II

104TH CONGRESS

2D SESSION S. 2176

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

to provide for personal investment plans funded by employee Social

Security payroll deductions.

IN THE SENATE OF THE UNITED STATES

SEPTEMBER 30, 1996

Mr. KERREY (for himself and Mr. SIMPSON) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 and the Social

Security Act to provide for personal investment plans

funded by employee Social Security payroll deductions.

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

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Personal Investment

5 Plan Act of 1996’’.
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1 SEC. 2. OPTIONAL REDUCTION OF SOCIAL SECURITY TAXES

2 ON EMPLOYEES.

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

4 3101 of the Internal Revenue Code of 1986 (relating to

5 OASDI tax on employees) is amended—

6 (1) by striking the period at the end of the

7 table and inserting a semicolon; and

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

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

12 rate of tax under this subsection shall be 4.2 percent with

13 respect to wages paid on or after January 1 of the cal14 endar year in which an election is in effect under such

15 section, for pay periods ending after such date.’’.

16 (b) SELF-EMPLOYMENT TAX.—Subsection (a) of sec17 tion 1401 of such Code (relating to OASDI tax on self18 employment income) is amended—

19 (1) by striking the period at the end of the

20 table and inserting a semicolon; and

21 (2) by adding after and below the table the fol22 lowing:

23 ‘‘except that, in the case of an eligible self-employed indi24 vidual (as defined in section 255(4) of the Social Security

25 Act), the rate of tax under this subsection shall be 10.4

26 percent of the amount of the self-employment income in
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1 the case of a taxable year in which an election is in effect

2 under such section.’’.

3 (c) EFFECTIVE DATES.—

4 (1) IN GENERAL.—Except as otherwise pro5 vided in this subsection, the amendments made by

6 this section shall apply to remuneration paid after

7 December 31, 1996.

8 (2) SELF-EMPLOYMENT TAX.—The amend9 ments made by subsection (b) shall apply to taxable

10 years beginning after December 31, 1996.

11 SEC. 3. PERSONAL INVESTMENT PLANS.

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

13 is amended—

14 (1) by inserting before section 201 the follow15 ing:

16 ‘‘PART A—INSURANCE BENEFITS’’;

17 and

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

19 ‘‘PART B—PERSONAL INVESTMENT PLANS

20 ‘‘PERSONAL INVESTMENT PAYROLL DEDUCTION PLANS

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

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

23 a personal investment payroll deduction plan for such cal24 endar year for such person’s eligible employees.
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1 ‘‘(b) REQUIREMENTS.—For purposes of this part, the

2 term ‘personal investment payroll deduction plan’ means

3 a written plan of an employer if—

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

5 of eligible employees,

6 ‘‘(2) under such plan, the personal investment

7 plan contributions will be deducted from the employ8 ee’s wages and paid to the Social Security Adminis9 tration with respect to a personal investment plan

10 designated in accordance with section 252(a),

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

12 to pay the amount so deducted with respect to the

13 specified personal investment plan within 10 busi14 ness days after the payment of the wages from

15 which the amount was deducted,

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

17 the cost of administering such plan, and

18 ‘‘(5) the employer does not make any endorse19 ment with respect to any plan.

20 ‘‘(c) AMOUNTS DEDUCTED MAY BE ACCUMULATED

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

22 of a personal investment plan designated under section

23 252(a), contributions below a specified amount will not be

24 accepted, the requirements of subsection (b)(2) shall be

25 treated as met if amounts deducted from the wages of
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1 such employee are accumulated by the employer and paid

2 to such plan not later than 10 business days after the first

3 day on which the accumulated amount exceeds such speci4 fied amount.

5 ‘‘DESIGNATION OF PERSONAL INVESTMENT PLANS

6 UNDER PAYROLL DEDUCTION PLAN

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

8 subsection (b), the personal investment plan with respect

9 to which the personal investment plan contributions with

10 respect to any employee are required to be paid under sec11 tion 251 shall be a personal investment plan designated

12 by the employee to the employer not later than 10 business

13 days after the date on which the employee becomes an em14 ployee of such employer. Any such designation shall be

15 made in such form and manner as may be prescribed in

16 regulations of the Commissioner of Social Security.

17 ‘‘(b) DESIGNATION IN ABSENCE OF TIMELY DES18 IGNATION BY EMPLOYEE.—In any case in which no timely

19 designation of the personal investment plan is made, the

20 employer shall make the designation of the personal in21 vestment plan in accordance with regulations of the Com22 missioner of Social Security.

23 ‘‘PARTICIPATION BY SELF-EMPLOYED INDIVIDUALS

24 ‘‘SEC. 253. (a) IN GENERAL.—Each eligible self-em25 ployed individual who receives self-employment income be26 ginning on or after January 1 of the taxable year in which
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1 an election is in effect under section 255, shall, in such

2 form and manner as shall be prescribed in regulations of

3 the Commissioner of Social Security, deposit with the So4 cial Security Administration with respect to a personal in5 vestment plan maintained by such individual the personal

6 investment plan contribution for such taxable year. Such

7 deposit shall be made within 10 business days after the

8 receipt by such individual of such self-employment income.

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

10 CERTAIN CASES.—If, under the terms of a personal in11 vestment plan maintained under subsection (a), contribu12 tions below a specified amount will not be accepted, the

13 requirements of subsection (a) shall be treated as met if

14 amounts otherwise payable under subsection (a) are accu15 mulated by the individual and paid to such plan not later

16 than 10 business days after the first day on which the

17 accumulated amount exceeds such specified amount.

18 ‘‘DESIGNATION OF PLANS OF SURVIVING SPOUSES AND

19 SURVIVING DIVORCED SPOUSES

20 ‘‘SEC. 254. (a) IN GENERAL.—Except as otherwise

21 provided in this section, in the case of a deceased individ22 ual with respect to whom a personal investment plan was

23 established and maintained pursuant to section 252 or

24 253, the trustee of such plan shall transfer the balance

25 in such plan to a personal investment plan maintained by

26 an eligible survivor if such plan is designated by the eligi-
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1 ble survivor to the trustee not later than 20 business days

2 after the date of such individual’s death. Any such des3 ignation shall be made in such form and manner as may

4 be prescribed in regulations of the Commissioner of Social

5 Security.

6 ‘‘(b) EXCEPTION IN CASE OF WRITTEN CONSENT TO

7 TRANSFER TO ANOTHER BENEFICIARY.—In any case in

8 which the eligible survivor of a deceased individual has

9 consented in writing to a transfer by such individual of

10 the balance in such individual’s personal investment plan

11 to another beneficiary, the trustee of such plan shall trans12 fer the balance in such plan to such beneficiary within the

13 period of 20 business days following the date of such indi14 vidual’s death.

15 ‘‘(c) DESIGNATION IN ABSENCE OF TIMELY DES16 IGNATION OR CONSENT BY ELIGIBLE SURVIVOR.—In any

17 case in which, upon the expiration of the 20-day period

18 described in subsection (a), there is an eligible survivor

19 but no timely designation is made by the eligible survivor

20 under subsection (a) and no consent has been made pursu21 ant to subsection (b), the trustee shall make the designa22 tion of the personal investment plan under subsection (a)

23 on behalf of such eligible survivor, in accordance with reg24 ulations of the Commissioner of Social Security.
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1 ‘‘(d) DISPOSITION OF PLAN BALANCE WHERE NO

2 ELIGIBLE SURVIVOR EXISTS.—In any case in which, upon

3 the expiration of the 20-day period described in subsection

4 (a), no timely designation under subsection (c) has been

5 made and there is no eligible survivor, the trustee of the

6 deceased individual’s plan shall transfer the balance in

7 such plan to the estate of the deceased individual.

8 ‘‘(e) PERIOD FOR TRANSFER BY TRUSTEE.—In the

9 case of a transfer by a trustee under subsection (a), (c),

10 or (d), the trustee shall transfer the balance in the per11 sonal investment plan of the deceased individual within the

12 period of 20 business days following the expiration of the

13 20-day period described in such subsection.

14 ‘‘DEFINITIONS

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

16 ‘‘(1) PERSONAL INVESTMENT PLAN.—The term

17 ‘personal investment plan’ means—

18 ‘‘(A) any personal investment retirement

19 plan in the Personal Investment Fund (estab20 lished under section 257) which is administered

21 by the Personal Investment Board, or

22 ‘‘(B) any individual retirement plan (as de23 fined in section 7701(a)(37) of the Internal

24 Revenue Code of 1986) which is administered

25 or issued by a bank or other person referred to

26 in section 408(a)(2) of such Code,
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1 under terms which restrict deposits to personal in2 vestment plan contributions made to the plan pursu3 ant to section 251 or 253 and transfers made to the

4 plan pursuant to section 254, and under which dis5 tributions may only be made on or after the date

on which the individual attains age 591 6 ⁄2, made to

7 a beneficiary (or to the estate of the individual) on

8 or after the death of the individual, or attributable

9 to the individual’s becoming disabled within the

10 meaning of section 223(d).

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

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

13 on whom an excise tax is imposed under section

14 3111 of the Internal Revenue Code of 1986 with re15 spect to having an individual in his employ to whom

16 wages are paid by such person during such calendar

17 year.

18 ‘‘(3) ELIGIBLE EMPLOYEE.—

19 ‘‘(A) IN GENERAL.—The term ‘eligible em20 ployee’ means, in connection with any person

21 who is a covered employer for any calendar year

22 beginning after December 31, 1996, any indi23 vidual—

24 ‘‘(i) with respect to whose employment

25 by such employer during such calendar
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1 year there is imposed an excise tax under

2 section 3111 of the Internal Revenue Code

3 of 1986, and

4 ‘‘(ii) who files with the employer and

5 the Commissioner of Social Security, in

6 such form and manner as shall be pre7 scribed in regulations of the Commissioner,

8 a written and signed declaration of such

9 individual’s intention to be treated as an

10 eligible employee for purposes of this title

11 and such election meets the requirements

12 of subparagraph (B).

13 ‘‘(B) REQUIREMENTS.—Any election under

14 subparagraph (A)(ii) must be so filed not later

15 than December 15 preceding the calendar year

16 in which such election is to take effect, and

17 must designate the personal investment plan to

18 which the personal investment plan contribu19 tions with respect to such individual are to be

20 paid.

21 ‘‘(C) IRREVOCABILITY.—Any election

22 under subparagraph (A)(ii) shall be irrevocable

23 and shall be effective with respect to wages paid

24 on or after January 1 of the calendar year in
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1 which such election is to take effect, for pay pe2 riods ending on or after such date.

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

4 ‘‘(A) IN GENERAL.—The term ‘eligible self5 employed individual’ means any individual—

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

7 for a taxable year beginning after Decem8 ber 31, 1996, there is imposed a tax under

9 section 1401(a) of the Internal Revenue

10 Code of 1986, and

11 ‘‘(ii) who files with the Commissioner

12 of Social Security, in such form and man13 ner as shall be prescribed in regulations of

14 the Commissioner, a written and signed

15 declaration of such individual’s intention to

16 be treated as an eligible self-employed indi17 vidual for purposes of this title and such

18 election meets the requirements of sub19 paragraph (B).

20 ‘‘(B) REQUIREMENTS.—Any election under

21 subparagraph (A)(ii) must be so filed not later

22 than December 15 preceding the taxable year in

23 which such election is to take effect, and must

24 designate the personal investment plan to which
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1 the personal investment plan contributions with

2 respect to such individual are to be paid.

3 ‘‘(C) IRREVOCABILITY.—Any election

4 under subparagraph (A)(ii) shall be irrevocable

5 and shall be effective with respect to self-em6 ployment income beginning on or after the first

7 day of the taxable year in which such election

8 is to take effect, for pay periods ending on or

9 after such date.

10 ‘‘(5) PERSONAL INVESTMENT PLAN CONTRIBU11 TION.—The term ‘personal investment plan con12 tribution’ means—

13 ‘‘(A) with respect to any eligible employee

14 of a covered employer, an amount equal to 2

15 percent of the wages received by such employee

16 with respect to employment by such employer,

17 and

18 ‘‘(B) with respect to the self-employment

19 income of an individual for any taxable year, an

20 amount equal to 2 percent of such income for

21 such taxable year.

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

23 survivor’ of a deceased individual means such indi24 vidual’s widow or, if there is no such widow, such in25 dividual’s last surviving divorced wife or surviving
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1 divorced husband. Such term shall not include any

2 such surviving divorced wife or surviving divorced

3 husband who is married on the date of the deceased

4 individual’s death.

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

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

7 legal holiday in the area involved.

8 ‘‘PENALTIES

9 ‘‘SEC. 256. (a) FAILURE TO ESTABLISH PERSONAL

10 INVESTMENT PAYROLL DEDUCTION PLAN.—Any covered

11 employer who fails to meet the requirements of section

12 251 for any calendar year shall be subject to a civil penalty

13 of not to exceed the greater of—

14 ‘‘(1) $5,000, or

15 ‘‘(2) $100 for each eligible employee of such

16 employer as of the beginning of such calendar year.

17 ‘‘(b) FAILURE TO MAKE DEDUCTIONS REQUIRED

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

19 an amount from the wages of an eligible employee in ac20 cordance with a personal investment payroll deduction

21 plan shall be subject to a civil penalty of not to exceed

22 $500 for each such failure.

23 ‘‘(c) FAILURE BY EMPLOYER TO MAKE TIMELY PAY24 MENTS WITH RESPECT TO PERSONAL INVESTMENT

25 PLAN.—If an amount deducted from the wages of an eligi26 ble employee under a social security payroll deduction plan
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1 is not paid to the Social Security Administration with re2 spect to the specified personal investment plan within the

3 time prescribed by section 251—

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

5 penalty of not to exceed 50 percent of the amount

6 so deducted, and

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

8 on the amount so deducted at the underpayment

9 rate determined under section 6621 of the Internal

10 Revenue Code of 1986 from the last day by which

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

12 on which such amount is paid into the specified per13 sonal investment plan.

14 ‘‘(d) FAILURE BY ELIGIBLE SELF-EMPLOYED INDI15 VIDUAL TO MAKE TIMELY PAYMENTS TO PERSONAL IN16 VESTMENT PLAN.—If a personal investment plan con17 tribution is not paid by an eligible self-employed individual

18 to the Social Security Administration with respect to a

19 personal investment plan maintained by the individual

20 within the time prescribed by section 253, such individual

21 shall be subject to a civil penalty of not to exceed 50 per22 cent of the amount of such contribution.

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

24 TRANSFERS.—If the balance in the personal investment
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1 plan of a deceased individual is not transferred by the

2 trustee within the time prescribed by section 254—

3 ‘‘(1) the trustee shall be subject to a civil pen4 alty of not to exceed 50 percent of the amount of

5 the balance, and

6 ‘‘(2) shall be liable for interest on the balance

7 at the underpayment rate determined under section

8 6621 of the Internal Revenue Code of 1986 from the

9 last day by which such balance was required to be

10 so transferred to the date on which such balance is

11 transferred.

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

13 ‘‘(1) PENALTIES ASSESSED BY COMMIS14 SIONER.—Any civil penalty assessed by this section

15 shall be imposed by the Commissioner of Social Se16 curity and collected in a civil action.

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

18 compromise the amount of any civil penalty imposed

19 by this section.

20 ‘‘(3) AUTHORITY TO WAIVE PENALTY IN CER21 TAIN CASES.—The Commissioner may waive the ap22 plication of this section with respect to any failure

23 if the Commissioner determines that such failure is

24 due to reasonable cause and not to intentional dis25 regard of rules and regulations.
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1 ‘‘PERSONAL INVESTMENT FUND

2 ‘‘SEC. 257. (a) ESTABLISHMENT.—There is hereby

3 established and maintained in the Treasury of the United

4 States a Personal Investment Fund in the same manner

5 as the Thrift Savings Fund under sections 8437, 8438,

6 and 8439 of title 5, United States Code.

7 ‘‘(b) PERSONAL INVESTMENT FUND BOARD.—

8 ‘‘(1) IN GENERAL.—There is established and

9 operated in the Social Security Administration a

10 Personal Investment Fund Board in the same man11 ner as the Federal Retirement Thrift Investment

12 Board under subchapter VII of chapter 84 of title

13 5, United States Code.

14 ‘‘(2) SPECIFIC INVESTMENT DUTIES.—The Per15 sonal Investment Fund shall be managed by the

16 Personal Investment Fund Board in the same man17 ner as the Thrift Savings Fund is managed under

18 subchapter VIII of chapter 84 of title 5, United

19 States Code.’’.

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

21 STATEMENTS.—Subsection (a) of section 6051 of the In22 ternal Revenue Code of 1986 (relating to receipts for em23 ployees), as amended by section 301(c)(3) of the Health

24 Insurance Portability and Accountability Act of 1986, is

25 amended—
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1 (1) by striking ‘‘and’’ at the end of paragraph

2 (10);

3 (2) by striking the period at the end of para4 graph (11) and inserting ‘‘, and’’; and

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

6 paragraph:

7 ‘‘(12) the total amount deducted from the em8 ployee’s wages under a personal investment payroll

9 deduction plan established under part B of title II

10 of the Social Security Act.’’.

11 (c) EXEMPTION FROM ERISA REQUIREMENTS.—

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

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

14 amended—

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

16 (4);

17 (2) by striking the period at the end of para18 graph (5) and inserting ‘‘; or’’; and

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

20 paragraph:

21 ‘‘(6) such plan is a personal investment payroll

22 deduction plan established under part B of title II

23 of the Social Security Act and does not provide for

24 employer contributions.’’.
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1 (d) EFFECTIVE DATE AND NOTICE REQUIRE2 MENTS.—

3 (1) EFFECTIVE DATE.—The amendments made

4 by subsection (a) (and any personal investment pay5 roll deduction plan required thereunder) shall apply

6 with respect to wages paid after December 31, 1996,

7 for pay periods ending after such date and self-em8 ployment income for taxable years beginning after

9 such date.

10 (2) NOTICE REQUIREMENTS.—

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

12 1, 1997, the Commissioner of Social Security

13 shall—

14 (i) send to the last known address of

15 each eligible individual a description of the

16 program established by the amendments

17 made by this section, which shall be writ18 ten in the form of a pamphlet in language

19 which may be readily understood by the

20 average worker,

21 (ii) provide for toll-free access by tele22 phone from all localities in the United

23 States to the Social Security Administra24 tion through which individuals may obtain
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1 information and answers to questions re2 garding such program, and

3 (iii) provide information to the media

4 in all localities of the United States about

5 such program and such toll-free access by

6 telephone.

7 (B) ELIGIBLE INDIVIDUAL.—For purposes

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

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

10 pamphlet sent pursuant to subparagraph (A), is

11 indicated within the records of the Social Secu12 rity Administration as being credited with one

13 or more quarters of coverage under section 213

14 of the Social Security Act.

15 (C) MATTERS TO BE INCLUDED.—The

16 Commissioner shall include with the pamphlet

17 sent to each eligible individual pursuant to sub18 paragraph (A)—

19 (i) a statement of the number of quar20 ters of coverage indicated in the records of

21 the Social Security Administration as of

22 the date of the description as credited to

23 such individual under section 213 of the

24 Social Security Act and the date as of
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1 which such records may be considered ac2 curate, and

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

4 telephone established by the Commissioner

5 pursuant to subparagraph (A).

6 SEC. 4. ADJUSTMENTS TO PRIMARY INSURANCE AMOUNTS

7 UNDER PART A OF TITLE II OF THE SOCIAL

8 SECURITY ACT.

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

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

11 following new subsection:

12 ‘‘Adjustment of Primary Insurance Amount of Eligible

13 Employees and Eligible Self-Employed Individuals

14 Under Part B

15 ‘‘(j)(1) Except as provided in paragraph (2), in the

16 case of an individual who is—

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

18 paragraph (3) of section 255, or

19 ‘‘(B) an eligible self-employed individual, as de20 fined under paragraph (4) of section 255,

21 such individual’s primary insurance amount shall be deter22 mined under subsection (a)(1)(A) (before subsequent ad23 justments made under subsection (i)), by substituting the

24 first, second, and third primary insurance amount factors

25 determined in the following table for the primary insur-
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1 ance amount factors ‘90’, ‘32’, and ‘15’ in clauses (i), (ii),

2 and (iii), respectively:

‘‘If individual’s age in 1996 is:

The PIA factors for such individual are:

First: Second: Third:

25 and under .................................. 90 14 2

26 to 35 .......................................... 90 21 8

35 to 45 .......................................... 90 26 12

45 and over ..................................... 90 29 14.’’

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

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

5 an eligible self-employed individual as defined in para6 graph (4) of section 255 becomes entitled to disability in7 surance benefits under section 223, such individual’s pri8 mary insurance amount shall be determined without re9 gard to paragraph (1).

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

11 described in subparagraph (A) of retirement age (as de12 fined in section 216(l)(1)), such individual’s primary in13 surance amount as determined in accordance with this sec14 tion (before subsequent adjustments made under sub15 section (i)) shall be determined under paragraph (1).’’.

16 (b) CONFORMING AMENDMENT TO RAILROAD RE17 TIREMENT ACT OF 1974.—Section 1 of the Railroad Re18 tirement Act of 1974 (45 U.S.C. 231) is amended by add19 ing at the end the following:
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1 ‘‘(s) In applying applicable provisions of the Social

2 Security Act for purposes of determining the amount of

3 the annuity to which an individual is entitled under this

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

5 individual’ as defined in section 253(4) of the Social Secu6 rity Act.’’.

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

8 this section shall apply with respect to months after De9 cember 1996.

Æ