II

106TH CONGRESS

1ST SESSION S. 1863

To amend the Internal Revenue Code of 1986 to provide an incentive to

small businesses to establish and maintain qualified pension plans by

allowing a credit against income taxes for contributions to, and startup costs of, the plan.

IN THE SENATE OF THE UNITED STATES

NOVEMBER 4, 1999

Mr. BAUCUS 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

an incentive to small businesses to establish and maintain qualified pension plans by allowing a credit against

income taxes for contributions to, and start-up costs

of, the 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 ‘‘Small Employer Pen5 sion Start-up Incentive Act’’.
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1 SEC. 2. CREDIT FOR SMALL EMPLOYER PENSION PLAN

2 CONTRIBUTIONS AND START-UP COSTS.

3 (a) IN GENERAL.—Subpart D of part IV of sub4 chapter A of chapter 1 of the Internal Revenue Code of

5 1986 (relating to business related credits) is amended by

6 adding at the end the following new section:

7 ‘‘SEC. 45D. SMALL EMPLOYER PENSION PLAN CREDIT.

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

9 in the case of an eligible employer, the small employer pen10 sion plan credit determined under this section for any tax11 able year is an amount equal to the sum of—

12 ‘‘(1) 50 percent of the qualified employer con13 tributions of the taxpayer for the taxable year, and

14 ‘‘(2) the qualified start-up costs paid or in15 curred by the taxpayer during the taxable year.

16 ‘‘(b) LIMITATIONS.—

17 ‘‘(1) LIMITS ON CONTRIBUTIONS.—For pur18 poses of subsection (a)(1)—

19 ‘‘(A) qualified employer contributions may

20 only be taken into account for each of the first

21 5 taxable years ending after the date the em22 ployer establishes the qualified employer plan to

23 which the contribution is made, and

24 ‘‘(B) the amount of the qualified employer

25 contributions taken into account with respect to

26 any qualified employee for any such taxable
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1 year shall not exceed 3 percent of the com2 pensation (as defined in section 414(s)) of the

3 qualified employee for such taxable year.

4 ‘‘(2) LIMITS ON START-UP COSTS.—The amount

5 of the credit determined under subsection (a)(2) for

6 any taxable year shall not exceed—

7 ‘‘(A) $500 for each of the first, second,

8 and third taxable years ending after the date

9 the employer established the qualified employer

10 plan to which such costs relate, and

11 ‘‘(B) zero for each taxable year thereafter.

12 ‘‘(c) DEFINITIONS.—For purposes of this section—

13 ‘‘(1) ELIGIBLE EMPLOYER.—

14 ‘‘(A) IN GENERAL.—The term ‘eligible em15 ployer’ means, with respect to any year, an em16 ployer which has no more than—

17 ‘‘(i) for purposes of subsection (a)(1),

18 50 employees, and

19 ‘‘(ii) for purposes of subsection (a)(2),

20 100 employees,

21 who received at least $5,000 of compensation

22 from the employer for the preceding year.

23 ‘‘(B) 2-YEAR GRACE PERIOD.—An eligible

24 employer who establishes and maintains a quali25 fied employer plan for 1 or more years and who
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1 fails to be an eligible employer for any subse2 quent year shall be treated as an eligible em3 ployer for the 2 years following the last year

4 the employer was an eligible employer.

5 ‘‘(C) REQUIREMENT FOR NEW QUALIFIED

6 EMPLOYER PLANS.—Such term shall not in7 clude an employer if the employer (or any pred8 ecessor employer) established or maintained a

9 qualified employer plan with respect to which

10 contributions were made, or benefits were ac11 crued, for service in the 3 taxable years ending

12 prior to the first taxable year in which the cred13 it under this section is allowed.

14 ‘‘(2) QUALIFIED EMPLOYER CONTRIBUTIONS.—

15 ‘‘(A) IN GENERAL.—The term ‘qualified

16 employer contributions’ means, with respect to

17 any taxable year, any employer contributions

18 made on behalf of a qualified employee to a

19 qualified employer plan for a plan year ending

20 with or within the taxable year.

21 ‘‘(B) EMPLOYER CONTRIBUTIONS.—The

22 term ‘employer contributions’ shall not include

23 any elective deferral (within the meaning of sec24 tion 402(g)(3)).
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1 ‘‘(3) QUALIFIED EMPLOYEE.—The term ‘quali2 fied employee’ means an individual who—

3 ‘‘(A) is eligible to participate in the quali4 fied employer plan to which the employer con5 tributions are made, and

6 ‘‘(B) is not a highly compensated employee

7 (within the meaning of section 414(q)) for the

8 year for which the contribution is made.

9 ‘‘(4) QUALIFIED START-UP COSTS.—The term

10 ‘qualified start-up costs’ means any ordinary and

11 necessary expenses of an eligible employer which are

12 paid or incurred in connection with—

13 ‘‘(A) the establishment or maintenance of

14 a qualified employer plan in which qualified em15 ployees are eligible to participate, and

16 ‘‘(B) providing educational information to

17 employees regarding participation in such plan

18 and the benefits of establishing an investment

19 plan.

20 ‘‘(5) QUALIFIED EMPLOYER PLAN.—The term

21 ‘qualified employer plan’ has the meaning given such

22 term in section 4972(d).

23 ‘‘(d) SPECIAL RULES.—

24 ‘‘(1) AGGREGATION RULES.—All persons treat25 ed as a single employer under subsection (a) or (b)
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1 of section 52, or subsection (n) or (o) of section 414,

2 shall be treated as one person. All qualified employer

3 plans of an employer shall be treated as 1 qualified

4 employer plan.

5 ‘‘(2) DISALLOWANCE OF DEDUCTION.—No de6 duction shall be allowable under this chapter for any

7 qualified start-up costs or qualified employer con8 tributions for which a credit is determined under

9 subsection (a).

10 ‘‘(3) ELECTION NOT TO CLAIM CREDIT.—This

11 section shall not apply to a taxpayer for any taxable

12 year if such taxpayer elects to have this section not

13 apply for such taxable year.’’.

14 (b) CREDIT ALLOWED AS PART OF GENERAL BUSI15 NESS CREDIT.—Section 38(b) of the Internal Revenue

16 Code of 1986 (defining current year business credit) is

17 amended by striking ‘‘plus’’ at the end of paragraph (11),

18 by striking the period at the end of paragraph (12) and

19 inserting ‘‘, plus’’, and by adding at the end the following

20 new paragraph:

21 ‘‘(13) in the case of an eligible employer (as de22 fined in section 45D(c)), the small employer pension

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

24 (c) CONFORMING AMENDMENT.—The table of sec25 tions for subpart D of part IV of subchapter A of chapter
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1 1 of the Internal Revenue Code of 1986 is amended by

2 adding at the end the following new item:

‘‘Sec. 45D. Small employer pension plan credit.’’.

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

4 this section shall apply to costs paid or incurred or con5 tributions made in connection with qualified employer

6 plans established after December 31, 1999.

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