II

104TH CONGRESS

1ST SESSION S. 824

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

MAY 18 (legislative day, MAY 15), 1995

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 1995’’.
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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, 1995.

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

10 years beginning after December 31, 1995.

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 provided in

21 subsection (b), in the case of a deceased individual with

22 respect to whom a personal investment plan was estab23 lished and maintained pursuant to section 252 or 253, the

24 trustee of such plan shall transfer the balance in such plan

25 to a personal investment plan maintained by an eligible

26 survivor if such plan is designated by the eligible survivor
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1 to the trustee not later than 20 business days after the

2 date of such individual’s death. Any such designation shall

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

4 in regulations of the Commissioner of Social Security.

5 ‘‘(b) DESIGNATION IN ABSENCE OF TIMELY DES6 IGNATION BY ELIGIBLE SURVIVOR.—In any case in which,

7 upon the expiration of such 20-day period, there is an eli8 gible survivor but no timely designation of a personal in9 vestment plan is made by the eligible survivor under sub10 section (a), the trustee shall make the designation of the

11 personal investment plan under subsection (a) on behalf

12 of such eligible survivor, in accordance with regulations

13 of the Commissioner of Social Security.

14 ‘‘(c) DISPOSITION OF PLAN BALANCE WHERE NO

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

16 the expiration of such 20-day period no timely designation

17 under subsection (b) has been made and there is no eligi18 ble survivor, the trustee of the deceased individual’s plan

19 shall transfer the balance in such plan to the Federal Old20 Age and Survivors Insurance Trust Fund within the pe21 riod of 20 business days following the expiration of such

22 20-day period.

23 ‘‘DEFINITIONS

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

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

26 ‘personal investment plan’ means—
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1 ‘‘(A) any personal investment retirement

2 plan in the Personal Investment Fund (estab3 lished under section 257) which is administered

4 by the Personal Investment Board, or

5 ‘‘(B) any individual retirement plan (as de6 fined in section 7701(a)(37) of the Internal

7 Revenue Code of 1986) which is administered

8 or issued by a bank (as defined in section

9 408(n) of such Code),

10 under terms which restrict deposits to personal in11 vestment plan contributions made to the plan pursu12 ant to section 251 or 253 and transfers made to the

13 plan pursuant to section 254, and under which dis14 tributions may only be made on or after the date on

which the individual attains age 591 15 ⁄2, made to a

16 beneficiary (or to the estate of the individual) on or

17 after the death of the individual, or attributable to

18 the individual’s becoming disabled within the mean19 ing of section 223(d).

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

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

22 on whom an excise tax is imposed under section

23 3111 of the Internal Revenue Code of 1986 with re24 spect to having an individual in his employ to whom
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1 wages are paid by such person during such calendar

2 year.

3 ‘‘(3) ELIGIBLE EMPLOYEE.—

4 ‘‘(A) IN GENERAL.—The term ‘eligible em5 ployee’ means, in connection with any person

6 who is a covered employer for any calendar year

7 beginning after December 31, 1995, any indi8 vidual—

9 ‘‘(i) with respect to whose employment

10 by such employer during such calendar

11 year there is imposed an excise tax under

12 section 3111 of the Internal Revenue Code

13 of 1986, and

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

15 the Commissioner of Social Security, in

16 such form and manner as shall be pre17 scribed in regulations of the Commissioner,

18 a written and signed declaration of such

19 individual’s intention to be treated as an

20 eligible employee for purposes of this title

21 and such election meets the requirements

22 of subparagraph (B).

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

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

25 than December 15 preceding the calendar year
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1 in which such election is to take effect, and

2 must designate the personal investment plan to

3 which the personal investment plan contribu4 tions with respect to such individual are to be

5 paid.

6 ‘‘(C) IRREVOCABILITY.—Any election

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

8 and shall be effective with respect to wages paid

9 on or after January 1 of the calendar year in

10 which such election is to take effect, for pay pe11 riods ending on or after such date.

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

13 ‘‘(A) IN GENERAL.—The term ‘eligible self14 employed individual’ means any individual—

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

16 for a taxable year beginning after Decem17 ber 31, 1995, there is imposed a tax under

18 section 1401(a) of the Internal Revenue

19 Code of 1986, and

20 ‘‘(ii) who files with the Commissioner

21 of Social Security, in such form and man22 ner as shall be prescribed in regulations of

23 the Commissioner, a written and signed

24 declaration of such individual’s intention to

25 be treated as an eligible self-employed indi-
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1 vidual for purposes of this title and such

2 election meets the requirements of sub3 paragraph (B).

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

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

6 than December 15 preceding the taxable year in

7 which such election is to take effect, and must

8 designate the personal investment plan to which

9 the personal investment plan contributions with

10 respect to such individual are to be paid.

11 ‘‘(C) IRREVOCABILITY.—Any election

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

13 and shall be effective with respect to self-em14 ployment income beginning on or after the first

15 day of the taxable year in which such election

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

17 after such date.

18 ‘‘(5) PERSONAL INVESTMENT PLAN CONTRIBU19 TION.—The term ‘personal investment plan con20 tribution’ means—

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

22 of a covered employer, an amount equal to 2

23 percent of the wages received by such employee

24 with respect to employment by such employer,

25 and
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1 ‘‘(B) with respect to the self-employment

2 income of an individual for any taxable year, an

3 amount equal to 2 percent of such income for

4 such taxable year.

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

6 survivor’ of a deceased individual means such indi7 vidual’s widow or, if there is no such widow, such in8 dividual’s last surviving divorced wife or surviving

9 divorced husband. Such term shall not include any

10 such surviving divorced wife or surviving divorced

11 husband who is married on the date of the deceased

12 individual’s death.

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

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

15 legal holiday in the area involved.

16 ‘‘PENALTIES

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

18 INVESTMENT PAYROLL DEDUCTION PLAN.—Any covered

19 employer who fails to meet the requirements of section

20 251 for any calendar year shall be subject to a civil penalty

21 of not to exceed the greater of—

22 ‘‘(1) $5,000, or

23 ‘‘(2) $100 for each eligible employee of such

24 employer as of the beginning of such calendar year.

25 ‘‘(b) FAILURE TO MAKE DEDUCTIONS REQUIRED

26 UNDER PLAN.—Any covered employer who fails to deduct
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1 an amount from the wages of an eligible employee in ac2 cordance with a personal investment payroll deduction

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

4 $500 for each such failure.

5 ‘‘(c) FAILURE BY EMPLOYER TO MAKE TIMELY PAY6 MENTS WITH RESPECT TO PERSONAL INVESTMENT

7 PLAN.—If an amount deducted from the wages of an eligi8 ble employee under a social security payroll deduction plan

9 is not paid to the Social Security Administration with re10 spect to the specified personal investment plan within the

11 time prescribed by section 251—

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

13 penalty of not to exceed 50 percent of the amount

14 so deducted, and

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

16 on the amount so deducted at the underpayment

17 rate determined under section 6621 of the Internal

18 Revenue Code of 1986 from the last day by which

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

20 on which such amount is paid into the specified per21 sonal investment plan.

22 ‘‘(d) FAILURE BY ELIGIBLE SELF-EMPLOYED INDI23 VIDUAL TO MAKE TIMELY PAYMENTS TO PERSONAL IN24 VESTMENT PLAN.—If a personal investment plan con25 tribution is not paid by an eligible self-employed individual
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1 to the Social Security Administration with respect to a

2 personal investment plan maintained by the individual

3 within the time prescribed by section 253, such individual

4 shall be subject to a civil penalty of not to exceed 50 per5 cent of the amount of such contribution.

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

7 TRANSFERS.—If the balance in the personal investment

8 plan of a deceased individual is not transferred by the

9 trustee within the time prescribed by section 254—

10 ‘‘(1) the trustee shall be subject to a civil pen11 alty of not to exceed 50 percent of the amount of

12 the balance, and

13 ‘‘(2) shall be liable—

14 ‘‘(A) in the case of a transfer required to

15 be made to another personal investment plan,

16 to the widow or the surviving divorced wife or

17 surviving divorced husband (as the case may

18 be), or

19 ‘‘(B) in the case of a transfer required to

20 be made to the Federal Old-Age and Survivors

21 Insurance Trust Fund, to such Trust Fund,

22 for interest on the balance at the underpayment rate

23 determined under section 6621 of the Internal Reve24 nue Code of 1986 from the last day by which such

25 balance was required to be so transferred to the date
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1 on which such balance is transferred to the des2 ignated personal investment plan.

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

4 ‘‘(1) PENALTIES ASSESSED BY COMMIS5 SIONER.—Any civil penalty assessed by this section

6 shall be imposed by the Commissioner of Social Se7 curity and collected in a civil action.

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

9 compromise the amount of any civil penalty imposed

10 by this section.

11 ‘‘(3) AUTHORITY TO WAIVE PENALTY IN CER12 TAIN CASES.—The Commissioner may waive the ap13 plication of this section with respect to any failure

14 if the Commissioner determines that such failure is

15 due to reasonable cause and not to intentional dis16 regard of rules and regulations.

17 ‘‘PERSONAL INVESTMENT FUND

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

19 established and maintained in the Treasury of the United

20 States a Personal Investment Fund in the same manner

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

22 and 8439 of title 5, United States Code.

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

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

25 operated in the Social Security Administration a

26 Personal Investment Fund Board in the same man-
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1 ner as the Federal Retirement Thrift Investment

2 Board under subchapter VII of chapter 84 of title

3 5, United States Code.

4 ‘‘(2) SPECIFIC INVESTMENT DUTIES.—The Per5 sonal Investment Fund shall be managed by the

6 Personal Investment Fund Board in the same man7 ner as the Thrift Savings Fund is managed under

8 subchapter VIII of chapter 84 of title 5, United

9 States Code.’’.

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

11 STATEMENTS.—Subsection (a) of section 6051 of the In12 ternal Revenue Code of 1986 (relating to receipts for em13 ployees) is amended—

14 (1) by striking ‘‘and’’ at the end of paragraph

15 (9);

16 (2) by striking the period at the end of para17 graph (10) and inserting ‘‘, and’’; and

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

19 paragraph:

20 ‘‘(11) the total amount deducted from the em21 ployee’s wages under a personal investment payroll

22 deduction plan established under part B of title II

23 of the Social Security Act.’’.

24 (c) EXEMPTION FROM ERISA REQUIREMENTS.—

25 Subsection (b) of section 4 of the Employee Retirement
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1 Income Security Act of 1974 (29 U.S.C. 1003(b)) is

2 amended—

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

4 (4);

5 (2) by striking the period at the end of para6 graph (5) and inserting ‘‘; or’’; and

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

8 paragraph:

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

10 deduction plan established under part B of title II

11 of the Social Security Act and does not provide for

12 employer contributions.’’.

13 (d) EFFECTIVE DATE AND NOTICE REQUIRE14 MENTS.—

15 (1) EFFECTIVE DATE.—The amendments made

16 by subsection (a) (and any personal investment pay17 roll deduction plan required thereunder) shall apply

18 with respect to wages paid after December 31, 1995,

19 for pay periods ending after such date and self-em20 ployment income for taxable years beginning after

21 such date.

22 (2) NOTICE REQUIREMENTS.—

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

24 1, 1995, the Commissioner of Social Security

25 shall—
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1 (i) send to the last known address of

2 each eligible individual a description of the

3 program established by the amendments

4 made by this section, which shall be writ5 ten in the form of a pamphlet in language

6 which may be readily understood by the

7 average worker,

8 (ii) provide for toll-free access by tele9 phone from all localities in the United

10 States to the Social Security Administra11 tion through which individuals may obtain

12 information and answers to questions re13 garding such program, and

14 (iii) provide information to the media

15 in all localities of the United States about

16 such program and such toll-free access by

17 telephone.

18 (B) ELIGIBLE INDIVIDUAL.—For purposes

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

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

21 pamphlet sent pursuant to subparagraph (A), is

22 indicated within the records of the Social Secu23 rity Administration as being credited with one

24 or more quarters of coverage under section 213

25 of the Social Security Act.
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1 (C) MATTERS TO BE INCLUDED.—The

2 Commissioner shall include with the pamphlet

3 sent to each eligible individual pursuant to sub4 paragraph (A)—

5 (i) a statement of the number of quar6 ters of coverage indicated in the records of

7 the Social Security Administration as of

8 the date of the description as credited to

9 such individual under section 213 of the

10 Social Security Act and the date as of

11 which such records may be considered ac12 curate, and

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

14 telephone established by the Commissioner

15 pursuant to subparagraph (A).

16 SEC. 4. ADJUSTMENTS TO PRIMARY INSURANCE AMOUNTS

17 UNDER PART A OF TITLE II OF THE SOCIAL

18 SECURITY ACT.

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

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

21 following new subsection:
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1 ‘‘Adjustment of Primary Insurance Amount of Eligible

2 Employees and Eligible Self-Employed Individuals

3 Under Part B

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

5 case of an individual who is—

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

7 paragraph (3) of section 255, or

8 ‘‘(B) an eligible self-employed individual, as de9 fined under paragraph (4) of section 255,

10 such individual’s primary insurance amount shall be deter11 mined under subsection (a)(1)(A) (before subsequent ad12 justments made under subsection (i)), by substituting the

13 first, second, and third primary insurance amount factors

14 determined in the following table for the primary insur15 ance amount factors ‘90’, ‘32’, and ‘15’ in clauses (i), (ii),

16 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.’’

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

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

19 an eligible self-employed individual as defined in para20 graph (4) of section 255 becomes entitled to disability in-
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1 surance benefits under section 223, such individual’s pri2 mary insurance amount shall be determined without re3 gard to paragraph (1).

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

5 described in subparagraph (A) of retirement age (as de6 fined in section 216(l)(1)), such individual’s primary in7 surance amount as determined in accordance with this sec8 tion (before subsequent adjustments made under sub9 section (i)) shall be determined under paragraph (1).’’.

10 (b) CONFORMING AMENDMENT TO RAILROAD RE11 TIREMENT ACT OF 1974.—Section 1 of the Railroad Re12 tirement Act of 1974 (45 U.S.C. 231) is amended by add13 ing at the end the following:

14 ‘‘(s) In applying applicable provisions of the Social

15 Security Act for purposes of determining the amount of

16 the annuity to which an individual is entitled under this

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

18 individual’ as defined in section 253(4) of the Social Secu19 rity Act.’’.

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

21 this section shall apply with respect to months after De22 cember 1995.

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