I

106TH CONGRESS

1ST SESSION H. R. 2190

To amend the Internal Revenue Code of 1986 to provide small business

employees with a simple, secure, and fully portable defined benefit plan.

IN THE HOUSE OF REPRESENTATIVES

JUNE 14, 1999

Mrs. JOHNSON of Connecticut (for herself and Mr. POMEROY) introduced the

following bill; which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide

small business employees with a simple, secure, and fully

portable defined benefit plan.

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 ‘‘Secure Assets For Em5 ployees (SAFE) Plan Act of 1999’’.

6 SEC. 2. SAFE ANNUITIES AND TRUSTS.

7 (a) IN GENERAL.—Subpart A of part I of subchapter

8 D of chapter 1 of the Internal Revenue Code of 1986 is

9 amended by inserting after section 408A the following new

10 section:
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1 ‘‘SEC. 408B. SAFE ANNUITIES AND TRUSTS.

2 ‘‘(a) EMPLOYER ELIGIBILITY.—

3 ‘‘(1) IN GENERAL.—An employer may establish

4 and maintain a SAFE annuity or a SAFE trust for

5 any year only if—

6 ‘‘(A) the employer is an eligible employer

7 (as defined in section 408(p)(2)(C)), and

8 ‘‘(B) the employer does not maintain (and

9 no predecessor of the employer maintains) a

10 qualified plan (other than a permissible plan)

11 with respect to which contributions were made,

12 or benefits were accrued, for service in any year

13 in the period beginning with the year such an14 nuity or trust became effective and ending with

15 the year for which the determination is being

16 made.

17 ‘‘(2) DEFINITIONS.—For purposes of paragraph

18 (1)—

19 ‘‘(A) QUALIFIED PLAN.—The term ‘quali20 fied plan’ has the meaning given such term by

21 section 408(p)(2)(D)(ii).

22 ‘‘(B) PERMISSIBLE PLAN.—The term ‘per23 missible plan’ means—

24 ‘‘(i) a plan under which only elective

25 deferrals described in section 402(g)(3),

26 deferred compensation described in section
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1 457, or employer matching contributions

2 may be made, and

3 ‘‘(ii) any collectively bargained plan.

4 ‘‘(b) SAFE ANNUITY.—

5 ‘‘(1) IN GENERAL.—For purposes of this title,

6 the term ‘SAFE annuity’ means an individual retire7 ment annuity (as defined in section 408(b) without

8 regard to paragraph (2) thereof and without regard

9 to the limitation on aggregate annual premiums con10 tained in the flush language of section 408(b)) if—

11 ‘‘(A) such annuity meets the requirements

12 of paragraphs (2) through (6), and

13 ‘‘(B) the only contributions to such annu14 ity are employer contributions.

15 Nothing in this section shall be construed as pre16 venting an employer from using a group annuity

17 contract which is divisible into individual retirement

18 annuities for purposes of providing SAFE annuities.

19 ‘‘(2) PARTICIPATION REQUIREMENTS.—

20 ‘‘(A) IN GENERAL.—The requirements of

21 this paragraph are met for any year only if all

22 employees of the employer who—

23 ‘‘(i) received at least $5,000 in com24 pensation from the employer during any 2

25 consecutive preceding years, and
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1 ‘‘(ii) received at least $5,000 in com2 pensation during the year,

3 are entitled to the benefit described in para4 graph (5) for such year.

5 ‘‘(B) EXCLUDABLE EMPLOYEES.—An em6 ployer may elect to exclude from the require7 ments under subparagraph (A) employees de8 scribed in section 410(b)(3).

9 ‘‘(3) VESTING.—The requirements of this para10 graph are met if the employee’s rights to any bene11 fits are nonforfeitable.

12 ‘‘(4) BENEFIT FORM.—The requirements of

13 this paragraph are met if the only form of benefit

14 is—

15 ‘‘(A) a benefit payable annually in the

16 form of a single life annuity with monthly pay17 ments (with no ancillary benefits) beginning at

18 age 65, or

19 ‘‘(B) any other form of benefit which is the

20 actuarial equivalent (based on the assumptions

21 specified in the SAFE annuity) of the benefit

22 described in subparagraph (A).

23 The requirements of section 401(a)(11) shall apply

24 to the benefits described in this paragraph.
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1 ‘‘(5) AMOUNT OF ANNUAL ACCRUED BEN2 EFIT.—

3 ‘‘(A) IN GENERAL.—The requirements of

4 this paragraph are met for any plan year if the

5 accrued benefit of each participant derived from

6 employer contributions for such year, when ex7 pressed as a benefit described in paragraph

8 (4)(A), equals the applicable percentage of the

9 participant’s compensation for such year.

10 ‘‘(B) APPLICABLE PERCENTAGE.—For

11 purposes of this paragraph—

12 ‘‘(i) IN GENERAL.—The term ‘applica13 ble percentage’ means 3 percent.

14 ‘‘(ii) ELECTION OF LOWER PERCENT15 AGE.—An employer may elect to apply an

16 applicable percentage of 1 percent, 2 per17 cent or zero percent for any year for all

18 employees eligible to participate in the plan

19 for such year if the employer notifies the

20 employees of such percentage within a rea21 sonable period before the beginning of such

22 year.

23 ‘‘(C) COMPENSATION LIMIT.—The com24 pensation taken into account under this para25 graph for any year shall not exceed the limita-
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1 tion in effect for such year under section

2 401(a)(17).

3 ‘‘(D) CREDIT FOR SERVICE BEFORE PLAN

4 ADOPTED.—

5 ‘‘(i) IN GENERAL.—An employer may

6 elect to take into account a specified num7 ber of years of service (not greater than

8 10) performed before the adoption of the

9 plan (each hereinafter referred to as a

10 ‘prior service year’) as service under the

11 plan if the same specified number of years

12 is available to all employees eligible to par13 ticipate in the plan for the first plan year.

14 ‘‘(ii) ACCRUAL OF PRIOR SERVICE

15 BENEFIT.—Such an election shall be effec16 tive for a prior service year only if the re17 quirements of this paragraph are met for

18 an eligible plan year (with respect to em19 ployees entitled to credit for such prior

20 service year) by doubling the applicable

21 percentage (if any) for such plan year. For

22 purposes of the preceding sentence, an eli23 gible plan year is a plan year in the period

24 of consecutive plan years (but not more

25 than the number specified under clause (i))
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1 beginning with the first plan year that the

2 plan is in effect.

3 ‘‘(iii) ELECTION MAY NOT APPLY TO

4 CERTAIN PRIOR SERVICE YEARS.—This

5 subparagraph shall not apply with respect

6 to any prior service year of an employee

7 if—

8 ‘‘(I) for any part of such prior

9 service year such employee was an ac10 tive participant (within the meaning

11 of section 219(g)(5)) under any de12 fined benefit plan of the employer (or

13 any predecessor thereof), or

14 ‘‘(II) such employee received dur15 ing such prior service year less than

16 $5,000 in compensation from the em17 ployer.

18 ‘‘(6) FUNDING.—

19 ‘‘(A) IN GENERAL.—The requirements of

20 this paragraph are met only if the employer is

21 required to contribute to the annuity for each

22 plan year the amount necessary (determined in

23 accordance with subparagraph (B)) to fund the

24 accrued benefit for each participant entitled to

25 such benefit for such year.
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1 ‘‘(B) ACTUARIAL ASSUMPTIONS.—In deter2 mining the amount required to be contributed

3 under subparagraph (A)—

4 ‘‘(i) the assumed interest rate shall be

5 not less than 3 percent and not greater

6 than 5 percent per year,

7 ‘‘(ii) the assumed mortality shall be

8 determined under the applicable mortality

9 table (as defined in section 417(e)(3), as

10 modified by the Secretary so that it does

11 not include any assumption for preretire12 ment mortality),

13 ‘‘(iii) the assumed retirement age

14 shall be 65, and

15 ‘‘(iv) an assumption for reasonable ex16 penses shall be permitted consistent with

17 State law.

18 ‘‘(C) TIME WHEN CONTRIBUTIONS

19 DEEMED MADE.—For purposes of this para20 graph, any contribution made for a plan year

during the 81 21 ⁄2-month period beginning on the

22 day after the last day of such plan year shall

23 be deemed to have been made on such last day.

24 ‘‘(D) PENALTY FOR FAILURE TO MAKE RE25 QUIRED CONTRIBUTION.—The taxes imposed by
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1 section 4971 shall apply to a failure to make

2 the contribution required by this paragraph in

3 the same manner as if the amount of the failure

4 were an accumulated funding deficiency to

5 which such section applies.

6 ‘‘(7) DEFINITIONS AND SPECIAL RULE.—

7 ‘‘(A) DEFINITIONS.—The definitions in

8 section 408(p)(6) shall apply for purposes of

9 this subsection.

10 ‘‘(B) USE OF DESIGNATED FINANCIAL IN11 STITUTIONS.—A rule similar to the rule of sec12 tion 408(p)(7) (without regard to the last sen13 tence thereof) shall apply for purposes of this

14 subsection.

15 ‘‘(c) SAFE TRUST.—

16 ‘‘(1) IN GENERAL.—For purposes of this title,

17 the term ‘SAFE trust’ means a trust forming part

18 of a defined benefit plan if—

19 ‘‘(A) such trust meets the requirements of

20 section 401(a) as modified by subsection (d),

21 ‘‘(B) a participant’s benefits under the

22 plan are based solely on the balance of a sepa23 rate account in such plan of such participant,

24 ‘‘(C) such plan meets the requirements of

25 paragraphs (2) through (8), and
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1 ‘‘(D) the only contributions to such trust

2 are employer contributions.

3 ‘‘(2) PARTICIPATION REQUIREMENTS.—A plan

4 meets the requirements of this paragraph for any

5 year only if the requirements of subsection (b)(2)

6 are met for such year.

7 ‘‘(3) VESTING.—A plan meets the requirements

8 of this paragraph for any year only if the require9 ments of subsection (b)(3) are met for such year.

10 ‘‘(4) BENEFIT FORM.—

11 ‘‘(A) IN GENERAL.—Except as provided in

12 subparagraph (B), a plan meets the require13 ments of this paragraph only if the require14 ments of subsection (b)(4) are met for purposes

15 of this subparagraph, a plan may satisfy the re16 quirements of subsection (b)(4) by purchasing

17 an annuity contract which meets the require18 ments of subsection (b)(4).

19 ‘‘(B) DIRECT TRANSFERS TO INDIVIDUAL

20 RETIREMENT PLAN OR SAFE ANNUITY.—A plan

21 shall not fail to meet the requirements of this

22 paragraph by reason of permitting, at the elec23 tion of the employee, a trustee-to-trustee trans24 fer of the entire balance to the credit of the em25 ployee to an individual retirement account de-
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1 scribed in section 408(a), an individual retire2 ment annuity described in section 408(b) (other

3 than an endowment contract), or a SAFE an4 nuity.

5 ‘‘(5) AMOUNT OF ANNUAL ACCRUED BEN6 EFIT.—A plan meets the requirements of this para7 graph for any year only if the requirements of sub8 section (b)(5) are met for such year.

9 ‘‘(6) FUNDING.—

10 ‘‘(A) IN GENERAL.—A plan meets the re11 quirements of this paragraph for any year only

12 if—

13 ‘‘(i) the requirements of subsection

14 (b)(6) are met for such year, and

15 ‘‘(ii) in the case of a plan which has

16 an unfunded prior year liability as of the

17 close of such plan year, the plan requires

18 that the employer make an additional con19 tribution to such plan for such year equal

20 to the amount of such unfunded prior year

21 liability.

22 ‘‘(B) UNFUNDED PRIOR YEAR LIABIL23 ITY.—For purposes of this paragraph, the term

24 ‘unfunded prior year liability’ means, with re25 spect to any plan year, the excess (if any) of—
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1 ‘‘(i) the aggregate of the accrued li2 abilities under the plan as of the close of

3 the prior plan year, over

4 ‘‘(ii) the value of the plan’s assets de5 termined under section 412(c)(2) as of the

6 close of the plan year (determined without

7 regard to any contributions for such plan

8 year).

9 Such accrued liabilities shall be determined

10 using the assumptions specified in subsection

11 (b)(6)(B).

12 ‘‘(C) CHANGES IN MORTALITY TABLE.—If

13 the applicable mortality table under section

14 417(e)(3) for any plan year is not the same as

15 such table for the prior plan year, the Secretary

16 shall prescribe regulations which phase in the

17 effect of the changes over a reasonable period

18 of plan years determined by the Secretary.

19 ‘‘(D) DISREGARD ASSUMPTIONS FOR EX20 PENSES.—For purposes of this paragraph, the

21 assumption specified in subsection (b)(6)(B)(iv)

22 shall be disregarded.

23 ‘‘(7) SEPARATE ACCOUNTS FOR PARTICI24 PANTS.—A plan meets the requirements of this

25 paragraph for any year only if the plan provides—
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1 ‘‘(A) for an individual account for each

2 participant, and

3 ‘‘(B) for benefits based solely on—

4 ‘‘(i) the amount contributed to the

5 participant’s account, and

6 ‘‘(ii) any income, expenses, gains and

7 losses, and any forfeitures of accounts of

8 other participants which may be allocated

9 to such participant’s account.

10 ‘‘(8) TRUST MAY NOT HOLD SECURITIES WHICH

11 ARE NOT READILY TRADABLE.—A plan meets the

12 requirements of this paragraph only if the plan pro13 hibits the trust from holding directly or indirectly se14 curities which are not readily tradable on an estab15 lished securities market or otherwise. Nothing in

16 this paragraph shall prohibit the trust from holding

17 insurance company products regulated by State law.

18 ‘‘(9) DEFINITIONS AND SPECIAL RULE.—The

19 definitions and special rule applicable under sub20 section (b)(7) shall apply for purposes of this sub21 section.

22 ‘‘(d) SPECIAL RULES FOR SAFE ANNUITIES AND

23 TRUSTS.—

24 ‘‘(1) CERTAIN REQUIREMENTS TREATED AS

25 MET.—For purposes of section 401(a), a SAFE an-
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1 nuity and a SAFE trust shall be treated as meeting

2 the requirements of the following provisions:

3 ‘‘(A) Section 401(a)(4) (relating to non4 discrimination rules).

5 ‘‘(B) Section 401(a)(26) (relating to min6 imum participation).

7 ‘‘(C) Section 410 (relating to minimum

8 participation and coverage requirements).

9 ‘‘(D) Section 411(b) (relating to accrued

10 benefit requirements).

11 ‘‘(E) Paragraphs (6) and (7) of section

12 412(c) (relating to full funding limitation).

13 ‘‘(F) Section 415 (relating to limitations

14 on benefits and contributions under qualified

15 plans).

16 ‘‘(G) Section 416 (relating to special rules

17 for top-heavy plans).

18 ‘‘(2) CONTRIBUTIONS NOT TAKEN INTO AC19 COUNT IN APPLYING LIMITS TO OTHER PLANS.—

20 Contributions to a SAFE annuity or a SAFE trust

21 shall not be taken into account in applying sections

22 404 and 415 to other plans maintained by the em23 ployer.’’

24 (b) DEDUCTION LIMITS NOT TO APPLY TO EM25 PLOYER CONTRIBUTIONS.—
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1 (1) IN GENERAL.—Section 404 of such Code

2 (relating to deductions for contributions of an em3 ployer to pension, etc., plans) is amended by adding

4 at the end the following new subsection:

5 ‘‘(n) SPECIAL RULES FOR SAFE ANNUITIES AND

6 TRUSTS.—

7 ‘‘(1) IN GENERAL.—Employer contributions to

8 a SAFE annuity or SAFE trust shall be treated as

9 if they are made to a plan subject to the require10 ments of this section.

11 ‘‘(2) TIMING.—

12 ‘‘(A) DEDUCTION.—Contributions de13 scribed in paragraph (1) shall be deductible in

14 the taxable year of the employer with or within

15 which the calendar year for which the contribu16 tions were made ends.

17 ‘‘(B) CONTRIBUTIONS AFTER END OF

18 YEAR.—For purposes of this subsection, con19 tributions shall be treated as made for a taxable

20 year if they are made on account of the taxable

21 year and are made not later than the time pre22 scribed by law for filing the return for the tax23 able year (including extensions thereof).’’

24 (2) COORDINATION WITH DEDUCTION UNDER

25 SECTION 219.—
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1 (A) Section 219(b) of such Code (relating

2 to maximum amount of deduction) is amended

3 by adding at the end the following new para4 graph:

5 ‘‘(5) SPECIAL RULE FOR SAFE ANNUITIES.—

6 This section shall not apply with respect to any

7 amount contributed to a SAFE annuity established

8 under section 408B(b).’’

9 (B) Section 219(g)(5)(A) of such Code

10 (defining active participant) is amended by

11 striking ‘‘or’’ at the end of clause (v) and by

12 adding at the end the following new clause:

13 ‘‘(vii) any SAFE annuity (within the

14 meaning of section 408B), or’’.

15 (c) CONTRIBUTIONS AND DISTRIBUTIONS.—

16 (1) Section 402 of such Code (relating to tax17 ability of beneficiary of employees’ trust) is amended

18 by adding at the end the following new subsection:

19 ‘‘(l) TREATMENT OF SAFE ANNUITIES.—Rules simi20 lar to the rules of paragraphs (1) and (3) of subsection

21 (h) shall apply to contributions and distributions with re22 spect to a SAFE annuities under section 408B.’’

23 (2) Section 408(d)(3) of such Code is amended

24 by adding at the end the following new subpara25 graph:
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1 ‘‘(H) SAFE ANNUITIES.—This paragraph

2 shall not apply to any amount paid or distrib3 uted out of a SAFE annuity (as defined in sec4 tion 408B) unless it is paid in a trustee-to5 trustee transfer into another SAFE annuity.’’

6 (d) INCREASED PENALTY ON EARLY WITH7 DRAWALS.—Section 72(t) of such Code (relating to addi8 tional tax on early distributions) is amended by adding

9 at the end the following new paragraph:

10 ‘‘(9) SPECIAL RULES FOR SAFE ANNUITIES AND

11 TRUSTS.—In the case of any amount received from

12 a SAFE annuity or a SAFE trust (within the mean13 ing of section 408B), paragraph (1) shall be applied

14 by substituting ‘20 percent’ for ‘10 percent’.’’

15 (e) SIMPLIFIED EMPLOYER REPORTS.—

16 (1) SAFE ANNUITIES.—Section 408(l) of such

17 Code (relating to simplified employer reports) is

18 amended by adding at the end the following new

19 paragraph:

20 ‘‘(3) SAFE ANNUITIES.—

21 ‘‘(A) SIMPLIFIED REPORT.—The employer

22 maintaining any SAFE annuity (within the

23 meaning of section 408B) shall file a simplified

24 annual return with the Secretary containing
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1 only the information described in subparagraph

2 (B).

3 ‘‘(B) CONTENTS.—The return required by

4 subparagraph (A) shall set forth—

5 ‘‘(i) the name and address of the em6 ployer,

7 ‘‘(ii) the date the plan was adopted,

8 ‘‘(iii) the number of employees of the

9 employer,

10 ‘‘(iv) the number of such employees

11 who are eligible to participate in the plan,

12 ‘‘(v) the total amount contributed by

13 the employer to each such annuity for such

14 year and the minimum amount required

15 under section 408B to be so contributed,

16 ‘‘(vi) the percentage elected under sec17 tion 408B(b)(5)(B), and

18 ‘‘(vii) the number of employees with

19 respect to whom contributions are required

20 to be made for such year under section

21 408B(b)(5)(D).

22 ‘‘(C) REPORTING BY ISSUER OF SAFE AN23 NUITY.—

24 ‘‘(i) IN GENERAL.—The issuer of each

25 SAFE annuity shall provide to the owner
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1 of the annuity for each year a statement

2 setting forth as of the close of such year—

3 ‘‘(I) the benefits guaranteed at

4 age 65 under the annuity, and

5 ‘‘(II) the cash surrender value of

6 the annuity.

7 ‘‘(ii) SUMMARY DESCRIPTION.—The

8 issuer of any SAFE annuity shall provide

9 to the employer maintaining the annuity

10 for each year a description containing the

11 following information:

12 ‘‘(I) The name and address of

13 the employer and the issuer.

14 ‘‘(II) The requirements for eligi15 bility for participation.

16 ‘‘(III) The benefits provided with

17 respect to the annuity.

18 ‘‘(IV) The procedures for, and ef19 fects of, withdrawals (including roll20 overs) from the annuity.

21 ‘‘(D) TIME AND MANNER OF REPORT22 ING.—Any return, report, or statement required

23 under this paragraph shall be made in such

24 form and at such time as the Secretary shall

25 prescribe.’’
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1 (2) SAFE TRUSTS.—Section 6059 (relating to

2 actuarial reports) is amended by redesignating sub3 sections (c) and (d) as subsections (d) and (e), re4 spectively, and by inserting after subsection (b) the

5 following new subsection:

6 ‘‘(c) SAFE TRUSTS.—In the case of a SAFE Trust

7 (within the meaning of section 408B), the Secretary shall

8 require a simplified actuarial report which contains infor9 mation similar to the information required in section

10 408(l)(3)(B).’’

11 (f) CONFORMING AMENDMENTS.—

12 (1) Section 280G(b)(6) of such Code is amend13 ed by striking ‘‘or’’ at the end of subparagraph (C),

14 by striking the period at the end of subparagraph

15 (D) and inserting ‘‘, or’’ and by adding after sub16 paragraph (D) the following new subparagraph:

17 ‘‘(E) a SAFE annuity described in section

18 408B.’’

19 (2) Subsections (b), (c), (m)(4)(B), and

20 (n)(3)(B) of section 414 of such Code are each

21 amended by inserting ‘‘408B,’’ after ‘‘408(p),’’.

22 (3) Section 4972(d)(1)(A) of such Code is

23 amended by striking ‘‘and’’ at the end of clause (iii),

24 by striking the period at the end of clause (iv) and
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1 inserting ‘‘, and’’, and by adding after clause (iv)

2 the following new clause:

3 ‘‘(v) any SAFE annuity (within the

4 meaning of section 408B).’’

5 (g) MODIFICATIONS OF ERISA.—

6 (1) EXEMPTION FROM INSURANCE COV7 ERAGE.—Subsection (b) of section 4021 of the Em8 ployee Retirement Income Security Act of 1974 (29

9 U.S.C. 1321) is amended by striking ‘‘or’’ at the end

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

11 of paragraph (13) and inserting ‘‘; or’’, and by add12 ing at the end the following new paragraph:

13 ‘‘(14) which is established and maintained as

14 part of a SAFE trust (as defined in section 408B

15 of the Internal Revenue Code of 1986).’’

16 (2) REPORTING REQUIREMENTS.—Section 101

17 of such Act (29 U.S.C. 1021) is amended by redes18 ignating the second subsection (h) as subsection (j)

19 and by inserting after the first subsection (h) the

20 following new subsection:

21 ‘‘(i) SAFE ANNUITIES.—

22 ‘‘(1) NO EMPLOYER REPORTS.—Except as pro23 vided in this subsection, no report shall be required

24 under this section by an employer maintaining a
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1 SAFE annuity under section 408B(b) of the Inter2 nal Revenue Code of 1986.

3 ‘‘(2) SUMMARY DESCRIPTION.—The issuer of

4 any SAFE annuity shall provide to the employer

5 maintaining the annuity for each year a description

6 containing the following information:

7 ‘‘(A) The name and address of the em8 ployer and the issuer.

9 ‘‘(B) The requirements for eligibility for

10 participation.

11 ‘‘(C) The benefits provided with respect to

12 the annuity.

13 ‘‘(D) The procedures for, and effects of,

14 withdrawals (including rollovers) from the an15 nuity.

16 ‘‘(3) EMPLOYEE NOTIFICATION.—The employer

17 shall provide each employee eligible to participate in

18 the SAFE annuity with the description described in

19 paragraph (2) at the same time as the notification

20 required under section 408B(b)(5)(B) of the Inter21 nal Revenue Code of 1986.’’

22 (h) CLERICAL AMENDMENT.—The table of sections

23 for subpart A of part I of subchapter D of chapter 1 of

24 such Code is amended by inserting after the item relating

25 to section 408A the following new item:

‘‘Sec. 408B. SAFE annuities and trusts.’’
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1 (i) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to years beginning after December

3 31, 1999.

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