I

104TH CONGRESS

1ST SESSION H. R. 647

To amend the Internal Revenue Code of 1986 to provide incentives for

awards to an employee under a performance-based reward plan and

to direct the Administrator of the Small Business Administration to

establish a program to promote implementation of performance-based

reward plans and employee decisionmaking participation programs, and

for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 24, 1995

Mr. WYDEN introduced the following bill; which was referred to the Committee

on Ways and Means and, in addition, to the Committees on Economic

and Educational Opportunities and Small Business, for a period to be

subsequently determined by the Speaker, in each case for consideration

of such provisions as fall within the jurisdiction of the committee concerned

A BILL

To amend the Internal Revenue Code of 1986 to provide

incentives for awards to an employee under a performance-based reward plan and to direct the Administrator

of the Small Business Administration to establish a program to promote implementation of performance-based

reward plans and employee decisionmaking participation

programs, and for other purposes.

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

2 This Act may be cited as the ‘‘Employee Partnership

3 Reward Act of 1995’’.

4 TITLE I—REFUNDABLE INCOME

5 TAX CREDIT FOR

6 NONDEFERRED DISTRIBU7 TIONS FROM PERFORMANCE8 BASED REWARD PLANS.

9 SEC. 101. REFUNDABLE INCOME TAX CREDIT FOR

10 NONDEFERRED DISTRIBUTIONS FROM PER11 FORMANCE-BASED REWARD PLANS.

12 (a) IN GENERAL.—Subpart C of part IV of sub13 chapter A of chapter 1 of the Internal Revenue Code of

14 1986 (relating to refundable credits) is amended by redes15 ignating section 35 as section 36 and by inserting after

16 section 34 the following new section:

17 ‘‘SEC. 35. NONDEFERRED DISTRIBUTIONS FROM PERFORM18 ANCE-BASED REWARD PLANS.

19 ‘‘(a) GENERAL RULE.—In the case of an eligible em20 ployee, there shall be allowed as a credit against the tax

21 imposed by this subtitle for the taxable year an amount

22 equal to 10 percent of the value of the rewards received

23 by such employee from a qualified performance-based re24 ward plan for any plan year ending with or within such

25 taxable year. The preceding sentence shall not apply to
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1 any reward with respect to a plan year which is made more

2 than 2 months following the close of such plan year.

3 ‘‘(b) LIMITATIONS ON AMOUNT OF CREDIT.—

4 ‘‘(1) MAXIMUM CREDIT.—The credit allowed by

5 subsection (a) for the taxable year shall not exceed

6 $500 with respect to each eligible employee.

7 ‘‘(2) MINIMUM CREDIT.—The credit allowed by

8 subsection (a) for the taxable year shall not be less

9 than $100.

10 ‘‘(3) COST-OF-LIVING ADJUSTMENT.—In the

11 case of any calendar year after 1995, each dollar

12 amount in paragraph (1) or (2) shall be increased

13 by an amount equal to—

14 ‘‘(A) such dollar amount, multiplied by

15 ‘‘(B) the cost-of-living adjustment deter16 mined under section 1(f)(3) for such calendar

17 year by substituting ‘1994’ for ‘1992’ in sub18 paragraph (B) thereof.

19 If any increase under the preceding sentence is not

20 a multiple of $50, such increase shall be rounded to

21 the nearest multiple of $50.

22 ‘‘(c) ELIGIBLE EMPLOYEE.—For purposes of this

23 section, the term ‘eligible employee’ means any employee

24 of an employer who is a participant in a qualified perform25 ance-based reward plan of such employer. Such term shall
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1 not include any highly compensated employee (within the

2 meaning of section 414(q)) and shall not include any em3 ployee engaged in sales.

4 ‘‘(d) QUALIFIED PERFORMANCE-BASED REWARD

5 PLAN.—For purposes of this section, the term ‘qualified

6 performance-based reward plan’ means a written plan

7 maintained by an employer—

8 ‘‘(1) the principal purpose of which is to im9 prove the performance of the organization and re10 ward employees as a function of that improvement,

11 and

12 ‘‘(2) which meets—

13 ‘‘(A) the determination requirements of

14 subsection (e),

15 ‘‘(B) the allocation requirements of sub16 section (f),

17 ‘‘(C) the distribution requirements of sub18 section (g),

19 ‘‘(D) the nondiscrimination requirements

20 of subsection (h), and

21 ‘‘(E) the plan approval requirements of

22 subsection (i).

23 ‘‘(e) DETERMINATION REQUIREMENTS.—A plan

24 meets the requirements of this subsection if the amount

25 to be distributed under the plan for any year is determined
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1 in accordance with a fixed formula set forth in the plan

2 which is based on a measurable and auditable indicator

3 of the employer’s performance or, at the election of the

4 employer, of the organizational unit in which the employ5 ees covered by the plan perform services.

6 ‘‘(f) ALLOCATION REQUIREMENTS.—

7 ‘‘(1) IN GENERAL.—A plan meets the require8 ments of this subsection if, under the plan, amounts

9 are distributed to employees of the employer main10 taining the plan only in accordance with a fixed for11 mula set forth in the plan.

12 ‘‘(2) CHANGE IN FORMULA.—For purposes of

13 paragraph (1), a formula shall be treated as a fixed

14 formula only if under the plan any change in the

15 formula may not take effect until the plan year fol16 lowing the plan year in which the change is adopted

17 by the plan.

18 ‘‘(g) DISTRIBUTION REQUIREMENTS.—

19 ‘‘(1) IN GENERAL.—A plan meets the require20 ments of this subsection if the plan requires that,

21 for each year, the total value of rewards made under

22 the plan to nonhighly compensated employees is not

23 less than the lesser of—
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1 ‘‘(A) 2 percent of the total wages paid to

2 such employees during such year by the em3 ployer maintaining such plan, or

4 ‘‘(B) the amount which, when added to the

5 total rewards made under the plan to such em6 ployees during the 2 preceding years, is equal

7 to 2 percent of the sum of the total wages paid

8 to such employees by such employer during

9 such year and such 2 preceding years.

10 ‘‘(2) WAGES.—For purposes of paragraph (1),

11 the term ‘wages’ has the meaning given such term

12 by section 3306(b), except that—

13 ‘‘(A) any dollar limitation in such section

14 shall be disregarded, and

15 ‘‘(B) rewards from a qualified perform16 ance-based reward plan shall not be taken into

17 account.

18 ‘‘(h) ANTIDISCRIMINATION REQUIREMENTS.—

19 ‘‘(1) IN GENERAL.—A plan meets the require20 ments of this subsection if the plan benefits such

21 employees as qualify under a classification set up by

22 the employer and found by the Secretary not to be

23 discriminatory in favor of highly compensated em24 ployees (within the meaning of section 414(q)).
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1 ‘‘(2) EXCLUDED EMPLOYEES.—In determining

2 whether the requirements of paragraph (1) are met,

3 there shall be excluded from consideration employees

4 described in section 414(q)(8).

5 ‘‘(3) BENEFITS MAY BEAR UNIFORM RELATION6 SHIP TO COMPENSATION.—A plan shall not be con7 sidered discriminatory merely because the benefits

8 under the plan bear a uniform relationship to the

9 compensation (within the meaning of section 414(s))

10 of the employees.

11 ‘‘(i) PLAN APPROVAL REQUIREMENTS.—A plan

12 meets the requirements of this subsection if the plan—

13 ‘‘(1) is submitted to the Secretary in such form

14 and manner as the Secretary may provide, and

15 ‘‘(2) is approved by the Secretary.

16 ‘‘(j) SPECIAL RULE AND DEFINITION.—For purposes

17 of this subsection—

18 ‘‘(1) PLANS WHICH ARE PART OF DEFERRED

19 PLAN.—A plan shall not be treated as failing to be

20 a qualified performance-based reward plan merely

21 because such plan includes a qualified cash or de22 ferred arrangement (as defined in section

23 401(k)(2)).
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1 ‘‘(2) SELF-EMPLOYED INDIVIDUALS.—The term

2 ‘employee’ does not include an individual who is an

3 employee (within the meaning of section 401(c)(1)).

4 ‘‘(k) EMPLOYEE RIGHTS.—For purposes of section

5 502 of Employee Retirement Income Security Act of 1974,

6 a qualified performance-based reward plan shall be treated

7 as a welfare benefit plan.’’

8 (b) CONFORMING AMENDMENT.—

9 (1) Paragraph (2) of section 1324(b) of title

10 31, United States Code, is amended by inserting be11 fore the period ‘‘, or from section 35 of such Code’’.

12 (2) The table of sections for subpart C of part

13 IV of subchapter A of chapter 1 of such Code is

14 amended by striking the item relating to section 35

15 and inserting the following new items:

‘‘Sec. 35. Nondeferred distributions from performance-based reward plans.

‘‘Sec. 36. Overpayments of tax.’’

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

17 this section shall apply to taxable years beginning after

18 the date of the enactment of this Act.

19 SEC. 102. ADDITIONAL DEDUCTION TO EMPLOYERS FOR

20 PERFORMANCE-BASED REWARDS.

21 (a) IN GENERAL.—Section 162 of the Internal Reve22 nue Code of 1986 is amended by redesignating subsection

23 (o) as subsection (p) and by inserting after subsection (n)

24 the following new subsection:
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1 ‘‘(o) PERFORMANCE-BASED REWARDS.—In addition

2 to the deduction otherwise allowed under this chapter for

3 rewards under a performance-based reward plan (as de4 fined in section 35(c)), there shall be allowed an additional

5 deduction equal to 10 percent of the amount allowed as

6 a deduction under this chapter (other than this sub7 section) for the taxable year for such awards.’’

8 (b) EFFECTIVE DATE.—The amendment made by

9 this section shall apply to taxable years beginning after

10 the date of the enactment of this Act.

11 SEC. 103. STUDY OF EFFECT OF CREDIT.

12 The Secretary of the Treasury, in consultation with

13 the Secretary of Commerce and the Secretary of Labor,

14 shall—

15 (1) conduct a study of the effect of the credit

16 under section 35 of the Internal Revenue Code of

17 1986 (as added by this Act) in stimulating produc18 tivity and full employment, and

19 (2) report the results of such study to the Con20 gress no later than January 1, 2003.

21 SEC. 104. COLLECTION OF STATISTICS.

22 (a) PERFORMANCE-BASED REWARD PLANS.—The

23 Secretary of Labor and the Director of the Federal Medi24 ation and Conciliation Service each shall—
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1 (1) collect statistics on the extent of perform2 ance-based reward plans in the United States; and

3 (2) prepare studies which describe the nature

4 and terms of these performance-based reward plans.

5 Such studies shall differentiate between various types of

6 such plans and between plans which do and do not have

7 fixed formulas for determining amounts payable to

8 employees.

9 (b) PROFIT-SHARING AND EMPLOYEE STOCK OWN10 ERSHIP PLANS.—The Director of the Office of Manage11 ment and Budget shall publish annually estimates of the

12 annual tax expenditures for deferred profit-sharing plans

13 and employee stock ownership plans.

14 TITLE II—ESTABLISHMENT OF

15 PROGRAM TO PROMOTE PER16 FORMANCE-BASED REWARD

17 PLANS AND EMPLOYEE DECI18 SIONMAKING PARTICIPATION

19 PROGRAMS

20 SEC. 201. EMPLOYEE PARTNERSHIP PILOT PROGRAM.

21 (a) ESTABLISHMENT.—The Administrator, in con22 sultation with the Secretary of Labor, shall establish and

23 carry out an Employee Partnership Pilot Program (in this

24 section referred to as the ‘‘program’’) in accordance with

25 the requirements of this section.
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1 (b) GRANT AWARDS.—Under the program, the Ad2 ministrator shall make grants to not to exceed 5 eligible

3 entities for the purpose of promoting implementation of

4 performance-based reward plans and employee decision5 making participation programs.

6 (c) SELECTION OF GRANT RECIPIENTS.—The Ad7 ministrator shall select eligible entities to receive grants

8 under the program on the basis of competitive, merit9 based criteria to be established by the Administrator, in

10 consultation with the Secretary of Labor. Such criteria,

11 at a minimum, shall provide for consideration of the

12 following:

13 (1) The ability of an applicant to carry out the

14 purposes of the program.

15 (2) The ability of an applicant to integrate im16 plementation of the program with existing Federal

17 and State business assistance resources.

18 (3) The ability of an applicant to continue to

19 carry out the purposes of the program after termi20 nation of the program.

21 (d) USE OF GRANT AMOUNTS.—Amounts from

22 grants received under the program shall be used for activi23 ties which promote the purposes of the program, including

24 the following:
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1 (1) The collection and dissemination of infor2 mation regarding successful implementation of per3 formance-based reward plans and employee decision4 making participation programs.

5 (2) The development of best practices guidelines

6 concerning performance-based reward plans and em7 ployee decisionmaking participation programs.

8 (3) The provision of technical assistance and

9 training to aid firms in designing and implementing

10 performance-based reward plans and employee deci11 sionmaking participation programs.

12 (4) Proactive education and outreach to key

13 groups such as business owners, unions, managers,

14 trade associations, and community associations to

15 inform such groups about the benefits of perform16 ance-based reward plans and employee decisionmak17 ing participation programs.

18 (e) NON-FEDERAL SHARE.—In order to be eligible

19 for a grant under the program, an eligible entity shall

20 agree to provide from non-Federal sources for activities

21 described in subsection (d) an amount at least equal to

22 the amount of the grant.

23 (f) TERM OF PROGRAM.—The program shall termi24 nate on the last day of the 5th fiscal year beginning after

25 the date of the enactment of this Act.
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1 (g) REPORT.—The Administrator shall transmit to

2 Congress a report containing an evaluation of the pro3 gram, together with recommendations for appropriate leg4 islative and administrative actions.

5 (h) DEFINITIONS.—For the purposes of this section,

6 the following definitions apply:

7 (1) ADMINISTRATOR.—The term ‘‘Adminis8 trator’’ means the Administrator of the Small Busi9 ness Administration.

10 (2) ELIGIBLE ENTITY.—The term ‘‘eligible en11 tity’’ means an educational institution, a non-profit

12 organization, or a unit of State or local government.

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