II

106TH CONGRESS

1ST SESSION S. 487

To amend the Internal Revenue Code of 1986 to provide additional retirement

savings opportunities for small employers, including self-employed individuals.

IN THE SENATE OF THE UNITED STATES

FEBRUARY 25, 1999

Mr. GRAMS (for himself and Mr. ASHCROFT) 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 to provide

additional retirement savings opportunities for small employers, including self-employed individuals.

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; REFERENCE.

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

5 ‘‘Small Employer Nest Egg Act’’.

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment

9 to, or repeal of, a section or other provision, the reference
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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986.

3 SEC. 2. QUALIFIED SMALL EMPLOYER PLAN.

4 (a) IN GENERAL.—Section 401 is amended by redes5 ignating subsection (o) as subsection (p) and by inserting

6 after subsection (n) the following new subsection:

7 ‘‘(o) QUALIFIED SMALL EMPLOYER PLAN.—

8 ‘‘(1) IN GENERAL.—A trust created or orga9 nized in the United States and forming part of a

10 small employer plan of a small employer for the ex11 clusive benefit of its employees or their beneficiaries

12 constitutes a qualified trust under subsection (a) if

13 such plan meets the requirements of paragraph (2).

14 ‘‘(2) REQUIREMENTS.—A plan meets the re15 quirements of this paragraph if—

16 ‘‘(A) such plan is the only qualified retire17 ment plan of a small employer,

18 ‘‘(B) the plan year for such plan is the cal19 endar year,

20 ‘‘(C) as of the 1st day of the plan year,

21 such plan covers all eligible employees of the

22 employer,

23 ‘‘(D) such plan meets the contribution re24 quirements of paragraph (4),
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1 ‘‘(E) such plan meets the vesting require2 ments of paragraph (5),

3 ‘‘(F) such plan meets the funding require4 ments of section 412, if applicable, and

5 ‘‘(G) such plan meets the other require6 ments specified in paragraph (6).

7 ‘‘(3) ELIGIBLE EMPLOYEE.—For purposes of

8 paragraph (2)(C), the term ‘eligible employee’ means

9 an individual who—

10 ‘‘(A) has attained age 21, and

11 ‘‘(B) has completed not less than 1,000

12 hours of service for the employer during the cal13 endar year preceding the plan year.

14 ‘‘(4) CONTRIBUTIONS.—A plan meets the re15 quirements of this paragraph and subsection (l)(2)

16 (relating to permitted disparity) if—

17 ‘‘(A) employer contributions to the plan—

18 ‘‘(i) are not less than 3 percent, and

19 do not in exceed 10 percent, of compensa20 tion of all participants in the plan, and

21 ‘‘(ii) are allocated to all participants

22 in the plan on a uniform basis, and

23 ‘‘(B) in the case of discretionary employer

24 contributions—
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1 ‘‘(i) such contributions made to the

2 plan do not exceed 15 percent of com3 pensation and are allocated to all

4 participants—

5 ‘‘(I) as a level percentage of com6 pensation, or

7 ‘‘(II) under a formula that meets

8 the requirements of subsection (l), or

9 ‘‘(ii) are made to the same plan to an

10 arrangement meeting the requirements of

11 subsection (k), in which case the minimum

12 3 percent contribution referred to in sub13 paragraph (A)(i) shall be applied against

14 the matching contributions of subsection

15 (k)(12).

16 ‘‘(5) VESTING.—

17 ‘‘(A) IN GENERAL.—A plan satisfies the

18 requirements of this paragraph if it satisfies the

19 requirements of either of the following clauses:

20 ‘‘(i) 3-YEAR VESTING.—A plan satis21 fies the requirements of this clause if an

22 employee who has completed at least 3

23 years of service with the employer or em24 ployers maintaining the plan has a non25 forfeitable right to 100 percent of his ac-
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1 crued benefit derived from employer con2 tributions.

3 ‘‘(ii) 6-YEAR GRADED VESTING.—A

4 plan satisfies the requirements of this

5 clause if an employee has a nonforfeitable

6 right to a percentage of his accrued benefit

7 derived from employer contributions deter8 mined under the following table:

The nonforfeitable

Years of service percentage is:

2 ............................................................................ 20

3 ............................................................................ 40

4 ............................................................................ 60

5 ............................................................................ 80

6 or more .............................................................. 100.

9 ‘‘(B) CERTAIN RULES MADE APPLICA10 BLE.—Except to the extent inconsistent with

11 the provisions of this paragraph, the rules of

12 section 411 shall apply for purposes of this sub13 section.

14 ‘‘(C) YEAR OF SERVICE.—For purposes of

15 subparagraph (A), years of service shall be de16 termined under the last sentence of section

17 410(a)(3)(A).

18 ‘‘(6) OTHER REQUIREMENTS.—

19 ‘‘(A) ARRANGEMENT MAY BE ONLY PLAN

20 OF EMPLOYER.—

21 ‘‘(i) IN GENERAL.—An arrangement

22 shall not be treated as a qualified small
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1 employer plan for any year if the employer

2 (or any predecessor employer) maintained

3 a qualified plan with respect to which con4 tributions were made, or benefits were ac5 crued, for service in any year in the period

6 beginning with the year such arrangement

7 became effective and ending with the year

8 for which the determination is being made.

9 If only individuals other than employees

10 described in subparagraph (A) or (B) of

11 section 410(b)(3) are eligible to participate

12 in such arrangement, then the preceding

13 sentence shall be applied without regard to

14 any qualified plan in which only employees

15 so described are eligible to participate.

16 ‘‘(ii) QUALIFIED PLAN.—For purposes

17 of this subparagraph, the term ‘qualified

18 plan’ means a plan, contract, pension, or

19 trust described in subparagraph (A) or (B)

20 of section 219(g)(5).

21 ‘‘(iii) GRACE PERIOD.—In the case of

22 an employer who establishes and maintains

23 a plan under this subsection for 1 or more

24 years and who fails to meet any require25 ment of this subsection for any subsequent
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1 year due to any acquisition, disposition, or

2 similar transaction involving another such

3 employer, rules similar to the rules of sec4 tion 410(b)(6)(C) shall apply for purposes

5 of this subsection.

6 ‘‘(iv) RULE OF CONSTRUCTION.—

7 Clauses (i), (ii), and (iii) shall not be con8 strued to prevent a rollover contribution

9 that meets the requirements of section

10 402(c) or to prevent the adoption of the

11 qualified small employer plan as a succes12 sor plan.

13 ‘‘(B) PLAN MAY NOT BE ESOP.—A small

14 employer plan does not meet the requirements

15 of paragraph (1) if such plan is—

16 ‘‘(i) a tax credit employee stock own17 ership plan (as defined in section 409(a)),

18 or

19 ‘‘(ii) an employee stock ownership

20 plan (as defined in section 4975(e)(7)).

21 ‘‘(C) OTHER APPLICABLE PROVISIONS.—A

22 plan shall not be treated as a qualified small

23 employer plan unless the plan meets the re24 quirements of the following:
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1 ‘‘(i) paragraphs (1), (2), (9), (11),

2 (12), (13), (14), (15), (16), (17), (19),

3 (20), (22), (23), (27), (30), and (31) of

4 subsection (a), and

5 ‘‘(ii) subsections (b), (c), and (d).

6 ‘‘(7) COMPENSATION DEFINED.—For purposes

7 of this subsection, the term ‘compensation’ has the

8 meaning given such term by section

9 404(a)(3)(A)(v).’’.

10 (b) DEFINITION OF SMALL EMPLOYER.—

11 (1) IN GENERAL.—Section 414 (relating to

12 definitions and special rules) is amended by adding

13 at the end the following new subsection:

14 ‘‘(v) SMALL EMPLOYER.—For purposes of this part,

15 the term ‘small employer’ means an employer (including

16 a professional service organization) that, on the 1st day

17 of the plan year, has 100 or fewer employees.’’.

18 (2) CONFORMING AMENDMENTS.—

19 (A) Subsections (b) and (c) of section 414

20 are each amended by inserting ‘‘subsection (v)

21 and’’ after ‘‘For purposes of’’.

22 (B) Paragraph (3) of section 414(n) is

23 amended by striking ‘‘and’’ at the end of sub24 paragraph (B), by striking the period at the

25 end of subparagraph (C) and inserting ‘‘, and’’,
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1 and by adding at the end the following new sub2 paragraph:

3 ‘‘(D) subsection (v).’’.

4 (c) DEDUCTION FOR CONTRIBUTIONS OF EM5 PLOYER.—Clause (i) of section 404(a)(3)(A) is amended

6 by striking ‘‘or’’ at the end of subclause (I), by striking

7 the period at the end of subclause (II) and inserting ‘‘,

8 or’’, and by adding at the end the following new subclause:

9 ‘‘(III) the amount such employer is al10 lowed to contribute to such trust under

11 section 401(o) for such year, but not more

12 than 25 percent of aggregate compensa13 tion.’’.

14 (d) SINGLE ANNUAL ENTRY DATE.—

15 (1) DEFINITION OF YEAR OF SERVICE.—Sub16 paragraph (A) of section 410(a)(3) of such Code (re17 lating to general rule for definition of year of serv18 ice) is amended by adding at the end the following:

19 ‘‘In the case of service for an employer who has in

20 effect a qualified small employer plan under section

21 401(o), computation of any 12-month period shall be

22 made with reference to the first day of the calendar

23 year in which employment of the employee com24 menced.’’.
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1 (2) TIME OF PARTICIPATION.—Paragraph (4)

2 of section 410(a) (relating to time of participation)

3 is amended by adding at the end the following: ‘‘In

4 the case of a qualified small employer plan under

5 section 401(o), the preceding sentence shall be ap6 plied without regard to subparagraph (B).’’.

7 (e) REPEAL OF TOP-HEAVY PROVISIONS.—

8 (1) IN GENERAL.—Section 416 is repealed, and

9 the table of sections for subpart B of part 1 of sub10 chapter D of chapter 1 is amended by striking the

11 item relating to section 416.

12 (2) CONFORMING AMENDMENTS.—

13 (A) Section 414 is amended by adding at

14 the end the following:

15 ‘‘(w) KEY EMPLOYEE.—

16 ‘‘(1) IN GENERAL.—The term ‘key employee’

17 means an employee who, at any time during the plan

18 year or any of the 4 preceding plan years, is—

19 ‘‘(A) an officer of the employer having an

20 annual compensation greater than 50 percent of

21 the amount in effect under section 415(b)(1)(A)

22 for any such plan year,

23 ‘‘(B) 1 of the 10 employees having annual

24 compensation from the employer of more than

25 the limitation in effect under section
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1 415(c)(1)(A) and owning (or considered as own2 ing within the meaning of section 318) the larg3 est interests in the employer,

4 ‘‘(C) a 5-percent owner of the employer, or

5 ‘‘(D) a 1-percent owner of the employer

6 having an annual compensation from the em7 ployer of more than $150,000.

8 For purposes of subparagraph (A), no more than 50

9 employees (or, if lesser, the greater of 3 or 10 per10 cent of the employees) shall be treated as officers.

11 For purposes of subparagraph (B), if 2 employees

12 have the same interest in the employer, the employee

13 having greater annual compensation from the em14 ployer shall be treated as having a larger interest.

15 Such term shall not include any officer or employee

16 of an entity referred to in section 414(d) (relating

17 to governmental plans). For purposes of determining

18 the number of officers taken into account under sub19 paragraph (A), employees described in section

20 414(q)(5) shall be excluded.

21 ‘‘(2) PERCENTAGE OWNERS.—

22 ‘‘(A) 5-PERCENT OWNER.—For purposes of

23 this subsection, the term ‘5-percent owner’

24 means—
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1 ‘‘(i) if the employer is a corporation,

2 any person who owns (or is considered as

3 owning within the meaning of section 318)

4 more than 5 percent of the outstanding

5 stock of the corporation or stock possess6 ing more than 5 percent of the total com7 bined voting power of all stock of the cor8 poration, or

9 ‘‘(ii) if the employer is not a corpora10 tion, any person who owns more than 5

11 percent of the capital or profits interest in

12 the employer.

13 ‘‘(B) 1-PERCENT OWNER.—For purposes

14 of this paragraph, the term ‘1-percent owner’

15 means any person who would be described in

16 subparagraph (A) if ‘1 percent’ were sub17 stituted for ‘5 percent’ each place it appears in

18 subparagraph (A).

19 ‘‘(C) CONSTRUCTIVE OWNERSHIP

20 RULES.—For purposes of this paragraph and

21 paragraph (1)(B)—

22 ‘‘(i) subparagraph (C) of section

23 318(a)(2) shall be applied by substituting

24 ‘5 percent’ for ‘50 percent’, and
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1 ‘‘(ii) in the case of any employer

2 which is not a corporation, ownership in

3 such employer shall be determined in ac4 cordance with regulations prescribed by the

5 Secretary which shall be based on prin6 ciples similar to the principles of section

7 318 (as modified by subclause (I)).

8 ‘‘(3) AGGREGATION RULES DO NOT APPLY FOR

9 PURPOSES OF DETERMINING OWNERSHIP IN THE

10 EMPLOYER.—The rules of subsections (b), (c), and

11 (m) of section 414 shall not apply for purposes of

12 determining ownership in the employer.

13 ‘‘(4) COMPENSATION.—For purposes of this

14 paragraph, the term ‘compensation’ has the meaning

15 given such term by section 414(q)(4).’’.

16 (B) Subparagraph (B) of section 45A(c)(5)

17 is amended by striking ‘‘section 416(i)(1)(B)’’

18 and inserting ‘‘section 414(w)(2)’’.

19 (C) Section 72 is amended—

20 (i) in subsection (m)(5)(C) by striking

21 ‘‘section 416(i)(1)(B)’’ and inserting ‘‘sec22 tion 414(w)(2)’’, and

23 (ii) in subsection (p)(3)(B)(i) by strik24 ing ‘‘section 416(i)’’ and inserting ‘‘section

25 414(w)’’.
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1 (D) Paragraph (6) of section 79(d) is

2 amended by striking ‘‘section 416(i)’’ and in3 serting ‘‘section 414(w)’’.

4 (E) Paragraph (2) of section 125(b) is

5 amended by striking ‘‘section 416(i)(1)’’ and in6 serting ‘‘section 414(w)’’.

7 (F) Clause (i) of section 280F(6)(D) is

8 amended by striking ‘‘section 416(i)(1)(B)(i)’’

9 and inserting ‘‘section 414(w)(2)(A)’’.

10 (G) Section 401 is amended—

11 (i) in subclause (I) of subsection

12 (a)(9)(C)(ii) by striking ‘‘section 416’’ and

13 inserting ‘‘section 414(w)’’.

14 (ii) in subsection (a)(10) by striking

15 subparagraph (B),

16 (iii) in subsection (h) by striking ‘‘sec17 tion 416(i)’’ and inserting ‘‘section

18 414(w)’’, and

19 (iv) by amending subparagraph (D) of

20 subsection (k)(11) to read as follows:

21 ‘‘(D) DEFINITIONS.—For purposes of this

22 paragraph, any term used in this paragraph

23 which is also used in section 408(p) shall have

24 the meaning given such term by such section.’’.
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1 (H) Paragraph (1) of section 408(k) is

2 amended by striking ‘‘annuity—’’ and all that

3 follows and inserting ‘‘annuity with respect to

4 which the requirements of paragraphs (2), (3),

5 (4), and (5) of this subsection are met.’’.

6 (I) Section 414 is amended—

7 (i) in subsections (b), (c), (m)(4), and

8 (n)(3)(B) by striking ‘‘415, and 416,’’

9 each place it appears and inserting ‘‘and

10 415’’,

11 (ii) in subsection (o) by striking

12 ‘‘which has no top-heavy plans (within the

13 meaning of section 416(g)) and’’,

14 (iii) in subsection (q)(2) by striking

15 ‘‘section 416(i)(1)’’ and inserting ‘‘section

16 414(w)’’, and

17 (iv) in subsection (u)(1)(C) by strik18 ing ‘‘410(b), or 416’’ and inserting ‘‘or

19 410(b)’’.

20 (J) Clause (ii) of section 415(k)(2)(F) is

21 amended to read as follows:

22 ‘‘(ii) KEY EMPLOYEE.—For purposes

23 of this subparagraph, the term ‘key em24 ployee’ has the meaning given such term

25 by section 414(w), except that such term
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1 shall not include an individual who is a key

2 employee solely by reason of section

3 414(w)(1)(A).’’.

4 (K) Paragraph (3) of section 419A(d) is

5 amended by striking ‘‘section 416(i)’’ and in6 serting ‘‘section 414(w)’’.

7 (L) Subparagraph (D) of section 420(e)(1)

8 is amended by striking ‘‘section 416(i)(1)’’ and

9 inserting ‘‘section 414(w)’’.

10 (M) Clause (ii) of section 469(c)(7)(D) is

11 amended by striking ‘‘section 416(i)(1)(B)’’ and

12 inserting ‘‘section 414(w)(2)’’.

13 (N) Subparagraph (B) of section

14 1396(d)(2) is amended by striking ‘‘section

15 416(i)(1)(B)’’ and inserting ‘‘section

16 414(w)(2)’’.

17 (f) COMPENSATION.—Subparagraph (A) of section

18 404(a)(3) (relating to stock bonus and profit-sharing

19 trusts) is amended by redesignating clause (v) as clause

20 (vi) and by inserting after clause (iv) the following new

21 clause:

22 ‘‘(v) COMPENSATION DEFINED.—For

23 purposes of this paragraph, the term ‘com24 pensation’ means a participant’s com-
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1 pensation (as defined by section

2 415(c)(3))’’.

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

4 this section shall apply to years beginning after December

5 31, 1998.

6 SEC. 3. CREDIT FOR EMPLOYER EXPENSES IN ESTABLISH7 ING QUALIFIED SMALL EMPLOYER RETIRE8 MENT PLANS.

9 (a) GENERAL RULE.—Subpart D of part IV of sub10 chapter A of chapter 1 is amended by adding at the end

11 the following new section:

12 ‘‘SEC. 45D. EXPENSES IN ESTABLISHING QUALIFIED SMALL

13 EMPLOYER RETIREMENT PLANS.

14 ‘‘(a) GENERAL RULE.—For purposes of section 38,

15 the qualified small employer retirement plan credit deter16 mined under this section for the taxable year is an amount

17 equal to 50 percent of the qualified retirement plan ex18 penses paid or incurred in the taxable year by an eligible

19 small employer.

20 ‘‘(b) LIMITATION.—The credit allowed under sub21 section (a) shall not exceed—

22 ‘‘(1) $2,000 for the taxable year in which the

23 qualified small employer retirement plan is adopted,

24 and
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1 ‘‘(2) $1,000 for each of the 4 years following

2 the year in which such plan was adopted and zero

3 thereafter.

4 ‘‘(c) DEFINITIONS.—For purposes of subsection

5 (a)—

6 ‘‘(1) QUALIFIED RETIREMENT PLAN EX7 PENSE.—The term ‘qualified retirement plan ex8 pense’ means an expense—

9 ‘‘(A) for establishing, maintaining, and ad10 ministering a qualified small employer retire11 ment plan, and

12 ‘‘(B) for educating employees with respect

13 to such plan.

14 ‘‘(2) ELIGIBLE SMALL EMPLOYER.—The term

15 ‘eligible small employer’ means a small employer (as

16 defined in section 414(v)) who has in effect a quali17 fied small employer retirement plan on or before De18 cember 31, 2000.

19 ‘‘(3) QUALIFIED SMALL EMPLOYER RETIRE20 MENT PLAN.—The term ‘qualified small employer

21 retirement plan’ means a small employer plan estab22 lished under section 401(o).’’.

23 (b) CREDIT MADE PART OF GENERAL BUSINESS

24 CREDIT.—Subsection (b) of section 38 is amended by

25 striking ‘‘plus’’ at the end of paragraph (11), by striking
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1 the period at the end of paragraph (12) and inserting ‘‘,

2 plus’’, and by adding at the end thereof the following new

3 paragraph:

4 ‘‘(13) the qualified small employer retirement

5 plan credit determined under section 45D(a).’’.

6 (c) CREDIT ALLOWED AGAINST REGULAR AND MINI7 MUM TAX.—

8 (1) IN GENERAL.—Subsection (c) of section 38

9 (relating to limitation based on amount of tax) is

10 amended by redesignating paragraph (3) as para11 graph (4) and by inserting after paragraph (2) the

12 following new paragraph:

13 ‘‘(3) SPECIAL RULES FOR QUALIFIED SMALL

14 EMPLOYER RETIREMENT PLAN CREDIT.—

15 ‘‘(A) IN GENERAL.—In the case of the

16 qualified small employer retirement plan

17 credit—

18 ‘‘(i) this section and section 39 shall

19 be applied separately with respect to the

20 credit, and

21 ‘‘(ii) in applying paragraph (1) to the

22 credit—

23 ‘‘(I) subparagraph (A) thereof

24 shall not apply, and
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1 ‘‘(II) the limitation under para2 graph (1) (as modified by subclause

3 (I)) shall be reduced by the credit al4 lowed under subsection (a) for the

5 taxable year (other than the qualified

6 small employer retirement plan cred7 it).

8 ‘‘(B) QUALIFIED SMALL EMPLOYER RE9 TIREMENT PLAN CREDIT.—For purposes of this

10 subsection, the term ‘qualified small employer

11 retirement plan credit’ means the credit allow12 able under subsection (a) by reason of section

13 45D(a).’’.

14 (2) CONFORMING AMENDMENT.—Subclause (II)

15 of section 38(c)(2)(A)(ii) is amended by inserting

16 ‘‘or the qualified small employer retirement plan

17 credit’’ after ‘‘employment credit’’.

18 (d) LIMITATION ON CARRYBACK.—Subsection (d) of

19 section 39 is amended by adding at the end thereof the

20 following new paragraph:

21 ‘‘(7) NO CARRYBACK OF QUALIFIED SMALL EM22 PLOYER RETIREMENT PLAN CREDIT BEFORE EFFEC23 TIVE DATE.—No portion of the unused business

24 credit for any taxable year which is attributable to

25 the credit determined under section 45D may be
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1 carried back to any taxable year ending before the

2 date of the enactment of section 45D.’’.

3 (e) DEDUCTION FOR CERTAIN UNUSED BUSINESS

4 CREDITS.—Subsection (c) of section 196 is amended by

5 striking ‘‘and’’ at the end of paragraph (6), by striking

6 the period at the end of paragraph (7) and inserting ‘‘,

7 and’’, and by adding after paragraph (7) the following new

8 paragraph:

9 ‘‘(8) the qualified small employer retirement

10 plan credit determined under section 45D.’’.

11 (f) DENIAL OF DOUBLE BENEFIT.—Section 280C is

12 amended by adding at the end thereof the following new

13 subsection:

14 ‘‘(d) CREDIT FOR QUALIFIED SMALL EMPLOYER RE15 TIREMENT PLAN EXPENSES.—No deduction shall be al16 lowed for that portion of the expenses referred to in sec17 tion 45D(c)(1) otherwise allowable as a deduction for the

18 taxable year which is equal to the amount of the credit

19 determined for such taxable year under section 45D(a).’’.

20 (g) CLERICAL AMENDMENT.—The table of sections

21 for subpart D of part IV of subchapter A of chapter 1

22 is amended by adding at the end the following new item:

‘‘Sec. 45D. Expenses in establishing qualified small employer retirement plans.’’.
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1 (h) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 the date of the enactment of this Act.

4 SEC. 4. IMPLEMENTATION.

5 (a) MODEL PLAN.—Not later than 6 months after

6 the date of the enactment of this Act, the Secretary of

7 the Treasury shall issue a model small employer retire8 ment plan that meets the requirements of section 401(o)

9 of the Internal Revenue Code of 1986.

10 (b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR

11 OWNERS AND THEIR SPOUSES.—

12 (1) IN GENERAL.—The Secretary of the Treas13 ury shall modify the requirements for filing annual

14 returns with respect to one-participant retirement

15 plans to ensure that such plans with assets of

16 $500,000 or less as of the close of the plan year

17 need not file a return for that year.

18 (2) ONE-PARTICIPANT RETIREMENT PLAN DE19 FINED.—For purposes of this subsection, the term

20 ‘‘one-participant retirement plan’’ means a retire21 ment plan that—

22 (A) on the first day of the plan year—

23 (i) covered only the employer (and the

24 employer’s spouse) and the employer
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1 owned the entire business (whether or not

2 incorporated), or

3 (ii) covered only one or more partners

4 (and their spouses) in a business partner5 ship,

6 (B) meets the minimum coverage require7 ments of section 410(b) of the Internal Revenue

8 Code of 1986 without being combined with any

9 other plan of the business that covers the em10 ployees of the business,

11 (C) does not provide benefits to anyone ex12 cept the employer (and the employer’s spouse)

13 or the partners (and their spouses),

14 (D) does not cover a business that is a

15 member of an affiliated service group, a con16 trolled group of corporations, or a group of

17 businesses under common control, and

18 (E) does not cover a business that leases

19 employees.

20 (3) OTHER DEFINITIONS.—Terms used in para21 graph (2) which are also used in section 414 of the

22 Internal Revenue Code of 1986 shall have the re23 spective meanings given such terms by such section.

24 (c) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR

25 PLANS WITH FEWER THAN 25 EMPLOYEES.—In the case
24

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1 of a retirement plan which covers less than 25 employees

2 on the 1st day of the plan year and meets the require3 ments described in subparagraphs (B), (D), and (E) of

4 subsection (b)(2), the Secretary of the Treasury shall pro5 vide for the filing of a simplified annual return that is

6 substantially similar to the annual return required to be

7 filed by a one-participant retirement plan.

Æ