I

107TH CONGRESS

1ST SESSION H. R. 1498

To amend the Internal Revenue Code of 1986 to allow individuals a refundable credit for elective deferrals and IRA contributions and to allow

small employers credits for pension plan startup costs and for pension

plan contributions.

IN THE HOUSE OF REPRESENTATIVES

APRIL 4, 2001

Mr. NEAL of Massachusetts (for himself, Mr. RANGEL, Mr. MATSUI, Mr.

COYNE, and Mr. ANDREWS) 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 allow individuals a refundable credit for elective deferrals and IRA

contributions and to allow small employers credits for

pension plan startup costs and for pension plan contributions.

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 ‘‘Retirement Security

5 Act of 2001’’.
2

•HR 1498 IH

1 SEC. 2. REFUNDABLE CREDIT TO CERTAIN INDIVIDUALS

2 FOR ELECTIVE DEFERRALS AND IRA CON3 TRIBUTIONS.

4 (a) IN GENERAL.—Subpart C of part IV of sub5 chapter A of chapter 1 of the Internal Revenue Code of

6 1986 (relating to refundable credits) is amended by redes7 ignating section 35 as section 36 and by inserting after

8 section 34 the following new section:

9 ‘‘SEC. 35. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS

10 BY CERTAIN INDIVIDUALS.

11 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an eli12 gible individual, there shall be allowed as a credit against

13 the tax imposed by this subtitle for the taxable year an

14 amount equal to the applicable percentage of so much of

15 the qualified retirement savings contributions of the eligi16 ble individual for the taxable year as do not exceed $2,000.

17 ‘‘(b) APPLICABLE PERCENTAGE.—For purposes of

18 this section, the applicable percentage is the percentage

19 determined in accordance with the following table:

Adjusted Gross Income

Applicable percentage

Joint return Head of a household All other cases

Over Not over Over Not over Over Not over

$0 $25,000 $0 $18,750 $0 $12,500 50

25,000 35,000 18,750 26,250 12,500 17,500 45

35,000 45,000 26,250 33,750 17,500 22,500 35

45,000 55,000 33,750 41,250 22,500 27,500 25

55,000 75,000 41,250 56,250 27,500 37,500 15

75,000 56,250 37,500 0
3

•HR 1498 IH

1 ‘‘(c) ELIGIBLE INDIVIDUAL.—For purposes of this

2 section—

3 ‘‘(1) IN GENERAL.—The term ‘eligible indi4 vidual’ means any individual if—

5 ‘‘(A) such individual has attained the age

6 of 18 as of the close of the taxable year, and

7 ‘‘(B) the compensation (as defined in sec8 tion 219(f)(1)) includible in the gross income of

9 the individual (or, in the case of a joint return,

10 of the taxpayer) for such taxable year is at least

11 $5,000.

12 ‘‘(2) DEPENDENTS AND FULL-TIME STUDENTS

13 NOT ELIGIBLE.—The term ‘eligible individual’ shall

14 not include—

15 ‘‘(A) any individual with respect to whom

16 a deduction under section 151 is allowable to

17 another taxpayer for a taxable year beginning

18 in the calendar year in which such individual’s

19 taxable year begins, and

20 ‘‘(B) any individual who is a student (as

21 defined in section 151(c)(4)).

22 ‘‘(3) INDIVIDUALS RECEIVING CERTAIN RETIRE23 MENT DISTRIBUTIONS NOT ELIGIBLE.—

24 ‘‘(A) IN GENERAL.—The term ‘eligible in25 dividual’ shall not include, with respect to a
4

•HR 1498 IH

1 taxable year, any individual who received during

2 the testing period—

3 ‘‘(i) any distribution from a qualified

4 retirement plan (as defined in section

5 4974(c)), or from an eligible deferred com6 pensation plan (as defined in section

7 457(b)), which is includible in gross in8 come, or

9 ‘‘(ii) any distribution from a Roth

10 IRA which is not a qualified rollover con11 tribution (as defined in section 408A(e)) to

12 a Roth IRA.

13 ‘‘(B) TESTING PERIOD.—For purposes of

14 subparagraph (A), the testing period, with re15 spect to a taxable year, is the period which

16 includes—

17 ‘‘(i) such taxable year,

18 ‘‘(ii) the preceding taxable year, and

19 ‘‘(iii) the period after such taxable

20 year and before the due date (without ex21 tensions) for filing the return of tax for

22 such taxable year.

23 ‘‘(C) EXCEPTED DISTRIBUTIONS.—There

24 shall not be taken into account under subpara25 graph (A)—
5

•HR 1498 IH

1 ‘‘(i) any distribution referred to in

2 section 72(p), 401(k)(8), 401(m)(6),

3 402(g)(2), 404(k), or 408(d)(4),

4 ‘‘(ii) any distribution to which section

5 408A(d)(3) applies, and

6 ‘‘(iii) any distribution before January

7 1, 2002.

8 ‘‘(D) TREATMENT OF DISTRIBUTIONS RE9 CEIVED BY SPOUSE OF INDIVIDUAL.—For pur10 poses of determining whether an individual is

11 an eligible individual for any taxable year, any

12 distribution received by the spouse of such indi13 vidual shall be treated as received by such indi14 vidual if such individual and spouse file a joint

15 return for such taxable year and for the taxable

16 year during which the spouse receives the dis17 tribution.

18 ‘‘(d) QUALIFIED RETIREMENT SAVINGS CONTRIBU19 TIONS.—For purposes of this section, the term ‘qualified

20 retirement savings contributions’ means the sum of—

21 ‘‘(1) the amount of the qualified retirement

22 contributions (as defined in section 219(e)) made by

23 the eligible individual,

24 ‘‘(2) the amount of—
6

•HR 1498 IH

1 ‘‘(A) any elective deferrals (as defined in

2 section 402(g)(3)) of such individual, and

3 ‘‘(B) any elective deferral of compensation

4 by such individual under an eligible deferred

5 compensation plan (as defined in section

6 457(b)) of an eligible employer described in sec7 tion 457(e)(1)(A), and

8 ‘‘(3) the amount of voluntary employee con9 tributions by such individual to any qualified retire10 ment plan (as defined in section 4974(c)).

11 ‘‘(e) ADJUSTED GROSS INCOME.—For purposes of

12 this section, adjusted gross income shall be determined

13 without regard to sections 911, 931, and 933.

14 ‘‘(f) INVESTMENT IN THE CONTRACT.—Notwith15 standing any other provision of law, a qualified retirement

16 savings contribution shall not fail to be included in deter17 mining the investment in the contract for purposes of sec18 tion 72 by reason of the credit under this section.

19 ‘‘(g) TRANSITIONAL RULES.—In the case of taxable

20 years beginning before January 1, 2008—

21 ‘‘(1) CONTRIBUTION LIMIT.—Subsection (a)

22 shall be applied by substituting for ‘$2,000’—

23 ‘‘(A) $600 in the case of taxable years be24 ginning in 2002, 2003, or 2004, and
7

•HR 1498 IH

1 ‘‘(B) $1,000 in the case of taxable years

2 beginning in 2005, 2006, or 2007.

3 ‘‘(2) APPLICABLE PERCENTAGE.—The applica4 ble percentage shall be determined under the fol5 lowing table (in lieu of the table in subsection (b)):

Adjusted Gross Income

Applicable percentage

Joint return Head of a household All other cases

Over Not over Over Not over Over Not over

$0 $20,000 $0 $15,000 $0 $10,000 50

20,000 25,000 15,000 18,750 10,000 12,500 45

25,000 30,000 18,750 22,500 12,500 15,000 35

30,000 35,000 22,500 26,250 15,000 17,500 25

35,000 40,000 26,250 30,000 17,500 20,000 15

40,000 30,000 20,000 0.’’

6 (b) CONFORMING AMENDMENTS.—

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

8 31, United States Code, is amended by inserting be9 fore the period ‘‘, or from section 35 of such Code’’.

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

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

12 amended by striking the last item and inserting the

13 following new items:

‘‘Sec. 35. Elective deferrals and IRA contributions by certain individuals.

‘‘Sec. 36. Overpayments of tax.’’

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

15 this section shall apply to taxable years beginning after

16 December 31, 2001.
8

•HR 1498 IH

1 SEC. 3. CREDIT FOR PENSION PLAN STARTUP COSTS OF

2 SMALL EMPLOYERS.

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. 45E. SMALL EMPLOYER PENSION PLAN STARTUP

8 COSTS.

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

10 in the case of an eligible employer, the small employer pen11 sion plan startup cost credit determined under this section

12 for any taxable year is an amount equal to 50 percent

13 of the qualified startup costs paid or incurred by the tax14 payer during the taxable year.

15 ‘‘(b) DOLLAR LIMITATION.—The amount of the cred16 it determined under this section for any taxable year shall

17 not exceed—

18 ‘‘(1) $1,000 for the first credit year,

19 ‘‘(2) $500 for each of the 2 taxable years imme20 diately following the first credit year, and

21 ‘‘(3) zero for any other taxable year.

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

23 section—

24 ‘‘(1) IN GENERAL.—The term ‘eligible em25 ployer’ has the meaning given such term by section

26 408(p)(2)(C)(i).
9

•HR 1498 IH

1 ‘‘(2) EMPLOYERS MAINTAINING QUALIFIED

2 PLANS DURING 1998 NOT ELIGIBLE.—Such term

3 shall not include an employer if such employer (or

4 any predecessor employer) maintained a qualified

5 plan (as defined in section 408(p)(2)(D)(ii)) with re6 spect to which contributions were made, or benefits

7 were accrued, for service in 1998. If only individuals

8 other than employees described in subparagraph (A)

9 or (B) of section 410(b)(3) are eligible to participate

10 in the qualified employer plan referred to in sub11 section (d)(1), then the preceding sentence shall be

12 applied without regard to any qualified plan in

13 which only employees so described are eligible to

14 participate.

15 ‘‘(d) OTHER DEFINITIONS.—For purposes of this

16 section—

17 ‘‘(1) QUALIFIED STARTUP COSTS.—

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

19 startup costs’ means any ordinary and nec20 essary expenses of an eligible employer which

21 are paid or incurred in connection with—

22 ‘‘(i) the establishment or administra23 tion of an eligible employer plan, or

24 ‘‘(ii) the retirement-related education

25 of employees with respect to such plan.
10

•HR 1498 IH

1 ‘‘(B) PLAN MUST HAVE AT LEAST 2 PAR2 TICIPANTS.—Such term shall not include any

3 expense in connection with a plan that does not

4 have at least 2 individuals who are eligible to

5 participate.

6 ‘‘(C) PLAN MUST BE ESTABLISHED BE7 FORE JANUARY 1, 2010.—Such term shall not

8 include any expense in connection with a plan

9 established after December 31, 2009.

10 ‘‘(2) ELIGIBLE EMPLOYER PLAN.—The term

11 ‘eligible employer plan’ means a qualified employer

12 plan within the meaning of section 4972(d), or a

13 qualified payroll deduction arrangement within the

14 meaning of section 408(q)(1) (whether or not an

15 election is made under section 408(q)(2)). A quali16 fied payroll deduction arrangement shall be treated

17 as an eligible employer plan only if all employees of

18 the employer who—

19 ‘‘(A) have been employed for 90 days, and

20 ‘‘(B) are not described in subparagraph

21 (A) or (C) of section 410(b)(3),

22 are eligible to make the election under section

23 408(q)(1)(A).

24 ‘‘(3) FIRST CREDIT YEAR.—The term ‘first

25 credit year’ means—
11

•HR 1498 IH

1 ‘‘(A) the taxable year which includes the

2 date that the eligible employer plan to which

3 such costs relate becomes effective, or

4 ‘‘(B) at the election of the eligible em5 ployer, the taxable year preceding the taxable

6 year referred to in subparagraph (A).

7 ‘‘(e) SPECIAL RULES.—For purposes of this

8 section—

9 ‘‘(1) AGGREGATION RULES.—All persons treat10 ed as a single employer under subsection (a) or (b)

11 of section 52, or subsection (n) or (o) of section 414,

12 shall be treated as one person. All eligible employer

13 plans shall be treated as 1 eligible employer plan.

14 ‘‘(2) DISALLOWANCE OF DEDUCTION.—No de15 duction shall be allowed for that portion of the quali16 fied startup costs paid or incurred for the taxable

17 year which is equal to the credit determined under

18 subsection (a).

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

20 section shall not apply to a taxpayer for any taxable

21 year if such taxpayer elects to have this section not

22 apply for such taxable year.’’

23 (b) CREDIT ALLOWED AS PART OF GENERAL BUSI24 NESS CREDIT.—Section 38(b) of such Code (defining cur25 rent year business credit) is amended by striking ‘‘plus’’
12

•HR 1498 IH

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

2 the end of paragraph (13) and inserting ‘‘, plus’’, and by

3 adding at the end the following new paragraph:

4 ‘‘(14) in the case of an eligible employer (as de5 fined in section 45E(c)), the small employer pension

6 plan startup cost credit determined under section

7 45E(a).’’

8 (c) CONFORMING AMENDMENTS.—

9 (1) Section 39(d) of such Code is amended by

10 adding at the end the following new paragraph:

11 ‘‘(10) NO CARRYBACK OF SMALL EMPLOYER

12 PENSION PLAN STARTUP COST CREDIT BEFORE JAN13 UARY 1, 2002.—No portion of the unused business

14 credit for any taxable year which is attributable to

15 the small employer pension plan startup cost credit

16 determined under section 45E may be carried back

17 to a taxable year beginning before January 1,

18 2002.’’

19 (2) Subsection (c) of section 196 of such Code

20 is amended by striking ‘‘and’’ at the end of para21 graph (8), by striking the period at the end of para22 graph (9) and inserting ‘‘, and’’, and by adding at

23 the end the following new paragraph:

24 ‘‘(10) the small employer pension plan startup

25 cost credit determined under section 45E(a).’’
13

•HR 1498 IH

1 (3) The table of sections for subpart D of part

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

3 amended by adding at the end the following new

4 item:

‘‘Sec. 45E. Small employer pension plan startup costs.’’

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

6 this section shall apply to costs paid or incurred in taxable

7 years beginning after December 31, 2001.

8 SEC. 4. CREDIT FOR QUALIFIED PENSION PLAN CONTRIBU9 TIONS OF SMALL EMPLOYERS.

10 (a) IN GENERAL.—Subpart D of part IV of sub11 chapter A of chapter 1 of the Internal Revenue Code of

12 1986 (relating to business related credits) is amended by

13 adding at the end the following new section:

14 ‘‘SEC. 45F. SMALL EMPLOYER PENSION PLAN CONTRIBU15 TIONS.

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

17 in the case of an eligible employer, the small employer pen18 sion plan contribution credit determined under this section

19 for any taxable year is an amount equal to 50 percent

20 of the amount which would (but for subsection (f)(1)) be

21 allowed as a deduction under section 404 for such taxable

22 year for qualified employer contributions made to any

23 qualified retirement plan on behalf of any nonhighly com24 pensated employee.
14

•HR 1498 IH

1 ‘‘(b) CREDIT LIMITED TO 3 Years.—The credit allow2 able by this section shall be allowed only with respect to

3 the period of 3 taxable years beginning with the taxable

4 year in which the qualified retirement plan becomes effec5 tive.

6 ‘‘(c) QUALIFIED EMPLOYER CONTRIBUTION.—For

7 purposes of this section—

8 ‘‘(1) DEFINED CONTRIBUTION PLANS.—In the

9 case of a defined contribution plan, the term ‘quali10 fied employer contribution’ means the amount of

11 nonelective and matching contributions to the plan

12 made by the employer on behalf of any nonhighly

13 compensated employee to the extent such amount

14 does not exceed 3 percent of such employee’s com15 pensation from the employer for the year.

16 ‘‘(2) DEFINED BENEFIT PLANS.—In the case of

17 a defined benefit plan, the term ‘qualified employer

18 contribution’ means the amount of employer con19 tributions to the plan made on behalf of any non20 highly compensated employee to the extent that the

21 accrued benefit of such employee derived from such

22 contributions for the year do not exceed the equiva23 lent (as determined under regulations prescribed by

24 the Secretary and without regard to contributions

25 and benefits under the Social Security Act) of 3 per-
15

•HR 1498 IH

1 cent of such employee’s compensation from the em2 ployer for the year.

3 ‘‘(d) QUALIFIED RETIREMENT PLAN.—

4 ‘‘(1) IN GENERAL.—The term ‘qualified retire5 ment plan’ means any plan described in section

6 401(a) which includes a trust exempt from tax

7 under section 501(a) if the plan meets—

8 ‘‘(A) the contribution requirements of

9 paragraph (2),

10 ‘‘(B) the vesting requirements of para11 graph (3), and

12 ‘‘(C) the distributions requirements of

13 paragraph (4).

14 ‘‘(2) CONTRIBUTION REQUIREMENTS.—

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

16 this paragraph are met if, under the plan—

17 ‘‘(i) the employer is required to make

18 nonelective contributions of at least 1 per19 cent of compensation (or the equivalent

20 thereof in the case of a defined benefit

21 plan) for each nonhighly compensated em22 ployee who is eligible to participate in the

23 plan, and

24 ‘‘(ii) except in the case of a defined

25 benefit plan, allocations of nonelective em-
16

•HR 1498 IH

1 ployer contributions are either in equal dol2 lar amounts for all employees covered by

3 the plan or bear a uniform relationship to

4 the total compensation, or the basic or reg5 ular rate of compensation, of the employ6 ees covered by the plan.

7 ‘‘(B) COMPENSATION LIMITATION.—The

8 compensation taken into account under sub9 paragraph (A) for any year shall not exceed the

10 limitation in effect for such year under section

11 401(a)(17).

12 ‘‘(3) VESTING REQUIREMENTS.—The require13 ments of this paragraph are met if the plan satisfies

14 the requirements of subparagraph (A) or (B).

15 ‘‘(A) 3-YEAR VESTING.—A plan satisfies

16 the requirements of this subparagraph if an em17 ployee who has completed at least 3 years of

18 service has a nonforfeitable right to 100 percent

19 of the employee’s accrued benefit derived from

20 employer contributions.

21 ‘‘(B) 5-YEAR GRADED VESTING.—A plan

22 satisfies the requirements of this subparagraph

23 if an employee has a nonforfeitable right to a

24 percentage of the employee’s accrued benefit de-
17

•HR 1498 IH

1 rived from employer contributions determined

2 under the following table:

The nonforfeitable

‘‘Years of service: percentage is:

1 ............................................................................................... 20

2 ............................................................................................... 40

3 ............................................................................................... 60

4 ............................................................................................... 80

5 ............................................................................................... 100.

3 ‘‘(4) DISTRIBUTION REQUIREMENTS.—

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

5 subparagraph (B), the requirements of this

6 paragraph are met if, under the plan—

7 ‘‘(i) in the case of a profit-sharing or

8 stock bonus plan, amounts are distribut9 able only as provided in section

10 401(k)(2)(B), and

11 ‘‘(ii) in the case of a pension plan,

12 amounts are distributable subject to the

13 limitations applicable to other distributions

14 from the plan.

15 ‘‘(B) DISTRIBUTIONS WITHIN 5 YEARS

16 AFTER SEPARATION, ETC.—In no event shall a

17 plan meet the requirements of this paragraph

18 unless, under the plan, amounts distributed—

19 ‘‘(i) after separation from service or

20 severance from employment, and
18

•HR 1498 IH

1 ‘‘(ii) within 5 years after the date of

2 the earliest employer contribution to the

3 plan,

4 may be distributed only in a direct trustee-to5 trustee transfer to a plan having the same dis6 tribution restrictions as the distributing plan.

7 ‘‘(e) OTHER DEFINITIONS.—For purposes of this

8 section—

9 ‘‘(1) ELIGIBLE EMPLOYER.—The term ‘eligible

10 employer’ has the meaning given such term by sec11 tion 408(p)(2)(C)(i).

12 ‘‘(2) NONHIGHLY COMPENSATED EMPLOY13 EES.—The term ‘highly compensated employee’ has

14 the meaning given such term by section 414(q) (de15 termined without regard to section 414(q)(1)(B)(ii)).

16 ‘‘(f) SPECIAL RULES.—

17 ‘‘(1) DISALLOWANCE OF DEDUCTION.—No de18 duction shall be allowed for that portion of the quali19 fied employer contributions paid or incurred for the

20 taxable year which is equal to the credit determined

21 under subsection (a).

22 ‘‘(2) ELECTION NOT TO CLAIM CREDIT.—This

23 section shall not apply to a taxpayer for any taxable

24 year if such taxpayer elects to have this section not

25 apply for such taxable year.
19

•HR 1498 IH

1 ‘‘(g) RECAPTURE OF CREDIT ON FORFEITED CON2 TRIBUTIONS.—If any accrued benefit which is forfeitable

3 by reason of subsection (d)(3) is forfeited, the employer’s

4 tax imposed by this chapter for the taxable year in which

5 the forfeiture occurs shall be increased by 35 percent of

6 the employer contributions from which such benefit is de7 rived to the extent such contributions were taken into ac8 count in determining the credit under this section.

9 ‘‘(h) REGULATIONS.—The Secretary shall prescribe

10 such regulations as may be appropriate to carry out the

11 purposes of this section, including regulations to prevent

12 the abuse of the purposes of this section through the use

13 of multiple plans.

14 ‘‘(i) TERMINATION.—This section shall not apply to

15 any plan established after December 31, 2009.’’

16 (b) CREDIT ALLOWED AS PART OF GENERAL BUSI17 NESS CREDIT.—Section 38(b) of such Code (defining cur18 rent year business credit) is amended by striking ‘‘plus’’

19 at the end of paragraph (13), by striking the period at

20 the end of paragraph (14) and inserting ‘‘, plus’’, and by

21 adding at the end the following new paragraph:

22 ‘‘(15) in the case of an eligible employer (as de23 fined in section 45F(e)), the small employer pension

24 plan contribution credit determined under section

25 45F(a).’’
20

•HR 1498 IH

1 (c) CONFORMING AMENDMENTS.—

2 (1) Section 39(d) of such Code is amended by

3 adding at the end the following new paragraph:

4 ‘‘(11) NO CARRYBACK OF SMALL EMPLOYER

5 PENSION PLAN CONTRIBUTION CREDIT BEFORE JAN6 UARY 1, 2002.—No portion of the unused business

7 credit for any taxable year which is attributable to

8 the small employer pension plan contribution credit

9 determined under section 45F may be carried back

10 to a taxable year beginning before January 1,

11 2002.’’

12 (2) Subsection (c) of section 196 of such Code

13 is amended by striking ‘‘and’’ at the end of para14 graph (9), by striking the period at the end of para15 graph (10) and inserting ‘‘, and’’, and by adding at

16 the end the following new paragraph:

17 ‘‘(11) the small employer pension plan contribu18 tion credit determined under section 45F(a).’’

19 (3) The table of sections for subpart D of part

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

21 amended by adding at the end the following new

22 item:

‘‘Sec. 45F. Small employer pension plan contributions.’’
21

•HR 1498 IH

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

2 this section shall apply to contributions paid or incurred

3 in taxable years beginning after December 31, 2001.

Æ