.—Section 

2 6103(l)(20) of the Internal Revenue Code of 1986 

3 (relating to disclosure of return information to carry 

4 out Medicare part B premium subsidy adjustment) 

5 is amended— 

6 (A) in the heading, by striking ‘‘PART B

7 PREMIUM SUBSIDY ADJUSTMENT’’ and inserting 

8 ‘‘PARTS B AND D PREMIUM SUBSIDY ADJUST9 MENTS’’; 

10 (B) in subparagraph (A)— 

11 (i) in the matter preceding clause (i), 

12 by inserting ‘‘or 1860D–13(a)(7)’’ after 

13 ‘‘1839(i)’’; and 

14 (ii) in clause (vii), by inserting after 

15 ‘‘subsection (i) of such section’’ the fol16 lowing: ‘‘or under section 1860D–13(a)(7) 

17 of such Act’’; and 

18 (C) in subparagraph (B)— 

19 (i) by inserting ‘‘or such section 

20 1860D–13(a)(7)’’ before the period at the 

21 end; 

22 (ii) as amended by clause (i), by in23 serting ‘‘or for the purpose of resolving tax 

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1 mium adjustment’’ before the period at the 

2 end; and 

3 (iii) by adding at the end the fol4 lowing new sentence: ‘‘Officers, employees, 

5 and contractors of the Social Security Ad6 ministration may disclose such return in7 formation to officers, employees, and con8 tractors of the Department of Health and 

9 Human Services, the Office of Personnel 

10 Management, the Railroad Retirement 

11 Board, the Department of Justice, and the 

12 courts of the United States to the extent 

13 necessary to carry out the purposes de14 scribed in the preceding sentence.’’; and 

15 (D) by adding at the end the following new 

16 subparagraph: 

17 ‘‘(C) TIMING OF DISCLOSURE.—Return in18 formation shall be disclosed to officers, employ19 ees, and contractors of the Social Security Ad20 ministration under subparagraph (A) not later 

21 than the date that is 90 days prior to the date 

22 on which the taxpayer first becomes entitled to 

23 benefits under part A of title XVIII of the So24 cial Security Act or eligible to enroll for benefits 

25 under part B of such title.’’. 


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1 SEC. 312. REDUCTION IN HOSPITAL MARKET BASKET IN2 CREASES. 

3 Notwithstanding any other provision of law: 

4 (1) OUTPATIENT HOSPITAL SERVICES.—For 

5 2010 and each succeeding year, the OPD fee sched6 ule increase factor otherwise computed under section 

7 1833(t)(3)(C)(iv) of the Social Security Act (42 

8 U.S.C. 1395l(t)(3)(C)(iv)) shall be reduced by .4 

9 percentage points. 

10 (2) INPATIENT HOSPITAL SERVICES.—For fis11 cal year 2010 and each succeeding fiscal year, the 

12 applicable percentage increase otherwise computed 

13 under clauses (i) and (ii) of section 1886(b)(3)(B) of 

14 such Act (42 U.S.C. 1395ww(b)(3)(B)) shall be re15 duced by .4 percentage points. 

16 SEC. 313. ELIMINATION OF INDEXING OF INCOME THRESH17 OLDS FOR PART B INCOME-RELATED PRE18 MIUMS. 

19 (a) IN GENERAL.—Section 1839(i) of the Social Se20 curity Act (42 U.S.C. 1395r(i)) is amended by striking 

21 paragraph (5). 

22 (b) EFFECTIVE DATE.—The amendment made by 

23 subsection (a) shall apply to premiums for years beginning 

24 with 2010. 


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1 TITLE IV—SOCIAL SECURITY 

2 REFORM 

3 SEC. 401. SHORT TITLE AND TABLE OF CONTENTS OF 

4 TITLE. 

5 (a) SHORT TITLE OF TITLE.—This title may be cited 

6 as the ‘‘Social Security Personal Savings Guarantee and 

7 Prosperity Act of 2009’’. 

8 (b) TABLE OF CONTENTS OF TITLE.—The table of 

9 contents for this title is as follows: 

TITLE IV—SOCIAL SECURITY REFORM 

Sec. 401. Short title and table of contents of title. 

Sec. 402. Establishment of Personal Social Security Savings Program. 

‘‘PART B—PERSONAL SOCIAL SECURITY SAVINGS PROGRAM

‘‘Sec. 251. Definitions. 

‘‘Sec. 252. Social Security Personal Savings Fund. 

‘‘Sec. 253. Participation in Program. 

‘‘Sec. 254. Personal Social Security savings accounts. 

‘‘Sec. 255. Tier I Investment Fund. 

‘‘Sec. 256. Tier II Investment Fund. 

‘‘Sec. 257. Tier III Investment Options. 

‘‘Sec. 258. Personal Social Security savings annuity and other distributions. 

‘‘Sec. 259. Guarantee of promised benefits. 

‘‘Sec. 260. Personal Social Security Savings Board. 

‘‘Sec. 261. Executive Director. 

Sec. 403. Monthly insurance benefits for participating individuals. 

Sec. 404. Tax treatment of accounts. 

Sec. 405. Self-Liquidating Social Security Transition Fund. 

Sec. 406. Budgetary treatment of Social Security. 

Sec. 407. Accounting for the Old-Age, Survivors, and Disability Insurance Program and the Personal Social Security Savings Program. 

Sec. 408. Progressive indexing of benefits for old-age, wife’s, and husband’s insurance benefits. 

Sec. 409. Enhancements to Part A benefits. 


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1 SEC. 402. ESTABLISHMENT OF PERSONAL SOCIAL SECU2 RITY SAVINGS PROGRAM. 

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

4 is amended— 

5 (1) by inserting before section 201 the fol6 lowing: 

7 ‘‘PART A—INSURANCE BENEFITS’’; 

8 and 

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

10 ‘‘PART B—PERSONAL SOCIAL SECURITY SAVINGS 

11 PROGRAM 

12 ‘‘SEC. 251. DEFINITIONS. 

13 ‘‘For purposes of this part— 

14 ‘‘(1) PARTICIPATING INDIVIDUAL.—The term 

15 ‘participating individual’ has the meaning provided 

16 in section 253(a). 

17 ‘‘(2) BOARD.—The term ‘Board’ means the 

18 Personal Social Security Savings Board established 

19 under section 260. 

20 ‘‘(3) EXECUTIVE DIRECTOR.—The term ‘Execu21 tive Director’ means the Executive Director ap22 pointed under section 261. 

23 ‘‘(4) PERSONAL SOCIAL SECURITY SAVINGS AC24 COUNT.—The term ‘personal social security savings 

25 account’ means an account established under section 

26 254(a). 


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1 ‘‘(5) PERSONAL SOCIAL SECURITY SAVINGS AN2 NUITY.—The term ‘personal social security savings 

3 annuity’ means an annuity approved by the Board 

4 under section 258(b)(3). 

5 ‘‘(6) SAVINGS FUND.—The term ‘Savings Fund’ 

6 means the Social Security Personal Savings Fund 

7 established under section 252. 

8 ‘‘(7) TIER I INVESTMENT FUND.—The term 

9 ‘Tier I Investment Fund’ means the trust fund cre10 ated under section 255. 

11 ‘‘(8) TIER II INVESTMENT FUND.—The term 

12 ‘Tier II Investment Fund’ means the trust fund cre13 ated under section 256. 

14 ‘‘(9) TIER III INVESTMENT OPTION.—The term 

15 ‘Tier III Investment Option’ means an investment 

16 option which is— 

17 ‘‘(A) offered by an eligible entity certified 

18 by the Board under section 257(b); and 

19 ‘‘(B) approved by the Board under section 

20 257(c). 

21 ‘‘SEC. 252. SOCIAL SECURITY PERSONAL SAVINGS FUND. 

22 ‘‘(a) ESTABLISHMENT OF SAVINGS FUND.— 

23 ‘‘(1) ESTABLISHMENT.—There is established in 

24 the Treasury of the United States a trust fund to 


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1 be known as the ‘Social Security Personal Savings 

2 Fund’. 

3 ‘‘(2) AMOUNTS IN FUND.—The Savings Fund 

4 shall consist of— 

5 ‘‘(A) all amounts transferred to or depos6 ited into the Savings Fund under subsection 

7 (b), increased by the total net earnings from in8 vestments of sums in the Savings Fund attrib9 utable to such transferred or deposited 

10 amounts, and reduced by the total net losses 

11 from investments of such sums, and 

12 ‘‘(B) the reserves held in the Annuity Re13 serves Account established under section 

14 258(b)(3), increased by the total net earnings 

15 from investments of such reserves, and reduced 

16 by the total net losses from investments of such 

17 reserves. 

18 ‘‘(3) TRUSTEES.—The Board shall serve as 

19 trustees of the Savings Fund. 

20 ‘‘(4) BUDGET AUTHORITY; APPROPRIATION.— 

21 This part constitutes budget authority in advance of 

22 appropriations Acts and represents the obligation of 

23 the Board to provide for the payment of amounts 

24 provided under this part. The amounts held in the 


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1 Savings Fund are appropriated and shall remain 

2 available without fiscal year limitation. 

3 ‘‘(b) DEPOSITS INTO FUND.— 

4 ‘‘(1) IN GENERAL.—During each calendar year, 

5 the Secretary of the Treasury shall deposit into the 

6 Savings Fund, from amounts held in the Federal 

7 Old-Age and Survivors Insurance Trust Fund, a 

8 total amount equal, in the aggregate, to 100 percent 

9 of the redirected social security contribution for such 

10 calendar year of each individual who is a partici11 pating individual for such calendar year. 

12 ‘‘(2) TRANSFERS BASED ON ESTIMATES.— 

13 ‘‘(A) IN GENERAL.—The amounts depos14 ited pursuant to paragraph (1) shall be trans15 ferred in at least weekly payments from the 

16 Federal Old-Age and Survivors Insurance Trust 

17 Fund to the Savings Fund. 

18 ‘‘(B) DETERMINATION OF AMOUNTS.—The 

19 amounts transferred under subparagraph (A) 

20 shall be determined on the basis of estimates, 

21 made by the Commissioner of Social Security 

22 and certified to the Secretary of the Treasury, 

23 of the wages paid to, and self-employment in24 come derived by, participating individuals. 

25 Proper adjustments shall be made in amounts 


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1 subsequently transferred to the extent prior es2 timates were in excess of or were less than ac3 tual amounts transferred. 

4 ‘‘(3) REDIRECTED SOCIAL SECURITY CONTRIBU5 TIONS.—For purposes of paragraph (1)— 

6 ‘‘(A) IN GENERAL.—The term ‘redirected 

7 social security contributions’ means, with re8 spect to an individual for a calendar year, the 

9 sum of— 

10 ‘‘(i) the product derived by multi11 plying— 

12 ‘‘(I) the sum of the total wages 

13 paid to, and self-employment income 

14 derived by, such individual during 

15 such calendar year, to the extent such 

16 total wages and self-employment in17 come do not exceed the base amount 

18 for such calendar year; by 

19 ‘‘(II) the applicable base percent20 age for the calendar year; and 

21 ‘‘(ii) the product derived by multi22 plying— 

23 ‘‘(I) the sum of the total wages 

24 paid to, and self-employment income 

25 derived by, such individual during 


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1 such calendar year, to the extent such 

2 total wages and self-employment in3 come exceed the base amount (taking 

4 into account the limits imposed by the 

5 contribution and benefit base under 

6 section 230); by 

7 ‘‘(II) the applicable supplemental 

8 percentage for the calendar year. 

9 ‘‘(B) BASE AMOUNT.—For purposes of 

10 subparagraph (A)— 

11 ‘‘(i) INITIAL BASE AMOUNT.—The 

12 base amount for calendar year 2012 is 

13 $10,000. 

14 ‘‘(ii) ADJUSTMENTS TO BASE

15 AMOUNT.—The base amount for any cal16 endar year after 2012 is the product de17 rived by multiplying $10,000 by a frac18 tion— 

19 ‘‘(I) the numerator of which is 

20 the national average wage index (as 

21 defined in section 209(k)) for the first 

22 of the 2 preceding calendar years; and 

23 ‘‘(II) the denominator of which is 

24 the national average wage index (as so 

25 defined) for 2010. 


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1 ‘‘(C) APPLICABLE BASE PERCENTAGE.— 

2 For purposes of subparagraph (A), the applica3 ble base percentage for a calendar year is— 

4 ‘‘(i) for calendar years after 2011 and 

5 before 2022, 2 percent; 

6 ‘‘(ii) for calendar years after 2021 

7 and before 2032, 4 percent; 

8 ‘‘(iii) for calendar years after 2031 

9 and before 2042, 6 percent; and 

10 ‘‘(iv) for calendar years after 2041, 8 

11 percent. 

12 ‘‘(D) APPLICABLE SUPPLEMENTAL PER13 CENTAGE.—For purposes of subparagraph (A), 

14 the applicable supplemental percentage for a 

15 calendar year is— 

16 ‘‘(i) for calendar years after 2011 and 

17 before 2022, 1 percent; 

18 ‘‘(ii) for calendar years after 2021 

19 and before 2032, 2 percent; 

20 ‘‘(iii) for calendar years after 2031 

21 and before 2042, 3 percent; and 

22 ‘‘(iv) for calendar years after 2041, 4 

23 percent. 


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1 ‘‘(c) AVAILABILITY.—The sums in the Savings Fund 

2 are appropriated and shall remain available without fiscal 

3 year limitation— 

4 ‘‘(1) to invest funds in the Tier I Investment 

5 Fund of the Savings Fund and the Tier II Invest6 ment Fund of the Savings Fund under sections 255 

7 and 256, respectively; 

8 ‘‘(2) to transfer into Tier III Investment Op9 tions under section 257; 

10 ‘‘(3) to make distributions in accordance with 

11 section 258; and 

12 ‘‘(4) to pay the administrative expenses of the 

13 Board in accordance with subsection (e). 

14 ‘‘(d) LIMITATIONS ON USE OF FUNDS.— 

15 ‘‘(1) IN GENERAL.—Sums in the Savings Fund 

16 credited to a participating individual’s personal so17 cial security savings account may not be used for, or 

18 diverted to, purposes other than for the exclusive 

19 benefit of the participating individual or the partici20 pating individual’s beneficiaries under this part. 

21 ‘‘(2) ASSIGNMENTS.—Sums in the Savings 

22 Fund may not be assigned or alienated and are not 

23 subject to execution, levy, attachment, garnishment, 

24 or other legal process. 


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1 ‘‘(e) PAYMENT OF ADMINISTRATIVE EXPENSES.— 

2 Administrative expenses incurred to carry out this part 

3 shall be paid out of net earnings in the Savings Fund in 

4 conjunction with the allocation of investment earnings and 

5 losses under section 254(c). 

6 ‘‘(f) LIMITATION.—The sums in the Savings Fund 

7 shall not be appropriated for any purpose other than the 

8 purposes specified in this part and may not be used for 

9 any other purpose. 

10 ‘‘SEC. 253. PARTICIPATION IN PROGRAM. 

11 ‘‘(a) PARTICIPATING INDIVIDUAL.—For purposes of 

12 this part, the term ‘participating individual’ means any 

13 individual— 

14 ‘‘(1)(A) who receives wages in any calendar 

15 year after December 31, 2011, on which there is im16 posed a tax under section 3101(a) of the Internal 

17 Revenue Code of 1986, or 

18 ‘‘(B) who derives self-employment income for a 

19 taxable year beginning after December 31, 2011, on 

20 which there is imposed a tax under section 1401(a) 

21 of the Internal Revenue Code of 1986, 

22 ‘‘(2) who is born on or after January 1, 1955, 

23 and 

24 ‘‘(3) who has not filed an election to renounce 

25 such individual’s status as a participating individual 


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1 under subsection (b) or has filed such an election 

2 and has subsequently filed an election to reinstate 

3 such individual’s status as a participating individual 

4 under subsection (c). 

5 ‘‘(b) RENUNCIATION OF PARTICIPATION.— 

6 ‘‘(1) IN GENERAL.—An individual— 

7 ‘‘(A) who has not attained retirement age 

8 (as defined in section 216(l)(1)), and 

9 ‘‘(B) with respect to whom no distribution 

10 has been made from amounts credited to the in11 dividual’s personal social security savings ac12 count for the purchase of a personal social se13 curity savings annuity, 

14 may elect, in such form and manner as shall be pre15 scribed in regulations of the Board, to renounce 

16 such individual’s status as a ‘participating indi17 vidual’ for purposes of this part. Upon completion of 

18 the procedures provided for under paragraph (2), 

19 any such individual who has made such an election 

20 shall not be treated as a participating individual 

21 under this part, effective as if such individual had 

22 never been a participating individual. The Board 

23 shall provide for immediate notification of such elec24 tion to the Commissioner of Social Security, the Sec25 retary of the Treasury, and the Executive Director. 


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1 ‘‘(2) PROCEDURE.—The Board shall prescribe 

2 by regulation procedures governing the termination 

3 of an individual’s status as ‘participating individual’ 

4 pursuant to an election under this subsection. Such 

5 procedures shall include— 

6 ‘‘(A) prompt closing of the individual’s per7 sonal social security savings account established 

8 under section 254, 

9 ‘‘(B) revocation of any benefit credit cer10 tificate assigned to the individual’s personal so11 cial security savings account under section 255, 

12 and 

13 ‘‘(C) prompt transfer to the Federal Old14 Age and Survivors Insurance Trust Fund as 

15 general receipts of any amount held in the Tier 

16 II Investment Fund of the Savings Fund or 

17 under a Tier III Investment Option pursuant to 

18 section 256 or 257 and credited to such individ19 ual’s personal social security savings account. 

20 ‘‘(c) REINSTATEMENT OF PARTICIPATION.— 

21 ‘‘(1) IN GENERAL.—Any individual who has 

22 filed an election under subsection (b) to renounce 

23 such individual’s status as a ‘participating indi24 vidual’ under this part may elect, in such form and 

25 manner as shall be prescribed in regulations of the 


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1 Board, to reinstate such status. Such regulations 

2 shall provide for regular, periodic opportunities for 

3 the filing of such an election. The Board shall pro4 vide for immediate notification to the Commissioner 

5 of Social Security, the Secretary of the Treasury, 

6 and the Executive Director of such election. 

7 ‘‘(2) EFFECTIVENESS OF REINSTATEMENT.— 

8 An election under this subsection shall be effective 

9 with respect to wages earned, and self-employment 

10 income derived, on the earliest date on which the 

11 Board determines is practicable to make such elec12 tion effective following the date of the filing of the 

13 election. The individual filing the election shall be 

14 treated as becoming a participating individual under 

15 this part on the effective date of the election as if 

16 such individual first met the requirements of sub17 section (a) on such date. 

18 ‘‘(3) IRREVOCABILITY.—An election under this 

19 subsection shall be irrevocable. 

20 ‘‘SEC. 254. PERSONAL SOCIAL SECURITY SAVINGS AC21 COUNTS. 

22 ‘‘(a) ESTABLISHMENT OF PUBLICLY ADMINISTERED

23 SYSTEM OF PERSONAL SECURITY SAVINGS ACCOUNTS.— 

24 As soon as practicable after the later of January 1, 2012, 

25 or the date on which an individual becomes a participating 


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1 individual under this part, the Executive Director shall es2 tablish a personal social security savings account for such 

3 individual. Such account shall be the means by which 

4 amounts held in the Tier I Investment Fund and the Tier 

5 II Investment Fund of the Savings Fund under sections 

6 255 and 256 and amounts held under Tier III Investment 

7 Options under section 257 are credited to such individual, 

8 under procedures which shall be established by the Board 

9 by regulation. Each account of a participating individual 

10 shall be identified to such participating individual by 

11 means of the participating individual’s social security ac12 count number. 

13 ‘‘(b) ACCOUNT BALANCE.—The balance in a partici14 pating individual’s account at any time is the sum of— 

15 ‘‘(1) the balance in the Tier I Investment Fund 

16 of the Savings Fund credited to such participating 

17 individual prior to transfer of the credited amount to 

18 the Tier II Investment Fund of the Savings Fund; 

19 plus 

20 ‘‘(2) the excess of— 

21 ‘‘(A) all deposits in the Tier II Investment 

22 Fund of the Savings Fund credited to such par23 ticipating individual’s personal social security 

24 savings account, subject to such increases and 

25 reductions as may result from allocations made 


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1 to and reductions made in the account pursuant 

2 to subsection (c)(1); over 

3 ‘‘(B) amounts paid out of the Tier II In4 vestment Fund in connection with amounts 

5 credited to such participating individual’s per6 sonal social security savings account; plus 

7 ‘‘(3) the excess of— 

8 ‘‘(A) the deposits in the Tier III Invest9 ment Options credited to such participating in10 dividual’s personal social security savings ac11 count, subject to such increases and reductions 

12 as may result from amounts credited to, and re13 ductions made in, the account pursuant to sub14 section (c)(2); over 

15 ‘‘(B) amounts paid out of the Tier III In16 vestment Options of such participating indi17 vidual. 

18 The calculation made under paragraph (3) shall be made 

19 separately for each Tier III Investment Option of the par20 ticipating individual. The Board shall also hold for the 

21 participating individual any benefit credit certificate as22 signed to the participating individual’s personal social se23 curity savings account under section 255. 

24 ‘‘(c) ALLOCATION OF EARNINGS AND LOSSES.—Pur25 suant to regulations which shall be prescribed by the 


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1 Board, the Executive Director shall allocate to each per2 sonal social security savings account an amount equal to 

3 the net earnings and net losses from each investment of 

4 sums— 

5 ‘‘(1) in the Tier I Investment Fund and the 

6 Tier II Investment Fund which are attributable to 

7 sums credited to such account reduced by an appro8 priate share of the administrative expenses paid out 

9 of the net earnings, as determined by the Executive 

10 Director; and 

11 ‘‘(2) in the Tier III Investment Options which 

12 are attributable to sums credited to such account re13 duced by the administrative expenses paid out of the 

14 net earnings. 

15 ‘‘SEC. 255. TIER I INVESTMENT FUND. 

16 ‘‘(a) ESTABLISHMENT OF TIER I INVESTMENT

17 FUND.— 

18 ‘‘(1) IN GENERAL.—The Savings Fund shall in19 clude a separate fund to be known as the ‘Tier I In20 vestment Fund’. 

21 ‘‘(2) AMOUNTS IN FUND.—The Tier I Invest22 ment Fund consists of all amounts derived from 

23 payments into the Fund under section 252(b) and 

24 remaining after investment of such amounts under 


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1 subsection (b), including additional amounts derived 

2 as income from such investments. 

3 ‘‘(3) USE OF FUNDS.—The amounts held in the 

4 Fund are appropriated and shall remain available 

5 without fiscal year limitation— 

6 ‘‘(A) to be held for investment on behalf of 

7 participating individuals under subsection (b), 

8 ‘‘(B) to pay the administrative expenses re9 lated to the Fund, and 

10 ‘‘(C) to make transfers from the Fund 

11 under subsection (c)(2). 

12 ‘‘(b) INVESTMENT OF FUND BALANCE.—For pur13 poses of investment of the Tier I Investment Fund, the 

14 Board shall contract with appropriate professional asset 

15 managers, recordkeepers, and custodians selected for in16 vestment of amounts held in the Fund, so as to provide 

17 for investment of the balance of the Fund, in a manner 

18 providing broad diversification in accordance with regula19 tions of the Board, in— 

20 ‘‘(1) insurance contracts, 

21 ‘‘(2) certificates of deposit, or 

22 ‘‘(3) other instruments or obligations selected 

23 by such asset managers, 


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1 which return the amount invested and pay interest, at a 

2 specified rate or rates, on that amount during a specified 

3 period of time. 

4 ‘‘(c) SEPARATE CREDITING TO PERSONAL SOCIAL

5 SECURITY SAVINGS ACCOUNTS AND TRANSFERS TO THE

6 TIER II INVESTMENT FUND OR TO TIER III INVESTMENT

7 OPTIONS.— 

8 ‘‘(1) CREDITING TO ACCOUNTS.— 

9 ‘‘(A) IN GENERAL.—Subject to this para10 graph, the Board shall provide for prompt, sep11 arate crediting, as soon as practicable, of the 

12 amounts deposited in the Tier I Investment 

13 Fund to the personal social security savings ac14 count of each participating individual with re15 spect to the redirected social security contribu16 tions (as defined in section 252(b)(3)) of such 

17 participating individual. The Board shall in18 clude in such crediting, with respect to each 

19 such individual, any increases or decreases in 

20 such amounts so as to reflect the net returns 

21 and losses from investment of the balance of 

22 the Fund prior to such crediting. For purposes 

23 of determining such increases and decreases for 

24 each calendar year, the amounts deposited into 

25 the Fund in connection with such individual 


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1 during such calendar year shall be deemed to 

2 have been deposited on June 30 of such year. 

3 ‘‘(B) TREATMENT OF MARRIED PARTICI4 PATING INDIVIDUALS.—If the participating in5 dividual is married as of the end of the calendar 

6 year in which the amounts to be credited were 

7 deposited in the Tier I Investment Fund and 

8 the spouse is also a participating individual, the 

9 personal social security savings account of the 

10 participating individual and the personal social 

11 security savings account of his or her spouse 

12 shall each be credited with 50 percent of such 

13 amounts. 

14 ‘‘(2) TRANSFERS FROM THE TIER I INVEST15 MENT FUND.—In accordance with elections filed 

16 with the Board by a participating individual, any 

17 amount credited to the personal social security sav18 ings account of such participating individual under 

19 paragraph (1) shall be promptly transferred to the 

20 Tier II Investment Fund of the Savings Fund for 

21 investment in accordance with section 256 and, to 

22 the extent available under section 257, to Tier III 

23 Investment Options in accordance with section 257. 

24 ‘‘(d) TREATMENT OF AMOUNTS HELD IN TIER I IN25 VESTMENT FUND.—Subject to this part— 


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1 ‘‘(1) until amounts deposited into the Tier I In2 vestment Fund during any calendar year are cred3 ited to personal social security savings accounts, 

4 such amounts shall be treated as the unallocated 

5 property of all participating individuals with respect 

6 to whom amounts were deposited in the Fund dur7 ing such year, jointly held in trust for such partici8 pating individuals in the Savings Fund, and 

9 ‘‘(2) amounts deposited into the Fund which 

10 are credited to the personal social security savings 

11 account of a participating individual shall be treated 

12 as property of the participating individual, held in 

13 trust for such participating individual in the Savings 

14 Fund. 

15 ‘‘SEC. 256. TIER II INVESTMENT FUND. 

16 ‘‘(a) ESTABLISHMENT OF TIER II INVESTMENT

17 FUND.— 

18 ‘‘(1) IN GENERAL.—The Savings Fund shall in19 clude a separate fund to be known as the ‘Tier II 

20 Investment Fund’. 

21 ‘‘(2) AMOUNTS IN FUND.—The Tier II Invest22 ment Fund consists of all amounts derived from 

23 payments into the Fund under section 255(c)(2) and 

24 remaining after investment of such amounts under 


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1 subsection (b), including additional amounts derived 

2 as income from such investments. 

3 ‘‘(3) USE OF FUNDS.—The amounts held in the 

4 Fund are appropriated and shall remain available 

5 without fiscal year limitation— 

6 ‘‘(A) to be held for investment under sub7 section (b), 

8 ‘‘(B) to pay the administrative expenses re9 lated to the Fund, and 

10 ‘‘(C) to make transfers to Tier III Invest11 ment Options under section 257 or to make 

12 payments under section 258. 

13 ‘‘(b) PAYMENTS INTO TIER II INVESTMENT FUND.— 

14 ‘‘(1) IN GENERAL.—Upon the crediting under 

15 section 252 to the personal social security savings 

16 account of a participating individual of any amount 

17 held in the Tier I Investment Fund for any calendar 

18 year, the Board shall transfer from the Tier I In19 vestment Fund into the Tier II Investment Fund 

20 any amount so credited to such participating individ21 ual’s account which is not transferred to a Tier III 

22 Investment Option pursuant to an election under 

23 section 257(a). 

24 ‘‘(2) ONGOING SEPARATE CREDITING.—Subject 

25 to this paragraph, the Board shall provide for ongoVerDate Nov 24 2008 05:08 Jun 12, 2009 Jkt 079200 PO 00000 Frm 00200 Fmt 6652 Sfmt 6201 E:\BILLS\S1240.IS S1240

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1 ing separate crediting to each participating individ2 ual’s personal social security savings account of the 

3 amounts deposited in the Tier II Investment Fund 

4 with respect to such participating individual, to5 gether with any increases or decreases therein so as 

6 to reflect the net returns and losses from investment 

7 thereof while held in the Fund. 

8 ‘‘(c) INVESTMENT ACCOUNTS.— 

9 ‘‘(1) IN GENERAL.—For purposes of investment 

10 of the Tier II Investment Fund, the Board shall di11 vide the Fund into 6 investment accounts. The 

12 Board shall contract with appropriate investment 

13 managers, recordkeepers, and custodians selected for 

14 investment of amounts held in each investment ac15 count. Such accounts shall consist of— 

16 ‘‘(A) a Lifecycle Investment Account, 

17 ‘‘(B) a Government Securities Investment 

18 Account, 

19 ‘‘(C) a Fixed Income Investment Account, 

20 ‘‘(D) a Common Stock Index Investment 

21 Account, 

22 ‘‘(E) a Small Capitalization Stock Index 

23 Investment Account, and 

24 ‘‘(F) an International Stock Index Invest25 ment Account. 


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1 ‘‘(2) ELECTION OF INVESTMENT OPTIONS.— 

2 ‘‘(A) DEFAULT INVESTMENT ACCOUNT.— 

3 Except as provided in an election in effect 

4 under subparagraph (B), amounts held in the 

5 Tier II Investment Fund shall be credited to 

6 the Lifecycle Investment Account. 

7 ‘‘(B) ELECTION OF TRANSFERS BETWEEN

8 INVESTMENT ACCOUNTS.—In any case in which 

9 a participating individual who has an amount in 

10 such individual’s personal social security sav11 ings account credited to any of the investment 

12 accounts in the Tier II Investment Fund files 

13 with the Secretary of the Treasury a written 

14 election under this subparagraph, not more fre15 quently than annually and in accordance with 

16 regulations of the Board, the Secretary of the 

17 Treasury shall transfer the full amount so cred18 ited in such investment account from such in19 vestment account to any one of the other invest20 ment accounts in the Tier II Investment Fund 

21 (whichever is designated in such election). 

22 ‘‘(d) LIFECYLE INVESTMENT ACCOUNT.— 

23 ‘‘(1) IN GENERAL.—The investment manager, 

24 recordkeeper, and custodian selected for investment 

25 of amounts held in the Lifecyle Investment Account 


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1 shall invest such amounts under regulations which 

2 shall be prescribed by the Board in a mix of equities 

3 and fixed income instruments so as to ensure, to the 

4 maximum extent practicable, that, of the total bal5 ance in the Fund credited to such account and avail6 able for investment (after allowing for administrative 

7 expenses), the percentage invested in fixed income 

8 instruments by individuals in designated cohorts, 

9 ranging in age up to those of at least retirement 

10 age, will increase in a linear progression from 0 per11 cent to 100 percent as the cohort approaches retire12 ment age. 

13 ‘‘(2) INVESTMENT IN EQUITIES.—In accordance 

14 with regulations which shall be prescribed by the 

15 Board, the Board shall establish standards which 

16 must be met by equities selected for investment in 

17 the Lifecycle Investment Account. In conformity 

18 with such standards, the Board shall select, for pur19 poses of such investment, indices which are com20 prised of equities the aggregate market value of 

21 which is, in each case, a reasonably broad represen22 tation of companies whose shares are traded on the 

23 equity markets. Amounts invested in equities under 

24 an investment option shall be held in a portfolio deVerDate Nov 24 2008 05:08 Jun 12, 2009 Jkt 079200 PO 00000 Frm 00203 Fmt 6652 Sfmt 6201 E:\BILLS\S1240.IS S1240

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1 signed to replicate the performance of one or more 

2 of such indices. 

3 ‘‘(3) INVESTMENT IN FIXED INCOME INSTRU4 MENTS.—In accordance with regulations which shall 

5 be prescribed by the Board, the Board shall estab6 lish standards which must be met by fixed income 

7 instruments selected for investment in the Lifecycle 

8 Investment Account. Such standards shall take into 

9 account the competing considerations of risk and re10 turn. Amounts invested in fixed income instruments 

11 in an investment option shall be held in a portfolio 

12 which shall consist of a diverse range of fixed income 

13 instruments, taking into full account the opposing 

14 considerations of risk and maximization of return. 

15 ‘‘(e) GOVERNMENT SECURITIES INVESTMENT AC16 COUNT.— 

17 ‘‘(1) IN GENERAL.—Amounts in the Govern18 ment Securities Investment Account shall be in19 vested in securities of the United States Government 

20 as provided in this subsection. 

21 ‘‘(2) ISSUANCE OF SPECIAL OBLIGATIONS.— 

22 The Secretary of the Treasury is authorized to issue 

23 special interest-bearing obligations of the United 

24 States for purchase by the Tier II Investment Fund 

25 for purposes of investment of amounts in the GovVerDate Nov 24 2008 00:12 Jun 13, 2009 Jkt 079200 PO 00000 Frm 00204 Fmt 6652 Sfmt 6201 E:\BILLS\S1240.IS S1240

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1 ernment Securities Investment Account. Such obliga2 tions shall have maturities fixed with due regard to 

3 the needs of the Fund as determined by the Board, 

4 and shall bear interest at a rate equal to the average 

5 market yield (computed by the Secretary of the 

6 treasury on the basis of market quotations as of the 

7 end of the calendar month next preceding the date 

8 of issue of such obligations) on all marketable inter9 est-bearing obligations of the United States then 

10 forming a part of the public debt which are not due 

11 or callable earlier than 4 years after the end of such 

12 calendar month. Any average market yield computed 

13 under this paragraph which is not a multiple of one14 eighth of 1 percent shall be rounded to the nearest 

15 multiple of one-eighth of 1 percent. 

16 ‘‘(f) FIXED INCOME INVESTMENT ACCOUNT.— 

17 Amounts in the Fixed Income Investment Account shall 

18 be invested in instruments or obligations which return the 

19 amount invested and pay interest, at a specified rate or 

20 rates, on that amount during a specified period of time, 

21 consisting of instruments or obligations in one or more 

22 of the following categories: 

23 ‘‘(1) insurance contracts; 

24 ‘‘(2) certificates of deposit; or 


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1 ‘‘(3) other instruments or obligations selected 

2 by qualified professional asset managers. 

3 ‘‘(g) COMMON STOCK INDEX INVESTMENT AC4 COUNT.— 

5 ‘‘(1) PORTFOLIO DESIGN.—Amounts held in the 

6 Common Stock Investment Account shall be invested 

7 in a portfolio of common stock designed to replicate 

8 the performance of the index selected under para9 graph (2). The portfolio shall be designed such that, 

10 to the extent practicable, the percentage of the bal11 ance in the Common Stock Index Investment Ac12 count that is invested in each stock is the same as 

13 the percentage determined by dividing the aggregate 

14 market value of all shares of that stock by the ag15 gregate market value of all shares of all stocks in16 cluded in such index. 

17 ‘‘(2) SELECTION OF INDEX.—The Board shall 

18 select, for purposes of investment of amounts held in 

19 the Common Stock Investment Account, an index 

20 which is a commonly recognized index comprised of 

21 common stock the aggregate market value of which 

22 is a reasonably complete representation of the 

23 United States equity markets. 

24 ‘‘(h) SMALL CAPITALIZATION STOCK INDEX INVEST25 MENT ACCOUNT.— 


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1 ‘‘(1) PORTFOLIO DESIGN.—Amounts held in the 

2 Small Capitalization Stock Index Investment Ac3 count shall be invested in a portfolio of common 

4 stock designed to replicate the performance of the 

5 index selected under paragraph (2). The portfolio 

6 shall be designed such that, to the extent prac7 ticable, the percentage of the balance in the Small 

8 Capitalization Stock Index Investment Account that 

9 is invested in each stock is the same as the percent10 age determined by dividing the aggregate market 

11 value of all shares of that stock by the aggregate 

12 market value of all shares of all stocks included in 

13 such index. 

14 ‘‘(2) SELECTION OF INDEX.—The Board shall 

15 select, for purposes of investment of amounts held in 

16 the Small Capitalization Stock Index Investment Ac17 count, an index which is a commonly recognized 

18 index comprised of common stock the aggregate 

19 market value of which represents the United States 

20 equity markets excluding the common stocks in21 cluded in the Common Stock Index Investment Ac22 count. 

23 ‘‘(i) INTERNATIONAL STOCK INDEX INVESTMENT

24 ACCOUNT.— 


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1 ‘‘(1) PORTFOLIO DESIGN.—Amounts held in the 

2 International Stock Index Investment Account shall 

3 be invested in a portfolio of stock designed to rep4 licate the performance of the index selected under 

5 paragraph (2). The portfolio shall be designed such 

6 that, to the extent practicable, the percentage of the 

7 balance in the International Stock Index Investment 

8 Account that is invested in each stock is the same 

9 as the percentage determined by dividing the aggre10 gate market value of all shares of that stock by the 

11 aggregate market value of all shares of all stocks in12 cluded in such index. 

13 ‘‘(2) SELECTION OF INDEX.—The Board shall 

14 select, for purposes of investment of amounts held in 

15 the International Stock Index Investment Account, 

16 an index which is a commonly recognized index com17 prised of common stock the aggregate market value 

18 of which is a reasonably complete representation of 

19 the international equity markets excluding the 

20 United States equity markets. 

21 ‘‘(j) ADDITIONAL INVESTMENT OPTIONS.—The 

22 Board may from time to time, as determined by regulation 

23 as appropriate to further the purposes of this section, 

24 shall— 


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1 ‘‘(1) establish investment accounts in the Tier 

2 II Investment Fund meeting the requirements of 

3 this section in addition to those established by this 

4 section, and 

5 ‘‘(2) terminate investment accounts in the Tier 

6 II Investment Fund established pursuant to para7 graph (1). 

8 ‘‘(k) DISCLOSURE OF ADMINISTRATIVE COSTS.—The 

9 Board shall provide to each participating individual an an10 nual disclosure of the rate of administrative costs charge11 able with respect to investment in each investment account 

12 in the Tier II Investment Fund. Such disclosure shall be 

13 written in a manner calculated to be understood by the 

14 average participating individual. 

15 ‘‘(l) TREATMENT OF AMOUNTS HELD IN TIER II IN16 VESTMENT FUND.—Subject to this part, amounts depos17 ited into, and held and accounted for in, the Tier II In18 vestment Fund with respect to any participating individual 

19 shall continue to be treated as property of such partici20 pating individual, held in trust for such participating indi21 vidual in the Fund. 

22 ‘‘SEC. 257. TIER III INVESTMENT OPTIONS. 

23 ‘‘(a) ELECTION OF TIER III INVESTMENT OP24 TIONS.— 


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1 ‘‘(1) IN GENERAL.—A participating individual 

2 may elect to direct transfers from amounts in the 

3 Savings Fund credited to the personal social security 

4 savings account of such individual into 1 or more 

5 Tier III Investment Options in accordance with 

6 paragraph (2). 

7 ‘‘(2) COMMENCEMENT OF TIER III INVESTMENT

8 OPTIONS UPON ATTAINMENT OF ELECTION THRESH9 OLD.—In any case in which, as of the end of any 

10 calendar year, the total balance in the Savings Fund 

11 credited to a participating individual’s personal so12 cial security savings account exceeds for the first 

13 time the election threshold, the Board shall, by regu14 lation, provide for an opportunity for such partici15 pating individual to make, at any time thereafter, 

16 such individual’s first election of one or more of the 

17 Tier III Investment Options for investment of an 

18 amount in the Savings Fund credited to such ac19 count. Such election may be in lieu of or in addition 

20 to investment in the options available with respect to 

21 the Tier II Investment Fund of the Savings Fund. 

22 ‘‘(3) ALLOCATION OF FUNDS.—In the case of 

23 an election under paragraph (1), funds credited to 

24 the personal social security savings account of the 

25 participating individual and elected for transfer to 


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1 one or more Tier III Investment Options shall be 

2 transferred to the Tier III Investment Options so 

3 elected for such calendar year, in percentages speci4 fied in the election by the participating individual for 

5 each applicable portfolio. 

6 ‘‘(4) ELECTION THRESHOLD.— 

7 ‘‘(A) IN GENERAL.—Subject to subpara8 graph (B), for purposes of this subsection the 

9 term ‘election threshold’ means an amount 

10 equal to $25,000. 

11 ‘‘(B) ADJUSTMENTS.—The Board shall ad12 just annually (effective for annual reporting 

13 months occurring after December 2012) the 

14 dollar amount set forth in subparagraph (A) 

15 under procedures providing for adjustments in 

16 the same manner and to the same extent as ad17 justments are provided for under the proce18 dures used to adjust benefit amounts under sec19 tion 215(i)(2)(A), except that any amount so 

20 adjusted that is not a multiple of $1.00 shall be 

21 rounded to the nearest multiple of $1.00. 

22 ‘‘(5) SUBSEQUENT INVESTMENT OF AMOUNTS

23 HELD IN TIER III INVESTMENT OPTIONS.—Any 

24 amounts held in one or more Tier III Investment 

25 Options may be— 


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1 ‘‘(A) transferred at any time to one or 

2 more other Tier III Investment Options, subject 

3 to applicable regulations of the Board and the 

4 terms governing the affected Tier III Invest5 ment Options, and 

6 ‘‘(B) transferred, not more frequently than 

7 annually, to the Tier II Investment Fund, for 

8 deposit in the applicable investment account 

9 then selected by the participating individual 

10 under section 256. 

11 ‘‘(b) CERTIFICATION OF ELIGIBLE ENTITIES.— 

12 ‘‘(1) IN GENERAL.—The Board shall certify eli13 gible entities to offer Tier III Investment Options 

14 under this part. 

15 ‘‘(2) APPLICATION.—Any eligible entity that de16 sires to be certified by the Board to offer a Tier III 

17 Investment Option shall submit an application to the 

18 Board at such time, in such manner, and containing 

19 such information as the Board may require. 

20 ‘‘(3) REQUIREMENTS FOR APPROVAL.—The 

21 Board shall not certify an eligible entity unless such 

22 eligible entity agrees to the following requirements: 

23 ‘‘(A) SEPARATE ACCOUNTING.—Each eligi24 ble entity shall, with respect to each Tier III 


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1 Investment Option offered by such eligible enti2 ty to participating individuals— 

3 ‘‘(i) establish separate accounts for 

4 the contributions of each participating in5 dividual, and any earnings properly allo6 cable to the contributions, and 

7 ‘‘(ii) maintain separate recordkeeping 

8 with respect to each account. 

9 ‘‘(B) TREATMENT OF AMOUNTS HELD IN

10 FUND.—Amounts deposited into, and held and 

11 accounted for in, a Tier III Investment Option 

12 with respect to any participating individual 

13 shall be treated as property of such partici14 pating individual, held in trust for such partici15 pating individual. 

16 ‘‘(C) TRUST REQUIREMENTS.—Amounts 

17 held and accounted for with respect to a partici18 pating individual shall be held in a trust created 

19 or organized in the United States for the exclu20 sive benefit of such individual or his bene21 ficiaries. 

22 ‘‘(D) EXEMPTION FROM THIRD PARTY

23 CLAIMS.—Each Tier III Investment Option 

24 shall be exempt from any and all third party 

25 claims against the eligible entity. 


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1 ‘‘(E) DISCLOSURE OF ADMINISTRATIVE

2 COSTS.—Each eligible entity offering a Tier III 

3 Investment Option under this section shall pro4 vide to each participating individual an annual 

5 disclosure of the rate of administrative costs 

6 chargeable with respect to investment in such 

7 Option. Such disclosure shall be written in a 

8 manner calculated to be understood by the av9 erage participating individual. The Board shall 

10 provide for coordination of disclosures with re11 spect to Tier III Investment Options under this 

12 subparagraph so as to assist participating indi13 viduals in comparing alternative Options based 

14 on administrative costs. 

15 ‘‘(F) REPORTING TO THE EXECUTIVE DI16 RECTOR AND THE BOARD.—Each eligible entity 

17 shall provide reports to the Executive Director 

18 and the Board at such time, in such manner, 

19 and containing such information as the Board 

20 may require. 

21 ‘‘(4) ELIGIBLE ENTITY DEFINED.—For pur22 poses of this section, the term ‘eligible entity’ means 

23 any investment company (as defined in section 3 of 

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1 son that the Board determines appropriate to offer 

2 Tier III Investment Options under this part. 

3 ‘‘(c) APPROVAL OF TIER III INVESTMENT OP4 TIONS.— 

5 ‘‘(1) IN GENERAL.—No funds may be trans6 ferred into a Tier III Investment Option unless the 

7 Board has approved an application submitted under 

8 paragraph (2) with respect to the option. 

9 ‘‘(2) APPLICATION.—With respect to each Tier 

10 III Investment Option that an eligible entity cer11 tified under subsection (b)(1) seeks to offer, such 

12 entity shall submit an application to the Board at 

13 such time, in such manner, and containing such in14 formation as the Board may require. 

15 ‘‘(3) QUALIFICATIONS FOR APPROVAL.—The 

16 Board may not approve an application submitted 

17 under paragraph (2) in connection with a Tier III 

18 Investment Option unless the following requirements 

19 are met: 

20 ‘‘(A) OPTION MUST BE OFFERED BY CER21 TIFIED ELIGIBLE ENTITY.—The Tier III In22 vestment Option is offered by an eligible entity 

23 certified under subsection (b). 

24 ‘‘(B) OPTION MUST MEET QUALITY FAC25 TORS.— 


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1 ‘‘(i) IN GENERAL.—The Tier III In2 vestment Option meets qualifications which 

3 shall be prescribed by the Board relating 

4 to the quality factors described in clause 

5 (ii). 

6 ‘‘(ii) QUALITY FACTORS.—The quality 

7 factors described in this clause are— 

8 ‘‘(I) the safety and soundness of 

9 the Tier III Investment Option’s pro10 posed investment policy; 

11 ‘‘(II) the experience and record 

12 of performance of the proposed invest13 ment option, if any; 

14 ‘‘(III) the experience and record 

15 of performance of the entity issuing or 

16 offering such option; and 

17 ‘‘(IV) such other factors as the 

18 Board may determine appropriate. 

19 ‘‘(d) CONSIDERATIONS FOR CERTIFICATION AND AP20 PROVAL.—In determining whether to certify an eligible en21 tity under subsection (b) or to approve a Tier III Invest22 ment Option under subsection (c), the Board shall— 

23 ‘‘(1) act in the best interests of the partici24 pating individuals; 


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1 ‘‘(2) base its determination solely on consider2 ations of balancing safety and soundness of the Tier 

3 III Investment Option with the maximization of re4 turns of such option; and 

5 ‘‘(3) not base any determination related to the 

6 entity or option on political or other extraneous con7 siderations. 

8 ‘‘(e) SPONSORSHIP OF TIER III INVESTMENT OP9 TIONS BY MEMBERSHIP AND LABOR ORGANIZATIONS.— 

10 ‘‘(1) IN GENERAL.—A membership or labor or11 ganization (as defined by the Board) may sponsor 

12 Tier III Investment Options under contracts with el13 igible entities certified under subsection (b) who 

14 shall administer the investment option if such invest15 ment option is approved by the Board under sub16 section (c). 

17 ‘‘(2) LIMITATION TO MEMBERSHIP.—A mem18 bership or labor organization (as so defined) may 

19 limit to the members of such organization participa20 tion in a Tier III Investment Option sponsored by 

21 such organization. 

22 ‘‘(f) DISTRIBUTIONS IN CASE OF DEATH.—Upon the 

23 death of a participating individual, the amount of any as24 sets held under a Tier III Investment Option credited to 

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1 vidual shall be distributed in accordance with section 

2 258(e). 

3 ‘‘SEC. 258. PERSONAL SOCIAL SECURITY SAVINGS ANNUITY 

4 AND OTHER DISTRIBUTIONS. 

5 ‘‘(a) DATE OF INITIAL DISTRIBUTION.—Except as 

6 provided in subsection (e), distributions may be made to 

7 a participating individual from amounts credited to the 

8 personal social security savings account of such individual 

9 only on or after the earliest of— 

10 ‘‘(1) the date the participating individual at11 tains retirement age (as defined in section 216(l)(1)) 

12 or, if elected by the individual, early retirement age 

13 (as defined in section 216(l)(2)); or 

14 ‘‘(2) the date on which the amount credited to 

15 the participating individual’s personal social security 

16 savings account is sufficient to purchase a personal 

17 social security savings annuity with a monthly ben18 efit that is at least equal to the minimum annuity 

19 payment amount (as defined in subsection 

20 (b)(4)(C)(iii)). 

21 ‘‘(b) PERSONAL SOCIAL SECURITY SAVINGS ANNU22 ITIES.— 

23 ‘‘(1) NOTICE OF AVAILABLE ANNUITIES.—Not 

24 later than the date determined under subsection (a), 


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1 the Board shall notify each participating individual 

2 of— 

3 ‘‘(A) the most recent listing of personal so4 cial security savings annuities offered by the 

5 Annuity Issuance Authority under paragraph 

6 (2); and 

7 ‘‘(B) the entitlement of the participating 

8 individual to purchase such an annuity. 

9 ‘‘(2) ANNUITY ISSUANCE AUTHORITY.—There is 

10 established in the office of the Board an agency 

11 which shall be known as the ‘Annuity Issuance Au12 thority’. The Authority shall provide, in accordance 

13 with regulations of the Board, for the issuance of 

14 personal social security savings annuities for pur15 chase from the Authority under this section and to 

16 otherwise administer the issuance of such annuities 

17 in accordance with such regulations. 

18 ‘‘(3) ANNUITY RESERVES ACCOUNT.—There is 

19 established in the Savings Fund an Annuity Re20 serves Account. The Account shall consist of all 

21 amounts received by the Authority from the pur22 chase of personal social security savings annuities 

23 under this section (plus such amounts as may be 

24 transferred to the Account under paragraph (5)(B)), 

25 increased by the total net earnings from investments 


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1 of such reserves under subparagraph (A) of para2 graph (5) and reduced by the total net losses from 

3 investments of such reserves under such subpara4 graph. 

5 ‘‘(4) PURCHASE OF ANNUITIES.— 

6 ‘‘(A) SELECTION OF ANNUITY.—On a date 

7 elected by the participating individual, but no 

8 earlier than the date determined under sub9 section (a), a participating individual may pur10 chase a personal social security savings annuity 

11 selected from among the annuities offered by 

12 the Authority under paragraph (2). 

13 ‘‘(B) TRANSFER OF ASSETS.—Upon the 

14 selection of an annuity by a participating indi15 vidual under subparagraph (A), the Board shall 

16 provide for the transfer of assets, credited to 

17 the personal social security savings account of 

18 the participating individual and held in the Tier 

19 II Investment Fund or under 1 or more Tier 

20 III Investment Options (or any combination 

21 thereof), in a total amount sufficient to pur22 chase the annuity selected by the participating 

23 individual from annuities offered by the Author24 ity. 


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1 ‘‘(C) MINIMUM ANNUITY PAYMENT

2 AMOUNT.— 

3 ‘‘(i) IN GENERAL.—Subject to sub4 paragraph (D), if, at the time a personal 

5 social security savings annuity is pur6 chased under subparagraph (A), the assets 

7 credited to the personal social security sav8 ings account of the participating individual 

9 are sufficient to purchase a personal social 

10 security savings annuity offered by the Au11 thority under paragraph (2) with a month12 ly annuity payment that is at least equal 

13 to the minimum annuity payment amount, 

14 the amount of the monthly annuity pay15 ment provided by such annuity may not be 

16 less then the minimum annuity payment 

17 amount. 

18 ‘‘(ii) CONSTRUCTION.—Nothing in 

19 this subparagraph shall be construed to 

20 prohibit a participating individual from 

21 using personal social security savings ac22 count assets to purchase a personal social 

23 security savings annuity offered by the Au24 thority under paragraph (2) which provides 

25 for a monthly payment in excess of the 


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1 minimum amount required under clause 

2 (i). 

3 ‘‘(iii) MINIMUM ANNUITY PAYMENT

4 AMOUNT DEFINED.—For purposes of this 

5 part, the term ‘minimum annuity payment 

6 amount’ means, as of any date, an amount 

7 equal to the monthly equivalent of 150 per8 cent of the poverty line for an individual 

9 (as in effect on such date), determined 

10 under the poverty guidelines of the Depart11 ment of Health and Human Services 

12 issued under sections 652 and 673(2) of 

13 the Omnibus Budget Reconciliation Act of 

14 1981. 

15 ‘‘(D) PURCHASE OF ANNUITIES IN THE

16 EVENT OF INSUFFICIENT ASSETS.—If a partici17 pating individual desires, or is required under 

18 subsection (f), to purchase a personal social se19 curity savings annuity under subsection (b) on 

20 or after the date determined under subsection 

21 (a)(1) and the assets of the personal social se22 curity savings account of such individual are in23 sufficient to purchase a personal social security 

24 savings annuity that provides for a monthly 

25 payment that is at least equal to the minimum 


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1 annuity payment amount (as defined in para2 graph (4)(C)(iii)), the participating individual 

3 shall purchase a personal social security savings 

4 annuity with a monthly payment equal to the 

5 maximum amount that the participating indi6 vidual’s personal social security savings account 

7 can fund, as determined in accordance with reg8 ulations which shall be prescribed by the Au9 thority, and that otherwise meets the require10 ments of this subsection (including the cost-of11 living protection requirement of subsection 

12 (c)(1)(C)), and the Authority shall provide for 

13 appropriate certification to the Secretary of the 

14 Treasury with respect to the participating indi15 vidual’s eligibility for guarantee payments 

16 under section 259. 

17 ‘‘(5) MAINTENANCE OF RESERVES FOR PAY18 MENT OF ANNUITIES.— 

19 ‘‘(A) INVESTMENT OF RESERVES.—For 

20 purposes of investment of reserves held in the 

21 Annuity Reserves Account, the Authority shall 

22 contract with appropriate investment managers, 

23 recordkeepers, and custodians selected by the 

24 Authority for investment of such reserves. Such 

25 reserves shall be invested under regulations 


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1 which shall be prescribed by the Authority so as 

2 to ensure, to the maximum extent practicable, 

3 that, of the total balance of the reserves (after 

4 payment of administrative expenses to such 

5 managers, recordkeepers, and custodians)— 

6 ‘‘(i) 65 percent is invested in equities 

7 in the same manner and under the same 

8 standards as are provided in section 

9 256(c)(4), and 

10 ‘‘(ii) 35 percent is invested in fixed in11 come instruments in the same manner and 

12 under the same standards as are provided 

13 in section 256(c)(5). 

14 ‘‘(B) PROVISION FOR FULL PAYMENT OF

15 ANNUITIES.—Payment of personal social secu16 rity savings annuities in accordance with the 

17 terms of such annuities shall be made, irrespec18 tive of the sufficiency of reserves in the Annuity 

19 Reserves Fund attributable to funds obtained 

20 from the purchase of such annuities. In the 

21 event of any impending insufficiency in the An22 nuity Reserves Account for the next fiscal year, 

23 the Authority shall certify to the Secretary of 

24 the Treasury the amount of such insufficiency, 

25 and the Secretary of the Treasury shall transfer 


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1 from the Federal Old-Age and Survivors Insur2 ance Trust Fund to the Annuity Reserves Ac3 count the amount of the insufficiency, as so cer4 tified, in such installments, made prior to or 

5 during such fiscal year, as are necessary to 

6 eliminate in advance such insufficiency. 

7 ‘‘(c) PERSONAL SOCIAL SECURITY SAVINGS ANNU8 ITY.— 

9 ‘‘(1) IN GENERAL.—For purposes of this part, 

10 the term ‘personal social security savings annuity’ 

11 means an annuity that meets the following require12 ments: 

13 ‘‘(A) The annuity starting date (as defined 

14 in section 72(c)(4) of the Internal Revenue 

15 Code of 1986) commences on the first day of 

16 the month beginning after the date of the pur17 chase of the annuity. 

18 ‘‘(B) The terms of the annuity provide— 

19 ‘‘(i) for a monthly payment to the 

20 participating individual during the life of 

21 the participating individual equal to at 

22 least the minimum annuity payment 

23 amount (as defined in subsection 

24 (b)(4)(C)(iii)), or 


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1 ‘‘(ii) in the case of an annuity pur2 chased under subparagraph (D) of sub3 section (b)(4), the maximum monthly pay4 ment determined under regulations pre5 scribed under such subparagraph. 

6 ‘‘(C) The terms of the annuity include pro7 cedures providing for adjustments in the 

8 amount of the monthly payments in the same 

9 manner and to the same extent as adjustments 

10 are provided for under the procedures used to 

11 adjust benefit amounts under section 

12 215(i)(2)(A). Nothing in this subparagraph 

13 shall be construed to preclude the terms gov14 erning such an annuity from providing for ad15 justments in the amount of monthly payments 

16 resulting in a payment for any month greater 

17 than the payment for that month that would re18 sult from adjustments required under the pre19 ceding sentence (b)(4)(D). 

20 ‘‘(D) The terms of the annuity include 

21 such other terms and conditions as the Board 

22 requires for the protection of the annuitant. 

23 ‘‘(2) EXEMPTION FROM THIRD PARTY

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1 nuity shall be exempt from any and all third party 

2 claims against the issuer. 

3 ‘‘(d) RIGHT TO USE EXCESS PERSONAL SOCIAL SE4 CURITY SAVINGS ACCOUNT ASSETS.—To the extent assets 

5 credited to a participating individual’s personal social se6 curity savings account remain after the purchase of an an7 nuity under subsection (b), the remaining assets shall be 

8 payable to the participating individual at such time, in 

9 such manner, and in such amounts as the participating 

10 individual may specify, subject to subsection (f). 

11 ‘‘(e) DISTRIBUTIONS IN CASE OF DEATH.—If the 

12 participating individual dies before all amounts which are 

13 held in the Tier I Investment Fund or the Tier II Invest14 ment Fund of the Savings Fund or held under a Tier III 

15 Investment Option and which are credited to the personal 

16 social security savings account of the individual are other17 wise distributed in accordance with this section, such 

18 amounts shall be distributed, under regulations which 

19 shall be prescribed by the Board— 

20 ‘‘(1) in any case in which one or more bene21 ficiaries have been designated in advance, to such 

22 beneficiaries in accordance with such designation as 

23 provided in such regulations, and 


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1 ‘‘(2) in the case of any amount not distributed 

2 as described in paragraph (1), to such individual’s 

3 estate. 

4 ‘‘(f) DATE OF FINAL DISTRIBUTION.—All amounts 

5 credited to the personal social security savings account of 

6 an individual shall be distributed, by means of the pur7 chase of annuities or otherwise in a manner consistent 

8 with the requirements of this section, not later than 5 

9 years after the date the individual attains retirement age 

10 (as defined in section 216(l)). The Board shall provide by 

11 regulation for means of distribution necessary to ensure 

12 compliance with the requirements of this subsection. 

13 ‘‘SEC. 259. GUARANTEE OF PROMISED BENEFITS. 

14 ‘‘(a) IN GENERAL.—If, for any month ending after 

15 the date on which a participating individual attains retire16 ment age (as defined in section 216(l)(1)), the monthly 

17 payment under a participating individual’s personal social 

18 security savings annuity is less than the minimum annuity 

19 payment amount (as defined in section 258(b)(4)(C)(iii)), 

20 adjusted as provided in section 258(c)(1)(C), the Annuity 

21 Issuance Authority shall so certify to the Secretary of the 

22 Treasury and, upon receipt of such certification, such Sec23 retary shall provide to the participating individual, from 

24 amounts in the Federal Old-Age and Survivors Insurance 

25 Trust Fund, a guaranty payment for such month to supVerDate Nov 24 2008 05:08 Jun 12, 2009 Jkt 079200 PO 00000 Frm 00228 Fmt 6652 Sfmt 6201 E:\BILLS\S1240.IS S1240

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1 plement the personal social security savings annuity and 

2 to guarantee full payment of such individual’s monthly 

3 promised benefits. 

4 ‘‘(b) GUARANTY PAYMENT.—For purposes of sub5 section (a), a participating individual’s guaranty payment 

6 for any month is equal to the excess of— 

7 ‘‘(1) the minimum annuity payment amount (as 

8 defined in section 258(b)(4)(C)(iii)), adjusted as 

9 provided in section 258(c)(1)(C); over 

10 ‘‘(2) the payment for such month of the per11 sonal social security savings annuity purchased by 

12 the participating individual. 

13 ‘‘(c) PROTECTION OF PART A NORMAL RETIREMENT

14 BENEFIT LEVELS.— 

15 ‘‘(1) IN GENERAL.—In any case in which, for 

16 any month ending after the date on which a partici17 pating individual attains retirement age (as defined 

18 in section 216(l)(1))— 

19 ‘‘(A) such individual’s assumed total nor20 mal retirement part A benefit for such month, 

21 exceeds 

22 ‘‘(B) the monthly payment payable for 

23 such month under such individual’s personal so24 cial security savings annuity, 


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1 the Secretary of the Treasury shall pay to such indi2 vidual for such month, from amounts in the Federal 

3 Old-Age and Survivors Insurance Trust Fund, an 

4 additional amount (if any) equal to the excess of the 

5 amount described in subparagraph (A) over the 

6 amount described in subparagraph (B). 

7 ‘‘(2) DEFINITION.—For purposes of this sub8 section, the term ‘assumed total normal retirement 

9 part A benefit’ means, in connection with a partici10 pating individual, the total amount of monthly insur11 ance benefits under section 202 based on such indi12 vidual’s wages and self-employment income (ad13 justed by taking into account adjustments under sec14 tion 215(i)) that would have been payable if— 

15 ‘‘(A) section 202(z) did not apply, and 

16 ‘‘(B) such individual applied for old-age in17 surance benefits under section 202(a) during 

18 the month in which such individual attains re19 tirement age (as defined in section 216(l)(1)). 

20 ‘‘SEC. 260. PERSONAL SOCIAL SECURITY SAVINGS BOARD. 

21 ‘‘(a) ESTABLISHMENT.—There is established in the 

22 executive branch of the Government a Personal Social Se23 curity Savings Board. 

24 ‘‘(b) COMPOSITION.—The Board shall be composed 

25 of— 


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1 ‘‘(1) 3 members appointed by the President, of 

2 whom 1 shall be designated by the President as 

3 Chairman; and 

4 ‘‘(2) 2 members appointed by the President, of 

5 whom— 

6 ‘‘(A) 1 shall be appointed by the President 

7 after taking into consideration the recommenda8 tion made by the Speaker of the House of Rep9 resentatives in consultation with the minority 

10 leader of the House of Representatives; and 

11 ‘‘(B) 1 shall be appointed by the President 

12 after taking into consideration the recommenda13 tion made by the majority leader of the Senate 

14 in consultation with the minority leader of the 

15 Senate. 

16 ‘‘(c) ADVICE AND CONSENT.—Appointments under 

17 subsection (b) shall be made by and with the advice and 

18 consent of the Senate. 

19 ‘‘(d) MEMBERSHIP REQUIREMENTS.—Members of 

20 the Board shall have substantial experience, training, and 

21 expertise in the management of financial investments and 

22 pension benefit plans. 

23 ‘‘(e) LENGTH OF APPOINTMENTS.— 


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1 ‘‘(1) TERMS.—A member of the Board shall be 

2 appointed for a term of 4 years, except that of the 

3 members first appointed under subsection (b)— 

4 ‘‘(A) the Chairman shall be appointed for 

5 a term of 4 years; 

6 ‘‘(B) the members appointed under sub7 section (b)(2) shall be appointed for terms of 3 

8 years; and 

9 ‘‘(C) the remaining members shall be ap10 pointed for terms of 2 years. 

11 ‘‘(2) VACANCIES.— 

12 ‘‘(A) IN GENERAL.—A vacancy on the 

13 Board shall be filled in the manner in which the 

14 original appointment was made and shall be 

15 subject to any conditions that applied with re16 spect to the original appointment. 

17 ‘‘(B) COMPLETION OF TERM.—An indi18 vidual chosen to fill a vacancy shall be ap19 pointed for the unexpired term of the member 

20 replaced. 

21 ‘‘(3) EXPIRATION.—The term of any member 

22 shall not expire before the date on which the mem23 ber’s successor takes office. 

24 ‘‘(f) DUTIES.—The Board shall— 


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1 ‘‘(1) administer the program established under 

2 this part; 

3 ‘‘(2) establish policies for the investment and 

4 management of the Savings Fund, including the 

5 Tier I Investment Fund and the Tier II Investment 

6 Fund, and amounts held under Tier III Investment 

7 Options, including policies applicable to the asset 

8 managers, recordkeepers, and custodians with re9 sponsibility for managing the investment of amounts 

10 credited to personal social security investment ac11 counts, and for the management and operation of 

12 personal social security savings annuities, which 

13 shall provide for— 

14 ‘‘(A) prudent investments suitable for ac15 cumulating funds for payment of retirement in16 come; 

17 ‘‘(B) sound management practices; and 

18 ‘‘(C) low administrative costs; 

19 ‘‘(3) review the performance of investments 

20 made for the Tier I Investment Fund and the Tier 

21 II Investment Fund; 

22 ‘‘(4) review the performance of investments 

23 made under Tier III Investment Options; 

24 ‘‘(5) review the management and operation of 

25 personal social security savings annuities; 


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1 ‘‘(6) review and approve the budget of the 

2 Board; and 

3 ‘‘(7) comply with the fiduciary requirements of 

4 part 4 of subtitle B of title I of the Employee Re5 tirement Income Security Act of 1974 (relating to fi6 duciary responsibility) in connection with any exer7 cise of discretion in connection with the assets of the 

8 Savings Fund. 

9 ‘‘(g) ADMINISTRATIVE PROVISIONS.— 

10 ‘‘(1) IN GENERAL.—The Board may— 

11 ‘‘(A) adopt, alter, and use a seal; 

12 ‘‘(B) except as provided in paragraph (4), 

13 direct the Executive Director to take such ac14 tion as the Board considers appropriate to 

15 carry out the provisions of this part and the 

16 policies of the Board in accordance with delega17 tions under this part; 

18 ‘‘(C) upon the concurring votes of 4 mem19 bers, remove the Executive Director from office 

20 for good cause shown; 

21 ‘‘(D) provide to the Executive Director 

22 such resources as are necessary to carry out the 

23 duties of the Executive Director; and 


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1 ‘‘(E) take such other actions as may be 

2 necessary to carry out the functions of the 

3 Board. 

4 ‘‘(2) MEETINGS.—The Board shall meet— 

5 ‘‘(A) not less than once during each 

6 month; and 

7 ‘‘(B) at additional times at the call of the 

8 Chairman. 

9 ‘‘(3) EXERCISE OF POWERS.— 

10 ‘‘(A) IN GENERAL.—Except as provided in 

11 paragraph (1)(C), the Board shall perform the 

12 functions and exercise the powers of the Board 

13 on a majority vote of a quorum of the Board. 

14 Three members of the Board shall constitute a 

15 quorum for the transaction of business. 

16 ‘‘(B) VACANCIES.—A vacancy on the 

17 Board shall not impair the authority of a 

18 quorum of the Board to perform the functions 

19 and exercise the powers of the Board. 

20 ‘‘(4) LIMITATIONS ON INVESTMENTS.—The 

21 Board may not direct any person to invest or to 

22 cause to be invested any sums in the Tier II Invest23 ment Fund or any personal social security invest24 ment account in a specific asset or to dispose of or 


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1 cause to be disposed of any specific asset of such 

2 Fund or any such account. 

3 ‘‘(h) COMPENSATION.— 

4 ‘‘(1) IN GENERAL.—Each member of the Board 

5 who is not an officer or employee of the Federal 

6 Government shall be compensated at the daily rate 

7 of basic pay for level IV of the Executive Schedule 

8 for each day during which such member is engaged 

9 in performing a function of the Board. 

10 ‘‘(2) EXPENSES.—A member of the Board shall 

11 be paid travel, per diem, and other necessary ex12 penses under subchapter I of chapter 57 of title 5, 

13 United States Code, while traveling away from such 

14 member’s home or regular place of business in the 

15 performance of the duties of the Board. 

16 ‘‘(3) SOURCE OF FUNDS.—Payments authorized 

17 under this subsection shall be paid from the Tier I 

18 Investment Fund or the Tier II Investment Fund, 

19 as determined appropriate by the Board. 

20 ‘‘(i) DISCHARGE OF RESPONSIBILITIES.—The mem21 bers of the Board shall discharge their responsibilities 

22 solely in the interest of the participating individuals and 

23 their beneficiaries under this part. 


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1 ‘‘(j) ANNUAL INDEPENDENT AUDIT.—The Board 

2 shall annually engage an independent qualified public ac3 countant to audit the activities of the Board. 

4 ‘‘(k) SUBMISSION OF BUDGET TO CONGRESS.—The 

5 Board shall prepare and submit to the President, and, at 

6 the same time, to the appropriate committees of Congress, 

7 an annual budget of the expenses and other items relating 

8 to the Board which shall be included as a separate item 

9 in the budget required to be transmitted to Congress 

10 under section 1105 of title 31, United States Code. 

11 ‘‘(l) SUBMISSION OF LEGISLATIVE RECOMMENDA12 TIONS.—The Board may submit to the President, and, at 

13 the same time, shall submit to each House of Congress, 

14 any legislative recommendations of the Board relating to 

15 any of its functions under this part or any other provision 

16 of law. 

17 ‘‘SEC. 261. EXECUTIVE DIRECTOR. 

18 ‘‘(a) APPOINTMENT OF EXECUTIVE DIRECTOR.—The 

19 Board shall appoint, without regard to the provisions of 

20 law governing appointments in the competitive service, an 

21 Executive Director by action agreed to by a majority of 

22 the members of the Board. 

23 ‘‘(b) DUTIES.—The Executive Director shall, as de24 termined appropriate by the Board— 


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1 ‘‘(1) carry out the policies established by the 

2 Board; 

3 ‘‘(2) invest and manage the Tier I Investment 

4 Fund and the Tier II Investment Fund in accord5 ance with the investment policies and other policies 

6 established by the Board; 

7 ‘‘(3) administer the provisions of this part re8 lating to the Tier I Investment Fund and the Tier 

9 II Investment Fund; and 

10 ‘‘(4) prescribe such regulations (other than reg11 ulations relating to fiduciary responsibilities) as may 

12 be necessary for the administration of this part re13 lating to the Tier I Investment Fund and the Tier 

14 II Investment Fund. 

15 ‘‘(c) ADMINISTRATIVE AUTHORITY.—The Executive 

16 Director may, within the scope of the duties of the Execu17 tive Director as determined by the Board— 

18 ‘‘(1) appoint such personnel as may be nec19 essary to carry out the provisions of this part relat20 ing to the Tier I Investment Fund and the Tier II 

21 Investment Fund; 

22 ‘‘(2) subject to approval by the Board, procure 

23 the services of experts and consultants under section 

24 3109 of title 5, United States Code; 


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1 ‘‘(3) secure directly from an Executive agency, 

2 the United States Postal Service, or the Postal Rate 

3 Commission any information necessary to carry out 

4 the provisions of this part and the policies of the 

5 Board relating to the Tier I Investment Fund and 

6 the Tier II Investment Fund; 

7 ‘‘(4) make such payments out of sums in the 

8 Tier I Investment Fund and the Tier II Investment 

9 Fund as the Executive Director determines, in ac10 cordance with regulations of the Board, are nec11 essary to carry out the provisions of this part and 

12 the policies of the Board; 

13 ‘‘(5) pay the compensation, per diem, and travel 

14 expenses of individuals appointed under paragraphs 

15 (1), (2), and (6) from the Tier I Investment Fund 

16 or the Tier II Investment Fund, in accordance with 

17 regulations of the Board; 

18 ‘‘(6) accept and use the services of individuals 

19 employed intermittently in the Government service 

20 and reimburse such individuals for travel expenses, 

21 authorized by section 5703 of title 5, United States 

22 Code, including per diem as authorized by section 

23 5702 of such title; 

24 ‘‘(7) except as otherwise expressly prohibited by 

25 law or the policies of the Board, delegate any of the 


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1 Executive Director’s functions to such employees 

2 under the Board as the Executive Director may des3 ignate and authorize such successive redelegations of 

4 such functions to such employees under the Board 

5 as the Executive Director may consider to be nec6 essary or appropriate; and 

7 ‘‘(8) take such other actions as are appropriate 

8 to carry out the functions of the Executive Direc9 tor.’’. 

10 (b) EFFECTIVE DATE.—The amendments made by 

11 this section shall apply with respect to wages paid after 

12 December 31, 2011, for pay periods ending after such 

13 date and self-employment income for taxable years begin14 ning after such date. 

15 SEC. 403. MONTHLY INSURANCE BENEFITS FOR PARTICI16 PATING INDIVIDUALS. 

17 Section 202 of the Social Security Act (42 U.S.C. 

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

19 subsection: 

20 ‘‘Benefits for Participants Under Part B 

21 ‘‘(z)(1) Notwithstanding the preceding provisions of 

22 this section— 

23 ‘‘(A) a participating individual under the Per24 sonal Social Security Savings Program under part B 


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1 shall not be entitled to old-age insurance benefits 

2 under subsection (a); and 

3 ‘‘(B) except as provided in paragraph (2), no 

4 individual shall be entitled to benefits under this sec5 tion on the basis of the wages and self-employment 

6 income of such a participating individual. 

7 ‘‘(2) In the case of any such participating individual 

8 who dies before such individual purchases a personal social 

9 security savings annuity under section 258, paragraph 

10 (1)(B) shall not apply with respect to child’s insurance 

11 benefits under subsection (d), widow’s insurance benefits 

12 under subsection (e), widower’s insurance benefits under 

13 subsection (f), mother’s and father’s insurance benefits 

14 under subsection (g), and parent’s insurance benefits 

15 under subsection (h).’’. 

16 SEC. 404. TAX TREATMENT OF ACCOUNTS. 

17 (a) IN GENERAL.— 

18 (1) IN GENERAL.—Subchapter F of chapter 1 

19 of the Internal Revenue Code of 1986 (relating to 

20 exempt organizations) is amended by adding at the 

21 end the following new part: 

22 ‘‘PART IX—PERSONAL SOCIAL SECURITY 

23 SAVINGS PROGRAM 

‘‘Sec. 530A. Personal social security savings program. 


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1 ‘‘SEC. 530A. PERSONAL SOCIAL SECURITY SAVINGS PRO2 GRAM. 

3 ‘‘(a) GENERAL RULE.—The Social Security Personal 

4 Savings Fund and each Tier III Investment Option are 

5 exempt from taxation under this subtitle. Notwithstanding 

6 the preceding sentence, sums in a personal social security 

7 savings account which are attributable to a Tier III Op8 tion shall be subject to the taxes imposed by section 511 

9 (relating to imposition of tax on unrelated business income 

10 of charitable, etc. organizations). 

11 ‘‘(b) DISTRIBUTIONS.— 

12 ‘‘(1) IN GENERAL.—Any qualified distribution 

13 from— 

14 ‘‘(A) amounts credited to a personal social 

15 security savings account from the Social Secu16 rity Personal Savings Fund or attributable to a 

17 Tier III Investment Option, or 

18 ‘‘(B) a personal social security savings an19 nuity, 

20 shall not be included in the gross income of the dis21 tributee. 

22 ‘‘(2) QUALIFIED DISTRIBUTION.—For purposes 

23 of paragraph (1), the term ‘qualified distribution’ 

24 means a distribution which meets the requirements 

25 of section 258 of the Social Security Act and which 


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1 is not a guaranty payment (as defined by section 

2 259 of such Act). 

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

4 ‘‘(1) PERSONAL SOCIAL SECURITY SAVINGS AC5 COUNT.—The term ‘personal social security savings 

6 account’ means an account established under section 

7 254(a) of the Social Security Act. 

8 ‘‘(2) PERSONAL SOCIAL SECURITY SAVINGS AN9 NUITY.—The term ‘personal social security savings 

10 annuity’ means an annuity approved by the Personal 

11 Social Security Savings Board under section 

12 258(b)(3) of the Social Security Act. 

13 ‘‘(3) SOCIAL SECURITY PERSONAL SAVINGS

14 FUND.—The term ‘Social Security Personal Savings 

15 Fund’ means the Savings Fund established under 

16 section 252 of the Social Security Act. 

17 ‘‘(4) TIER III INVESTMENT OPTION.—The term 

18 ‘Tier III Investment Option’ has the meaning given 

19 such term by section 251(9) of the Social Security 

20 Act. 

21 ‘‘(d) ESTATE TAX TREATMENT.—No amount shall be 

22 includible in the gross estate of any individual for pur23 poses of chapter 11 by reason of an interest in the Tier 

24 I Investment Fund or the Tier II Investment Fund of the 

25 Savings Fund or held under a Tier III Investment Option 


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1 and which is credited to the personal social security sav2 ings account of the individual.’’. 

3 (2) CONFORMING AMENDMENT.—Section 

4 86(d)(1)(A) of such Code is amended by inserting 

5 ‘‘part A of’’ after ‘‘under’’. 

6 (3) CLERICAL AMENDMENT.—The table of 

7 parts for subchapter F of chapter 1 of such Code is 

8 amended by adding after the item relating to part 

9 VIII the following new item: 

‘‘PART IX. PERSONAL SOCIAL SECURITY SAVINGS PROGRAM.’’. 

10 (b) GUARANTY PAYMENTS.—Paragraph (1) of sec11 tion 86(d) of the Internal Revenue Act of 1986, as amend12 ed by subsection (a)(2), is amended by striking ‘‘or’’ at 

13 the end of subparagraph (A), by striking the period and 

14 inserting ‘‘, or’’ at the end of subparagraph (B), and by 

15 adding at the end the following new subparagraph: 

16 ‘‘(C) a guaranty payment under section 

17 259(a), and a payment of an additional amount 

18 under section 259(c), of the Social Security 

19 Act.’’. 

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

21 this section shall apply to taxable years beginning after 

22 December 31, 2010. 


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1 SEC. 405. SELF-LIQUIDATING SOCIAL SECURITY TRANSI2 TION FUND. 

3 Part B of title II of the Social Security Act (as added 

4 by section 101 of this Act) is amended by adding at the 

5 end the following new section: 

6 ‘‘SEC. 262. SELF-LIQUIDATING SOCIAL SECURITY TRANSI7 TION FUND. 

8 ‘‘(a) ESTABLISHMENT.—There is hereby created on 

9 the books of the Treasury of the United States a trust 

10 fund to be known as the Self-Liquidating Social Security 

11 Transition Fund (in this section referred to as the ‘Transi12 tion Fund’). 

13 ‘‘(b) BOARD OF TRUSTEES.— 

14 ‘‘(1) ESTABLISHMENT.—With respect to the 

15 Transition Fund, there is hereby created a body to 

16 be known as the Board of Trustees of the Transition 

17 Fund (in this section referred to as the ‘Board of 

18 Trustees’) composed of the Commissioner of Social 

19 Security, the Secretary of the Treasury, and the 

20 members of the Personal Social Security Savings 

21 Board. 

22 ‘‘(2) DUTIES.—The Board of Trustees shall— 

23 ‘‘(A) provide for the issuance of obligations 

24 by the Transition Fund pursuant to subsection 

25 (c), 


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1 ‘‘(B) provide for the receipt and manage2 ment of amounts paid into the Transition Fund 

3 pursuant to subsection (d), 

4 ‘‘(C) use all funds paid into the Transition 

5 Fund to redeem obligations issued under sub6 section (c) as soon as practicable, 

7 ‘‘(D) report to Congress not later than the 

8 first day of April of each year on the operation 

9 and status of the Transition Fund during the 

10 preceding fiscal year and on its expected oper11 ation and status during the current fiscal year 

12 and the next 2 fiscal years, and 

13 ‘‘(E) review the general policies followed in 

14 managing the Transition Fund, and recommend 

15 changes in such policies, including necessary 

16 changes in the provisions of law which govern 

17 the way in which the Transition Fund is to be 

18 managed. 

19 ‘‘(3) MEETINGS.—The Board of Trustees shall 

20 meet not less frequently than once each calendar 

21 year. 

22 ‘‘(c) ISSUANCE OF TRANSITION FUND BONDS.— 

23 ‘‘(1) ISSUANCE.— 

24 ‘‘(A) IN GENERAL.—The purposes for 

25 which obligations of the United States may be 


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1 issued under chapter 31 of title 31, United 

2 States Code, are hereby extended to authorize 

3 the issuance at par of public-debt obligations by 

4 the Transition Fund. 

5 ‘‘(B) REQUIRED ISSUANCE.—Beginning on 

6 January 1, 2012, whenever any obligation held 

7 in the Federal Old-Age and Survivors Insurance 

8 Trust Fund or the Federal Disability Insurance 

9 Trust Fund is repaid from the general fund of 

10 the Treasury to either of such Trust Funds, the 

11 Transition Fund shall issue an obligation under 

12 this subsection in an amount equal to the 

13 amount of interest and principal so repaid. 

14 ‘‘(C) TRANSFER OF PROCEEDS TO GEN15 ERAL FUND OF THE TREASURY.—Proceeds 

16 from the issuance of any obligation issued 

17 under this section shall be transferred to the 

18 general fund of the Treasury. 

19 ‘‘(D) ACCOUNTING.—The debt owed on 

20 any obligation issued under this section shall be 

21 considered to be debt of the Transition Fund 

22 and shall be accounted for in such manner. 

23 ‘‘(2) MATURITIES AND INTEREST RATE.—Such 

24 obligations issued by the Transition Fund for pur25 chase by the public shall have maturities fixed with 


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1 due regard for the needs of the Transition Fund and 

2 shall bear interest at a rate equal to the average 

3 market yield (computed by the Secretary of the 

4 Treasury on the basis of market quotations as of the 

5 end of the calendar month next preceding the date 

6 of such issue) on all marketable interest-bearing ob7 ligations of the United States then forming a part 

8 of the public debt which are not due or callable until 

9 after the expiration of 4 years from the end of such 

10 calendar month, except that where such average 

11 market yield is not a multiple of one-eighth of 1 per 

12 centum, the rate of interest on such obligations shall 

13 be the multiple of one-eighth of 1 per centum near14 est such market yield. 

15 ‘‘(3) REPAYMENT OF OBLIGATIONS.—Obliga16 tions issued under this subsection may be redeemed 

17 only by funds in the Transition Fund. 

18 ‘‘(d) DEPOSIT OF OASDI TRUST FUND SURPLUS.— 

19 ‘‘(1) IN GENERAL.—There are appropriated to 

20 the Transition Fund for the fiscal year beginning in 

21 2033, and for each fiscal year thereafter, out of any 

22 moneys in the Federal Old-Age and Survivors Insur23 ance Trust Fund, amounts equivalent to the OASDI 

24 trust fund surplus (as defined in paragraph (2)) for 

25 the preceding fiscal year. 


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1 ‘‘(2) TRANSFERS BASED ON ESTIMATES.—The 

2 amounts appropriated by paragraph (1) shall be 

3 transferred from time to time from the Federal Old4 Age and Survivors Insurance Trust Fund to the 

5 Transition Fund, such amounts to be determined on 

6 the basis of estimates by the Commissioner of Social 

7 Security. Proper adjustments shall be made in 

8 amounts subsequently transferred to the extent prior 

9 estimates were in excess of or were less than such 

10 surplus. 

11 ‘‘(3) OASDI TRUST FUND SURPLUS DE12 FINED.—In this section, the term ‘OASDI trust 

13 fund surplus’ for a fiscal year means the dollar 

14 amount by which the Federal Old-Age and Survivors 

15 Insurance Trust Fund could be reduced as of the 

16 end of such fiscal year so as to result in an OASDI 

17 trust fund ratio (as defined in section 201(p)(4)) for 

18 such fiscal year equal to 125 percent. 

19 ‘‘(4) RULE OF CONSTRUCTION.—This section 

20 shall not be construed to require redemption of obli21 gations of the Trust Fund for the purpose of mak22 ing transfers to the Transition Fund under this sec23 tion or for any other purpose other than to provide 

24 for payment of benefits under part A of title II of 

25 the Social Security Act. 


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1 ‘‘(e) REDEMPTION OF OBLIGATIONS UPON DEPOSIT

2 OF FUNDS.—Obligations issued under subsection (c) may 

3 be redeemed only by funds in the Transition Fund. The 

4 Board of Trustees shall provide for the redemption of such 

5 obligations as soon as possible with funds deposited into 

6 the Transition Fund pursuant to subsection (d). 

7 ‘‘(f) SUNSET.—On the first date as of which all of 

8 the obligations issued under subsection (c) have been re9 deemed, any balance remaining in the Transition Fund 

10 as of such date shall be deposited in the Federal Old-Age 

11 and Survivors Insurance Trust Fund, the terms of the 

12 Board of Trustees shall end, the Transition Fund shall 

13 cease to exist, and this section shall be repealed.’’. 

14 SEC. 406. BUDGETARY TREATMENT OF SOCIAL SECURITY. 

15 (a) IN GENERAL.—Section 710 of the Social Security 

16 Act (42 U.S.C. 911) is amended to read as follows: 

17 ‘‘BUDGETARY TREATMENT OF SOCIAL SECURITY

18 ‘‘SEC. 710. 

19 ‘‘Notwithstanding any other provision of law and ex20 cept as provided in subsection (b), the receipts and dis21 bursements shall be treated in the same manner as section 

22 13301 of the Budget Enforcement Act of 1990.’’. 

23 (b) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply with respect to fiscal years begin25 ning on or after October 1, 2011. 


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1 SEC. 407. ACCOUNTING FOR THE OLD-AGE, SURVIVORS, 

2 AND DISABILITY INSURANCE PROGRAM AND 

3 THE PERSONAL SOCIAL SECURITY SAVINGS 

4 PROGRAM. 

5 Title VII of the Social Security Act is amended by 

6 inserting after section 705 (42 U.S.C. 906) the following 

7 new section: 

8 ‘‘ACCOUNTING FOR THE OLD-AGE, SURVIVORS, AND DIS9 ABILITY INSURANCE PROGRAM AND THE PERSONAL

10 SOCIAL SECURITY SAVINGS PROGRAM

11 ‘‘Social Security Lockbox Budget 

12 ‘‘SEC. 706. (a) At the time of the transmittal to the 

13 Congress by the President of the budget of the United 

14 States Government, the President shall transmit to each 

15 House of the Congress a separate report (to be known as 

16 the ‘Social Security Lockbox Budget’) detailing the per17 formance during the preceding fiscal year of each of the 

18 accounts established under subsection (b). Such report 

19 shall set forth, as determined as of the end of the year— 

20 ‘‘(1) the amount of the balance of each account, 

21 ‘‘(2) the amount of the total charges and the 

22 amount of the total credits to each account for the 

23 year, and 

24 ‘‘(3) the amount of the total for the year of 

25 each category of charges and credits itemized in sub26 section (b). 


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1 ‘‘Establishment of Accounts 

2 ‘‘(b) For purposes of accounting for certain receipts 

3 and disbursement of the Treasury of the United States 

4 in connection with the Old-Age, Survivors, and Disability 

5 Insurance Program under part A of title II of the Social 

6 Security Act and the Personal Security Savings Program 

7 under part B of such title, the Secretary of the Treasury 

8 shall establish and maintain a Social Security Part A Ac9 count, a Social Security Part B Account, and a Self-Liqui10 dating Social Security Transition Fund Account. 

11 ‘‘Credits and Charges to the Social Security Part A 

12 Account 

13 ‘‘(c)(1) For each fiscal year, the Social Security Part 

14 A Account shall be credited with the sum of— 

15 ‘‘(A) all receipts during the year by the Federal 

16 Old-Age and Survivors Insurance Trust Fund and 

17 the Federal Disability Insurance Trust Fund under 

18 section 201 (including amounts received as interest 

19 on notes and obligations purchased by the Trust 

20 Funds under section 201(d) of such Act, and exclud21 ing amounts received in redemption of such notes 

22 and obligations and amounts received by either such 

23 Trust Fund as transfers from the other such Trust 

24 Fund), and 


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1 ‘‘(B) all receipts during the year by the Federal 

2 Old-Age and Survivors Insurance Trust Fund and 

3 the Federal Disability Insurance Trust Fund under 

4 section 121(e) of the Social Security Amendments of 

5 1983 (relating to appropriation of amounts equiva6 lent to taxes on social security benefits) (42 U.S.C. 

7 401 note). 

8 ‘‘(2) For each fiscal year, the Social Security Part 

9 A Account shall be charged with the sum of— 

10 ‘‘(A) all benefits paid during the year from the 

11 Federal Old-Age and Survivors Insurance Trust 

12 Fund and the Federal Disability Insurance Trust 

13 Fund under part A of title II of the Social Security 

14 Act, 

15 ‘‘(B) all redirected social security contributions 

16 transferred during the year to the Social Security 

17 Personal Savings Fund under section 252(b), 

18 ‘‘(C) all other expenditures during the year 

19 from the Trust Funds under part A of title II (ex20 cluding amounts expended as transfers by either 

21 such Trust Fund to the other such Trust Fund and 

22 amounts paid for the purchase of notes and obliga23 tions under section 201(d)), and 

24 ‘‘(D) all transfers from the Federal Old-Age 

25 and Survivors Insurance Trust Fund to the Self-LiqVerDate Nov 24 2008 05:08 Jun 12, 2009 Jkt 079200 PO 00000 Frm 00253 Fmt 6652 Sfmt 6201 E:\BILLS\S1240.IS S1240

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1 uidating Social Security Transition Fund under sec2 tion 262(d). 

3 ‘‘Charges and Credits to the Social Security Part B 

4 Account 

5 ‘‘(d)(1) For each fiscal year, the Social Security Part 

6 B Account shall be credited with— 

7 ‘‘(A) all redirected social security contributions 

8 transferred during the year to the Personal Social 

9 Security Savings Fund under section 252(b) of the 

10 Social Security Act, and 

11 ‘‘(B) any net increase in the Tier I Investment 

12 Fund attributable to investment for the fiscal year, 

13 any net increase in the Tier II Investment Fund at14 tributable to investment for the fiscal year, and the 

15 total amount of any net increases in Tier III Invest16 ment Options attributable to investment for the fis17 cal year. 

18 ‘‘(2) For each fiscal year, the Social Security Part 

19 B Account shall be charged with— 

20 ‘‘(A) all administrative costs incurred for the 

21 fiscal year with respect to the Tier I Investment 

22 Fund, the Tier II Investment Fund, and the Tier III 

23 Investment Options, 

24 ‘‘(B) any net decrease in the Tier I Investment 

25 Fund attributable to investment for the fiscal year, 


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1 any net decrease in the Tier II Investment Fund at2 tributable to investment for the fiscal year, and the 

3 total amount of any net decreases in Tier III Invest4 ment Options attributable to investment for the fis5 cal year, and 

6 ‘‘(C) annuity payments made during the year 

7 under section 258 from the Annuity Reserve Ac8 count in the Savings Fund. 

9 ‘‘Charges and Credits to the Self-Liquidating Social 

10 Security Transition Fund Account 

11 ‘‘(e)(1) For each fiscal year, the Self-Liquidating So12 cial Security Transition Account shall be credited with— 

13 ‘‘(A) all transfers to the Transition Fund from 

14 the Federal Old-Age and Survivors Insurance Trust 

15 Fund under section 262(b), and 

16 ‘‘(B) all amounts expended during the fiscal 

17 year from the Trust Funds in the redemption under 

18 section 262(e) of obligations issued by the Transi19 tion fund under section 262(c). 

20 ‘‘(2) For each fiscal year, the Self-Liquidating Social 

21 Security Transition Fund Account shall be charged with 

22 the total amount of obligations issued during the fiscal 

23 year by the Transition Fund under section 262(c)’’. 


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1 SEC. 408. PROGRESSIVE INDEXING OF BENEFITS FOR OLD2 AGE, WIFE’S, AND HUSBAND’S INSURANCE 

3 BENEFITS. 

4 (a) IN GENERAL.—Section 215(a) of the Social Secu5 rity Act (42 U.S.C. 415(a)) is amended— 

6 (1) by striking ‘‘The’’ in paragraph (1)(A) and 

7 inserting ‘‘In the case of any benefit other than an 

8 applicable benefit to which paragraph (2) applies, 

9 the’’, and 

10 (2) by redesignating paragraphs (2) through 

11 (7) as paragraphs (3) through (8), respectively, and 

12 by inserting after paragraph (1) the following new 

13 paragraph: 

14 ‘‘(2)(A) In the case of an applicable benefit with re15 spect to any individual who initially becomes eligible for 

16 old-age insurance benefits or who dies (before becoming 

17 eligible for such benefits) in calendar year 2017 or later, 

18 the primary insurance amount of the individual shall be 

19 equal to the sum of— 

20 ‘‘(i) 90 percent of the individual’s average in21 dexed monthly earning (determined under subsection 

22 (b)) to the extent that such earnings do not exceed 

23 the amount established for purposes of paragraph 

24 (1)(A)(i) by paragraph (1)(B); 

25 ‘‘(ii) 32 percent of the individual’s average in26 dexed monthly earnings to the extent that such 


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1 earnings exceed the amount established for purposes 

2 of paragraph (1)(A)(i) by paragraph (1)(B) but do 

3 not exceed the amount established for purposes of 

4 this clause by subparagraph (B); 

5 ‘‘(iii) 32 percent (reduced as provided in sub6 paragraph (C)) of the individual’s average indexed 

7 monthly earnings to the extent that such earnings 

8 exceed the amount established for purposes of clause 

9 (ii) but do not exceed the amount established for 

10 purposes of paragraph (1)(A)(ii) by paragraph 

11 (1)(B); and 

12 ‘‘(iv) 15 percent (reduced as provided in sub13 paragraph (C)) of the individual’s average indexed 

14 monthly earnings to the extent that such earnings 

15 exceed the amount established for purposes of para16 graph (1)(A)(ii) by paragraph (1)(B). 

17 ‘‘(B)(i) For purposes of subparagraph (A)(ii), the 

18 amount established under this subparagraph for calendar 

19 year 2017 shall be the level of average indexed monthly 

20 earnings determined by the Chief Actuary of the Social 

21 Security Administration under clause (ii) as being at the 

22 30th percentile for the period of calendar years 2006 

23 through 2008. 


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1 ‘‘(ii) For purposes of clause (i), the average indexed 

2 monthly earnings for the period of calendar years 2006 

3 through 2008 shall be determined by— 

4 ‘‘(I) determining the average indexed monthly 

5 earnings for each individual who initially became eli6 gible for old-age insurance benefits or who died (be7 fore becoming eligible for such benefits) during such 

8 period, except that in determining such average in9 dexed monthly earnings under subsection (b), sub10 section (b)(3)(A)(ii)(I) shall be applied by sub11 stituting calendar year 2002 for the second calendar 

12 year described in such subsection; and 

13 ‘‘(II) multiplying the amount determined for 

14 each individual under subclause (I) by the quotient 

15 obtained by dividing the national average wage index 

16 (as defined in section 209(k)(1)) for the calendar 

17 year 2015 by such index for the calendar year 2003. 

18 ‘‘(iii) For purposes of subparagraph (A)(ii), the 

19 amount established under this subparagraph for any cal20 endar year after 2017 shall be equal to the product of 

21 the amount in effect under clause (i) with respect to cal22 endar year 2017 and the quotient obtained by dividing— 

23 ‘‘(I) the national average wage index (as de24 fined in section 209(k)(1)) for the second calendar 


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1 year preceding the calendar year for which the de2 termination is being made, by 

3 ‘‘(II) the national average wage index (as so de4 fined) for 2015. 

5 ‘‘(iv) The amount established under this subpara6 graph for any calendar year shall be rounded to the near7 est $1, except that any amount so established which is 

8 a multiple of $0.50 but not of $1 shall be rounded to the 

9 next higher $1. 

10 ‘‘(C)(i) Except as provided in clause (ii), in the case 

11 of any calendar year after 2016, each of the percentages 

12 to which this subparagraph applies by reason of clauses 

13 (iii) or (iv) of subparagraph (A) shall be a percentage 

14 equal to such percentage multiplied by the quotient ob15 tained by dividing— 

16 ‘‘(I) the difference of the maximum CPI-in17 dexed benefit amount for such year over the amount 

18 determined under this paragraph for an individual 

19 whose average indexed monthly earnings are equal 

20 to the amount established for purposes of subpara21 graph (A)(ii) for such year, by 

22 ‘‘(II) the difference of the maximum wage-in23 dexed benefit amount for such year over the amount 

24 determined under this paragraph for an individual 

25 whose average indexed monthly earnings are equal 


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1 to the amount established for purposes of subpara2 graph (A)(ii) for such year. 

3 ‘‘(ii)(I) In the case of any calendar year which is a 

4 positive balance year, clause (i) shall not apply and each 

5 of the percentages to which this subparagraph applies by 

6 reason of clause (iii) or (iv) of subparagraph (B) shall be 

7 a percentage equal to the percentage determined under 

8 this subparagraph for the preceding year (determined 

9 after the application of this subparagraph). 

10 ‘‘(II) In the case of any calendar year after a positive 

11 balance year which is not a positive balance year, this sub12 paragraph shall be applied by substituting ‘the second cal13 endar year preceding the most recent positive balance 

14 year’ for ‘2014’ each place it appears in clause (iv). 

15 ‘‘(iii) For purposes of clause (i), the maximum wage16 indexed benefit amount for any calendar year shall be 

17 equal to the amount determined under this paragraph (de18 termined without regard to any reduction under this sub19 paragraph) for an individual with wages paid in and self20 employment income credited to each computation base 

21 year in an amount equal to the contribution and benefit 

22 base for each calendar year. 

23 ‘‘(iv) For purposes of clause (i), the maximum CPI24 indexed benefit amount for any calendar year shall be an 


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1 amount equal to the amount determined under clause (iii) 

2 for such year multiplied by a fraction— 

3 ‘‘(I) the numerator of which is the ratio (round4 ed to the nearest one-thousandth of 1 percent) of 

5 the Consumer Price Index for the second preceding 

6 year to such index for 2014; and 

7 ‘‘(II) the denominator of which is the ratio 

8 (rounded to the nearest one-thousandth of 1 per9 cent) of the national wage index (as defined in sec10 tion 209(k)(1)) for the second year preceding such 

11 year to such index for 2014. 

12 ‘‘(v)(I) For purposes of this subparagraph, a positive 

13 balance year is a calendar year following any calendar year 

14 after 2081 for which the Chief Actuary of the Social Secu15 rity Administration certifies to the Secretary of the Treas16 ury and the Congress that the combined balance ratio of 

17 the Federal Old-Age and Survivors Trust Fund and the 

18 Federal Disability Insurance Trust Fund is not less than 

19 100 percent for such year. 

20 ‘‘(II) For purposes of subclause (I), the combined 

21 balance ratio of the Federal Old-Age and Survivors Trust 

22 Fund and the Federal Disability Insurance Trust Fund 

23 for any calendar year is the ratio of the combined balance 

24 of such Trust Funds as of the last day of such calendar 

25 year (reduced by any transfer made pursuant to section 


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1 201(o) in such calendar year) to the amount estimated 

2 by the Commissioner of Social Security under section 

3 201(l)(3)(B)(iii)(II) to be paid from such Trust Funds 

4 during the calendar year following such calendar year for 

5 all purposes authorized by section 201 (determined as if 

6 such following calendar year were a positive balance year). 

7 ‘‘(D) For purposes of this paragraph, rules similar 

8 to the rules of subparagraphs (C) and (D) of paragraph 

9 (1) shall apply. 

10 ‘‘(E) For purposes of this paragraph, the term ‘appli11 cable benefit’ means any benefit under section 202 other 

12 than— 

13 ‘‘(i) a child’s insurance benefit under section 

14 202(d) with respect to a child of an individual who 

15 has died; 

16 ‘‘(ii) a widow’s insurance benefit under section 

17 202(e) with respect to a widow who has not attained 

18 age 60 and is under a disability (as defined in sec19 tion 223(d)) which began before the end of the pe20 riod specified in section 202(e)(4); 

21 ‘‘(iii) a widower’s insurance benefit under sec22 tion 202(f) with respect to a widower who has not 

23 attained age 60 and is under a disability (as defined 

24 in section 223(d)) which began before the end of the 

25 period specified in section 202(f)(4); and 


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1 ‘‘(iv) a mother’s and father’s insurance benefit 

2 under section 202(g).’’. 

3 (b) TREATMENT OF DISABLED BENEFICIARIES.— 

4 Section 215(a) of such Act (as amended by subsection (a)) 

5 is amended further by adding at the end the following new 

6 paragraph: 

7 ‘‘(9)(A) Notwithstanding the preceding provisions of 

8 this subsection, in the case of an individual who has or 

9 has had a period of disability and who initially becomes 

10 eligible for old-age insurance benefits or who dies (before 

11 becoming eligible for such benefits) in any calendar year 

12 in or after 2017, the primary insurance amount of such 

13 individual shall be the sum of— 

14 ‘‘(i) the amount determined under subpara15 graph (B); and 

16 ‘‘(ii) the product derived by multiplying— 

17 ‘‘(I) the excess of the amount determined 

18 under subparagraph (C) over the amount deter19 mined under subparagraph (B), by 

20 ‘‘(II) the adjustment factor for such indi21 vidual determined under subparagraph (D). 

22 ‘‘(B) The amount determined under this subpara23 graph is the amount of such individual’s primary insur24 ance amount as determined under this section without re25 gard to this paragraph. 


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1 ‘‘(C) The amount determined under this subpara2 graph is the amount of such individual’s primary insur3 ance amount as determined under this section as in effect 

4 with respect to individuals becoming eligible for old-age 

5 or disability insurance benefits under section 202(a) on 

6 the date of the enactment of the Social Security Personal 

7 Savings Guarantee and Prosperity Act of 2009. 

8 ‘‘(D) The adjustment factor determined under this 

9 subparagraph for any individual is the ratio (not greater 

10 than 1) of— 

11 ‘‘(i) the total number of months during which 

12 such individual is under a disability (as defined in 

13 section 223(d)) during the period beginning on the 

14 date the individual attains age 22 and ending on the 

15 first day of such individual’s first month of eligibility 

16 for old-age insurance benefits under section 202(a) 

17 (or, if earlier, the month of such individual’s death), 

18 to 

19 ‘‘(ii) the number of months during the period 

20 beginning on the date the individual attains age 22 

21 and ending on the first day of such individual’s first 

22 month of eligibility for old-age insurance benefits 

23 under section 202(a) (or, if earlier, the month of 

24 such individual’s death).’’. 

25 (c) CONFORMING AMENDMENTS.— 


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1 (1) Subsections (e)(2)(B)(i)(I) and 

2 (f)(2)(B)(i)(I) of section 202 of the Social Security 

3 Act are each amended by inserting ‘‘or section 

4 215(a)(2)(B)(iii)’’ after ‘‘section 215(a)(1)(B)(i) and 

5 (ii)’’. 

6 (2) Section 203(a)(10) of such Act is amend7 ed— 

8 (A) in subparagraph (A)(i), by striking 

9 ‘‘215(a)(2)(B)(i)’’ and inserting 

10 ‘‘215(a)(3)(B)(i)’’; 

11 (B) in subparagraph (A)(ii), by striking 

12 ‘‘215(a)(2)(C)’’ and inserting ‘‘215(a)(3)(C)’’; 

13 and 

14 (C) in subparagraph (B)(ii), by striking 

15 ‘‘215(a)(2)’’ and inserting ‘‘215(a)(3)’’. 

16 (3) Section 209(k)(1) of such Act is amended 

17 by inserting ‘‘215(a)(2)(B), 215(a)(2)(C),’’ after 

18 ‘‘215(a)(1)(D),’’. 

19 (4) Section 215(a) of such Act is amended— 

20 (A) in paragraph (4)(A), as redesignated 

21 by paragraph (2), by striking ‘‘paragraph (4)’’ 

22 and inserting ‘‘paragraph (5)’’; 

23 (B) in paragraph (4)(B), as redesignated 

24 by paragraph (2), by striking ‘‘paragraph 

25 (2)(A)’’ and inserting ‘‘paragraph (3)(A)’’; 


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1 (C) in paragraph (5), as redesignated by 

2 paragraph (2), by striking ‘‘paragraph (3)(A)’’ 

3 and inserting ‘‘paragraph (4)(A)’’; 

4 (D) in paragraph (6)(A), as redesignated 

5 by paragraph (2), by striking ‘‘paragraph 

6 (4)(B)’’ and inserting ‘‘paragraph (5)(B)’’; and 

7 (E) in paragraph (8)(B)(ii)(I), as redesig8 nated by paragraph (2), by striking ‘‘paragraph 

9 (3)(B)’’ and inserting ‘‘paragraph (4)(B)’’. 

10 (5) Section 215(d)(3) of such Act is amended— 

11 (A) by striking ‘‘paragraph (4)(B)(ii)’’ and 

12 inserting ‘‘paragraph (5)(B)(ii)’’; and 

13 (B) by striking ‘‘subsection (a)(7)(C)’’ and 

14 inserting ‘‘subsection (a)(8)(C)’’. 

15 (6) Subsection 215(f) of such Act is amended— 

16 (A) in paragraph (2)(B), by striking ‘‘sub17 section (a)(4)(B)’’ and inserting ‘‘subsection 

18 (a)(5)(B)’’; 

19 (B) in paragraph (7), by striking ‘‘sub20 section (a)(4)(B)’’ and inserting ‘‘subsection 

21 (a)(5)(B)’’, and by striking ‘‘subsection (a)(6)’’ 

22 and inserting ‘‘subsection (a)(7)’’; 

23 (C) in paragraph (9)(A)— 

24 (i) by striking ‘‘subsection (a)(7)(A)’’ 

25 and inserting ‘‘subsection (a)(8)(A)’’; and 


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1 (ii) by striking ‘‘subsection (a)(7)(C)’’ 

2 and inserting ‘‘subsection (a)(8)(C)’’; and 

3 (D) in paragraph (9)(B), by striking ‘‘sub4 section (a)(7)’’ each place it appears and insert5 ing ‘‘subsection (a)(8)’’. 

6 SEC. 409. ENHANCEMENTS TO PART A BENEFITS. 

7 (a) CPI INDEXING IN PART A BENEFIT FORMULA.— 

8 Section 215(a)(1)(B) of the Social Security Act (42 

9 U.S.C. 415(a)(1)(B)) is amended— 

10 (1) by redesignating clause (iii) as clause (iv); 

11 (2) in clause (ii), by inserting ‘‘and before 

12 2017’’ after ‘‘1979’’; 

13 (3) in clause (iv) (as so redesignated), by in14 serting ‘‘or (iii)’’ after ‘‘clause (ii)’’; and 

15 (4) by inserting after clause (ii) the following 

16 new clause: 

17 ‘‘(iii) For individuals who initially become eligible for 

18 old-age or disability insurance benefits, or who die (before 

19 becoming eligible for such benefits), in any calendar year 

20 after 2016, each of the amounts so established shall be 

21 equal to the product of the corresponding amount estab22 lished with respect to the calendar year 2016 under clause 

23 (ii) of this subparagraph and the quotient obtained by di24 viding— 


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1 ‘‘(I) the Consumer Price Index for the second 

2 calendar year preceding the calendar year for which 

3 the determination is made, by 

4 ‘‘(II) the Consumer Price Index for 2014. 

5 For purposes of this clause, the term ‘Consumer Price 

6 Index’ for a calendar year means the arithmetical mean 

7 of the Consumer Price Index (within the meaning of such 

8 term as used in subsection (i)) for the 12 months in such 

9 calendar year.’’. 

10 (b) ENHANCED PART A BENEFIT LEVELS FOR LOW

11 EARNERS.—Section 215(a) of such Act (as amended by 

12 section 408) is amended by adding at the end the following 

13 new paragraph: 

14 ‘‘(10)(A) In the case of any individual who initially 

15 becomes eligible for old-age or disability insurance bene16 fits, or who dies (before becoming eligible for such bene17 fits), in any calendar year after 2016 and whose average 

18 indexed monthly earnings is less than twice the 35-year 

19 low earner AIME for such calendar year, each primary 

20 insurance amount otherwise determined under paragraph 

21 (1) or (2) shall be the product of— 

22 ‘‘(i) such primary insurance amount as so de23 termined, and 

24 ‘‘(ii) the applicable adjustment factor for such 

25 individual. 


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1 ‘‘(B) For purposes of this paragraph, the applicable 

2 adjustment factor for an individual is 100 percent plus 

3 the product of— 

4 ‘‘(i) the applicable percentage for the calendar 

5 year, 

6 ‘‘(ii) the applicable AIME factor, and 

7 ‘‘(iii) the applicable coverage factor. 

8 ‘‘(C) For purposes of subparagraph (B)(i), the appli9 cable percentage for a calendar year is the percentage set 

10 forth in connection with such calendar year in the fol11 lowing table: 

‘‘If the calendar year is: The percentage is: 

2017 ............................................................................................. 4.04

2018 ............................................................................................. 8.08

2019 ............................................................................................. 12.12

2020 ............................................................................................. 16.16

2021 ............................................................................................. 20.20

2022 ............................................................................................. 24.24

2023 ............................................................................................. 28.28

2024 ............................................................................................. 32.32

2025 ............................................................................................. 36.36

2026 or thereafter ....................................................................... 40.40. 

12 ‘‘(D) For purposes of subparagraph (B)(ii)— 

13 ‘‘(i) in any case in which an individual’s aver14 age indexed monthly earnings is less than or equal 

15 to the 30-year low earner AIME for the calendar 

16 year referred to in subparagraph (A), the applicable 

17 AIME factor in connection with the individual for 

18 the calendar year is 1, 

19 ‘‘(ii) in any case in which an individual’s AIME 

20 is greater than the 30-year low earner AIME for the 


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1 calendar year referred to in subparagraph (A) and 

2 less than twice the 35-year low earner AIME for the 

3 calendar year, the applicable AIME factor in connec4 tion with the individual for the calendar year is the 

5 quotient derived by dividing— 

6 ‘‘(I) the excess of twice the 35-year low 

7 earner AIME for the calendar year over the in8 dividual’s average indexed monthly earnings, by 

9 ‘‘(II) the excess of twice the 35-year low 

10 earner AIME for the calendar year over the 30- 

11 year low earner AIME for the calendar year, 

12 and 

13 ‘‘(iii) in any case in which an individual’s aver14 age indexed monthly earnings is greater than or 

15 equal to twice the 35-year low earner AIME for the 

16 calendar year referred to in subparagraph (A), the 

17 applicable AIME factor in connection with an indi18 vidual for the calendar year is 0. 

19 ‘‘(E) For purposes of subparagraph (B)(iii)— 

20 ‘‘(i) in any case in which the number of an indi21 vidual’s quarters of coverage earned prior to the 

22 date on which the individual became eligible or died 

23 as described in subparagraph (A) is less than or 

24 equal to twice the number of elapsed years with reVerDate Nov 24 2008 05:08 Jun 12, 2009 Jkt 079200 PO 00000 Frm 00270 Fmt 6652 Sfmt 6201 E:\BILLS\S1240.IS S1240

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1 spect to the individual, the applicable coverage factor 

2 in connection with the individual is 0, 

3 ‘‘(ii) in any case in which the number of an in4 dividual’s quarters of coverage earned prior to the 

5 date on which the individual became eligible or died 

6 as described in subparagraph (A) is greater than 

7 twice the number of elapsed years with respect to 

8 the individual and less than three times the number 

9 of elapsed years with respect to the individual, the 

10 applicable coverage factor in connection with the in11 dividual is 1 plus the quotient derived by dividing— 

12 ‘‘(I) the excess of the number of the indi13 vidual’s quarters of coverage over 3 times the 

14 number of elapsed years with respect to the in15 dividual, by 

16 ‘‘(II) the number of elapsed years with re17 spect to the individual, and 

18 ‘‘(iii) in any case in which the number of an in19 dividual’s quarters of coverage earned prior to the 

20 date on which the individual became eligible or died 

21 as described in subparagraph (A) is greater than or 

22 equal to 3 times the number of elapsed years with 

23 respect to the individual, the applicable coverage fac24 tor in connection with the individual is 1. 

25 ‘‘(F) For purposes of this paragraph— 


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1 ‘‘(i) The term ‘30-year low earner AIME’ for a 

2 calendar year means the amount which would be the 

3 average indexed monthly earnings of an individual— 

4 ‘‘(I) whose benefit computation years are 

5 the preceding 30 calendar years, and 

6 ‘‘(II) whose primary insurance amount is 

7 based solely on wages earned during such cal8 endar years for 40 hours per week at an hourly 

9 rate equivalent to the minimum wage required 

10 under section 6 of the Fair Labor Standards 

11 Act of 1938 (29 U.S.C. 206) at the time such 

12 wages were earned. 

13 ‘‘(ii) The term ‘35-year low earner AIME’ for 

14 a calendar year means the amount which would be 

15 the average indexed monthly earnings of an indi16 vidual— 

17 ‘‘(I) whose benefit computation years are 

18 the preceding 35 calendar years, and 

19 ‘‘(II) whose primary insurance amount is 

20 based solely on wages earned during such cal21 endar years for 40 hours per week at an hourly 

22 rate equivalent to the minimum wage required 

23 under section 6 of the Fair Labor Standards 

24 Act of 1938 (29 U.S.C. 206) at the time such 

25 wages were earned. 


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1 ‘‘(iii) The term ‘number of elapsed years’ has 

2 the meaning provided in subsection (b)(2)(B)(iii).’’. 

3 TITLE V—SIMPLIFIED INCOME 

4 TAX 

5 SEC. 501. SHORT TITLE. 

6 This title may be cited as the ‘‘Taxpayer Choice Act 

7 of 2009’’. 

8 SEC. 502. REPEAL OF ALTERNATIVE MINIMUM TAX FOR 

9 NONCORPORATE TAXPAYERS. 

10 (a) IN GENERAL.—Section 55(a) of the Internal Rev11 enue Code of 1986 (relating to alternative minimum tax 

12 imposed) is amended by adding at the end the following 

13 new flush sentence: 

14 ‘‘In the case of a taxpayer other than a corporation, no 

15 tax shall be imposed by this section for any taxable year 

16 beginning after December 31, 2009, and the tentative 

17 minimum tax of any taxpayer other than a corporation 

18 for any such taxable year shall be zero for purposes of 

19 this title.’’. 

20 (b) CONFORMING AMENDMENTS.— 

21 (1) Section 26(c) of such Code is amended by 

22 striking ‘‘the term ‘tentative minimum tax’ means 

23 the amount determined under section 55(b)(1)’’ and 

24 inserting ‘‘the tentative minimum tax is zero.’’. 


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1 (2) Section 911(f)(2) of such Code is amended 

2 to read as follows: 

3 ‘‘(2) the tentative minimum tax under section 

4 55 for the taxable year shall be zero.’’. 

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

6 this section shall apply to taxable years beginning after 

7 December 31, 2009. 

8 SEC. 503. SIMPLIFIED INCOME TAX SYSTEM. 

9 (a) IN GENERAL.—Part I of subchapter A of chapter 

10 1 of the Internal Revenue Code of 1986 (relating to tax 

11 on individuals) is amended by redesignating section 5 as 

12 section 6 and by inserting after section 4 the following 

13 new section: 

14 ‘‘SEC. 5. SIMPLIFIED INCOME TAX SYSTEM. 

15 ‘‘(a) ELECTION.— 

16 ‘‘(1) IN GENERAL.—A taxpayer other than a 

17 corporation may elect in accordance with this sub18 section to be subject to the tax imposed by this sec19 tion in lieu of the tax imposed by section 1 for a tax20 able year and all subsequent taxable years. 

21 ‘‘(2) EFFECT OF ELECTION.—For purposes of 

22 this title, if an election is in effect under paragraph 

23 (1) for any taxable year, the tax imposed by this sec24 tion shall be treated as the tax imposed by section 

25 1 for the taxable year and, except as provided by 


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1 sections 31 and 36, no amount shall be allowed as 

2 a credit against such tax for the taxable year. 

3 ‘‘(3) ELECTION.— 

4 ‘‘(A) IN GENERAL.— 

5 ‘‘(i) IN GENERAL.—Except as pro6 vided in clause (ii) of this subparagraph 

7 and clauses (ii) and (iii) of subparagraph 

8 (B), the election under paragraph (1) may 

9 only be made with respect to any taxable 

10 year beginning before January 1, 2019, on 

11 a timely filed return for the first taxable 

12 year for which the election applies. 

13 ‘‘(ii) NEW TAXPAYERS.—In the case 

14 of an individual with no tax liability under 

15 this title before January 1, 2019, the elec16 tion under paragraph (1) may only be 

17 made for the first taxable year beginning 

18 after December 31, 2018, for which such 

19 individual has tax liability under this title. 

20 ‘‘(B) EFFECT OF ELECTION.— 

21 ‘‘(i) IN GENERAL.—Except as pro22 vided in clauses (ii) and (iii), the election 

23 under paragraph (1), once made, shall be 

24 irrevocable. 


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1 ‘‘(ii) ONE-TIME REVOCATION OF

2 ELECTION.—A taxpayer may revoke an 

3 election under paragraph (1) for a taxable 

4 year and all subsequent taxable years. The 

5 preceding sentence shall not apply if the 

6 taxpayer has made a revocation under such 

7 sentence for any prior taxable year. 

8 ‘‘(iii) FILING STATUS CHANGES DUE

9 TO MAJOR LIFE EVENTS.—In the case of 

10 any major life event described in clause 

11 (iv), a taxpayer may make an election 

12 under paragraph (1) or revoke such an 

13 election under clause (ii). Any such election 

14 or revocation shall apply for the taxable 

15 year for which made and all subsequent 

16 taxable years until the taxpayer makes an 

17 election under the preceding sentence for 

18 any subsequent (and all succeeding) tax19 able year. 

20 ‘‘(iv) MAJOR LIFE EVENT.—For pur21 poses of clause (iii), a major life event de22 scribed in this clause is marriage, divorce, 

23 and death. 

24 ‘‘(b) TAX IMPOSED.— 


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1 ‘‘(1) MARRIED INDIVIDUALS AND SURVIVING

2 SPOUSES.—In the case of a taxpayer for whom an 

3 election under subsection (a) is in effect and who is 

4 a married individual (as defined in section 7703) 

5 who makes a single return jointly with his spouse 

6 under section 6013 or a surviving spouse (as defined 

7 in section 2(a)), there is hereby imposed on the al8 ternative taxable income of such individual a tax de9 termined in accordance with the following table: 

‘‘If taxable income is: The tax is: 

Not over $100,000 ........................ 10% of alternative taxable income. 

Over $100,000 ............................... $10,000, plus 25% of the excess over 

$100,000. 

10 ‘‘(2) UNMARRIED INDIVIDUALS (OTHER THAN

11 SURVIVING SPOUSES).—In the case of a taxpayer for 

12 whom an election under subsection (a) is in effect 

13 and who is not described in paragraph (1), there is 

14 hereby imposed on the alternative taxable income of 

15 such individual a tax determined in accordance with 

16 the following table: 

‘‘If taxable income is: The tax is: 

Not over $50,000 .......................... 10% of alternative taxable income. 

Over $50,000 ................................. $5,000, plus 25% of the excess over 

$50,000. 

17 ‘‘(c) ALTERNATIVE TAXABLE INCOME.—For pur18 poses of this section— 

19 ‘‘(1) IN GENERAL.—The term ‘alternative tax20 able income’ means— 

21 ‘‘(A) gross income, 


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1 ‘‘(B) the amount excluded from income 

2 under section 139C for capital gains, dividends, 

3 and interest, minus 

4 ‘‘(C) the sum of— 

5 ‘‘(i) the personal exemption, 

6 ‘‘(ii) the dependent allowance, plus 

7 ‘‘(iii) the alternative standard deduc8 tion. 

9 ‘‘(2) PERSONAL EXEMPTION.—The personal ex10 emption is— 

11 ‘‘(A) 200 percent of the dollar amount in 

12 effect under subparagraph (B) in the case of— 

13 ‘‘(i) a joint return, or 

14 ‘‘(ii) a surviving spouse (as defined in 

15 section 2(a)), and 

16 ‘‘(B) $3,500 in the case of an individual— 

17 ‘‘(i) who is not married and is not a 

18 surviving spouse, or 

19 ‘‘(ii) who is a married individual filing 

20 a separate return. 

21 ‘‘(3) DEPENDENT ALLOWANCE.—The depend22 ent allowance is $3,500 for each dependent (as de23 fined in section 152). 

24 ‘‘(4) ALTERNATIVE STANDARD DEDUCTION.— 

25 The alternative standard deduction means— 


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1 ‘‘(A) $25,000 in the case of— 

2 ‘‘(i) a joint return, or 

3 ‘‘(ii) a surviving spouse (as defined in 

4 section 2(a)), and 

5 ‘‘(B) $12,500 in the case of an indi6 vidual— 

7 ‘‘(i) who is not married and is not a 

8 surviving spouse, or 

9 ‘‘(ii) who is a married individual filing 

10 a separate return. 

11 ‘‘(d) INFLATION ADJUSTMENTS.— 

12 ‘‘(1) IN GENERAL.—In the case of any taxable 

13 year beginning in a calendar year after 2009, each 

14 of the dollar amounts for the rate brackets in sub15 section (b) and each of the dollar amounts in sub16 section (d)(2)(B), (d)(3), and (d)(4) shall be in17 creased by an amount equal to— 

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

19 ‘‘(B) the cost-of-living adjustment deter20 mined under section 1(f)(3) for the calendar 

21 year in which the taxable year begins, by sub22 stituting ‘calendar year 2008’ for ‘calendar year 

23 1992’ in subparagraph (B) thereof. 

24 ‘‘(2) ROUNDING.—If any amount as adjusted 

25 under clause (i) is not a multiple of $100, such 


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1 amount shall be rounded to the nearest multiple of 

2 $100.’’. 

3 (b) CONFORMING AMENDMENT.—The table of sec4 tions for part I of subchapter A of chapter 1 of such Code 

5 is amended by striking the item relating to section 5 and 

6 inserting after the item relating to section 4 the following: 

‘‘Sec. 5. Simplified income tax System. 

‘‘Sec. 6. Cross references relating to tax on individuals.’’. 

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

8 this section shall apply to taxable years beginning after 

9 December 31, 2009. 

10 SEC. 504. EXCLUSION FOR CAPITAL GAINS, DIVIDENDS, 

11 AND INTEREST. 

12 (a) IN GENERAL.—Part III of subchapter B of chap13 ter 1 of the Internal Revenue Code of 1986 (relating to 

14 items specifically excluded from gross income) is amended 

15 by inserting after section 139C the following new section: 

16 ‘‘SEC. 139D. CAPITAL GAINS, DIVIDENDS, AND INTEREST. 

17 ‘‘(a) EXCLUSION.—Gross income does not include 

18 amounts received by an individual as net capital gains, 

19 qualified dividends, and interest. 

20 ‘‘(b) QUALIFIED DIVIDENDS.—For purposes of this 

21 section— 

22 ‘‘(1) IN GENERAL.—The term ‘qualified divi23 dends’ means dividends received during the taxable 

24 year from— 


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1 ‘‘(A) domestic corporations, and 

2 ‘‘(B) qualified foreign corporations. 

3 ‘‘(2) QUALIFIED FOREIGN CORPORATIONS.— 

4 ‘‘(A) IN GENERAL.—Except as otherwise 

5 provided in this paragraph, the term ‘qualified 

6 foreign corporation’ means any foreign corpora7 tion if— 

8 ‘‘(i) such corporation is incorporated 

9 in a possession of the United States, or 

10 ‘‘(ii) such corporation is eligible for 

11 benefits of a comprehensive income tax 

12 treaty with the United States which the 

13 Secretary determines is satisfactory for 

14 purposes of this paragraph and which in15 cludes an exchange of information pro16 gram. 

17 ‘‘(B) DIVIDENDS ON STOCK READILY

18 TRADABLE ON UNITED STATES SECURITIES

19 MARKET.—A foreign corporation not otherwise 

20 treated as a qualified foreign corporation under 

21 subparagraph (A) shall be so treated with re22 spect to any dividend paid by such corporation 

23 if the stock with respect to which such dividend 

24 is paid is readily tradable on an established se25 curities market in the United States. 


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1 ‘‘(C) EXCLUSION OF DIVIDENDS OF CER2 TAIN FOREIGN CORPORATIONS.—Such term 

3 shall not include any foreign corporation which 

4 for the taxable year of the corporation in which 

5 the dividend was paid, or the preceding taxable 

6 year, is a passive foreign investment company 

7 (as defined in section 1297). 

8 ‘‘(3) SPECIAL RULE.—If a taxpayer to whom 

9 this section applies receives, with respect to any 

10 share of stock, qualified dividend income from 1 or 

11 more dividends which are extraordinary dividends 

12 (within the meaning of section 1059(c)), any loss on 

13 the sale or exchange of such share shall, to the ex14 tent of such dividends, be treated as long-term cap15 ital loss. 

16 ‘‘(c) INTEREST.—For purposes of this section, the 

17 term ‘interest’ means— 

18 ‘‘(1) interest on deposits with a bank (as de19 fined in section 581), 

20 ‘‘(2) amounts (whether or not designated as in21 terest) paid, in respect to deposits, investment cer22 tificates, or withdrawable or repurchasable shares, 

23 by— 

24 ‘‘(A) a mutual savings bank, cooperative 

25 bank, domestic building and loan association, 


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1 industrial loan association or bank, or credit 

2 union, or 

3 ‘‘(B) any other savings or thrift institu4 tion, which is chartered and supervised under 

5 Federal or State law, 

6 the deposits or accounts in which are insured under 

7 Federal or State law or which are protected and 

8 guaranteed under State law, 

9 ‘‘(3) interest on— 

10 ‘‘(A) evidences of indebtedness (including 

11 bonds, debentures, notes, and certificates) 

12 issued by a domestic corporation in registered 

13 form, and 

14 ‘‘(B) to the extent provided in regulations 

15 prescribed by the Secretary, other evidences of 

16 indebtedness issued by a domestic corporation 

17 of a type offered by corporations to the public, 

18 ‘‘(4) interest on obligations of the United 

19 States, a State, or a political subdivision of a State 

20 (not excluded from gross income of the taxpayer 

21 under any other provision of law), and 

22 ‘‘(5) interest attributable to participation shares 

23 in a trust established and maintained by a corpora24 tion established pursuant to Federal law. 


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•S 1240 IS

1 ‘‘(d) CERTAIN NONRESIDENT ALIENS INELIGIBLE

2 FOR EXCLUSION.—In the case of a nonresident alien indi3 vidual, subsection (a) shall apply only— 

4 ‘‘(1) in determining the tax imposed for the 

5 taxable year pursuant to section 871(b)(1) and only 

6 in respect to dividends and interest which are effec7 tively connected with the conduct of a trade or busi8 ness within the United States, or 

9 ‘‘(2) in determining the tax imposed for the 

10 taxable year pursuant to section 877(b).’’. 

11 (b) CONFORMING AMENDMENT.—Section 1 of such 

12 Code is amended by striking subsection (h). 

13 (c) CLERICAL AMENDMENT.—The table of sections 

14 for such part III is amended by inserting after the item 

15 relating to section 139C the following new item: 

‘‘Sec. 13DC. Capital gains, dividends, and interest.’’. 

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

17 this section shall apply to taxable years beginning after 

18 December 31, 2009. 

19 SEC. 505. REPEAL OF ESTATE AND GIFT TAXES. 

20 (a) IN GENERAL.—Subtitle B of the Internal Rev21 enue Code of 1986 is hereby repealed. 

22 (b) EFFECTIVE DATE.—The repeal made by sub23 section (a) shall apply to the estates of decedents dying, 

24 and gifts made, and generation-skipping transfers after 

25 December 31, 2009. 


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1 TITLE VI—BUSINESS 

2 CONSUMPTION TAX 

3 SEC. 601. SHORT TITLE. 

4 This title may be cited as the ‘‘Competitive American 

5 Business Tax’’. 

6 SEC. 602. REPEAL OF CORPORATE INCOME TAX; NEW TAX 

7 PAID BY CORPORATIONS AND OTHER BUSI8 NESSES. 

9 (a) IN GENERAL.—Subtitle A of the Internal Rev10 enue Code of 1986 is amended by inserting after chapter 

11 6 the following new chapter: 

12 ‘‘CHAPTER 7—BUSINESS CONSUMPTION 

13 TAX 

‘‘SUBCHAPTER A. IMPOSITION OF TAX. 

‘‘SUBCHAPTER B. BASIC RULES FOR BUSINESS CONSUMPTION TAX. 

‘‘SUBCHAPTER C. CAPITAL CONTRIBUTIONS, MERGERS, ACQUISITIONS, AND

DISTRIBUTIONS. 

‘‘SUBCHAPTER D. ACCOUNTING METHOD RULES. 

‘‘SUBCHAPTER E. LAND AND RENTAL PROPERTY. 

‘‘SUBCHAPTER F. INSURANCE AND FINANCIAL PRODUCTS. 

‘‘SUBCHAPTER G. FINANCIAL INTERMEDIATION AND FINANCIAL INSTITUTIONS. 

‘‘SUBCHAPTER H. TAX-EXEMPT ORGANIZATIONS. 

‘‘SUBCHAPTER I. COOPERATIVES. 

‘‘SUBCHAPTER J. SOURCING RULES. 

‘‘SUBCHAPTER K. IMPORT TAX. 

‘‘SUBCHAPTER L. TRANSITION RULES. 

‘‘SUBCHAPTER M. RULES FOR ADMINISTRATION, CONSOLIDATED RETURNS. 

‘‘SUBCHAPTER N. DEFINITIONS AND RULES OF APPLICATION. 


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1 ‘‘Subchapter A—Imposition of Tax 

‘‘Sec. 1601. Imposition of tax. 

‘‘Sec. 1602. Taxable amount. 

‘‘Sec. 1603. Zero rating for exports and interest. 

‘‘Sec. 1604. Governmental entities. 

‘‘Sec. 1605. Exempt organizations. 

‘‘Sec. 1606. Credit against tax. 

2 ‘‘SEC. 1601. IMPOSITION OF TAX. 

3 ‘‘(a) GENERAL RULE.—A tax is hereby imposed on 

4 each taxable transaction. 

5 ‘‘(b) AMOUNT OF TAX.—Except as otherwise pro6 vided in this chapter, the amount of the tax shall be 8.5 

7 percent of the taxable amount. 

8 ‘‘(c) TAXABLE TRANSACTION.—For purposes of this 

9 chapter, the term ‘taxable transaction’ means— 

10 ‘‘(1) the sale of property in the United States, 

11 ‘‘(2) the performance of services in the United 

12 States, and 

13 ‘‘(3) the importing of property into the United 

14 States, 

15 by a taxable person in a business transaction. 

16 ‘‘(d) BUSINESS TRANSACTION.— 

17 ‘‘(1) GENERAL RULE.—For purposes of this 

18 chapter, the term ‘business transaction’ means a 

19 transaction engaged in by— 

20 ‘‘(A) a corporation, or 

21 ‘‘(B) any person (other than a corporation) 

22 in connection with a business. 


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1 ‘‘(2) SALES AND LEASES OF REAL PROPERTY; 

2 IMPORTS.—For purposes of this chapter— 

3 ‘‘(A) IN GENERAL.—The term ‘business 

4 transaction’ includes— 

5 ‘‘(i) any sale or leasing of real prop6 erty, and 

7 ‘‘(ii) any importing of property, 

8 whether or not such transaction is described in 

9 paragraph (1). 

10 ‘‘(B) CERTAIN IMPORTED ARTICLES.— 

11 Notwithstanding subparagraph (A)(ii), the im12 porting of an article which is free of duty under 

13 part 2 of schedule 8 of the Tariff Schedules of 

14 the United States shall not be treated as a busi15 ness transaction unless such transaction is de16 scribed in paragraph (1). 

17 ‘‘(e) TAXABLE PERSON.— 

18 ‘‘(1) GENERAL RULE.—Except as otherwise 

19 provided in this chapter, for purposes of this chap20 ter, the term ‘taxable person’ means a person who 

21 engages in a business or in a business transaction. 

22 ‘‘(2) TREATMENT OF EMPLOYEES, ETC.—For 

23 purposes of this chapter, an employee shall not be 

24 treated as a taxable person with respect to activities 

25 engaged in as an employee. 


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1 ‘‘(f) TRANSACTIONS IN THE UNITED STATES.— 

2 ‘‘(1) SALES OF PROPERTY.—For purposes of 

3 this chapter— 

4 ‘‘(A) IN GENERAL.—Except as provided in 

5 subparagraph (B), the sale of property shall be 

6 treated as occurring where delivery takes place. 

7 ‘‘(B) REAL PROPERTY.—The sale of real 

8 property shall be treated as occurring where the 

9 real property is located. 

10 ‘‘(2) PERFORMANCE OF SERVICE.—For pur11 poses of this chapter— 

12 ‘‘(A) IN GENERAL.—Except as otherwise 

13 provided in this paragraph, a service shall be 

14 treated as occurring where it is performed. 

15 ‘‘(B) SERVICES PERFORMED INSIDE AND

16 OUTSIDE THE UNITED STATES.—If a service is 

17 performed both inside and outside the United 

18 States, such service shall be treated as per19 formed— 

20 ‘‘(i) inside the United States, if 50 

21 percent or more of such service is per22 formed inside the United States, and 

23 ‘‘(ii) outside the United States, if less 

24 than 50 percent of such service is per25 formed inside the United States. 


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1 ‘‘(g) RULES RELATING TO OTHER TERMS USED IN

2 SUBSECTION (c).— 

3 ‘‘(1) EXCHANGES TREATED AS SALES.—For 

4 purposes of this chapter— 

5 ‘‘(A) an exchange of property for property 

6 or services shall be treated as a sale of prop7 erty, and 

8 ‘‘(B) an exchange of services for property 

9 or services shall be treated as the performance 

10 of services. 

11 ‘‘(2) CERTAIN TRANSFERS TO EMPLOYEES

12 TREATED AS SALES.—For purposes of this chapter, 

13 the transfer of property to an employee as com14 pensation (other than a transfer of a type for which 

15 no amount is includible in the gross income of em16 ployees for purposes of chapter 1) shall be treated 

17 as the sale of property. 

18 ‘‘(3) PERFORMANCE OF SERVICES.—For pur19 poses of this chapter— 

20 ‘‘(A) CERTAIN ACTIVITIES TREATED AS

21 PERFORMANCE OF SERVICES.—Activities treat22 ed as included in the performance of services 

23 shall include (but shall not be limited to)— 

24 ‘‘(i) permitting the use of property, 


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1 ‘‘(ii) the granting of a right to the 

2 performance of services or to reimburse3 ment (including the granting of warranties, 

4 insurance, and similar items), and 

5 ‘‘(iii) the making of a covenant not to 

6 compete (or similar agreement to refrain 

7 from doing something). 

8 ‘‘(B) EMPLOYERS AND EMPLOYEES.— 

9 ‘‘(i) SERVICES FOR EMPLOYER.—An 

10 employee’s services for the employee’s em11 ployer shall not be treated as the perform12 ance of services. 

13 ‘‘(ii) SERVICES FOR EMPLOYEE.—An 

14 employer’s services for the employer’s em15 ployee shall not be treated as the perform16 ance of services unless such services are of 

17 a type which constitute gross income to the 

18 employee for purposes of chapter 1. 

19 ‘‘(C) PERFORMANCE OF SERVICES TREAT20 ED AS SALE OF SERVICES.—The performance of 

21 services shall be treated as the sale of services. 

22 ‘‘SEC. 1602. TAXABLE AMOUNT. 

23 ‘‘(a) AMOUNT CHARGED CUSTOMER.—For purposes 

24 of this chapter, the taxable amount for any transaction 

25 for which money is the only consideration shall be the 


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1 price charged the purchaser of the property or services by 

2 the seller thereof— 

3 ‘‘(1) including all invoiced charges for transpor4 tation, and other items payable to the seller with re5 spect to this transaction, but 

6 ‘‘(2) excluding the tax imposed by section 1601 

7 with respect to this transaction and excluding any 

8 State and local sales and use taxes with respect to 

9 this transaction. 

10 ‘‘(b) EXCHANGES.—For purposes of this chapter, the 

11 taxable amount in any exchange of property or services 

12 shall be the fair market value of the property or services 

13 transferred by the person liable for the tax (determined 

14 as if such person had sold the property or services to the 

15 other party to the exchange). 

16 ‘‘(c) IMPORTS.—For purposes of this chapter, the 

17 taxable amount in the case of any import shall be— 

18 ‘‘(1) the customs value plus customs duties and 

19 any other duties which may be imposed, or 

20 ‘‘(2) if there is no such customs value, the fair 

21 market value (determined as if the importer had sold 

22 the property). 

23 ‘‘SEC. 1603. ZERO RATING FOR EXPORTS AND INTEREST. 

24 ‘‘The rate of the tax imposed by section 1601 shall 

25 be zero with respect to the following: 


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1 ‘‘(1) EXPORTS.—Exports of property. 

2 ‘‘(2) INTEREST.—Interest. 

3 ‘‘SEC. 1604. GOVERNMENTAL ENTITIES. 

4 ‘‘(a) ZERO RATING FOR SALES TO GOVERNMENTAL

5 ENTITIES AND EDUCATIONAL ACTIVITIES OF GOVERN6 MENTAL ENTITIES.—The rate of the tax imposed by sec7 tion 1601 shall be zero with respect to the following: 

8 ‘‘(1) SALES TO GOVERNMENTAL ENTITIES.— 

9 Any sale of property or services to a governmental 

10 entity. 

11 ‘‘(2) EDUCATIONAL ACTIVITIES.—The providing 

12 by a governmental entity of property and services in 

13 connection with the education of students. 

14 ‘‘(b) SALES, ETC., BY GOVERNMENTAL ENTITIES

15 TAXABLE ONLY WHERE SEPARATE CHARGE IS MADE.— 

16 For purposes of this chapter, the sale of property and the 

17 performance of services by a governmental entity shall be 

18 a taxable transaction if (and only if) a separate charge 

19 of fee is made therefor. 

20 ‘‘(c) GOVERNMENTAL ENTITY DEFINED.—For pur21 poses of this chapter, the term ‘governmental entity’ 

22 means the United States, any State or political subdivision 

23 thereof, the District of Columbia, a Commonwealth or pos24 session of the United States, or any agency or instrumen25 tality of any of the foregoing. 


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1 ‘‘SEC. 1605. EXEMPT ORGANIZATIONS. 

2 ‘‘(a) ZERO RATING FOR SECTION 501(c)(3) ORGANI3 ZATIONS; CREDIT ALLOWED FOR ALL PURCHASES.— 

4 ‘‘(1) ZERO RATING.—The rate of the tax im5 posed by section 1601 shall be zero with respect to 

6 any taxable transaction engaged in by a section 

7 501(c)(3) organization other than as part of an un8 related business. 

9 ‘‘(2) CREDIT ALLOWED FOR ALL PURCHASES.— 

10 For purposes of this chapter, a section 501(c)(3) or11 ganization shall be treated as engaged in a business 

12 with respect to all of its activities. 

13 ‘‘(b) TAXABLE TRANSACTIONS IN CASE OF OTHER

14 EXEMPT ORGANIZATIONS.—For purposes of this chapter, 

15 the sale of property and the performance of services by 

16 any exempt organization other than a section 501(c)(3) 

17 organization shall be a taxable transaction if (and only 

18 if) a charge or fee is made for such services. 

19 ‘‘(c) DEFINITIONS.—For purposes of this chapter— 

20 ‘‘(1) SECTION 501(c)(3) ORGANIZATIONS.—The 

21 term ‘section 501(c)(3) organization’ means an orga22 nization described in section 501(c)(3) which is ex23 empt from tax under section 501(a). 

24 ‘‘(2) OTHER EXEMPT ORGANIZATION.—The 

25 term ‘other exempt organization’ means any organiVerDate Nov 24 2008 05:08 Jun 12, 2009 Jkt 079200 PO 00000 Frm 00293 Fmt 6652 Sfmt 6201 E:\BILLS\S1240.IS S1240

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1 zation (other than a section 501(c)(3) organization) 

2 which is exempt from tax under chapter 1. 

3 ‘‘SEC. 1606. CREDIT AGAINST TAX. 

4 ‘‘(a) GENERAL RULE.—There shall be allowed as a 

5 credit against the tax imposed by section 1601 the aggre6 gate amount of tax imposed by section 1601 which has 

7 been paid by sellers to the taxpayer of property and serv8 ices which the taxpayer uses in the business to which the 

9 transaction relates. 

10 ‘‘(b) EXEMPT TRANSACTIONS, ETC.—If— 

11 ‘‘(1) property or services are used partly in the 

12 business and partly for other purposes, or 

13 ‘‘(2) property or services are used partly for 

14 taxable transactions and partly for other trans15 actions, 

16 the credit shall be allowable only with respect to the prop17 erty and services used for taxable transactions in the busi18 ness. No credit shall be allowable for any transaction oc19 curring when the taxpayer was a nontaxable person. 

20 ‘‘(c) EXCESS CREDIT TREATED AS OVERPAYMENT.— 

21 ‘‘(1) IN GENERAL.—If for any taxable period 

22 the aggregate amount of the credits allowable by 

23 subsection (a) exceeds the aggregate amount of the 

24 tax imposed by section 1601 for such period, such 


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1 excess shall be treated as an overpayment of the tax 

2 imposed by section 1601. 

3 ‘‘(2) TIME WHEN OVERPAYMENT ARISES.—Any 

4 overpayment under paragraph (1) for any taxable 

5 period shall be treated as arising on the later of— 

6 ‘‘(A) the due date for the return for such 

7 period, or 

8 ‘‘(B) the date on which the return is filed. 

9 ‘‘Subchapter B—Basic Rules for Business 

10 Consumption Tax 

‘‘Sec. 1611. Gross profits. 

‘‘Sec. 1612. Taxable receipts. 

‘‘Sec. 1613. Deductible amounts. 

‘‘Sec. 1614. Cost of business purchases. 

‘‘Sec. 1615. Business entity and business activity. 

‘‘Sec. 1616. Loss carryover deduction. 

11 ‘‘SEC. 1611. GROSS PROFITS. 

12 ‘‘ ‘Gross profits’ means for a taxable transaction of 

13 a business entity the amount by which— 

14 ‘‘(1) the taxable receipts of the business entity 

15 with respect to the taxable transaction, exceed 

16 ‘‘(2) the deductible amounts for the business 

17 entity with respect to the taxable transactions. 

18 ‘‘SEC. 1612. TAXABLE RECEIPTS. 

19 ‘‘(a) IN GENERAL.—‘Taxable receipts’ means all re20 ceipts from the sale of property, use of property, and per21 formance of services in the United States. 


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1 ‘‘(b) GAMES OF CHANCE.—Amounts received for 

2 playing games of chance by business entities engaging in 

3 the activity of providing such games shall be treated as 

4 receipts from the sale of property or services. 

5 ‘‘(c) IN-KIND RECEIPTS.—The taxable receipts at6 tributable to the receipt of property, use of property or 

7 services in whole or partial exchange for property, use of 

8 property or services equal the fair market value of the 

9 services or property received. 

10 ‘‘(d) TAXES.—Taxable receipts do not include any ex11 cise tax, sales tax, custom duty, or other separately stated 

12 levy imposed by a Federal, State, or local government re13 ceived by a business entity in connection with the sale of 

14 property or services or the use of property. 

15 ‘‘(e) FINANCIAL RECEIPTS.—Except as provided in 

16 subchapter G (relating to financial intermediation and fi17 nancial institutions), taxable receipts do not include finan18 cial receipts (as defined by regulations by the Secretary). 

19 ‘‘SEC. 1613. DEDUCTIBLE AMOUNTS. 

20 ‘‘ ‘Deductible amounts’ for a business entity in a tax21 able transaction include— 

22 ‘‘(1) the cost of business purchases with respect 

23 to the taxable transaction (as determined under sec24 tion 1614), 


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1 ‘‘(2) such entity’s loss carryover deduction (as 

2 determined under section 1616), and 

3 ‘‘(3) the transition basis deduction (as deter4 mined under section 1711). 

5 ‘‘SEC. 1614. COST OF BUSINESS PURCHASES. 

6 ‘‘(a) BUSINESS PURCHASES.— 

7 ‘‘(1) IN GENERAL.—‘Business purchases’ means 

8 the acquisition of— 

9 ‘‘(A) property, 

10 ‘‘(B) the use of property, or 

11 ‘‘(C) services, 

12 in the United States for use in a business activity. 

13 ‘‘(2) EXAMPLES.—Business purchases include 

14 (without limitation) the— 

15 ‘‘(A) purchase or rental of real property, 

16 ‘‘(B) purchase or rental of capital equip17 ment, 

18 ‘‘(C) purchase of supplies and inventory, 

19 ‘‘(D) purchase of services from inde20 pendent contractors, 

21 ‘‘(E) purchase of financial intermediation 

22 services (as determined in accordance with sec23 tion 1661), 

24 ‘‘(F) imports for use in a business activity, 

25 and 


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1 ‘‘(G) premiums for the cost of health in2 surance policies for which the service provider, 

3 members of his family, or persons designated by 

4 him or members of his family are the bene5 ficiaries. 

6 ‘‘(3) EXCLUSIONS.—Business purchases do not 

7 include— 

8 ‘‘(A) payments for use of money or capital, 

9 such as interest or dividends (except to the ex10 tent that a portion so paid is a fee for financial 

11 intermediation services), 

12 ‘‘(B) premiums for life insurance, 

13 ‘‘(C) the acquisition of savings assets or 

14 other financial instruments. 

15 ‘‘(D) property acquired outside the United 

16 States (but such property shall be taken into 

17 account as an import if imported), 

18 ‘‘(E) services performed outside the United 

19 States (unless treated as imported into the 

20 United States), 

21 ‘‘(F) compensation expenses for an indi22 vidual (other than amounts paid to an indi23 vidual in his capacity as a business entity), or 

24 ‘‘(G) taxes (except as provided in sub25 section (b)(2) relating to product taxes). 


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1 ‘‘(4) COMPENSATION EXPENSES.—‘Compensa2 tion expenses’ means— 

3 ‘‘(A) wages, salaries or other cash payable 

4 for services, 

5 ‘‘(B) any taxes imposed on the recipient 

6 that are withheld by the business entity, 

7 ‘‘(C) the cost of property purchased to pro8 vide employees with compensation (other than 

9 property incidental to the provision of fringe 

10 benefits that are excluded from income under 

11 the individual tax), and 

12 ‘‘(D) the cost of fringe benefits which are 

13 includible in an employee’s, partner’s, or propri14 etor’s income under section 5 (or are excluded 

15 solely because they constitute employee sav16 ings), including (without limitation)— 

17 ‘‘(i) contributions to retirement and 

18 severance benefit plans, 

19 ‘‘(ii) premiums for the cost of life, ac20 cident, disability and other insurance poli21 cies for which the service provider, mem22 bers of his family, or persons designated 

23 by him or members of his family are the 

24 beneficiaries, 


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1 ‘‘(iii) rental of parking spaces or park2 ing fees (unless the parking space is used 

3 for a vehicle that is regularly used in a 

4 business activity); 

5 ‘‘(iv) employer paid educational bene6 fits; 

7 ‘‘(v) employer paid housing (other 

8 than housing provided for the convenience 

9 of the employer); and 

10 ‘‘(vi) employer paid meals (other than 

11 meals provided for the convenience of the 

12 employer). 

13 ‘‘(b) COST OF BUSINESS PURCHASES.— 

14 ‘‘(1) IN GENERAL.—The ‘cost of a business 

15 purchase’ is the amount paid or to be paid for the 

16 business purchase. 

17 ‘‘(2) TAXES.— 

18 ‘‘(A) IN GENERAL.—The ‘cost of business 

19 purchases’ includes any product taxes paid with 

20 respect to the property or services purchased. 

21 ‘‘(B) PRODUCT TAX.—‘Product tax’ means 

22 any excise tax, sales or use tax, custom duty, or 

23 other separately stated levy imposed by a Fed24 eral, State, or local government on the produc25 tion, severance or consumption of property or 


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1 on the provision of services, whether or not sep2 arately stated, and including any such taxes 

3 that are technically imposed on the seller of 

4 property or services. 

5 ‘‘(C) TAXES NOT PRODUCT TAXES.—Prod6 uct taxes do not include— 

7 ‘‘(i) the import tax, 

8 ‘‘(ii) state and local property taxes, 

9 ‘‘(iii) franchise or income taxes, 

10 ‘‘(iv) payroll taxes and self-employ11 ment taxes, or 

12 ‘‘(v) the business tax. 

13 ‘‘(3) IMPORTS.—In the case of an import by a 

14 business entity, the cost of the import is the import 

15 price for purposes of the import tax. The import tax 

16 is not part of the cost of the import. 

17 ‘‘(c) PROPERTY AND SERVICES ACQUIRED FOR

18 PROPERTY.—If a business entity receives property or serv19 ices from a business entity in whole or partial exchange 

20 for property or services, the property or services acquired 

21 shall be treated as if they were purchased for an amount 

22 equal to the fair market value of the services or property 

23 received. For purposes of this section, property includes 

24 stock and other equity interests in business other than 


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1 stock or an equity interest in the business entity acquiring 

2 the property or services. 

3 ‘‘(d) GAMBLING PAYMENTS.—In the case of a busi4 ness involving gambling, lotteries, or other games of 

5 chance, business purchases include amounts paid to win6 ners. 

7 ‘‘(e) SAVINGS ASSETS.—‘Savings assets’ means 

8 stocks, bonds, securities, certificates of deposits, invest9 ments in partnerships and limited liability companies, 

10 shares of mutual funds, life insurance policies, annuities, 

11 and other similar savings or investment assets. 

12 ‘‘SEC. 1615. BUSINESS ENTITY AND BUSINESS ACTIVITY. 

13 ‘‘(a) BUSINESS ENTITY.—For purposes of the busi14 ness tax, ‘business entity’ means any corporation, unincor15 porated association, partnership, limited liability company, 

16 proprietorship, independent contractor, individual, or any 

17 other person engaging in business activity in the United 

18 States. An individual shall be considered a business entity 

19 only with respect to the individual’s business activities. 

20 ‘‘(b) BUSINESS ACTIVITY.—‘Business activity’ means 

21 the sale of property or services, the leasing of property, 

22 the development of property or services for subsequent 

23 sale or use in producing property or services for subse24 quent sale. ‘Business activity’ does not include casual or 

25 occasional sales of property used by an individual (other 


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1 than in a business activity), such as the sale by an indi2 vidual of a vehicle used by the individual. 

3 ‘‘(c) EXCEPTION FOR CERTAIN EMPLOYEES.— 

4 ‘‘(1) IN GENERAL.—‘Business activity’ does not 

5 include— 

6 ‘‘(A) the performance of services by an em7 ployee for an employer that is a business entity 

8 with respect to the activity in which the em9 ployee is engaged, or 

10 ‘‘(B) the performance of regular domestic 

11 household services (including babysitting, 

12 housecleaning, and lawn cutting) by an em13 ployee of an employer that is an individual or 

14 family. 

15 ‘‘(2) EMPLOYEE DEFINED.—For purposes of 

16 this subsection, ‘employee’ includes an individual 

17 partner who provides services to a partnership or an 

18 individual member who provides services to a limited 

19 liability company, or a proprietor with respect to 

20 compensation for services from his proprietorship. 

21 ‘‘SEC. 1616. LOSS CARRYOVER DEDUCTION. 

22 ‘‘(a) DEDUCTION.—The ‘loss carryover deduction’ for 

23 a taxable period is the lesser of— 


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1 ‘‘(1) the business entity’s gross profits for the 

2 taxable period (determined without the loss carry3 over deduction), or 

4 ‘‘(2) the amount of the loss carryover to the 

5 taxable period. 

6 ‘‘(b) LOSS CARRYOVER.— 

7 ‘‘(1) GENERAL RULE.—A loss for any taxable 

8 period shall be a loss carryover to the succeeding 

9 taxable period. 

10 ‘‘(2) LOSS CARRYOVERS TO A TAXABLE PE11 RIOD.—The loss carryover to a taxable period is the 

12 sum of the loss carryovers from all prior taxable pe13 riods beginning on or after January 1 of the year 

14 following the year in which this chapter is enacted. 

15 ‘‘(3) REDUCTION OF LOSS CARRYOVERS AS A

16 RESULT OF THE DEDUCTION.—A business entity’s 

17 loss carryovers shall be reduced each year by the 

18 amount of the loss carryover deduction for the year. 

19 Loss carryovers shall be reduced in the order that 

20 they arose. 

21 ‘‘(c) LOSS FOR TAXABLE PERIOD.—A business enti22 ty’s loss (if any) for the taxable period equals the excess 

23 (if any) of— 

24 ‘‘(1) the sum of— 


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1 ‘‘(A) the cost of business purchases for the 

2 taxable period, and 

3 ‘‘(B) the transition basis adjustment for 

4 the taxable period, over 

5 ‘‘(2) taxable receipts for the taxable period. 

6 ‘‘(d) SPECIAL RULES.— 

7 ‘‘(1) CONSOLIDATED RETURNS.—In the case of 

8 a consolidated return, the loss for a taxable period 

9 shall be determined on a consolidated group basis. 

10 In the case of a deconsolidation, the loss carryovers 

11 from the consolidated group shall be allocated in ac12 cordance with rules to be prescribed by the Sec13 retary. 

14 ‘‘(2) LOSS CARRYOVERS OF ACQUIRED BUSI15 NESS ENTITY.—Any loss arising in the case of the 

16 acquisition of a business entity shall be allowed as 

17 prescribed by the Secretary. 

18 ‘‘(e) INTEREST.—Interest shall be allowed on each 

19 loss carried forward under this section at a rate deter20 mined by the Secretary of the Treasury. 

21 ‘‘Subchapter C—Capital Contributions, 

22 Mergers, Acquisitions, and Distributions 

‘‘Sec. 1621. Contributions to a business entity. 

‘‘Sec. 1622. Distributions of property. 

‘‘Sec. 1623. Asset acquisitions. 

‘‘Sec. 1624. Mergers and stock acquisitions. 

‘‘Sec. 1625. Spin-offs, split-offs, etc. 

‘‘Sec. 1626. Allocation of certain tax attributes. 


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1 ‘‘SEC. 1621. CONTRIBUTIONS TO A BUSINESS ENTITY. 

2 ‘‘(a) BY BUSINESS ENTITY.— 

3 ‘‘(1) CASH.—If a business entity contributes 

4 cash to a business entity of which it is or becomes 

5 a partial or full owner, the amount contributed is 

6 not a deductible amount to the contributor or a tax7 able receipt to the recipient. 

8 ‘‘(2) PROPERTY OR SERVICES.—If a business 

9 entity contributes property or services to a business 

10 entity of which it is or becomes a partial or full 

11 owner, the transaction will not result in taxable re12 ceipts to the contributor or a deduction for a busi13 ness purchase for the recipient and will not con14 stitute a sale resulting in taxable receipts to the con15 tributor. 

16 ‘‘(b) BY INDIVIDUAL.— 

17 ‘‘(1) CASH.—If an individual contributes cash 

18 to a business entity, the cash received is not a tax19 able receipt. 

20 ‘‘(2) NEW PROPERTY.—If an individual contrib21 utes to a business entity property that the individual 

22 purchased for the business entity but which was not 

23 used by any person after its purchase, the property 

24 shall be considered purchased by such business enti25 ty from the person from which the individual pur26 chased the property. 


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1 ‘‘(3) PERSONAL USE PROPERTY.— 

2 ‘‘(A) IN GENERAL.—If an individual con3 tributes personal use property to a business en4 tity in which the individual has an ownership 

5 interest or for which the individual receives an 

6 ownership interest, the business entity shall not 

7 be permitted to deduct the value of the property 

8 received as a business expense. The business 

9 entity will have a tax basis in the contributed 

10 property equal to the contributor’s basis. 

11 ‘‘(B) PERSONAL USE PROPERTY.—‘Per12 sonal use property’ means any property used by 

13 an individual at any time other than in a busi14 ness activity. 

15 ‘‘(4) SERVICES.—If an individual contributes 

16 services to a business entity in which the individual 

17 has an ownership interest or receives an ownership 

18 interest, the business entity shall not be permitted to 

19 deduct the value of the services received (or the 

20 value of the equity interest provided to the services 

21 provider). 

22 ‘‘SEC. 1622. DISTRIBUTIONS OF PROPERTY. 

23 ‘‘(a) DISTRIBUTIONS OTHER THAN TO CONTROL24 LING BUSINESS.—If a business entity distributes all or a 

25 portion of its assets to its owners (other than a controlling 


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1 business entity), the business entity will be treated as if 

2 it sold the assets to its owners at fair market value. The 

3 fair market value will be determined by the distributing 

4 corporation and those determinations, unless unreason5 able, will be binding on the recipients. 

6 ‘‘(b) DISTRIBUTIONS TO A CONTROLLING BUSI7 NESS.—If a business entity distributes all or a portion of 

8 its assets to a controlling business, the controlling busi9 ness will assume the distributing entity’s tax attributes 

10 with respect to the assets and neither entity will have tax11 able receipts or a deduction as a result of the transaction. 

12 ‘‘(c) DISTRIBUTION OF PERSONAL USE PROP13 ERTY.—If personal use property is distributed to the indi14 vidual who contributed the personal use property to a busi15 ness entity, the fair market value of the property for pur16 poses of paragraph (a) shall equal the basis of the prop17 erty plus any enhancement in value of the property attrib18 utable to business purchases with respect to the property. 

19 ‘‘(d) CONTROLLING BUSINESS ENTITY.—A business 

20 entity is a ‘controlling business entity’ with respect to an21 other business entity if it owns directly or indirectly more 

22 than 50 percent of the profits or capital interest in the 

23 other business entity. 

24 ‘‘(e) APPLICATION OF THIS SECTION.—This section 

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1 tions. Property shall be treated as distributed if the prop2 erty is used for a nonbusiness purpose for more than an 

3 insubstantial period of time during a taxable period. 

4 ‘‘SEC. 1623. ASSET ACQUISITIONS. 

5 ‘‘(a) IN GENERAL.—If a business entity transfers 

6 some or all of its assets, the consideration received for 

7 such assets shall be allocated among the assets transferred 

8 in the same manner as was required by section 1060. If 

9 the transferee and transferor agree in writing on the allo10 cation of any consideration, or as to the fair market value 

11 of any of the assets, such agreement shall be binding on 

12 both the transferor and transferee unless the Secretary de13 termines that such allocation (or fair market value) is not 

14 appropriate. 

15 ‘‘(b) TAX CONSEQUENCES.—The tax consequences of 

16 an asset acquisition shall be determined in accordance 

17 with the rules of this chapter and shall be dependent upon 

18 allocations made under subsection (a). In general, consid19 eration allocable to savings assets, such as stock in an20 other business entity, would not be included in taxable re21 ceipts of the transferor and would not be a business pur22 chase of the purchaser, but consideration allocable to the 

23 sale of tangible property and intangible property (other 

24 than savings assets) will constitute taxable receipts of the 

25 seller and a business purchase of the purchaser. 


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1 ‘‘(c) ELECTION TO TREAT ASSET ACQUISITION AS A

2 STOCK ACQUISITION.—In the case of the sale of substan3 tially all of the assets of a business entity or substantially 

4 all of the assets of a line of business or a separately stand5 ing business of a business entity, the transferee and trans6 feror can jointly elect to treat the acquisition as if it were 

7 an acquisition of the stock of a business entity holding 

8 the assets so transferred. In such case, the rules of section 

9 1624 shall apply. 

10 ‘‘(d) AUTHORITY TO REQUIRE ALLOCATION AGREE11 MENT AND NOTICE TO THE SECRETARY.—If the Sec12 retary determines that certain types of asset acquisitions 

13 have significant possibilities of tax avoidance, the Sec14 retary may require— 

15 ‘‘(1) parties to such types of acquisitions to 

16 enter into agreements allocating consideration, 

17 ‘‘(2) parties to acquisitions involving certain 

18 kinds of assets to enter into agreements allocating 

19 part of the consideration to those assets, or 

20 ‘‘(3) parties to certain acquisitions to report in21 formation to the Secretary. 

22 ‘‘(e) ASSET ACQUISITION RULES DO NOT APPLY IF

23 CONSIDERATION INCLUDES EQUITY IN PURCHASER.— 

24 ‘‘(1) IN GENERAL.—If a business entity issues 

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1 trolled entity as part of the consideration for the 

2 transfer of assets to it, the transaction shall not be 

3 treated as an asset acquisition and the rules of sec4 tion 1624 shall apply. 

5 ‘‘(2) EQUITY.—For purposes of this subsection, 

6 equity means— 

7 ‘‘(A) stock, in the case of a corporation, 

8 ‘‘(B) partnership or similar interest, in the 

9 case of a partnership or limited liability com10 pany, and 

11 ‘‘(C) an ownership interest or interest in 

12 profits in the case of any other business entity. 

13 ‘‘SEC. 1624. MERGERS AND STOCK ACQUISITIONS. 

14 ‘‘(a) MERGERS.—A merger of one business entity 

15 into another or two businesses entities into a third busi16 ness entity or any other similar transaction shall have no 

17 direct consequences under the business tax. The surviving 

18 entity shall assume the tax attributes of the merged cor19 porations, including any loss carryovers and credit 

20 carryovers. 

21 ‘‘(b) STOCK ACQUISITION.—The acquisition of all or 

22 substantially all of the ownership interest in one business 

23 entity either for cash or in exchange for ownership in the 

24 acquiring entity or an entity controlled by the acquired 


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1 entity shall have no direct consequences under the busi2 ness tax. 

3 ‘‘SEC. 1625. SPIN-OFFS, SPLIT-OFFS, ETC. 

4 ‘‘A spin-off, split-off or split-up of a business entity 

5 shall have no direct tax consequences under the business 

6 tax. 

7 ‘‘SEC. 1626. ALLOCATION OF CERTAIN TAX ATTRIBUTES. 

8 ‘‘The Secretary shall prescribe rules for allocation of 

9 loss carryovers in cases of substantial shifts of assets from 

10 one business entity to another business entity. Under such 

11 rules, a portion of a business entity’s carryovers may be 

12 deemed transferred when assets are transferred. 

13 ‘‘Subchapter D—Accounting Method Rules 

‘‘Sec. 1631. General accounting rules. 

‘‘Sec. 1632. Use of the cash method of accounting. 

‘‘Sec. 1633. Long-term contracts. 

‘‘Sec. 1634. Post-sale price adjustments and refunds. 

‘‘Sec. 1635. Bad debts. 

‘‘Sec. 1636. Transition rules. 

14 ‘‘SEC. 1631. GENERAL ACCOUNTING RULES. 

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

16 1632, a business entity shall use an accrual method of 

17 accounting for purposes of determining the timing of rec18 ognition of taxable receipts and deduction of business pur19 chases. All business purchases shall be deducted when in20 curred (in the case of a business entity using the accrual 

21 method of accounting) or when paid (in case of a business 

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1 gard to whether the business purchases are for or relate 

2 to— 

3 ‘‘(1) inventory, 

4 ‘‘(2) assets with a useful life of more than one 

5 year, or 

6 ‘‘(3) property that will be used to produce other 

7 property. 

8 ‘‘(b) ECONOMIC PERFORMANCE.—For purposes of 

9 determining whether an amount has been incurred, the all 

10 events test shall not be treated as met any earlier than 

11 when economic performance with respect to such item oc12 curs. 

13 ‘‘(c) CONSISTENT ACCOUNTING METHODS.—Except 

14 as otherwise expressly provided in this chapter, a business 

15 entity shall secure the consent of the Secretary before 

16 changing the method of accounting by which it determines 

17 gross profits. This provision shall not apply to changes 

18 required by the adoption of the business tax. 

19 ‘‘SEC. 1632. USE OF THE CASH METHOD OF ACCOUNTING. 

20 ‘‘(a) IN GENERAL.—A business entity that was per21 mitted to use and used the cash method of accounting 

22 under the Internal Revenue Code of 1986 shall be per23 mitted to continue to use the cash method of accounting. 

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1 ing if permitted to under regulations prescribed by the 

2 Secretary. 

3 ‘‘(c) CHANGE OR EXPANSION OF BUSINESS.—Sub4 section (a) shall cease to apply to a business entity that 

5 changes or expands its business such that under regula6 tions prescribed by the Secretary it is no longer eligible 

7 to use the cash method of accounting. 

8 ‘‘(d) REGULATIONS.— 

9 ‘‘(1) USE OF CASH METHOD.—The Secretary 

10 shall prescribe regulations defining which business 

11 entities may use the cash method of accounting. In 

12 general, those regulations shall be consistent with 

13 the rules under sections 447 and 448, except that all 

14 corporations shall be treated as C corporations were 

15 treated under those sections. The regulations shall 

16 not require a business entity described in subsection 

17 (a) to convert to the accrual method prior to Janu18 ary 1, 2010. 

19 ‘‘(2) CHANGE IN ACCOUNTING METHOD.—The 

20 Secretary shall prescribe regulations to prevent dou21 ble counting of taxable receipts and deductible ex22 penses in the case of a change in accounting method. 

23 ‘‘SEC. 1633. LONG-TERM CONTRACTS. 

24 ‘‘(a) IN GENERAL.—In the case of a long-term con25 tract— 


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1 ‘‘(1) CONTRACTOR EXPENSES.—The contractor 

2 shall be entitled to deduct its business purchases 

3 when paid or incurred. 

4 ‘‘(2) CONTRACTOR RECEIPTS.—The contractor 

5 shall recognize taxable receipts— 

6 ‘‘(A) in the case of a project in which the 

7 acquirer has no ownership interest in the 

8 project until delivery— 

9 ‘‘(i) upon delivery of the project, in 

10 the case of an accrual basis contractor, or 

11 ‘‘(ii) upon the later of delivery of the 

12 project or the receipt of payment, in the 

13 case of cash-basis contractor. 

14 ‘‘(B) in the case of a project in which the 

15 acquirer obtains an ownership interest as the 

16 project is constructed— 

17 ‘‘(i) when the contractor has the right 

18 to payments, in the case of an accrual 

19 basis contractor, or 

20 ‘‘(ii) upon the later of when the con21 tractor receives the cash or has the right 

22 to payments, in the case of a cash basis 

23 contractor. 


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1 ‘‘(3) ACQUIRER EXPENSES.—The acquirer that 

2 is a business entity shall be entitled to deduct its 

3 costs of the business purchase— 

4 ‘‘(A) in the case of a cash-basis acquirer, 

5 at such time as a cash basis contractor would 

6 be required to treat the amounts paid as tax7 able receipts, or 

8 ‘‘(B) in the case of an accrual-basis 

9 acquirer, at such time as an accrual basis con10 tractor would be required to treat the amounts 

11 paid or due as taxable receipts. 

12 ‘‘(b) RIGHT TO PAYMENTS.— 

13 ‘‘(1) IN GENERAL.—A contractor shall be treat14 ed as having a right to payments with respect to a 

15 project at any time to the extent that the contractor 

16 would not be required to return payments received 

17 (or would be entitled to collect payments not yet re18 ceived) if the project were terminated at such time 

19 by the contractor. 

20 ‘‘(2) CONTRACTUAL PROVISIONS.—If a long21 term contract includes a procedure for paying the 

22 contractor as work is completed (for example, by 

23 reason of a draw down from a trust account), the 

24 contractual provisions shall generally govern when a 

25 contractor has a right to payment. 


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1 ‘‘(3) PERCENTAGE COMPLETION METHOD OF

2 ACCOUNTING.—If a long-term contract does not in3 clude a mechanism for paying the contractor as 

4 work is completed, the percentage-of-completion 

5 method of accounting shall be used to determine the 

6 timing of taxable receipts of the contractor and busi7 ness purchases of the acquirer. 

8 ‘‘(c) LONG-TERM CONTRACT.— 

9 ‘‘(1) IN GENERAL.—‘Long-term contract’ 

10 means— 

11 ‘‘(A) any contract that covers service or 

12 production through parts of two different cal13 endar years if the contract includes a formal 

14 deposit and draw-down mechanism, and 

15 ‘‘(B) any contract for the manufacture, 

16 building, installation, or construction of prop17 erty if such contract is not completed within the 

18 taxable period of the contractor in which such 

19 contract is entered into. 

20 ‘‘(2) EXCEPTION.—A contract for the manufac21 ture of property shall not be treated as a long-term 

22 contract unless such contract involves the manufac23 ture of— 


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1 ‘‘(A) any unique item of a type which is 

2 not normally included in the finished goods in3 ventory of the taxpayer, or 

4 ‘‘(B) any item which normally requires 

5 more than 12 calendar months to complete. 

6 ‘‘(d) CONSISTENCY.—The Secretary may require 

7 business entities to file statements containing such infor8 mation with respect to long-term contracts as the Sec9 retary may prescribe to ensure consistency in reporting. 

10 ‘‘(e) FOREIGN CONTRACTS.—This section shall not 

11 be construed to permit a deduction for a business purchase 

12 for the cost of property produced outside the United 

13 States pursuant to a long-term contract at any time prior 

14 to the import of such property into the United States. 

15 ‘‘SEC. 1634. POST-SALE PRICE ADJUSTMENTS AND RE16 FUNDS. 

17 ‘‘(a) RECEIPT OF PRICE ADJUSTMENT.—In the case 

18 of a post-sale price adjustment attributable to a business 

19 purchase which was taken into account in computing gross 

20 profits for a prior taxable transaction, the amount of such 

21 adjustment shall be treated as a reduction or increase, as 

22 the case may be, in the cost of business purchases for the 

23 taxable period in which the adjustment is made or in24 curred. 


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1 ‘‘(b) ISSUANCE OF PRICE ADJUSTMENT.—In the case 

2 of a post-sale price adjustment attributable to a sale the 

3 receipts from which were taken into account in deter4 mining taxable receipts for a prior taxable transaction, the 

5 amount of such adjustment shall be treated as a reduction 

6 or increase, as the case may be, in taxable receipts for 

7 the taxable period in which the adjustment is made or in8 curred. 

9 ‘‘(c) POST-SALE PRICE ADJUSTMENT.—‘Post-sale 

10 price adjustment’ means a refund, rebate, or other price 

11 allowance attributable to a sale of property or services or 

12 an upward adjustment in price that was not previously 

13 taken into account under the business entity’s method of 

14 accounting. 

15 ‘‘SEC. 1635. BAD DEBTS. 

16 ‘‘(a) SELLER.—If an amount owed to an accrual 

17 basis business entity for property or services sold— 

18 ‘‘(1) was taken into account as a taxable receipt 

19 in a prior taxable period, and 

20 ‘‘(2) becomes wholly or partially uncollectible 

21 during the taxable period, then the seller shall treat 

22 the amount as a reduction in taxable receipts for the 

23 taxable period in which it becomes wholly or par24 tially uncollectible. 


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1 ‘‘(b) NOTICE REQUIREMENT.—No reduction shall be 

2 allowed under subsection (a) unless the seller notifies the 

3 purchaser of the amount which the seller has treated as 

4 wholly or partially uncollectible. 

5 ‘‘(c) SUBSEQUENT COLLECTION.—If an amount 

6 which was treated as uncollectible under subsection (a) is 

7 subsequently collected, it shall be treated as a taxable re8 ceipt when collected. 

9 ‘‘(d) PURCHASER.—If a purchaser receives notice 

10 under subsection (b) from a seller and the purchaser has 

11 treated the amount labeled uncollectible as a business pur12 chase in a prior taxable period, then the purchaser shall 

13 treat such amount as a reduction in the cost of business 

14 purchases in the taxable period to which the notice relates. 

15 If the purchaser subsequently repays such amount, the re16 payment shall constitute the cost of a business purchase. 

17 ‘‘SEC. 1636. TRANSITION RULES. 

18 ‘‘(a) NO DOUBLE DEDUCTIONS.—A business entity 

19 shall not be entitled to treat as a ‘cost of business pur20 chase’ any amount that the business entity deducted in 

21 computing taxable income under the income tax in effect 

22 prior the effective date of the business tax. 

23 ‘‘(b) NO DOUBLE INCLUSION.—A business entity 

24 shall not be required to include in taxable receipts any 

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1 puting taxable income under the income tax in effect prior 

2 to the effect date of the business tax. 

3 ‘‘(c) NO LOSS OF DEDUCTION.—An expense which— 

4 ‘‘(1) a business entity would have been able to 

5 deduct as a cost of a business purchase in an ac6 counting period before the effective date of the busi7 ness tax if the business tax had been in effect in 

8 such period, and 

9 ‘‘(2) the business entity would have been able to 

10 deduct as an expense in computing taxable income 

11 in a period after the business tax is effective if the 

12 income tax had continued in effect, shall be treated 

13 as a cost of a business purchase incurred or paid at 

14 the time that it would have been paid or incurred 

15 under the income tax if the income tax had contin16 ued in effect. This subsection shall not apply to any 

17 amount which is to be taken into account under sub18 chapter N (relating to amortization of transition 

19 basis, inventory costs, and safe harbor leases), any 

20 amounts which would have been deducted under the 

21 income tax through loss carryover deductions, or any 

22 deductions deferred by the uniform capitalization 

23 rules under section 263A. 

24 ‘‘(d) ALL TAXABLE RECEIPTS TAXED.—A receipt 

25 which— 


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1 ‘‘(1) a business entity would have been required 

2 to treat as a taxable receipt in an accounting period 

3 before the effective date of the business tax if the 

4 business tax had been in effect in such period, and 

5 ‘‘(2) the business entity would have been re6 quired to include in gross income in a period after 

7 the business tax is effective if the income tax had 

8 continued in effect 

9 shall be treated as a taxable receipt at the time that it 

10 would have been included in income if the income tax had 

11 continued in effect. 

12 ‘‘Subchapter E—Land and Rental Property 

‘‘Sec. 1641. No deduction for land purchased for nonbusiness use. 

‘‘Sec. 1642. Taxable receipts for land held for nonbusiness use. 

‘‘Sec. 1643. Certain rental property. 

13 ‘‘SEC. 1641. NO DEDUCTION FOR LAND PURCHASED FOR 

14 NONBUSINESS USE. 

15 ‘‘(a) IN GENERAL.—The acquisition of unimproved 

16 land shall not constitute a business purchase if the unim17 proved land is not acquired to be used in a business activ18 ity or if the land is acquired for— 

19 ‘‘(1) speculation, 

20 ‘‘(2) development (including subdivision), 

21 ‘‘(3) temporary leasing or other use not com22 mensurate with the value of the land, 

23 ‘‘(4) indefinite future use in a business activity, 

24 or 


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1 ‘‘(5) use in compensating employees. 

2 ‘‘(b) FUTURE USE IN BUSINESS ACTIVITY.—Unim3 proved land will not be considered held for ‘indefinite fu4 ture use in a business activity’ if promptly upon acquisi5 tion, the purchaser or the lessee begins construction of im6 provements on the land (other than improvements, such 

7 as paving or sewage lines, intended for indefinite future 

8 development) that will be used in a business activity. Such 

9 improvement must be commensurate with the value of the 

10 land. 

11 ‘‘(c) UNIMPROVED LAND.—‘Unimproved land’ 

12 means— 

13 ‘‘(1) land with no buildings on it, 

14 ‘‘(2) land with improvements if the value of the 

15 improvements is relatively small in comparison to 

16 the value of the land and it is anticipated that the 

17 improvements will be demolished and not used, and 

18 ‘‘(3) land in excess of the amount reasonably 

19 needed for the buildings located on it. 

20 ‘‘(d) CONVERSION TO BUSINESS USE.—If the acqui21 sition of land is not treated as a business purchase by rea22 son of subsection (a) and the land is subsequently used 

23 in a manner for which it could have been treated as a 

24 business purchase, the cost of the land will be treated as 

25 a business purchase when the improvements on the land 


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1 are placed in service (or in the case of construction for 

2 sale, substantially completed and advertised for sale). 

3 ‘‘SEC. 1642. TAXABLE RECEIPTS FROM SALE OF LAND HELD 

4 FOR NONBUSINESS USE. 

5 ‘‘(a) TAX BASIS.—A business entity shall have a tax 

6 basis in land equal to the cost of the land if such cost 

7 is not deductible by reason of section 1641(a) and the land 

8 has not been converted to business use for purposes of 

9 section 1641(d). 

10 ‘‘(b) TAXABLE RECEIPTS OF A LAND SALE.—The 

11 taxable receipts from the sale of land (or portion thereof) 

12 in which a business entity has a tax basis by reason of 

13 subsection (a) shall be the amount by which the proceeds 

14 exceed the basis of such land (or portion thereof). 

15 ‘‘SEC. 1643. CERTAIN RENTAL PROPERTY. 

16 ‘‘(a) IN GENERAL.—Except as provided in subsection 

17 (b), the activity of rental of real estate is a business activ18 ity to which the business tax applies. 

19 ‘‘(b) RENTAL PROPERTY BECOMES NONRENTAL

20 PROPERTY.—If property which is considered rental prop21 erty for purposes of subsection (a) in one taxable period 

22 ceases to be rental property in the following taxable pe23 riod, the property (and any associated debt) shall be treat24 ed as distributed by the business entity to its owners. Sec25 tion 1622(a) shall apply to such distribution. 


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1 ‘‘Subchapter F—Insurance and Financial 

2 Products 

‘‘Sec. 1651. General rules. 

‘‘Sec. 1652. Fees for financial intermediation services. 

3 ‘‘SEC. 1651. GENERAL RULES. 

4 ‘‘(a) TAXABLE RECEIPTS.—Except in the case of a 

5 financial intermediation business, taxable receipts do not 

6 include financial receipts (as defined in section 1662). 

7 ‘‘(b) BUSINESS PURCHASES.—Except in the case of 

8 a financial intermediation business, business purchases do 

9 not include the cost of financial instruments or payments 

10 for use of money or capital, other than fees for financial 

11 intermediation services. 

12 ‘‘SEC. 1652. FEES FOR FINANCIAL INTERMEDIATION SERV13 ICES. 

14 ‘‘(a) BUSINESS PURCHASE.—Business purchases in15 clude explicit fees and implicit fees for financial intermedi16 ation services (except to the extent that such fees are for 

17 services treated as performed outside the United States 

18 and not imported into the United States or for services 

19 treated as exported.). 

20 ‘‘(b) FINANCIAL INTERMEDIATION SERVICES.—Ex21 cept as provided in subchapter G, the term ‘financial inter22 mediation service’ shall be determined in accordance with 

23 regulations promulgated by the Secretary. 


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1 ‘‘Subchapter G—Financial Intermediation 

2 and Financial Institutions 

‘‘Sec. 1661. Activities constituting a financial intermediation business. 

‘‘Sec. 1662. General rule for taxation. 

‘‘Sec. 1663. Special rule for banks. 

‘‘Sec. 1664. Insurance companies. 

‘‘Sec. 1665. Financial pass-through entities. 

3 ‘‘SEC. 1661. ACTIVITIES CONSTITUTING A FINANCIAL 

4 INTERMEDIATION BUSINESS. 

5 ‘‘(a) FINANCIAL INTERMEDIATION BUSINESS.—The 

6 providing of financial intermediation services shall be con7 sidered a business activity. The gross profit of a business 

8 entity providing financial intermediation services shall be 

9 determined by taking into account the rules of this sub10 chapter. 

11 ‘‘(b) SEPARATE BUSINESS ACTIVITY.—The provision 

12 of financial intermediation services for unrelated persons 

13 shall be considered a separate business activity and a busi14 ness shall be considered a separate entity with respect to 

15 such activity. An entity engaging in such business is re16 ferred to in this chapter as a ‘financial intermediation 

17 business’. 

18 ‘‘(c) DEFINITIONS.— 

19 ‘‘(1) FINANCIAL INTERMEDIATION SERVICES.— 

20 ‘Financial intermediation services’ include— 

21 ‘‘(A) lending services, 

22 ‘‘(B) insurance services, 


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1 ‘‘(C) market-making and dealer services, 

2 and 

3 ‘‘(D) any other service provided as busi4 ness activity in which a person acts as an inter5 mediary in— 

6 ‘‘(i) the transfer of property, services, 

7 or financial assets, liabilities, risks or in8 struments (or income or expense derived 

9 therefrom) between two or more persons, 

10 or 

11 ‘‘(ii) the pooling of economic risk 

12 among other persons, 

13 and derives all or a portion of such person’s 

14 gross receipts from streams of income or ex15 pense, discounts, or other financial flows associ16 ated with the matter with respect to which such 

17 person is acting as an intermediary. 

18 ‘‘(2) LENDING SERVICES.—‘Lending services’ 

19 means the regular making of loans and providing 

20 credit to, or taking deposits from customers, but 

21 does not include an installment or delayed payment 

22 arrangement provided by a seller of property or serv23 ices under which additional charges or fees are im24 posed by the seller for the late payment. 


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1 ‘‘(3) MARKET-MAKING OR DEALER SERVICES.— 

2 ‘Market-making or dealer services’ means services 

3 provided by a person who— 

4 ‘‘(A) regularly purchases financial instru5 ments from or sells financial instruments to 

6 customers in the ordinary course of a trade or 

7 business, and 

8 ‘‘(B) regularly offers to enter into, assume, 

9 offset, assign, or otherwise terminate positions 

10 in financial instruments with customers in the 

11 ordinary course of a trade or business. 

12 ‘‘SEC. 1662. GENERAL RULE FOR TAXATION. 

13 ‘‘(a) IN GENERAL.—In the case of a financial inter14 mediation business, gross profits shall be computed by— 

15 ‘‘(1) substituting financial receipts for taxable 

16 receipts, and 

17 ‘‘(2) including financial expenses as business 

18 purchases. 

19 ‘‘(b) DEFINITIONS.— 

20 ‘‘(1) FINANCIAL RECEIPTS.—‘Financial re21 ceipts’ means all receipts other than amounts re22 ceived as contributions to capital. 

23 ‘‘(2) FINANCIAL EXPENSES.—‘Financial ex24 penses’ include— 


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1 ‘‘(A) payments for principal and interest 

2 that is properly allocable to the provision of fi3 nancial intermediation services, 

4 ‘‘(B) the cost of and payments under fi5 nancial instruments (other than financial in6 struments in the person subject to the tax im7 posed under this chapter and any person re8 lated to such person), 

9 ‘‘(C) claims and cash surrender values paid 

10 in connection with insurance or reinsurance 

11 services, and 

12 ‘‘(D) amounts paid for reinsurance. 

13 ‘‘(3) FINANCIAL INSTRUMENT.—‘Financial in14 strument’ means any— 

15 ‘‘(A) share of stock in a corporation, 

16 ‘‘(B) equity ownership in any widely held 

17 or publicly traded partnership, trust, or other 

18 business entity, 

19 ‘‘(C) note, bond, debenture, or other evi20 dence of indebtedness, 

21 ‘‘(D) interest rate, currency, or equity no22 tional principal contract, 

23 ‘‘(E) evidence or interest in, or a derivative 

24 financial instrument in, any financial instru25 ment described in subparagraph (A), (B), (C), 


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1 or (D), or any currency, including any option, 

2 forward contract, short position, and any simi3 lar financial instrument in such a financial in4 strument or currency, and 

5 ‘‘(F) a position which— 

6 ‘‘(i) is not a financial instrument de7 scribed in subparagraph (A), (B), (C), (D) 

8 or (E), 

9 ‘‘(ii) is a hedge with respect to such 

10 a financial instrument, and 

11 ‘‘(iii) is clearly identified in the deal12 er’s records as being described in this sub13 paragraph before the close of the day on 

14 which it was acquired or entered into. 

15 ‘‘(c) INTERNATIONAL MATTERS.—For purposes of 

16 this section in the case of a financial intermediation busi17 ness with activity in and outside the United States— 

18 ‘‘(1) INCLUSION REGARDLESS OF SOURCE.— 

19 ‘‘(A) Financial receipts shall be determined 

20 without regard to whether they are received for 

21 property or service provided in or outside the 

22 United States, except that financial receipts do 

23 not include amounts that— 

24 ‘‘(i) are not taxable receipts (as deter25 mined without regard to this section), but 


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1 ‘‘(ii) would have been taxable receipts 

2 (as determined without regard to this sec3 tion) if they had been received for services 

4 or property in the United States. 

5 ‘‘(B) Financial expenses shall be deter6 mined without regard to whether they are re7 ceived for property or services acquired in or 

8 outside the United States. 

9 ‘‘(2) ALLOCATION.—Under regulations pre10 scribed by the Secretary, gross profits (as deter11 mined without regard to this paragraph) shall be re12 duced by the amount of financial intermediation 

13 gross profit attributable to financial intermediation 

14 activity provided outside the United States. 

15 ‘‘(3) GROSS PROFIT ATTRIBUTABLE TO FINAN16 CIAL INTERMEDIATION ACTIVITY.—‘Gross profits at17 tributable to financial intermediation activity’ means 

18 the excess of— 

19 ‘‘(A) gross profits as determined under 

20 this section (but without regard to paragraph 

21 (2)), over 

22 ‘‘(B) gross profits as determined without 

23 regard to this subchapter. 


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1 ‘‘SEC. 1663. SPECIAL RULES FOR BANKS. 

2 ‘‘(a) IN GENERAL.—In the case of a bank, gross prof3 its shall be determined in accordance with section 1662, 

4 except that— 

5 ‘‘(1) FINANCIAL RECEIPTS.—Financial receipts 

6 shall include only— 

7 ‘‘(A) taxable receipts (as determined with8 out regard to this subchapter), 

9 ‘‘(B) interest on loans made or acquired by 

10 the bank, 

11 ‘‘(C) gain on the sale of loans, 

12 ‘‘(D) discount points received, and 

13 ‘‘(E) any explicit fees for financial or fidu14 ciary services not included in subparagraphs 

15 (A) through (E). 

16 ‘‘(2) FINANCIAL EXPENSES.—Financial ex17 penses shall include only— 

18 ‘‘(A) interest paid to depositors and on 

19 other funds borrowed by the bank, and 

20 ‘‘(B) reasonable additions to reserves for 

21 bad debts. 

22 ‘‘(3) FORECLOSURE PROPERTY.—Gross profits 

23 shall properly take into account proceeds from the 

24 operation or sale of foreclosure property. 

25 ‘‘(b) BANK.— 


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1 ‘‘(1) IN GENERAL.—‘Bank’ means a bank or 

2 trust company incorporated and doing business 

3 under the laws of the United States, the District of 

4 Columbia, or any State, a substantial part of the 

5 business of which consists of receiving deposits and 

6 making loans and discounts, or of exercising fidu7 ciary powers similar to those exercised by national 

8 banks under the authority of the Comptroller of the 

9 Currency, and which is subject by law to supervision 

10 and examination by State or Federal authority hav11 ing supervision over banking institutions or credit 

12 unions. Such term includes domestic building and 

13 loan associations and credit unions. 

14 ‘‘(2) OTHER ACTIVITIES.—If a bank is engaged 

15 in significant amounts of activities other than those 

16 described in paragraph (1), the bank shall be consid17 ered as a separate business entity with respect to 

18 such other activity. 

19 ‘‘SEC. 1664. INSURANCE COMPANIES. 

20 ‘‘(a) IN GENERAL.—In the case of companies pro21 viding insurance services, gross profits shall be determined 

22 in accordance with section 1662, except— 

23 ‘‘(1) subsection (c) of section 1662 (relating to 

24 international operations) shall not apply, and 


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1 ‘‘(2) the rules of subchapter J (sourcing rules) 

2 shall apply to determine financial receipts and finan3 cial expenses. 

4 ‘‘(b) RESULT INCONSISTENT WITH STATUTORY IN5 TENT.—If an insurance company determines that the ap6 plication of subsection (a) produces results inconsistent 

7 with the territorial approach of the business tax, it may 

8 apply to the Secretary for permission to apply section 

9 1662(c) in lieu of subsection (a). 

10 ‘‘SEC. 1665. FINANCIAL PASS-THROUGH ENTITIES. 

11 ‘‘(a) IN GENERAL.—In the case of a financial pass12 thru entity, gross profits shall be determined in accord13 ance with section 1662, except— 

14 ‘‘(1) financial receipts shall include contribu15 tions to capital, and 

16 ‘‘(2) financial expenses shall include— 

17 ‘‘(A) distributions to persons holding inter18 ests in the pass-thru entity, and 

19 ‘‘(B) investments in related entities (in20 cluding wholly owned entities) engaging in real 

21 estate investment. 

22 ‘‘(b) PASS-THRU ENTITY.—‘Pass-thru entity’ means 

23 a business entity that is intended to serve as a conduit. 

24 The Secretary shall prescribe regulations defining pass25 thru entity. 


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1 ‘‘Subchapter H—Tax-Exempt Organizations 

‘‘Sec. 1671. Exemption for governmental entities. 

‘‘Sec. 1672. Tax-exempt organizations. 

‘‘Sec. 1673. Tax on unrelated business activity. 

‘‘Sec. 1674. Unrelated business activity. 

2 ‘‘SEC. 1671. EXEMPTION FOR GOVERNMENTAL ENTITIES. 

3 ‘‘(a) STATES.—Except as provided in section 1672, 

4 a state, political subdivision thereof and the District of 

5 Columbia shall be exempt from taxation under this chap6 ter on any gross profits derived from the exercise of any 

7 essential governmental function. 

8 ‘‘(b) POSSESSIONS.—The government of any posses9 sion of the United States shall be exempt from taxation 

10 under this chapter on any gross profits earned by the pos11 session. 

12 ‘‘SEC. 1672. TAX-EXEMPT ORGANIZATIONS. 

13 ‘‘(a) EXEMPTION FROM TAXATION.—An organiza14 tion described in subsection (c) or (d) of section 501 and 

15 exempt from tax under section 501(a) shall be exempt 

16 from taxation under this chapter. 

17 ‘‘(b) TAX ON UNRELATED BUSINESS ACTIVITY.—An 

18 organization exempt from taxation under subsection (a) 

19 shall be subject to tax to the extent provided in sections 

20 1675 and 1676, but shall be considered a tax-exempt orga21 nization for purposes of any law that refers to tax-exempt 

22 organizations. 


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1 ‘‘SEC. 1673. TAX ON UNRELATED BUSINESS ACTIVITY. 

2 ‘‘(a) IN GENERAL.—Each organization described in 

3 subsection (b) shall be subject to the Business Consump4 tion Tax under section 1601 on its gross profits from its 

5 unrelated business activity. 

6 ‘‘(b) ORGANIZATIONS SUBJECT TO TAX.—This sec7 tion shall apply to— 

8 ‘‘(1) organizations exempt from the business 

9 tax under section 1672, other than instrumentalities 

10 of the United States, and 

11 ‘‘(2) colleges and universities which are instru12 mentalities of any government and corporations 

13 owned by one or more such colleges or universities. 

14 ‘‘SEC. 1674. UNRELATED BUSINESS ACTIVITY. 

15 ‘‘(a) IN GENERAL.—‘Unrelated business activity’ 

16 means any trade or business the conduct of which is not 

17 substantially related (aside from the need of such organi18 zation for income or funds or the use it makes of the prof19 its derived) to the exercise or performance by such organi20 zation of its charitable, educational, or other purpose or 

21 function constituting the basis for its exemption under 

22 section 501, except that such term does not include any 

23 trade or business— 

24 ‘‘(1) in which substantially all the work in car25 rying on such trade or business is performed for the 

26 organization without compensation; 


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1 ‘‘(2) which is carried on, in the case of an orga2 nization described in section 501(c)(3) or in the case 

3 of a college or university described in section 

4 1673(b), by the organization primarily for the con5 venience of its members, students, patients, officers, 

6 or employees, which is the selling by the organiza7 tion of items of work-related clothes and equipment 

8 and items normally sold through vending machines, 

9 through food dispensing facilities, or by snack bars, 

10 for the convenience of its members at their usual 

11 places of employment; or 

12 ‘‘(3) which is the selling of merchandise, sub13 stantially all of which has been received by the orga14 nization as gifts or contributions. 

15 ‘‘(b) ADVERTISING, ETC., ACTIVITIES.—For purposes 

16 of this section, ‘trade or business’ includes any activity 

17 which is carried on for the production of income from the 

18 sale of goods or the performance of services. For purposes 

19 of the preceding sentence, an activity does not lose identity 

20 as a trade or business merely because it is carried on with21 in a larger aggregate of similar activities or within a larger 

22 complex of other endeavors which may, or may not, be 

23 related to the exempt purposes of the organization. Where 

24 an activity carried on for profit constitutes an unrelated 

25 trade or business, no part of such trade or business shall 


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1 be excluded from such classification merely because it does 

2 not result in profit. 

3 ‘‘(c) TRADE OR BUSINESS.— 

4 ‘‘(1) CERTAIN BUSINESS ACTIVITIES.—An ac5 tivity shall not be considered a ‘trade or business’ 

6 solely because the activity is a business activity 

7 (such as certain passive rental activity) that would 

8 be subject to the business tax if conducted by a busi9 ness entity other than a tax-exempt organization. 

10 ‘‘(2) REGULATIONS.—The Secretary shall pre11 scribe regulations defining a ‘trade or business’. 

12 Such regulations shall be consistent with the provi13 sions under sections 511 through 513, except to the 

14 extent such provisions are inconsistent with other 

15 principles of the business tax. 

16 ‘‘(3) TRADE SHOWS.—The conduct of trade 

17 shows and conventions shall not be excluded from 

18 the definition of trade or business. 

19 ‘‘Subchapter I—Cooperatives 

‘‘Sec. 1681. Patronage dividends of cooperatives. 

20 ‘‘SEC. 1681. PATRONAGE DIVIDENDS OF COOPERATIVES. 

21 ‘‘(a) PATRONAGE DIVIDENDS PAID BY SUPPLY CO22 OPERATIVES.—A qualified patronage dividend paid by a 

23 supply cooperative to a patron shall be treated as if it is 


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1 a refund of a portion of the amounts paid by the patron 

2 for goods, services, or use of capital. 

3 ‘‘(b) PATRONAGE DIVIDENDS PAID BY MARKETING

4 COOPERATIVES.—A qualified patronage dividend paid to 

5 a patron by a marketing cooperative shall be treated as 

6 an upward price adjustment in the amount received by the 

7 patron for its goods marketed by the cooperative. 

8 ‘‘(c) DIVIDEND TREATMENT.—Only the portion of a 

9 patronage dividend that is not a qualified patronage divi10 dend shall be treated as a dividend under this chapter. 

11 ‘‘(d) REGULATIONS.—The Secretary shall prescribe 

12 regulations for the application of this section. The regula13 tions shall generally be consistent with subchapter T of 

14 chapter 1 except to the extent that such rules are incon15 sistent with provisions of this chapter. 

16 ‘‘Subchapter J—Sourcing Rules 

‘‘Sec. 1691. Exports of property or services. 

‘‘Sec. 1692. Imports of property or services. 

‘‘Sec. 1693. Import or export of services. 

‘‘Sec. 1694. International transportation services. 

‘‘Sec. 1695. International communications. 

‘‘Sec. 1696. Insurance. 

‘‘Sec. 1697. Banking services. 

17 ‘‘SEC. 1691. EXPORTS OF PROPERTY OR SERVICES. 

18 ‘‘(a) GENERAL RULE.—Taxable receipts do not in19 clude amounts received by the exporter thereof for prop20 erty or services exported from the United States for use 

21 or consumption outside the United States. 


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1 ‘‘(b) EXPORT THROUGH NONBUSINESS ENTITY.— 

2 For purposes of subsection (a), if property or services are 

3 sold to a governmental entity or a tax-exempt organization 

4 for export and are exported other than in an activity of 

5 such entity which is subject to the business tax, then the 

6 seller of such property or services is deemed to be the ex7 porter thereof. 

8 ‘‘SEC. 1692. IMPORTS OF PROPERTY OR SERVICES. 

9 ‘‘(a) IN GENERAL.—The import of property or serv10 ices for consumption in the United States shall constitute 

11 a business purchase if such property or service is to be 

12 used in a business activity in the United States. Property 

13 being held for sale or retail by a business entity that is 

14 in the business of selling goods shall be considered held 

15 for ‘use in a business activity’. 

16 ‘‘(b) AMOUNT OF BUSINESS PURCHASE.— 

17 ‘‘(1) IN GENERAL.—The cost of business pur18 chases with respect to the import of property or 

19 services for use or consumption in the United States 

20 is the customs value, price or other amount used for 

21 purposes of determining the import tax under sec22 tion 1701 or section 1702. 

23 ‘‘(2) IMPORT TAX.—The cost of business pur24 chases does not include any import tax paid. No de25 duction shall be allowed with respect to property or 


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1 service imported by a business entity unless the im2 port tax is paid with respect to such import. 

3 ‘‘SEC. 1693. IMPORT OR EXPORT OF SERVICES. 

4 ‘‘(a) IN GENERAL.—Except as otherwise provided in 

5 this subchapter or in rules prescribed under subchapter 

6 G (relating to financial intermediation business), services 

7 shall not be treated as imported or exported from the loca8 tion in which they are performed. 

9 ‘‘(b) IMPORT OF SERVICES.—A business entity shall 

10 be treated as importing a service if— 

11 ‘‘(1) the entire benefit of the service will be re12 alized in the United States, and 

13 ‘‘(2) the benefit will be realized in connection 

14 with the United States business activities of the 

15 business entity. 

16 ‘‘(c) EXPORT OF SERVICES.—A business will be 

17 treated as exporting a service if— 

18 ‘‘(1) the entire benefit of the service will be re19 alized outside of the United States, and 

20 ‘‘(2) the benefit will be realized solely in con21 nection with the activities of the purchaser occurring 

22 outside the United States. 

23 ‘‘(d) SERVICES ACQUIRED FROM SERVICE PROVIDER

24 THAT PROVIDES SERVICES IN AND OUTSIDE THE

25 UNITED STATES.— 


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1 ‘‘(1) IN GENERAL.—If a business entity ac2 quires services from a service provider that provides 

3 services both in and outside the United States and 

4 the service provider shows on the invoice where the 

5 services are provided— 

6 ‘‘(A) the business entity shall treat the 

7 services as provided where stated on the invoice, 

8 and 

9 ‘‘(B) the service provider shall treat as tax10 able receipts any services listed as provided in 

11 the United States. 

12 ‘‘(2) NO INVOICE.—If a business entity acquires 

13 services from a service provider that provides serv14 ices both in and outside the United States and the 

15 service provider does not show on an invoice where 

16 such services are provided— 

17 ‘‘(A) the business entity shall treat the 

18 services as if provided in the location to which 

19 payment is sent, and 

20 ‘‘(B) the service provider shall treat as tax21 able receipts any payments received in the 

22 United States. 

23 ‘‘SEC. 1694. INTERNATIONAL TRANSPORTATION SERVICES. 

24 ‘‘(a) TRANSPORTATION OF PROPERTY.— 

25 ‘‘(1) TAXABLE RECEIPTS.— 


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1 ‘‘(A) EXPORTS.—Taxable receipts do not 

2 include receipts from the transportation of 

3 property exported from the United States. 

4 ‘‘(B) IMPORTS.—Taxable receipts include 

5 receipts from transportation of property im6 ported into the United States only if such costs 

7 are not taken into account in determining the 

8 import tax. 

9 ‘‘(C) PRESUMPTIONS.—The Secretary shall 

10 prescribe regulations describing situations in 

11 which a transporter of property must presume 

12 that no import tax has been paid on the cost of 

13 its services. 

14 ‘‘(2) BUSINESS PURCHASES.— 

15 ‘‘(A) EXPORTS.—Business purchases do 

16 not include amounts paid or incurred for the 

17 cost of transportation of property exported from 

18 the United States. 

19 ‘‘(B) IMPORTS.—Amounts paid or incurred 

20 for transportation of goods imported into the 

21 United States, shall constitute a cost of busi22 ness purchase only to the extent that they are 

23 taken into account in determining the customs 

24 value for purposes of section 1701(a) (relating 

25 to the import tax). 


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1 ‘‘(b) TRANSPORTATION OF PASSENGERS.— 

2 ‘‘(1) TAXABLE RECEIPTS.—Taxable receipts— 

3 ‘‘(A) include receipts from the transpor4 tation of passengers from the United States to 

5 a destination outside the United States, but 

6 ‘‘(B) do not include receipts from the 

7 transportation of passengers from outside the 

8 United States to a destination in the United 

9 States. 

10 ‘‘(2) BUSINESS PURCHASES.—Business pur11 chases— 

12 ‘‘(A) include amounts paid or incurred in 

13 a business activity for the transportation of 

14 passengers from the United States to a destina15 tion outside the United States, but 

16 ‘‘(B) do not include amounts paid or in17 curred for transportation of passengers from 

18 outside the United States to a destination in 

19 the United States. 

20 ‘‘(3) SIMPLIFYING RULES.—The Secretary may 

21 provide rules that simplify this subsection, including 

22 rules under which— 

23 ‘‘(A) half of receipts attributable to trans24 portation to or from the United States are 

25 treated as taxable receipts, 


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1 ‘‘(B) half of the cost for business trips to 

2 and from the United States are treated as busi3 ness purchases, and 

4 ‘‘(C) all transportation expenses of a busi5 ness entity that has no regular business outside 

6 the United States are treated as business pur7 chases. 

8 ‘‘SEC. 1695. INTERNATIONAL COMMUNICATIONS. 

9 ‘‘(a) IN GENERAL.—For purposes of section 1692, 

10 communications services shall be treated as provided at 

11 the point of origin of the communications and shall not 

12 be treated as imported or exported. 

13 ‘‘(b) COMMUNICATIONS SERVICES.—Communications 

14 services include— 

15 ‘‘(1) telephone communications services, 

16 ‘‘(2) courier services (except in the case of 

17 transportation of property that is imported or ex18 ported), 

19 ‘‘(3) satellite transmission services, 

20 ‘‘(4) telegraph services, 

21 ‘‘(5) facsimile transmission services, and 

22 ‘‘(6) other similar services. 

23 ‘‘SEC. 1696. INSURANCE. 

24 ‘‘(a) IN GENERAL.—Insurance services will be treat25 ed as provided at the location of the insurance company 


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1 providing the services. Except as the Secretary may pre2 scribe by regulations, insurance companies will be treated 

3 as providing services at the location to which insurance 

4 payments are made. 

5 ‘‘(b) INSURED RISKS IN THE UNITED STATES.—If 

6 insurance services are provided outside the United States 

7 and the insured risk is located in the United States— 

8 ‘‘(1) the insurance service shall be treated as 

9 imported, 

10 ‘‘(2) the insurance premiums shall be subject to 

11 the import tax, and 

12 ‘‘(3) payments of insurance benefits shall not be 

13 treated as imported. 

14 ‘‘(c) INSURED RISK OUTSIDE THE UNITED

15 STATES.—If insurance services are provided inside the 

16 United States and the insured risk is located outside the 

17 United States— 

18 ‘‘(1) insurance services shall be treated as ex19 ported, and 

20 ‘‘(2) payments of insurance benefits shall be 

21 treated as payments for services outside the United 

22 States, and shall not be deducted as business pur23 chases. 

24 ‘‘(d) INSURANCE SERVICES.—Insurance services 

25 means the provision of insurance and services related to 


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1 insurance other than insurance that is treated as a savings 

2 asset. 

3 ‘‘SEC. 1697. BANKING SERVICES. 

4 ‘‘The Secretary shall prescribe regulations on the lo5 cation of banking services and the extent to which such 

6 services are to be treated as imported or exported. 

7 ‘‘Subchapter K—Import Tax 

‘‘Sec. 1701. Imposition of tax on property. 

‘‘Sec. 1702. Imposition of tax on import of services. 

‘‘Sec. 1703. General rules for the import tax. 

8 ‘‘SEC. 1701. IMPOSITION OF TAX ON PROPERTY. 

9 ‘‘(a) GENERAL RULE.—There is hereby imposed a 

10 tax equal to 8.5 percent of the customs value of all prop11 erty entered into the United States for consumption, use 

12 or warehousing. 

13 ‘‘(b) LIABILITY FOR TAX.—The tax imposed on the 

14 import of property by subsection (a) shall be paid by the 

15 person entering the property into the United States for 

16 consumption, use or warehousing. Such tax shall be due 

17 and payable at the time of import. 

18 ‘‘(c) IMPORTS OF PREVIOUSLY EXPORTED PROP19 ERTY.—In the case of any article that is classified under 

20 a heading or subheading of subchapter I or II of chapter 

21 98 of the Tariff Schedules of the United States, the tax 

22 under this section shall be imposed only on that portion 

23 of the customs value of such article that is dutiable under 

24 such heading or subheading. 


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1 ‘‘(d) IMPORTS FOR PERSONAL CONSUMPTION.—The 

2 import tax imposed by this section shall not apply to any 

3 article entered into the United States duty free under sub4 chapters I through VII of chapter 98 of the Tariff Sched5 ules of the United States. 

6 ‘‘SEC. 1702. IMPOSITION OF TAX ON IMPORT OF SERVICES. 

7 ‘‘(a) GENERAL RULE.—There is hereby imposed a 

8 tax equal to 8.5 percent of the cost of all services treated 

9 as imported into the United States during the taxable pe10 riod of the service recipient. 

11 ‘‘(b) LIABILITY FOR THE TAX.—The tax on the im12 port of services imposed by subsection (a) shall be paid 

13 by the person who receives the imported services. The tax 

14 shall be payable as if it were an addition to the business 

15 tax imposed by section 1601. 

16 ‘‘(c) IMPORTED SERVICES.—For purposes of this sec17 tion, services shall be treated as imported if they are treat18 ed as imported under section 1693 (general rules on im19 port of services) or section 1696 (related to insurance). 

20 ‘‘SEC. 1703. GENERAL RULES FOR THE IMPORT TAX. 

21 ‘‘ ‘Import tax’ means the tax imposed by section 1701 

22 on the import of property and the tax imposed by section 

23 1702 on the import of services. 

24 ‘‘Subchapter L—Transition Rules 

‘‘Sec. 1711. Amortization of transition basis. 


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1 ‘‘SEC. 1711. AMORTIZATION OF TRANSITION BASIS. 

2 ‘‘(a) TRANSITION BASIS DEDUCTION.—The ‘transi3 tion basis deduction’ for a taxable period is the sum of 

4 the amortization allowance determined under this section 

5 for the taxable period. 

6 ‘‘(b) TREATMENT OF INTEREST FLOWS.—Interest 

7 flows between non-financial businesses shall be treated as 

8 under current law, phased out over 5 years. 

9 ‘‘(c) AMORTIZATION RULES.—The amortization al10 lowance to all property placed in service before the effec11 tive date of this section shall be the lesser of— 

12 ‘‘(1) the amortization period under current law 

13 remaining on such date, or 

14 ‘‘(2) a 5-year ratable period beginning on such 

15 date. 

16 ‘‘Subchapter M—Rules for Administration, 

17 Consolidated Returns 

‘‘Sec. 1721. Returns, due dates, etc. 

‘‘Sec. 1722. Consolidated returns. 

‘‘Sec. 1723. Seller liable for tax. 

‘‘Sec. 1724. Tax invoices. 

‘‘Sec. 1725. Time for filing return and claiming credit; deposits of tax. 

‘‘Sec. 1726. Secretary to be notified of certain events. 

‘‘Sec. 1727. Regulations. 

18 ‘‘SEC. 1721. RETURNS, DUE DATES, ETC. 

19 ‘‘(a) IN GENERAL.—Until subtitle F is amended to 

20 reflect the adoption of this chapter, the rules of subtitle 

21 F relating to C corporations shall apply to business enti22 ties with respect to— 


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1 ‘‘(1) returns and records; 

2 ‘‘(2) time and place for paying tax; 

3 ‘‘(3) assessment of taxes; 

4 ‘‘(4) collections and liens; 

5 ‘‘(5) abatements, credits, and refunds; 

6 ‘‘(6) interest on underpayments and overpay7 ments; 

8 ‘‘(7) additions to tax and penalties; 

9 ‘‘(8) closing agreements and compromises; 

10 ‘‘(9) crimes; 

11 ‘‘(10) judicial proceedings; 

12 ‘‘(11) discovery of liability and enforcement; 

13 and 

14 ‘‘(12) estimated taxes. 

15 ‘‘(b) INDIVIDUALS ENGAGING IN BUSINESS ACTIVI16 TIES.—Under rules prescribed by the Secretary, individ17 uals engaging in business activities on their own or with 

18 their spouses shall be permitted to file their business tax 

19 returns with their individual tax returns and shall be sub20 ject to estimated tax rules for individual income tax re21 turns. 

22 ‘‘SEC. 1722. CONSOLIDATED RETURNS. 

23 ‘‘(a) IN GENERAL.—Business entities may file con24 solidated returns of business tax if they would have been 

25 permitted to file consolidated returns under section 1501 


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1 and such section were applied by treating each business 

2 entity as a corporation and its owners or partners as 

3 shareholders. 

4 ‘‘(b) FINANCIAL INSTITUTIONS.—Financial inter5 mediation businesses may be included in consolidated re6 turns, but each financial intermediation business must 

7 compute its gross profits separately. 

8 ‘‘(c) INTERCOMPANY TRANSACTIONS.—In computing 

9 the gross profits of a consolidated group, intercompany 

10 transactions can be taken into account, or at the election 

11 of the filer, be disregarded (except in the case of trans12 actions with financial intermediation businesses). 

13 ‘‘SEC. 1723. SELLER LIABLE FOR TAX. 

14 ‘‘The person selling the property or services shall be 

15 liable for the tax imposed by section 1601. 

16 ‘‘SEC. 1724. TAX INVOICES. 

17 ‘‘(a) SELLER MUST GIVE PURCHASER TAX IN18 VOICE.—Any taxable person engaging in a taxable trans19 action shall give the purchaser a tax invoice with respect 

20 to such transaction if the seller has reason to believe that 

21 the purchaser is a taxable person. 

22 ‘‘(b) CONTENT OF INVOICE.—The tax invoice re23 quired by subsection (a) with respect to any transaction 

24 shall set forth— 


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1 ‘‘(1) the name and identification number of the 

2 seller, 

3 ‘‘(2) the name of the purchaser, 

4 ‘‘(3) the amount of the tax imposed by section 

5 1601, and 

6 ‘‘(4) such other information as may be pre7 scribed by regulations. 

8 ‘‘(c) NO CREDIT WITHOUT INVOICE.— 

9 ‘‘(1) IN GENERAL.—Except as provided in para10 graphs (2) and (3), a purchaser may claim a credit 

11 with respect to a transaction only if the purchaser— 

12 ‘‘(A) has received from the seller and has 

13 in the purchaser’s possession a tax invoice 

14 which meets the requirements of subsection (b), 

15 and 

16 ‘‘(B) is named as the purchaser in such in17 voice. 

18 ‘‘(2) EMPLOYEES OR OTHER AGENTS NAMED IN

19 INVOICES.—To the extent provided in regulations, 

20 the naming of an employee or other agent of the 

21 purchaser shall be treated as the naming of the pur22 chaser. 

23 ‘‘(3) WAIVER OF INVOICE REQUIREMENT IN

24 CERTAIN CASES.—To the extent provided in regula25 tions, paragraph (1) shall not apply— 


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1 ‘‘(A) where the purchaser without fault on 

2 the purchaser’s part fails to receive or fails to 

3 have in the purchaser’s possession a tax invoice, 

4 ‘‘(B) to a taxable transaction (or category 

5 of transactions) where— 

6 ‘‘(i) the amount involved is de mini7 mis, or 

8 ‘‘(ii) the information required by sub9 section (b) can be reliably established by 

10 sampling or by another method and can be 

11 adequately documented. 

12 ‘‘(d) TIME FOR FURNISHING INVOICE.—Any invoice 

13 required to be furnished by subsection (a) with respect to 

14 any transaction shall be furnished not later than 15 busi15 ness days after the tax point for such transaction. 

16 ‘‘SEC. 1725. TIME FOR FILING RETURN AND CLAIMING 

17 CREDIT; DEPOSITS OF TAX. 

18 ‘‘(a) FILING RETURN.—Before the first day of the 

19 second calendar month beginning after the close of each 

20 taxable period, each taxable person shall file a return of 

21 the tax imposed by section 1601 on taxable transactions 

22 having a tax point within such taxable period. 

23 ‘‘(b) CREDIT ALLOWED FOR TAXABLE PERIOD IN

24 WHICH PURCHASER RECEIVES INVOICE.— 


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1 ‘‘(1) IN GENERAL.—Except as provided in para2 graph (2), a credit allowable by section 1606 with 

3 respect to a transaction may be allowed only for the 

4 first taxable period by the close of which the tax5 payer— 

6 ‘‘(A) has paid or accrued amounts properly 

7 allocable to the tax imposed by section 1601 

8 with respect to such transaction, and 

9 ‘‘(B) has a tax invoice (or equivalent) with 

10 respect to such transaction. 

11 ‘‘(2) USE FOR LATER PERIOD.—Under regula12 tions, a credit allowable by section 1606 may be al13 lowed for a period after the period set forth in para14 graph (1). 

15 ‘‘(c) TAXABLE PERIOD.—For purposes of this chap16 ter— 

17 ‘‘(1) IN GENERAL.—The term ‘taxable period’ 

18 means a calendar quarter. 

19 ‘‘(2) EXCEPTION.— 

20 ‘‘(A) ELECTION OF 1-MONTH PERIOD.—If 

21 the taxpayer so elects, the term ‘taxable period’ 

22 means a calendar month. 

23 ‘‘(B) OTHER PERIODS.—To the extent pro24 vided in regulations, the term ‘taxable period’ 


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1 includes a period, other than a calendar quarter 

2 or month, selected by the taxpayer. 

3 ‘‘(d) TAX POINT.—For purposes of this chapter— 

4 ‘‘(1) CHAPTER 1 RULES WITH RESPECT TO

5 SELLER GOVERN.—Except as provided in paragraph 

6 (2), the tax point for any sale of property or services 

7 is the earlier of— 

8 ‘‘(A) the time (or times) when any income 

9 from the sale should be treated by the seller as 

10 received or accrued (or any loss should be taken 

11 into account by the seller) for purposes of chap12 ter 1, or 

13 ‘‘(B) the time (or times) when the seller 

14 receives payment for the sale. 

15 ‘‘(2) IMPORTS.—In the case of the importing of 

16 property, the tax point is when the property is en17 tered, or withdrawn from warehouse, for consump18 tion in the United States. 

19 ‘‘(e) MONTHLY DEPOSITS REQUIRED.—To the extent 

20 provided in regulations, monthly deposits may be required 

21 of the estimated liability for any taxable period for the 

22 tax imposed by section 1601. 


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1 ‘‘SEC. 1726. SECRETARY TO BE NOTIFIED OF CERTAIN 

2 EVENTS. 

3 ‘‘To the extent provided in regulations, each person 

4 engaged in a business shall notify the Secretary (at such 

5 time or times as may be prescribed by such regulations) 

6 of any change in the form in which a business is conducted 

7 or any other change which might affect the liability for 

8 the tax imposed by section 1601 or the amount of such 

9 tax or any credit against such tax, or otherwise affect the 

10 administration of such tax in the case of such person. 

11 ‘‘SEC. 1727. REGULATIONS. 

12 ‘‘The Secretary shall prescribe such regulations as 

13 may be necessary to carry out the purposes of this chap14 ter. 

15 ‘‘Subchapter N—Definitions and Rules of 

16 Application 

‘‘Sec. 1731. Definitions. 

‘‘Sec. 1732. Rules of application. 

17 ‘‘SEC. 1731. DEFINITIONS. 

18 ‘‘If a term that is used but not defined in this chapter 

19 or in section 7701 is defined in chapter 1, the definition 

20 in chapter 1 shall apply except if manifestly incompatible 

21 with the intent of the provision in which the term is used. 


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1 ‘‘SEC. 1732. RULES OF APPLICATION. 

2 ‘‘(a) DEFINITIONS.—Any definition included in this 

3 chapter shall apply for all purposes of this chapter un4 less— 

5 ‘‘(1) such definition is limited to the purposes 

6 of a particular chapter, section, or subsection, or 

7 ‘‘(2) the definition clearly would not be applica8 ble in a particular context. 

9 ‘‘(b) INTERPRETATIONS CONSISTENT WITH INTER10 NAL REVENUE CODE OF 1986.—Terms not defined in this 

11 chapter, chapter 1 or section 7701, but defined elsewhere 

12 in this title, shall be interpreted in a manner consistent 

13 with this title, except to the extent such interpretation 

14 would be inconsistent with the principles and purposes of 

15 this chapter.’’. 

16 (b) The amendments made by this section shall be 

17 effective on January 1, 2010, except to the extent other18 wise specifically provided in the text of such amendments. 

19 SEC. 603. REPEAL OF CHAPTER 6. 

20 Chapter 6 of the Code (relating to consolidated re21 turns) is repealed as of January 1, 2010. 

22 SEC. 604. REVISIONS TO THE CODE. 

23 Not later than January 1, 2010, the Secretary shall 

24 submit to Congress proposed changes in the Internal Rev25 enue Code of 1986 that— 


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1 (1) revise subtitles C through J of such Code 

2 to fully reflect the amendments to subtitle A of such 

3 Code made by this title and the repeal of subtitle B 

4 of such Code, 

5 (2) include statutory definitions or rules in 

6 cases where the Secretary concludes that the defini7 tions or rules cannot or should not be addressed by 

8 regulation, 

9 (3) revise chapter 2 of such Code (relating to 

10 the self-employment tax) to conform to changes 

11 made by this title, and 

12 (4) revise chapter 3 of such Code (relating to 

13 withholding on nonresident aliens and foreign cor14 porations) to reflect changes made by this title. 

15 SEC. 605. APPLICATION OF SUBTITLE F. 

16 Until such time as subtitle F of the Internal Revenue 

17 Code of 1986 is amended to reflect the amendments made 

18 by this title, the provisions of such subtitle F shall be 

19 treated as generally applying to chapter 7 of subtitle A 

20 of such Code— 

21 (1) without regard to specific cross references, 

22 (2) without regard to provisions relating to 

23 partnerships, and 

24 (3) as if the business tax under such chapter 7 

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1 ties were corporations (except for purposes of collec2 tion, in which case the owners of noncorporate enti3 ties shall be obligated for taxes owned by the entities 

4 to the same extent as they would if the entity owed 

5 the tax prior to the amendment of the Code). 

6 SEC. 606. EFFECTIVE DATES. 

7 (a) IN GENERAL.—Except as otherwise provided in 

8 this title, the amendments made by this title shall be effec9 tive on and after January 1, 2010, with respect to tax 

10 years beginning on such date. 

11 (b) SPECIAL RULES FOR BUSINESSES WITH 52–53 

12 WEEK YEAR.—If a business uses a 52–53 week taxable 

13 period the amendments made by this title shall apply to 

14 the business with respect to its tax year beginning in the 

15 last week in December except with respect to any trans16 actions occurring during 2009 that were structured to 

17 take advantage of the application of this title to such busi18 ness at a time when this title did not apply to other busi19 nesses or to individuals. 

20 TITLE VII—BUDGET 

21 ENFORCEMENT 

22 SEC. 701. SHORT TITLE; TABLE OF CONTENTS; DEFINI23 TIONS. 

24 (a) SHORT TITLE.—This title may be cited as the 

25 ‘‘Budget Control Act of 2009’’. 


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1 (b) TABLE OF CONTENTS.— 

TITLE VII—BUDGET ENFORCEMENT 

Sec. 701. Short title; table of contents; definitions. 

Sec. 702. Long-term projections. 

Sec. 703. Preview spending reduction order. 

Sec. 704. Final spending reduction order. 

Sec. 705. Eliminating excess spending amounts. 

Sec. 706. Special procedures. 

Sec. 707. Suspension in the event of war or low growth. 

Sec. 708. Alternate spending reduction legislation in the House of Representatives. 

Sec. 709. Alternate spending reduction legislation in the Senate. 

Sec. 710. General provisions. 

Sec. 711. Effective date. 

2 (c) DEFINITIONS.—As used in this title: 

3 (1) The terms ‘‘budget authority’’ and ‘‘out4 lays’’ have the meanings given to such terms in sec5 tion 3 of the Congressional Budget Act of 1974. 

6 (2) The term ‘‘budgetary resources’’ means new 

7 budget authority, budget authority, unobligated bal8 ances, direct spending authority, and obligation limi9 tations. 

10 (3) The term ‘‘spending reduction’’ refers to 

11 the cancellation of budgetary resources provided by 

12 discretionary appropriations or direct spending. 

13 (4) The term ‘‘discretionary appropriations’’ 

14 means budgetary resources provided in appropriation 

15 Acts. 

16 (5) The term ‘‘direct spending’’ means budget 

17 resources provided in law other than appropriation 

18 Acts. 


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1 (6) The term ‘‘gross domestic product’’, with 

2 respect to any fiscal year, means the gross national 

3 product during such fiscal year consistent with De4 partment of Commerce definitions. 

5 (7) The term ‘‘account’’ means an item for 

6 which appropriations are made in any appropriation 

7 Act and, for items not provided for in appropriation 

8 Acts, such term means an item for which there is a 

9 designated budget account identification code num10 ber in the President’s budget. 

11 (8) The term ‘‘budget year’’ means, with re12 spect to a session of Congress, the fiscal year of the 

13 Government that starts on October 1 of the calendar 

14 year in which that session begins. 

15 (9) The term ‘‘current year’’ means, with re16 spect to a budget year, the fiscal year that imme17 diately precedes that budget year. 

18 (10) The term ‘‘OMB’’ means the Director of 

19 the Office of Management and Budget. 

20 (11) The term ‘‘CBO’’ means the Director of 

21 the Congressional Budget Office. 

22 (12) The term ‘‘baseline’’ means the baseline 

23 estimates OMB or CBO, as applicable, annually sub24 mits to Congress consistent with section 257 of the 


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1 Balanced Budget and Emergency Deficit Control 

2 Act of 1985. 

3 (13) The term ‘‘guideline period’’ means the pe4 riod of fiscal years as set forth in section 702(f). 

5 (14) The term ‘‘excess spending amount’’ 

6 means the amount of outlays a projected spending 

7 amount exceeds the guideline spending amount for a 

8 fiscal year within the guideline period. 

9 (15) The term ‘‘projected spending amount’’ 

10 means the amount of total outlays of the Federal 

11 Government for a fiscal year within the guideline pe12 riod and as calculated in section 702(c). 

13 (16) The term ‘‘guideline spending amount’’ 

14 means the amount of total outlays of the Federal 

15 Government for a fiscal year as a percentage of the 

16 gross domestic product for such fiscal year within 

17 the guideline period. 

18 (17) The term ‘‘preview order’’ means a pre19 view spending reduction order as defined in section 

20 703. 

21 (18) The term ‘‘final order’’ means a final 

22 spending reduction order as defined in section 704. 

23 SEC. 702. LONG-TERM PROJECTIONS. 

24 (a) OMB LONG-TERM ECONOMIC GROWTH AND

25 BUDGET PROJECTIONS.—For each fiscal year within the 


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1 guideline period, OMB shall prepare a report that sets 

2 forth the amount of total spending of the Government in 

3 outlays, within the budget as submitted by the President 

4 anually under section 1105(a) of title 31, United States 

5 Code. 

6 (b) CBO LONG-TERM ECONOMIC GROWTH AND

7 BUDGET PROJECTIONS.—By February 1 of each calendar 

8 year, for each fiscal year within the guideline period, CBO 

9 shall prepare a report that sets forth the amount of total 

10 spending of the Government in outlays, and the amount 

11 of spending of each program within the budget as CBO 

12 prepares its annual baseline and its reestimate of the 

13 President’s budget. 

14 (c) INCLUSION IN THE FINAL SPENDING REDUC15 TION.—Each report prepared pursuant to subsections (a) 

16 and (b) shall be included in the preview spending reduc17 tion and final spending reduction, as applicable, set forth 

18 in sections 703 and 704. 

19 SEC. 703. PREVIEW SPENDING REDUCTION ORDER. 

20 (a) ISSUANCE.—Not later than 15 calendar days 

21 after the date Congress adjourns to end a session of Con22 gress, every fiscal year other than which a final order is 

23 issued, OMB shall issue a preview spending reduction 

24 order. 


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1 (b) CONTENTS.—A preview order shall be subject to 

2 the same requirements as that set forth for a final spend3 ing reduction in section 704. 

4 (c) AVAILABILITY.—A preview order required to be 

5 issued by this section shall be submitted by OMB to the 

6 House of Representatives and the Senate on the day it 

7 is issued. 

8 (d) EFFECT.—A preview order shall not cause a 

9 spending reduction. 

10 SEC. 704. FINAL SPENDING REDUCTION ORDER. 

11 (a) ISSUANCE.—Not later than 15 calendar days 

12 after the date Congress adjourns to end a session of Con13 gress, every fifth fiscal year following the fiscal year in 

14 which this Act is enacted, OMB shall issue a final spend15 ing reduction order to eliminate an excess spending 

16 amount (if any) as calculated under subsection (b). 

17 (b) CONTENT OF A FINAL SPENDING CONTROL

18 ORDER.—In addition to any other information required 

19 under this title to be included in any final spending control 

20 order, this order shall contain, for the budget year, for 

21 each account to be subject to a spending reduction, esti22 mates of the baseline level of budgetary resources and re23 sulting outlays and the amount of budgetary resources to 

24 be subject to a spending reduction and resulting outlay 

25 reductions. The order shall also contain estimates of the 


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1 effects on outlays of the spending reduction in each out2 year for direct spending programs. 

3 (c) AVAILABILITY.—A final order required to be 

4 issued by this section shall be submitted by OMB to the 

5 House of Representatives, the Senate, and the President 

6 on the day it is issued. 

7 (d) SPENDING CONTROL BUFFER.—If there is an ex8 cess spending amount in only one fiscal year or in one 

9 period of two successive fiscal years during the guideline 

10 period, and such amount or amounts exceed the guideline 

11 spending amount by .1 percent of GDP or less, then the 

12 final spending reduction shall be issued, but shall not take 

13 effect. 

14 (e) PRESIDENTIAL ORDER.—On the date specified in 

15 subsection (a), if in its final spending reduction OMB cal16 culates there exists an impermissible excess spending 

17 amount, the President shall issue an order fully imple18 menting without change all spending reductions required 

19 by the OMB calculations set forth in that report. This 

20 order shall be effective on the first day of the fiscal year 

21 following the fiscal year in which the order is issued. 

22 SEC. 705. ELIMINATING EXCESS SPENDING AMOUNTS. 

23 (a) ENFORCING A SPENDING REDUCTION FOR DIS24 CRETIONARY SPENDING.— 


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1 (1) ELIMINATING A DISCRETIONARY SPENDING

2 EXCESS.—OMB shall include in its final order a re3 quirement that each discretionary account shall be 

4 reduced by an amount of budget authority calculated 

5 by multiplying the baseline level of budgetary re6 sources in that account at that time by the uniform 

7 percentage necessary to reduce outlays sufficient to 

8 eliminate an excess spending amount. 

9 (2) PART-YEAR APPROPRIATIONS.—If, on the 

10 date a final spending reduction is issued, there is in 

11 effect an Act making or continuing appropriations 

12 for part of a fiscal year for any budget account, then 

13 the dollar spending reduction calculated for that ac14 count under paragraph (1) shall be subtracted 

15 from— 

16 (A) the annualized amount otherwise avail17 able by law in that account under that or a sub18 sequent part-year appropriation; and 

19 (B) when a full-year appropriation for that 

20 account is enacted, from the amount otherwise 

21 provided by the full-year appropriation. 

22 (b) ELIMINATING A DIRECT SPENDING EXCESS.— 

23 OMB shall include in its final order a requirement that 

24 each direct spending account shall be reduced by an 

25 amount of budget authority calculated by multiplying the 


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1 baseline level of budgetary resources in that account at 

2 that time by the uniform percentage necessary to reduce 

3 outlays sufficient to eliminate an excess spending amount. 

4 (c) UNIFORM PERCENTAGE.—The percentage re5 quired to produce a spending reduction, as ordered by a 

6 final order, shall be calculated by OMB by adding all 

7 budgetary resources of the Government, and reducing that 

8 amount by an amount sufficient to reduce the total 

9 amount of outlays of the Government to equal, or lower, 

10 a level of outlays than the amount set forth in the guide11 line period. 

12 SEC. 706. SPECIAL PROCEDURES. 

13 (a) SOCIAL SECURITY BENEFITS.—Benefits payable 

14 under the old-age, survivors, and disability insurance pro15 gram established under title II of the Social Security Act, 

16 shall be exempt from a spending reduction required by a 

17 final order if— 

18 (1) the Social Security Trustees issue, in the 

19 fiscal year such order is issued, a statement that the 

20 old-age, survivors, and disability Trust Funds have 

21 achieved or will achieve solvency under current law 

22 within the guideline period beginning in the year fol23 lowing the year the final order is issued; 

24 (2) it would require an amount that exceeds 

25 such amount as the Trustees determine are required 


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1 to achieve solvency in that period, as determined by 

2 the Social Security Trustees; and 

3 (3) it would require a spending reduction of an 

4 amount greater than 1 percent of budgetary re5 sources in any fiscal year within the guideline pe6 riod. 

7 (b) NET INTEREST.—A spending reduction shall not 

8 cause any effect on payments for net interest (as set forth 

9 in function 900). 

10 (c) OBLIGATED BALANCES.—Obligated balances of 

11 budget authority carried over from prior fiscal years shall 

12 be exempt from a spending reduction under any order 

13 issued under this title. 

14 (d) APPLICATION TO FAST GROWING PROGRAMS.— 

15 Any program whose growth in the budget year is less than 

16 the rate of inflation as determined by OMB, shall be ex17 empt from a spending reduction issued under this title. 

18 (e) LIMITATION ON SPENDING REDUCTIONS.—No 

19 program shall be subject to a spending reduction of more 

20 than 1 percent of its budgetary resources. 

21 (f) UNIFORM PERCENTAGE RATE OF REDUCTION

22 AND OTHER LIMITATIONS.—All spending reductions with 

23 respect to a fiscal year shall be made so as to ensure that 

24 outlays for each program, project, activity, or account in25 volved are reduced by a percentage rate that is uniform 


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1 for all such programs, projects, activities, and accounts, 

2 and may not be made so as to achieve a percentage rate 

3 of reduction in any such item exceeding the rate specified 

4 in the order. 

5 (g) EFFECT OF A FINAL ORDER.—Upon the issue 

6 of a final order, a spending reduction shall be ordered for 

7 all nonexempt spending accounts. The spending reduction 

8 shall be effective as follows: 

9 (1) Budgetary resources subject to a spending 

10 reduction to any discretionary account shall be per11 manently cancelled. 

12 (2) The same percentage spending reduction 

13 shall apply to all programs, projects, and activities 

14 within a budget account (with programs, projects, 

15 and activities as delineated in the appropriation Act 

16 or accompanying report for the relevant fiscal year 

17 covering that account, or for accounts not included 

18 in appropriation Acts, as delineated in the most re19 cently submitted President’s budget). 

20 (3) Administrative regulations implementing a 

21 spending reduction shall be made within 120 days of 

22 the issue of a final order. 

23 (4) Budgetary resources subject to a spending 

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1 ing reduction in appropriation accounts shall not be 

2 available for obligation during the fiscal year in 

3 which the spending reduction is issued, and shall be 

4 available in subsequent years only to the extent as 

5 provided by law. 

6 SEC. 707. SUSPENSION IN THE EVENT OF WAR OR LOW 

7 GROWTH. 

8 (a) PROCEDURES IN THE EVENT OF A LOW GROWTH

9 REPORT.— 

10 (1) LOW GROWTH REPORT.—Whenever OMB or 

11 CBO issues a low-growth report under section 

12 710(a), the majority leader of the House of Rep13 resentatives and the majority leader of the Senate 

14 shall introduce a joint resolution suspending the rel15 evant provisions of this title, titles III and IV of the 

16 Congressional Budget Act of 1974, and section 1103 

17 of title 31, United States Code. 

18 (2) FORM OF JOINT RESOLUTION.— 

19 (A) The matter after the resolving clause 

20 in any joint resolution introduced pursuant to 

21 paragraph (1) shall be as follows: ‘‘That the 

22 Congress declares that the conditions specified 

23 in section 711(a) of the Budget Control Act of 

24 2008 are met, and the implementation of the 

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1 trol Act of 1974, chapter 11 of title 31, United 

2 States Code, and the Budget Control Act of 

3 2008 is hereby suspended.’’. 

4 (B) The title of the joint resolution shall 

5 be ‘‘A joint resolution suspending certain provi6 sions of law pursuant to section 711(a) of the 

7 Budget Control Act of 2008.’’ 

8 (3) SUPERMAJORITY.—A joint resolution intro9 duced pursuant to paragraph (1), an amendment 

10 thereto, or a conference report thereon, shall only be 

11 passed if it receives not less than three-fifths vote of 

12 approval of the total number of Members of the 

13 House of Representatives and the Senate. 

14 (b) SUSPENSION OF SPENDING REDUCTION PROCE15 DURES.—Upon the enactment of a declaration of war or 

16 a joint resolution described in subsection (a)— 

17 (1) the subsequent issuance of any final spend18 ing reduction is precluded; 

19 (2) titles III and IV of the Congressional Budg20 et Act of 1974 are suspended; and 

21 (3) section 1103 of title 31, United States 

22 Code, is suspended. 

23 (c) RESTORATION OF SPENDING CONTROL PROCE24 DURES.— 


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1 (1) WAR.—In the event of a suspension of 

2 spending control procedures due to a declaration of 

3 war, then, effective with the fifth fiscal year that be4 gins in the session after the state of war is con5 cluded, the provisions of subsection (b) triggered by 

6 that declaration of war are no longer effective. 

7 (2) SUSPENSION.—In the event of a suspension 

8 of spending control procedures due to the enactment 

9 of a joint resolution described in subsection (a), 

10 then, effective with regard to the first fiscal year be11 ginning at least 12 months after the enactment of 

12 that resolution, the provisions of subsection (b) trig13 gered by that resolution are no longer effective. 

14 SEC. 708. ALTERNATE SPENDING REDUCTION LEGISLATION 

15 IN THE HOUSE OF REPRESENTATIVES. 

16 (a) INTRODUCTION OF JOINT RESOLUTION.—At any 

17 time after the Director of OMB issues a final order for 

18 a fiscal year, but before the end of the session of Congress 

19 in session on the date of the issuance of such order, the 

20 majority leader of the House of Representatives may in21 troduce a joint resolution which contains provisions direct22 ing the President to modify the most recent final order 

23 issued pursuant to this title, or provide an alternative to 

24 eliminate the spending excess for such fiscal year or years. 

25 After the introduction of the first such joint resolution in 


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1 either House of Congress in any calendar year, then no 

2 other joint resolution introduced pursuant to this section 

3 shall be subject to the procedures set forth in this section. 

4 (b) PROCEDURES FOR CONSIDERATION OF JOINT

5 RESOLUTIONS.— 

6 (1) Any committee of the House of Representa7 tives to which an alternative spending compliance 

8 measure is referred shall report it to the House 

9 without amendment not later than the seventh legis10 lative day after the date of its introduction. If a 

11 committee fails to report the bill within that period 

12 or the House has adopted a concurrent resolution 

13 providing for adjournment sine die at the end of a 

14 Congress, it shall be in order to move that the 

15 House discharge the committee from further consid16 eration of the bill. Such a motion shall be in order 

17 only at a time designated by the Speaker in the leg18 islative schedule within two legislative days after the 

19 day on which the proponent announces his intention 

20 to offer the motion. Such a motion shall not be in 

21 order after a committee has reported a spending 

22 compliance measure with respect to that special mes23 sage or after the House has disposed of a motion to 

24 discharge with respect to that special message. The 

25 previous question shall be considered as ordered on 


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1 the motion to its adoption without intervening mo2 tion except twenty minutes of debate equally divided 

3 and controlled by the proponent and an opponent. If 

4 such a motion is adopted, the House shall proceed 

5 immediately to consider the spending compliance 

6 measure bill in accordance with paragraph (3). A 

7 motion to reconsider the vote by which the motion 

8 is disposed of shall not be in order. 

9 (2) After a spending compliance measure is re10 ported or a committee has been discharged from fur11 ther consideration, or the House has adopted a con12 current resolution providing for adjournment sine 

13 die at the end of a Congress, it shall be in order to 

14 move to proceed to consider the spending compliance 

15 measure in the House. Such a motion shall be in 

16 order only at a time designated by the Speaker in 

17 the legislative schedule within two legislative days 

18 after the day on which the proponent announces his 

19 intention to offer the motion. Such a motion shall 

20 not be in order after the House has disposed of a 

21 motion to proceed with respect to that special mes22 sage. The previous question shall be considered as 

23 ordered on the motion to its adoption without inter24 vening motion. A motion to reconsider the vote by 

25 which the motion is disposed of shall not be in order. 


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1 (3) The spending compliance measure shall be 

2 considered as read. All points of order against an 

3 approval bill and against its consideration are 

4 waived. The previous question shall be considered as 

5 ordered on an approval bill to its passage without in6 tervening motion except five hours of debate equally 

7 divided and controlled by the proponent and an op8 ponent and one motion to limit debate on the bill. 

9 A motion to reconsider the vote on passage of the 

10 bill shall not be in order. 

11 (4) A spending compliance measure received 

12 from the Senate shall not be referred to committee. 

13 (c) VOTING.—The vote on final passage of a joint res14 olution or conference report thereon referred to in para15 graph (1) shall require approval of not less than three16 fifths of the Members of the House of Representatives. 

17 SEC. 709. ALTERNATE SPENDING REDUCTION LEGISLATION 

18 IN THE SENATE. 

19 (a) INTRODUCTION OF JOINT RESOLUTION.—At any 

20 time after OMB issues a final order for a fiscal year, but 

21 before the end of the session of Congress in session on 

22 the date of the issuance of such order, the majority leader 

23 of either House of Congress may introduce a joint resolu24 tion which contains provisions directing the President to 

25 modify the most recent final order provide an alternative 


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1 to eliminate the spending excess for such fiscal year or 

2 years. After the introduction of the first such joint resolu3 tion in either House of Congress in any calendar year, 

4 then no other joint resolution introduced in such House 

5 in such calendar year shall be subject to the procedures 

6 set forth in this section. 

7 (b) PROCEDURES FOR CONSIDERATION OF JOINT

8 RESOLUTIONS.— 

9 (1) REFERRAL TO COMMITTEE.—A joint resolu10 tion introduced in the Senate under subsection (a) 

11 shall not be referred to a committee of the Senate 

12 and shall be placed on the calendar pending disposi13 tion of such joint resolution in accordance with this 

14 subsection. 

15 (2) CONSIDERATION IN THE SENATE.—On or 

16 after the third calendar day (excluding Saturdays, 

17 Sundays, and legal holidays) beginning after a joint 

18 resolution is introduced under subsection (a), not19 withstanding any rule or precedent of the Senate, in20 cluding rule XXII of the Standing Rules of the Sen21 ate, it is in order (even though a previous motion to 

22 the same effect has been disagreed to) for any Mem23 ber of the Senate to move to proceed to the consider24 ation of the joint resolution. The motion is not in 

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1 urdays, Sundays, and legal holidays) beginning after 

2 a joint resolution (to which the motion applies) is in3 troduced. The joint resolution is privileged in the 

4 Senate. A motion to reconsider the vote by which the 

5 motion is agreed to or disagreed to shall not be in 

6 order. If a motion to proceed to the consideration of 

7 the joint resolution is agreed to, the Senate shall im8 mediately proceed to consideration of the joint reso9 lution without intervening motion, order, or other 

10 business, and the joint resolution shall remain the 

11 unfinished business of the Senate until disposed of. 

12 (3) DEBATE IN THE SENATE.— 

13 (A) In the Senate, debate on a joint resolu14 tion introduced under subsection (a), amend15 ments thereto, and all debatable motions and 

16 appeals in connection therewith shall be limited 

17 to not more than 10 hours, which shall be di18 vided equally between the majority leader and 

19 the minority leader (or their designees). 

20 (B) A motion to postpone, or a motion to 

21 proceed to the consideration of other business is 

22 not in order. A motion to reconsider the vote by 

23 which the joint resolution is agreed to or dis24 agreed to is not in order, and a motion to re25 commit the joint resolution is not in order. 


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1 (C)(i) No amendment that is not germane 

2 to the provisions of the joint resolution shall be 

3 in order in the Senate. In the Senate, an 

4 amendment, any amendment to an amendment, 

5 or any debatable motion or appeal is debatable 

6 for not to exceed 30 minutes to be equally di7 vided between, and controlled by, the mover and 

8 the majority leader (or their designees), except 

9 that in the event that the majority leader favors 

10 the amendment, motion, or appeal, the minority 

11 leader (or the minority leader’s designee) shall 

12 control the time in opposition to the amend13 ment, motion, or appeal. 

14 (ii) In the Senate, an amendment that is 

15 otherwise in order shall be in order notwith16 standing the fact that it amends the joint reso17 lution in more than one place or amends lan18 guage previously amended. It shall not be in 

19 order in the Senate to vote on the question of 

20 agreeing to such a joint resolution or any 

21 amendment thereto unless the figures then con22 tained in such joint resolution or amendment 

23 are mathematically consistent. 

24 (4) VOTE ON FINAL PASSAGE.—Immediately 

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1 olution introduced under subsection (a), a single 

2 quorum call at the conclusion of the debate if re3 quested in accordance with the rules of the Senate, 

4 and the disposition of any pending amendments 

5 under paragraph (3), the vote on final passage of 

6 the joint resolution shall occur. 

7 (5) APPEALS.—Appeals from the decisions of 

8 the Chair shall be decided without debate. 

9 (6) CONFERENCE REPORTS.—In the Senate, 

10 points of order under titles III and IV of the Con11 gressional Budget Act of 1974 are applicable to a 

12 conference report on the joint resolution or any 

13 amendments in disagreement thereto. 

14 (7) RESOLUTION FROM OTHER HOUSE.—If, be15 fore the passage by the Senate of a joint resolution 

16 of the Senate introduced under subsection (a), the 

17 Senate receives from the House of Representatives a 

18 joint resolution introduced under subsection (a), 

19 then the following procedures shall apply: 

20 (A) The joint resolution of the House of 

21 Representatives shall not be referred to a com22 mittee and shall be placed on the calendar. 

23 (B) With respect to a joint resolution in24 troduced under subsection (a) in the Senate— 


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1 (i) the procedure in the Senate shall 

2 be the same as if no joint resolution had 

3 been received from the House; but 

4 (ii)(I) the vote on final passage shall 

5 be on the joint resolution of the House if 

6 it is identical to the joint resolution then 

7 pending for passage in the Senate; or 

8 (II) if the joint resolution from the 

9 House is not identical to the joint resolu10 tion then pending for passage in the Sen11 ate and the Senate then passes the Senate 

12 joint resolution, the Senate shall be consid13 ered to have passed the House joint resolu14 tion as amended by the text of the Senate 

15 joint resolution. 

16 (C) Upon disposition of the joint resolution 

17 received from the House, it shall no longer be 

18 in order to consider the resolution originated in 

19 the Senate. 

20 (8) SENATE ACTION ON HOUSE RESOLUTION.— 

21 If the Senate receives from the House of Represent22 atives a joint resolution introduced pursuant to this 

23 section after the Senate has disposed of a Senate 

24 originated resolution which is identical to the House 

25 passed joint resolution, the action of the Senate with 


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1 regard to the disposition of the Senate originated 

2 joint resolution shall be deemed to be the action of 

3 the Senate with regard to the House originated joint 

4 resolution. If it is not identical to the House passed 

5 joint resolution, then the Senate shall be considered 

6 to have passed the joint resolution of the House as 

7 amended by the text of the Senate joint resolution. 

8 (9) The vote on final passage of a joint resolu9 tion or conference report thereon referred to in para10 graph (1) shall require approval of not less than 

11 three-fifths of the Members of the Senate. 

12 SEC. 710. GENERAL PROVISIONS. 

13 (a) LOW GROWTH REPORT.—OMB and CBO shall 

14 notify the Congress if— 

15 (1) during the period consisting of the quarter 

16 during which such notification is given, the quarter 

17 preceding such notification, and the 4 quarters fol18 lowing such notification, OMB or CBO has deter19 mined that real economic growth is projected or esti20 mated to be less than zero with respect to each of 

21 any 2 consecutive quarters within such period; or 

22 (2) the most recent of the Department of Com23 merce’s advance preliminary or final reports of ac24 tual real economic growth indicate that the rate of 

25 real economic growth for each of the most recently 


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1 reported quarter and the immediately preceding 

2 quarter is less than one percent. 

3 (b) ECONOMIC AND TECHNICAL ASSUMPTIONS.—For 

4 all purposes of this title, OMB shall use the same eco5 nomic and technical assumptions as used in the most re6 cent budget submitted under section 1105(a) of title 31, 

7 United States Code. 

8 (c) SOCIAL SECURITY TRUSTEE REPORT.—The 

9 Trustees of the Social Security Administration shall annu10 ally issue a report consistent with section 708(c) and OMB 

11 shall include such report in a final order and a preview 

12 order. 

13 (d) CONGRESSIONAL SPENDING LIMIT.—(1) The 

14 Congressional Budget and Impoundment Control Act of 

15 1974 is amended by adding at the end of title III the fol16 lowing new section: 

17 ‘‘SEC. 316 AGGREGATE SPENDING LIMITS. 

18 ‘‘It shall not be in order in the House of Representa19 tives or the Senate to consider any bill, joint resolution, 

20 amendment, motion, or conference report that would cause 

21 an excess spending amount, as defined in section 

22 701(c)(16) of the Budget Control Act of 2008.’’. 

23 (2) The table of contents set forth in section 1(b) of 

24 the Congressional Budget and Impoundment Control Act 


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1 of 1974 is amended by inserting after the item relating 

2 to section 315 the following new item: 

‘‘Sec. 316. Aggregate spending limits.’’. 

3 (e) CONGRESSIONAL REVENUE LIMITS.—(1) The 

4 Congressional Budget Act of 1974 (as amended by sub5 section (d)) is further amended by adding at the end of 

6 title III the following new section: 

7 ‘‘SEC. 317. TAX RATE LIMITS. 

8 ‘‘It shall not be in order in the House of Representa9 tives or the Senate to consider any bill, joint resolution, 

10 amendment, motion, or conference report that would cause 

11 aggregate Federal revenue levels, in any fiscal year, to ex12 ceed the percentage of revenue relative to the Gross Do13 mestic Product set forth in subsection (b) unless so deter14 mined by a vote of not less than three-fifths of the Mem15 bers voting, a quorum being present.’’. 

16 (2) The table of contents set forth in section 1(b) of 

17 the Congressional Budget and Impoundment Control Act 

18 of 1974 is amended by inserting after the item relating 

19 to section 316 the following new item: 

‘‘Sec. 317. Tax rate limits.’’. 

20 (f) FISCAL YEARS OF THE GUIDELINE PERIOD.— 

21 The fiscal years within the 75-year period referred to as 

22 a guideline period in this title shall be as follows: 

23 (1) Fiscal year 2010: 19.9 percent. 

24 (2) Fiscal year 2011: 19.8 percent. 


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1 (3) Fiscal year 2012: 20.0 percent. 

2 (4) Fiscal year 2013: 20.1 percent. 

3 (5) Fiscal year 2014: 20.2 percent. 

4 (6) Fiscal year 2015: 20.1 percent. 

5 (7) Fiscal year 2016: 20.1 percent. 

6 (8) Fiscal year 2017: 20.2 percent. 

7 (9) Fiscal year 2018: 20.3 percent. 

8 (10) Fiscal year 2019: 20.4 percent. 

9 (11) Fiscal year 2020: 20.5 percent. 

10 (12) Fiscal year 2021: 20.7 percent. 

11 (13) Fiscal year 2022: 21.5 percent. 

12 (14) Fiscal year 2023: 21.7 percent. 

13 (15) Fiscal year 2024: 22.0 percent. 

14 (16) Fiscal year 2025: 22.3 percent. 

15 (17) Fiscal year 2026: 22.5 percent. 

16 (18) Fiscal year 2027: 22.3 percent. 

17 (19) Fiscal year 2028: 22.6 percent. 

18 (20) Fiscal year 2029: 22.9 percent. 

19 (21) Fiscal year 2030: 23.1 percent. 

20 (22) Fiscal year 2031: 23.2 percent. 

21 (23) Fiscal year 2032: 23.9 percent. 

22 (24) Fiscal year 2033: 23.9 percent. 

23 (25) Fiscal year 2034: 23.9 percent. 

24 (26) Fiscal year 2035: 23.9 percent. 

25 (27) Fiscal year 2036: 24.0 percent. 


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1 (28) Fiscal year 2037: 24.2 percent. 

2 (29) Fiscal year 2038: 24.2 percent. 

3 (30) Fiscal year 2039: 24.3 percent. 

4 (31) Fiscal year 2040: 24.1 percent. 

5 (32) Fiscal year 2041: 24.1 percent. 

6 (33) Fiscal year 2042: 24.7 percent. 

7 (34) Fiscal year 2043: 24.5 percent. 

8 (35) Fiscal year 2044: 24.5 percent. 

9 (36) Fiscal year 2045: 24.4 percent. 

10 (37) Fiscal year 2046: 24.3 percent. 

11 (38) Fiscal year 2047: 24.2 percent. 

12 (39) Fiscal year 2048: 24.2 percent. 

13 (40) Fiscal year 2049: 24.0 percent. 

14 (41) Fiscal year 2050: 24.0 percent. 

15 (42) Fiscal year 2051: 24.0 percent. 

16 (43) Fiscal year 2052: 23.8 percent. 

17 (44) Fiscal year 2053: 23.6 percent. 

18 (45) Fiscal year 2054: 23.4 percent. 

19 (46) Fiscal year 2055: 23.3 percent. 

20 (47) Fiscal year 2056: 23.2 percent. 

21 (48) Fiscal year 2057: 23.0 percent. 

22 (49) Fiscal year 2058: 22.9 percent. 

23 (50) Fiscal year 2059: 22.7 percent. 

24 (51) Fiscal year 2060: 22.7 percent. 

25 (52) Fiscal year 2061: 22.4 percent. 


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1 (53) Fiscal year 2062: 22.2 percent. 

2 (54) Fiscal year 2063: 22.0 percent. 

3 (55) Fiscal year 2064: 21.8 percent. 

4 (56) Fiscal year 2065: 21.7 percent. 

5 (57) Fiscal year 2066: 21.5 percent. 

6 (58) Fiscal year 2067: 21.2 percent. 

7 (59) Fiscal year 2068: 20.8 percent. 

8 (60) Fiscal year 2069: 20.5 percent. 

9 (61) Fiscal year 2070: 20.1 percent. 

10 (62) Fiscal year 2071: 19.9 percent. 

11 (63) Fiscal year 2072: 19.7 percent. 

12 (64) Fiscal year 2073: 19.6 percent. 

13 (65) Fiscal year 2074: 19.4 percent. 

14 (66) Fiscal year 2075: 19.2 percent. 

15 (67) Fiscal year 2076: 18.9 percent. 

16 (68) Fiscal year 2077: 18.5 percent. 

17 (69) Fiscal year 2078: 18.0 percent. 

18 (70) Fiscal year 2079: 17.5 percent. 

19 (71) Fiscal year 2080: 17.3 percent. 

20 (72) Fiscal year 2081: 16.9 percent. 

21 (73) Fiscal year 2082: 16.5 percent. 

22 (74) Fiscal year 2083: 16.0 percent. 

23 (75) Fiscal year 2084: 16.0 percent. 


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1 SEC. 711. EFFECTIVE DATE. 

2 This title shall apply to fiscal year 2010 and subse3 quent fiscal years. 

Æ 


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