II 

110TH CONGRESS 

1ST SESSION S. 1141 

To amend the Internal Revenue Code of 1986 to allow employees not covered 

by qualified retirement plans to save for retirement through automatic 

payroll deposit IRAs, to facilitate similar saving by the self-employed, 

and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

APRIL 18, 2007 

Mr. BINGAMAN (for himself, Mr. SMITH, Mr. KERRY, Ms. SNOWE, and Mr. 

HARKIN) 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 allow employees not covered by qualified retirement plans to save 

for retirement through automatic payroll deposit IRAs, 

to facilitate similar saving by the self-employed, 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, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Automatic IRA Act 

5 of 2007’’. 


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1 SEC. 2. EMPLOYEES NOT COVERED BY QUALIFIED RETIRE2 MENT PLANS OR ARRANGEMENTS ENTITLED 

3 TO PARTICIPATE IN PAYROLL DEPOSIT IRA 

4 ARRANGEMENTS. 

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

6 A of chapter 1 of the Internal Revenue Code of 1986 (re7 lating to pension, profit-sharing, stock bonus plans, etc.) 

8 is amended by inserting after section 408A the following 

9 new section: 

10 ‘‘SEC. 408B. RIGHT TO PAYROLL DEPOSIT IRA ARRANGE11 MENTS AT WORK. 

12 ‘‘(a) REQUIREMENT TO PROVIDE PAYROLL DEPOSIT

13 IRA ARRANGEMENT.—Each employer (other than an em14 ployer described in subsection (e)) shall provide to each 

15 applicable employee of the employer for any calendar year 

16 the opportunity to participate in a payroll deposit IRA ar17 rangement which meets the requirements of this section. 

18 ‘‘(b) PAYROLL DEPOSIT IRA ARRANGEMENT.—For 

19 purposes of this section— 

20 ‘‘(1) IN GENERAL.—The term ‘payroll deposit 

21 IRA arrangement’ means a written arrangement of 

22 an employer— 

23 ‘‘(A) under which an applicable employee 

24 eligible to participate in the arrangement may 

25 elect to contribute to an individual retirement 

26 plan established by or on behalf of the employee 


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1 by having the employer make periodic direct de2 posit or other payroll deposit payments (includ3 ing electronic payments) to the plan by payroll 

4 deduction, and 

5 ‘‘(B) which meets the requirements of 

6 paragraph (2). 

7 ‘‘(2) ADMINISTRATIVE REQUIREMENTS.—The 

8 requirements of this paragraph are met with respect 

9 to any payroll deposit IRA arrangement if— 

10 ‘‘(A) the employer must make the pay11 ments elected under paragraph (1)(A) on or be12 fore the later of— 

13 ‘‘(i) the due date for the deposit of 

14 tax required to be deducted and withheld 

15 under chapter 24 (relating to collection of 

16 income tax at source on wages) for the 

17 payroll period to which such payments re18 late, or 

19 ‘‘(ii) the 30th day following the last 

20 day of the month with respect to which the 

21 payments are to be made, 

22 ‘‘(B) subject to a requirement for reason23 able notice, an employee may elect to terminate 

24 participation in the arrangement at any time 

25 during a calendar year, except that if an emVerDate Aug 31 2005 01:29 Apr 21, 2007 Jkt 030505 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1141.IS S1141

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1 ployee so terminates, the arrangement may pro2 vide that the employee may not elect to resume 

3 participation until the beginning of the next cal4 endar year, 

5 ‘‘(C) each employee eligible to participate 

6 may elect, during the 60-day period or other pe7 riod specified by the Secretary before the begin8 ning of any calendar year (and during the 60- 

9 day period or other period specified by the Sec10 retary before the first day the employee is eligi11 ble to participate), to participate in the ar12 rangement, or to modify the employee’s election 

13 under the arrangement (including the amounts 

14 subject to the arrangement and the manner in 

15 which such amounts are invested), for such 

16 year, 

17 ‘‘(D) the employer provides— 

18 ‘‘(i) immediately before the beginning 

19 of each period described in subparagraph 

20 (C), a notice to each employee of the em21 ployee’s opportunity to make the election 

22 and the maximum amount which may be 

23 contributed to an individual retirement 

24 plan on an annual basis, and 


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1 ‘‘(ii) if the arrangement includes an 

2 automatic enrollment arrangement, the no3 tices required under subsection (h) with re4 spect to the automatic enrollment arrange5 ment, 

6 ‘‘(E) subject to subsection (f), the arrange7 ment provides that an employee may elect to 

8 have contributions made to any individual re9 tirement plan specified by the employee, and 

10 ‘‘(F) if the arrangement does not include 

11 an automatic enrollment arrangement— 

12 ‘‘(i) the arrangement requires the em13 ployer to take all reasonable actions to so14 licit from all employees eligible to partici15 pate in the arrangement an explicit elec16 tion to either participate or not to partici17 pate in the arrangement, and 

18 ‘‘(ii) the arrangement provides that if 

19 an employee fails to make an explicit elec20 tion under clause (i) within the time pre21 scribed under the arrangement, the em22 ployee will be treated as having made an 

23 election to participate in the arrangement 

24 (and amounts shall be invested on behalf 

25 of the participant) in the same manner as 


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1 if the arrangement had included an auto2 matic enrollment arrangement under sub3 section (g). 

4 ‘‘(c) APPLICABLE EMPLOYEE DEFINED; RELATED

5 DEFINITIONS AND RULES.—For purposes of this sec6 tion— 

7 ‘‘(1) APPLICABLE EMPLOYEE.— 

8 ‘‘(A) IN GENERAL.—The term ‘applicable 

9 employee’ means, with respect to any calendar 

10 year, any employee— 

11 ‘‘(i) who was not eligible under a 

12 qualified plan or arrangement maintained 

13 by the employer for service for the pre14 ceding calendar year, and 

15 ‘‘(ii) with respect to whom it is rea16 sonable to expect that the employee will 

17 not be eligible during the calendar year 

18 under such a qualified plan or arrange19 ment. 

20 ‘‘(B) SPECIAL RULES.—For purposes of 

21 subparagraph (A)(i)— 

22 ‘‘(i) ELIGIBILITY.—An employee shall 

23 be treated as eligible under a plan for a 

24 preceding calendar year if, as of the last 

25 day of the last plan year ending in the preVerDate Aug 31 2005 01:29 Apr 21, 2007 Jkt 030505 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S1141.IS S1141

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1 ceding calendar year, the employee has sat2 isfied the plan’s eligibility requirements. 

3 ‘‘(ii) EXCLUDED PLANS.—A qualified 

4 plan or arrangement shall not be taken 

5 into account under this paragraph if— 

6 ‘‘(I) the plan or arrangement is 

7 frozen as of the first day of the pre8 ceding calendar year, or 

9 ‘‘(II) in the case of a plan or ar10 rangement under which the only con11 tributions are discretionary on the 

12 part of the sponsor, there has not 

13 been an employer contribution made 

14 to the plan or arrangement for the 2- 

15 plan-year period ending with the last 

16 plan year ending in the second pre17 ceding calendar year and it is not rea18 sonable to assume that an employer 

19 contribution will be made for the plan 

20 year ending in the preceding calendar 

21 year. 

22 ‘‘(2) EXCLUDABLE EMPLOYEES.—An employer 

23 may elect to exclude from treatment as applicable 

24 employees under paragraph (1)— 


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1 ‘‘(A) employees described in section 

2 410(b)(3), 

3 ‘‘(B) employees who have not attained the 

4 age of 18 before the beginning of the calendar 

5 year, 

6 ‘‘(C) employees who have not completed at 

7 least 3 months of service with the employer, 

8 ‘‘(D) in the case of an employer that main9 tains a qualified plan or arrangement which 

10 generally excludes employees who have not sat11 isfied the eligibility requirements described in 

12 section 410(a)(1)(A) (without regard to section 

13 410(a)(1)(B)), employees who have not yet sat14 isfied such requirements, 

15 ‘‘(E) employees who are eligible to make 

16 salary reduction contributions under an ar17 rangement which meets the requirements of 

18 section 403(b), and 

19 ‘‘(F) all employees of the employer if the 

20 employer maintains an arrangement described 

21 in section 408(p). 

22 ‘‘(3) QUALIFIED PLAN OR ARRANGEMENT.— 

23 The term ‘qualified plan or arrangement’ means a 

24 plan, contract, pension, or trust described in section 

25 219(g)(5). 


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1 ‘‘(4) EXCEPTION FOR EMPLOYEES OF GOVERN2 MENTS AND CHURCHES.—The term ‘applicable em3 ployee’ shall not include an employee of— 

4 ‘‘(A) a government or entity described in 

5 section 414(d), or 

6 ‘‘(B) a church or a convention or associa7 tion of churches which is exempt from tax 

8 under section 501, including any employee de9 scribed in section 414(e)(3)(B). 

10 ‘‘(5) DESIGNATION OF APPLICABLE EMPLOY11 EES.—The Secretary shall issue guidelines for deter12 mining the class or classes of employees to be cov13 ered by a payroll deposit IRA arrangement. Such 

14 guidelines shall provide that if an employer elects 

15 under paragraph (2) to exclude employees from the 

16 arrangement, the employer shall specify the classi17 fication or categories of employees who are not so 

18 covered. 

19 ‘‘(d) PAYROLL DEPOSIT IRA CONTRIBUTIONS

20 TREATED LIKE OTHER CONTRIBUTIONS TO INDIVIDUAL

21 RETIREMENT PLANS.— 

22 ‘‘(1) TAX TREATMENT UNAFFECTED.—The fact 

23 that a contribution to an individual retirement plan 

24 is made on behalf of an employee under a payroll de25 posit IRA arrangement instead of being made diVerDate Aug 31 2005 01:29 Apr 21, 2007 Jkt 030505 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S1141.IS S1141

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1 rectly by the employee shall not affect the deduct2 ibility or other tax treatment of the contribution or 

3 of other amounts under this title. 

4 ‘‘(2) PAYROLL SAVINGS CONTRIBUTIONS TAKEN

5 INTO ACCOUNT.—Any contribution made on behalf 

6 of an employee under a payroll deposit IRA arrange7 ment shall be taken into account in applying the lim8 itations on contributions to individual retirement 

9 plans and the other provisions of this title applicable 

10 to individual retirement plans as if the contribution 

11 had been made directly by the employee. 

12 ‘‘(e) EXCEPTION FOR CERTAIN SMALL AND NEW

13 EMPLOYERS.— 

14 ‘‘(1) IN GENERAL.—The requirements of this 

15 section shall not apply for any calendar year to an 

16 employer if— 

17 ‘‘(A) the employer did not have more than 

18 10 employees who received at least $5,000 of 

19 compensation from the employer for the pre20 ceding calendar year, or 

21 ‘‘(B) was not in existence at all times dur22 ing the 2 preceding calendar years and did not 

23 have more than 100 employees who received at 

24 least $5,000 of compensation from the employer 


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1 on any day during either of the 2 preceding cal2 endar years. 

3 ‘‘(2) OPERATING RULES.—In determining the 

4 number of employees for purposes of this sub5 section— 

6 ‘‘(A) any rule applicable in determining the 

7 number of employees for purposes of section 

8 408(p)(2)(C) shall be applicable under this sub9 section, 

10 ‘‘(B) all members of the same family 

11 (within the meaning of section 318(a)(1)) shall 

12 be treated as 1 individual, and 

13 ‘‘(C) any reference to an employer shall in14 clude a reference to any predecessor employer. 

15 ‘‘(f) DEPOSITS TO INDIVIDUAL RETIREMENT PLANS

16 OTHER THAN THOSE SELECTED BY EMPLOYEE.— 

17 ‘‘(1) IN GENERAL.—An employer shall not be 

18 treated as failing to satisfy the requirements of this 

19 section or any other provision of this title merely be20 cause the employer makes all contributions (or all 

21 contributions on behalf of employees who do not 

22 specify an individual retirement plan, trustee, or 

23 issuer to receive the contributions) to individual re24 tirement plans specified in paragraph (2) or (4). 


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1 ‘‘(2) PLANS OF A DESIGNATED TRUSTEE OR

2 ISSUER.—An employer may elect to have contribu3 tions for all applicable employees participating in a 

4 payroll deposit IRA arrangement made to individual 

5 retirement plans of a designated trustee or issuer 

6 under the arrangement. The preceding sentence 

7 shall not apply unless each participant is notified in 

8 writing that the participant’s balance may be trans9 ferred without cost or penalty to another individual 

10 retirement plan established by or on behalf of the 

11 participant. 

12 ‘‘(3) PAYROLL TAX DEPOSIT PROCEDURE.—The 

13 Secretary, in consultation with the TSP II Board, 

14 shall establish a procedure under which an em15 ployer— 

16 ‘‘(A) may include with each deposit of tax 

17 required to be deducted and withheld under 

18 chapter 24 the aggregate amounts, for the pe19 riod covered by the deposit, which applicable 

20 employees have designated under subsection 

21 (b)(1)(A) (or are deemed to have designated 

22 under subsection (b)(2)(F)(ii) or under an auto23 matic enrollment arrangement described in sub24 section (g)) for contribution to individual retireVerDate Aug 31 2005 01:29 Apr 21, 2007 Jkt 030505 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S1141.IS S1141

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1 ment plans, established on behalf of the employ2 ees under paragraph (4), and 

3 ‘‘(B) specifies, in such manner as the Sec4 retary may prescribe, the following information 

5 for each applicable employee for whom a con6 tribution is to be made: 

7 ‘‘(i) The employee’s name and TIN. 

8 ‘‘(ii) The amount of the contribution. 

9 ‘‘(iii) The investment options selected 

10 by the employee (or deemed to have been 

11 selected by the employee under such auto12 matic enrollment arrangement) and the 

13 amount of the contribution allocated to 

14 each option. 

15 ‘‘(4) ESTABLISHMENT AND MAINTENANCE OF

16 ACCOUNTS UNDER PAYROLL TAX DEPOSIT PROCE17 DURE.— 

18 ‘‘(A) IN GENERAL.—Subject to the provi19 sions of this section and section 408C, the TSP 

20 II Board shall provide for the establishment 

21 and maintenance of individual retirement plans 

22 (including automatic IRAs) into which contribu23 tions may be deposited under paragraph (3). To 

24 the maximum extent practicable, the TSP II 

25 Board shall— 


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1 ‘‘(i) enter into contracts with persons 

2 eligible to be trustees of individual retire3 ment plans under section 408 to establish 

4 such plans, to provide the investment 

5 funds and investment management, and to 

6 provide notice, record keeping, and other 

7 administrative services, and 

8 ‘‘(ii) ensure that the costs of invest9 ment management and administration are 

10 kept to a minimum, including through con11 sideration of the use of investments which 

12 involve passive management and which 

13 seek to replicate the performance of a por14 tion of the market. 

15 ‘‘(B) PAYROLL DEPOSIT FEATURES.—The 

16 TSP II Board shall establish procedures so that 

17 contributions may be made to individual retire18 ment plans (including automatic IRAs) under 

19 paragraph (3) without undue administrative or 

20 paperwork requirements on participating em21 ployers. Such procedures shall ensure that only 

22 1 such plan may be established for each TIN. 

23 ‘‘(C) LIMITATION ON ROLLOVERS.—If— 


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1 ‘‘(i) any amount is paid or distributed 

2 out of an individual retirement plan estab3 lished under this paragraph, and 

4 ‘‘(ii) such amount is paid into an indi5 vidual retirement plan which was not es6 tablished under this paragraph, 

7 the payment described in clause (ii) shall be 

8 treated as a rollover contribution for purposes 

9 of section 408(d)(3) if and only if the balance 

10 to the credit of the individual in such individual 

11 retirement plan or arrangement immediately be12 fore the payment described in clause (i) was at 

13 least $15,000. 

14 ‘‘(g) COORDINATION WITH AUTOMATIC ENROLL15 MENT AND OTHER DEFAULT ELECTION PROVISIONS.— 

16 ‘‘(1) IN GENERAL.—Contributions under a pay17 roll deposit IRA arrangement may be made pursuant 

18 to an automatic enrollment arrangement. 

19 ‘‘(2) AUTOMATIC ENROLLMENT ARRANGE20 MENT.—The term ‘automatic enrollment arrange21 ment’ means an arrangement under a payroll deposit 

22 IRA arrangement and subject to rules prescribed by 

23 the Secretary— 

24 ‘‘(A) under which an individual may elect 

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1 tributions to an individual account plan on be2 half of the individual, or to the individual di3 rectly in cash, 

4 ‘‘(B) under which the individual is treated 

5 as having elected to have the employer make 

6 such contributions in an amount equal to a 

7 specified percentage of compensation or dollar 

8 amount until the individual specifically elects 

9 not to have such contributions made (or specifi10 cally elects to have such contributions made at 

11 a different percentage or in a different 

12 amount), and 

13 ‘‘(C) which meets notice requirements sub14 stantially similar to those described in section 

15 414(w)(4). 

16 ‘‘(3) DEFAULT INVESTMENTS.—If an employee 

17 is deemed under an automatic enrollment arrange18 ment to have made an election to participate in a 

19 payroll deposit IRA arrangement— 

20 ‘‘(A) the employee shall be deemed to have 

21 made an election to make contributions in the 

22 amount specified in paragraph (4), 

23 ‘‘(B) such contributions shall be trans24 ferred to— 

25 ‘‘(i) an automatic IRA, or 


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1 ‘‘(ii) if the employer has made an elec2 tion under subsection (f)(2), to an indi3 vidual retirement plan of the designated 

4 trustee or issuer but only if the require5 ments of subparagraph (C) are met with 

6 respect to such individual retirement plan, 

7 and 

8 ‘‘(C) such contributions shall be invested 

9 as provided in paragraph (5). 

10 ‘‘(4) AMOUNT OF CONTRIBUTIONS.— 

11 ‘‘(A) IN GENERAL.—The amount specified 

12 in this paragraph is 3 percent of compensation. 

13 ‘‘(B) AUTHORITY OF BOARD TO PROVIDE

14 FOR ANNUAL INCREASES.—The TSP II Board 

15 may by regulation provide for annual increases 

16 in the percentage of compensation an employee 

17 is deemed to have elected under paragraph (2) 

18 but in no event shall the percentage of com19 pensation an employee is deemed to have elect20 ed exceed 8 percent. 

21 ‘‘(C) CONTRIBUTION LIMIT.—The con22 tributions under paragraph (2) on behalf of an 

23 employee for any calendar year shall not exceed 

24 the dollar limits applicable to the employee for 

25 the calendar year under section 219 or 408A. 


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1 ‘‘(5) INVESTMENT IN LIFE CYCLE FUND OR

2 OTHER INVESTMENTS SPECIFIED BY THE BOARD.— 

3 Amounts contributed under paragraph (3) shall be 

4 invested in— 

5 ‘‘(A) a life cycle fund similar to the life 

6 cycle funds offered under the Thrift Savings 

7 Fund established under subchapter III of chap8 ter 84 of title 5, United States Code, or 

9 ‘‘(B) such other investment or investments 

10 as the TSP II Board specifies in regulations 

11 (which shall be promulgated after taking into 

12 account, but not necessarily conforming to, reg13 ulations prescribed by the Secretary of Labor 

14 under section 404(c)(5) of the Employee Retire15 ment Income Security Act of 1974) and which 

16 entails asset allocation and extensive diversifica17 tion. 

18 ‘‘(6) COORDINATION WITH WITHHOLDING.— 

19 The Secretary shall modify the withholding exemp20 tion certificate under section 3402(f) so that any no21 tice and election requirements with respect to an 

22 automatic enrollment arrangement which is part of 

23 a payroll deposit IRA arrangement may be met 

24 through the use of such certificate. 


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1 ‘‘(h) MODEL NOTICE.—The Secretary, in consulta2 tion with the TSP II Board, shall— 

3 ‘‘(1) provide a model notice, written in a man4 ner calculated to be understandable to the average 

5 worker, that is simple for employers to use— 

6 ‘‘(A) to notify employees of the require7 ment under this section for the employer to pro8 vide certain employees with the opportunity to 

9 participate in a payroll deposit IRA arrange10 ment, and 

11 ‘‘(B) to satisfy the requirements of sub12 section (b)(2)(D), 

13 ‘‘(2) provide uniform forms for enrollment, in14 cluding automatic enrollment, in a payroll deposit 

15 IRA arrangement, and 

16 ‘‘(3) establish a web site or other electronic 

17 means for small employers to access and use to ob18 tain information on payroll deposit IRA arrange19 ments and to obtain required notices and forms. 

20 ‘‘(i) CROSS REFERENCE.—For provision preempting 

21 conflicting State laws, see section 2(g) of the Automatic 

22 IRA Act of 2007.’’. 

23 (b) NOTICE OF AVAILABILITY OF INVESTMENT

24 GUIDELINES.—Section 408(i) of the Internal Revenue 

25 Code of 1986 (relating to reports) is amended by adding 


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1 at the end the following new sentence: ‘‘Any report fur2 nished under paragraph (2) to an individual shall include 

3 notice of the availability of, and methods of acquiring, the 

4 basic investment guidelines prepared by the Secretary of 

5 Labor.’’. 

6 (c) DEVELOPMENT OF BASIC INVESTMENT GUIDE7 LINES.— 

8 (1) IN GENERAL.—The Secretary of Labor 

9 shall, in consultation with the Secretary of Treasury, 

10 develop and publish basic guidelines for investing for 

11 retirement. Except as otherwise provided by the Sec12 retary of Labor, such guidelines shall include— 

13 (A) information on the benefits of diver14 sification, 

15 (B) information on the essential dif16 ferences, in terms of risk and return, between 

17 various pension plan investments, including 

18 stocks, bonds, mutual funds, and money market 

19 investments, 

20 (C) information on how an individual’s 

21 pension plan investment allocations may differ 

22 depending on the individual’s age and years to 

23 retirement and on other factors determined by 

24 the Secretary of Labor, 


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1 (D) sources of information where individ2 uals may learn more about pension rights, indi3 vidual investing, and investment advice, and 

4 (E) such other information related to indi5 vidual investing as the Secretary of Labor de6 termines appropriate. 

7 (2) CALCULATION INFORMATION.—The guide8 lines under paragraph (1) shall include addresses for 

9 Internet sites and worksheets which a participant or 

10 beneficiary in a pension plan may use to calculate— 

11 (A) the retirement age value of the partici12 pant’s or beneficiary’s nonforfeitable pension 

13 benefits under the plan (expressed as an annu14 ity amount and determined by reference to var15 ied historical annual rates of return and annu16 ity interest rates), and 

17 (B) other important amounts relating to 

18 retirement savings, including the amount which 

19 a participant or beneficiary would be required 

20 to save annually to provide a retirement income 

21 equal to various percentages of their current 

22 salary (adjusted for expected growth prior to 

23 retirement). 

24 (3) PUBLIC COMMENT.—The Secretary of 

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1 ment on proposed guidelines before publishing the 

2 final guidelines. 

3 (4) RULES RELATING TO GUIDELINES.—The 

4 guidelines under paragraph (1)— 

5 (A) shall be written in a manner calculated 

6 to be understood by the average plan partici7 pant, and 

8 (B) may be delivered in written, electronic, 

9 or other appropriate manner to the extent such 

10 manner would ensure that the guidelines are 

11 reasonably accessible to participants and bene12 ficiaries. 

13 (d) PENALTY FOR FAILURE TO PROVIDE ACCESS TO

14 PAYROLL SAVINGS ARRANGEMENTS.—Chapter 43 of the 

15 Internal Revenue Code of 1986 (relating to qualified pen16 sion, etc., plans) is amended by adding at the end the fol17 lowing new section: 

18 ‘‘SEC. 4980H. REQUIREMENTS FOR EMPLOYERS TO PRO19 VIDE EMPLOYEES ACCESS TO PAYROLL DE20 POSIT IRA ARRANGEMENTS. 

21 ‘‘(a) GENERAL RULE.—There is hereby imposed a 

22 tax on any failure by an employer to meet the require23 ments of subsection (d) for a calendar year. 

24 ‘‘(b) AMOUNT.— 


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1 ‘‘(1) IN GENERAL.—The amount of the tax im2 posed by subsection (a) on any failure for any cal3 endar year shall be $100 with respect to each em4 ployee to whom such failure relates. 

5 ‘‘(2) TAX NOT TO APPLY WHERE FAILURE NOT

6 DISCOVERED AND REASONABLE DILIGENCE EXER7 CISED.—No tax shall be imposed by subsection (a) 

8 on any failure during any period for which it is es9 tablished to the satisfaction of the Secretary that the 

10 employer subject to liability for the tax did not know 

11 that the failure existed and exercised reasonable dili12 gence to meet the requirements of subsection (d). In 

13 no event shall the tax be imposed with respect to 

14 any failure that ends before the expiration of 90 

15 days after the employer has responded or has had a 

16 reasonable opportunity to respond to a request for 

17 confirmation of compliance under subsection (c). 

18 ‘‘(3) TAX NOT TO APPLY TO FAILURES COR19 RECTED WITHIN 30 DAYS.—No tax shall be imposed 

20 by subsection (a) on any failure if— 

21 ‘‘(A) the employer subject to liability for 

22 the tax under subsection (a) exercised reason23 able diligence to meet the requirements of sub24 section (d), and 


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1 ‘‘(B) the employer provides the payroll de2 posit IRA arrangement described in section 

3 408B to each employee eligible to participate in 

4 the arrangement by the end of the 30-day pe5 riod beginning on the first date the employer 

6 knew, or exercising reasonable diligence would 

7 have known, that such failure existed. 

8 ‘‘(4) WAIVER BY SECRETARY.—In the case of a 

9 failure which is due to reasonable cause and not to 

10 willful neglect, the Secretary may waive part or all 

11 of the tax imposed by subsection (a) to the extent 

12 that the payment of such tax would be excessive or 

13 otherwise inequitable relative to the failure involved. 

14 ‘‘(c) PROCEDURES FOR NOTICE.—Not later than 6 

15 months after the date of the enactment of this section, 

16 the Secretary shall prescribe and implement procedures 

17 for obtaining from employers confirmation that such em18 ployers are in compliance with the requirements of sub19 section (d). The Secretary, in the Secretary’s discretion, 

20 may prescribe that the confirmation shall be obtained on 

21 an annual or less frequent basis, and may use for this 

22 purpose the annual report or quarterly report for employ23 ment taxes, or such other means as the Secretary may 

24 deem advisable. 


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1 ‘‘(d) REQUIREMENT TO PROVIDE EMPLOYEE ACCESS

2 TO PAYROLL DEPOSIT IRA ARRANGEMENTS.—The re3 quirements of this subsection are met if the employer 

4 meets the requirements of section 408B.’’. 

5 (e) COORDINATION WITH ERISA FIDUCIARY DU6 TIES.—Section 404(c)(2) of Employee Retirement Income 

7 Security Act of 1974 (29 U.S.C. 1104(c)(2)) is amend8 ed— 

9 (1) by inserting ‘‘or an individual retirement 

10 plan designated by the employer under section 408B 

11 of such Code’’ after ‘‘1986’’, 

12 (2) by inserting ‘‘(7 days after notice has been 

13 given to an employee that an individual retirement 

14 plan has been established on behalf of the employee 

15 under section 408B of such Code)’’ after ‘‘estab16 lished’’ in subparagraph (C), and 

17 (3) by inserting ‘‘or with respect to an indi18 vidual retirement plan designated by an employer 

19 under section 408B of such Code’’ after ‘‘arrange20 ment’’ in the last sentence. 

21 (f) CONFORMING AMENDMENTS.— 

22 (1) The table of sections for subpart A of part 

23 I of subchapter A of chapter 1 of the Internal Rev24 enue Code of 1986 is amended by inserting after the 


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1 item relating to section 408A the following new 

2 item: 

‘‘Sec. 408B. Right to payroll deposit IRA arrangements at work.’’. 

3 (2) The table of sections for chapter 43 of such 

4 Code is amended by adding at the end the following 

5 new item: 

‘‘Sec. 4980H. Requirements for employers to provide employees access to payroll deposit IRA arrangements.’’. 

6 (g) PREEMPTION OF CONFLICTING STATE LAWS.— 

7 The amendments made by this section shall supersede any 

8 law of a State that would directly or indirectly prohibit 

9 or restrict the establishment or operation of a payroll de10 posit IRA arrangement meeting the requirements of sec11 tion 408B of the Internal Revenue Code of 1986 (includ12 ing the inclusion in any such arrangement of an automatic 

13 enrollment arrangement as defined in section 408B(g) of 

14 such Code). 

15 (h) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to calendar years beginning after 

17 December 31, 2008. 

18 SEC. 3. CREDIT FOR SMALL EMPLOYERS MAINTAINING 

19 PAYROLL DEPOSIT IRA ARRANGEMENTS. 

20 (a) IN GENERAL.—Subpart D of part IV of sub21 chapter A of chapter 1 of the Internal Revenue Code of 

22 1986 (relating to business related credits) is amended by 

23 adding at the end the following new section: 


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1 ‘‘SEC. 45O. SMALL EMPLOYER PAYROLL DEPOSIT IRA AR2 RANGEMENT COSTS. 

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

4 in the case of an eligible employer maintaining a payroll 

5 deposit IRA arrangement meeting the requirements of sec6 tion 408B (without regard to whether or not the employer 

7 is required to maintain the arrangement), the small em8 ployer payroll deposit IRA arrangement cost credit deter9 mined under this section for any taxable year is the 

10 amount determined under subsection (b). 

11 ‘‘(b) AMOUNT OF CREDIT.— 

12 ‘‘(1) IN GENERAL.—The amount of the credit 

13 determined under this section for any taxable year 

14 with respect to an eligible employer shall be equal to 

15 the lesser of— 

16 ‘‘(A) $25 multiplied by the number of ap17 plicable employees (within the meaning of sec18 tion 408B(c)) for whom contributions are made 

19 under the payroll deposit IRA arrangement re20 ferred to in subsection (a) for the calendar year 

21 in which the taxable year begins, or 

22 ‘‘(B) $250. 

23 ‘‘(2) DURATION OF CREDIT.—No credit shall be 

24 determined under this section for any taxable year 

25 other than a taxable year which begins in the first 

26 2 calendar years in which the eligible employer 


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1 maintains a payroll deposit IRA arrangement meet2 ing the requirements of section 408B. 

3 ‘‘(3) COORDINATION WITH SMALL EMPLOYER

4 STARTUP CREDIT.—No credit shall be allowed under 

5 this section for any taxable year if a credit is deter6 mined under section 45E for the taxable year. 

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

8 section, the term ‘eligible employer’ means, with respect 

9 to any calendar year in which the taxable year begins, an 

10 employer which maintains a payroll deposit IRA arrange11 ment meeting the requirements of section 408B and 

12 which, on each day during the preceding calendar year, 

13 had no more than 100 employees.’’. 

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 (30), 

18 by striking the period at the end of paragraph (31) and 

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

20 new paragraph: 

21 ‘‘(32) in the case of an eligible employer (as de22 fined in section 45O(c)) maintaining a payroll de23 posit IRA arrangement meeting the requirements of 

24 section 408B, the small employer payroll deposit 


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1 IRA arrangement cost credit determined under sec2 tion 45O(a).’’ 

3 (c) CLERICAL AMENDMENT.—The table of sections 

4 for subpart D of part IV of subchapter A of chapter 1 

5 of the Internal Revenue Code of 1986 is amended by add6 ing at the end the following new item: 

‘‘Sec. 45O. Small employer payroll deposit IRA arrangement costs.’’. 

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

8 this section shall apply to taxable years beginning after 

9 December 31, 2008. 

10 SEC. 4. ESTABLISHMENT OF AUTOMATIC IRAS. 

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

12 A of chapter 1 of the Internal Revenue Code of 1986 (re13 lating to pension, profit-sharing, stock bonus plans, etc.), 

14 as amended by section 2, is amended by inserting after 

15 section 408B the following new section: 

16 ‘‘SEC. 408C. AUTOMATIC IRAS. 

17 ‘‘(a) GENERAL RULE.—An automatic IRA shall be 

18 treated for purposes of this title in the same manner as 

19 an individual retirement plan. An automatic IRA may also 

20 be treated as a Roth IRA for purposes of this title if it 

21 meets the requirements of section 408A. 

22 ‘‘(b) AUTOMATIC IRA.—For purposes of this section, 

23 the term ‘automatic IRA’ means an individual retirement 

24 plan (as defined in section 7701(a)(37)) which meets the 


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1 investment and fee requirements under the regulations 

2 under subsection (c). 

3 ‘‘(c) INVESTMENT AND FEE REQUIREMENTS.— 

4 ‘‘(1) IN GENERAL.—The TSP II Board, in con5 sultation with the Secretary and the Secretary of 

6 Labor, shall, not later than 1 year after the date of 

7 the enactment of this section, prescribe regulations 

8 which set forth the requirements of this subsection 

9 which an individual retirement plan must meet in 

10 order to be treated as an automatic IRA. 

11 ‘‘(2) INVESTMENT OPTIONS.—The regulations 

12 under paragraph (1) shall provide that an automatic 

13 IRA shall allow the individual on whose behalf the 

14 individual retirement plan is established to invest 

15 contributions to, and earnings of, the plan in all of 

16 the following investment options: 

17 ‘‘(A) Options which are similar to all in18 vestment options which are available (at the 

19 time the plan is established) to a participant in 

20 the Thrift Savings Fund established under sub21 chapter III of chapter 84 of title 5, United 

22 States Code. 

23 ‘‘(B) Any other investment option specified 

24 in the regulations. 


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1 Such regulations shall specify which of the invest2 ment options shall be treated as default investment 

3 options for purposes of section 408B(g)(5). 

4 ‘‘(3) INVESTMENT FEES.— 

5 ‘‘(A) IN GENERAL.—The regulations under 

6 paragraph (1) shall provide that an automatic 

7 IRA shall not charge any investment fees 

8 which, in the aggregate, are not reasonable (as 

9 determined under such regulations). 

10 ‘‘(B) INVESTMENT FEES.—For purposes of 

11 this paragraph, the term ‘investment fees’ in12 cludes any fee, commission, asset management 

13 fee, compensation for services, or any other 

14 charge or fee specified in the regulations under 

15 paragraph (1) which is imposed with respect to 

16 the automatic IRA.’’. 

17 (b) STUDIES OF SPOUSAL CONSENT REQUIREMENTS

18 AND PROMOTION OF CERTAIN LIFETIME INCOME AR19 RANGEMENTS.— 

20 (1) IN GENERAL.—The Secretary of the Treas21 ury and the Secretary of Labor shall jointly conduct 

22 a separate study of the feasibility and desirability of 

23 each of the following: 

24 (A) Extending to automatic IRAs spousal 

25 consent requirements similar to, or based on, 


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1 those that apply under the Federal employees’ 

2 Thrift Savings Plan, including consideration of 

3 whether modifications of such requirements are 

4 necessary to apply them to automatic IRAs. 

5 (B) Promoting the use of low-cost annu6 ities, longevity insurance, or other guaranteed 

7 lifetime income arrangements in automatic 

8 IRAs, including consideration of— 

9 (i) appropriate means of arranging 

10 for, or encouraging, individuals to receive 

11 at least a portion of their distributions in 

12 some form of low-cost guaranteed lifetime 

13 income, and 

14 (ii) issues presented by possible addi15 tional differences in, or uniformity of, pro16 visions governing different IRAs. 

17 (2) REPORT.—Not later than 18 months after 

18 the date of the enactment of this Act, the Secre19 taries shall report the results of each study con20 ducted under subsection (a), together with any rec21 ommendations for legislative changes, to the Com22 mittees on Finance and Health, Education, Labor, 

23 and Pensions of the Senate and the Committees on 

24 Ways and Means and Education and Labor of the 

25 House of Representatives. 


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1 (c) MANDATORY TRANSFERS.—Section 

2 401(a)(31)(B) of the Internal Revenue Code of 1986 is 

3 amended— 

4 (1) by inserting ‘‘(including an automatic 

5 IRA)’’ after ‘‘individual retirement plan’’ each place 

6 it appears, and 

7 (2) by adding at the end the following new sen8 tence: ‘‘Any amount so transferred (and any earn9 ings thereon) shall be invested in a default invest10 ment described in section 408B(g)(5).’’ 

11 (d) CLERICAL AMENDMENT.—The table of sections 

12 for subpart A of part I of subchapter A of chapter 1 of 

13 the Internal Revenue Code of 1986 is amended by insert14 ing after the item relating to section 408B the following 

15 new item: 

‘‘Sec. 408C. Automatic IRAs.’’. 

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

17 this section shall apply to calendar years beginning on or 

18 after the date on which proposed and temporary or final 

19 regulations described in section 408C(c) of the Internal 

20 Revenue Code of 1986 (as added by this Act) are issued. 

21 SEC. 5. ESTABLISHMENT OF TSP II BOARD. 

22 (a) ESTABLISHMENT.—There is established in the ex23 ecutive branch of the Government a TSP II Board. The 

24 board shall be established and maintained in the same 

25 manner as the Federal Retirement Thrift Investment 


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1 Board under subchapter VII of chapter 84 of title 5, 

2 United States Code. 

3 (b) EXECUTIVE DIRECTOR.—The TSP II Board shall 

4 appoint an Executive Director in a similar manner and 

5 with similar functions as the Executive Director of the 

6 Federal Retirement Thrift Investment Board under sec7 tion 8474 of title 5, United States Code. 

8 (c) DUTIES OF BOARD.—The TSP II Board shall es9 tablish policies and procedures for— 

10 (1) establishment and maintenance of individual 

11 retirement plans under section 408B(f)(3) of the In12 ternal Revenue Code of 1986, 

13 (2) the investment and management of con14 tributions to such individual retirement plans, 

15 (3) the amount of contributions, and the invest16 ment of such contributions, under automatic enroll17 ment arrangements under section 408B(g) of such 

18 Code, including the designation of investment funds 

19 in which such contributions may be invested, and 

20 (4) the establishment of automatic IRAs under 

21 section 408C of such Code, including the issuance of 

22 regulations under subsection (c) of such section. 

23 (d) BEST PRACTICES.—The TSP II Board shall, on 

24 a continual basis, prescribe and encourage best practices 

25 (including cost efficiencies and innovations) in enrollment, 


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1 investment, distribution, and other procedures or arrange2 ments relating to retirement savings and investment. In 

3 carrying out its responsibilities under this section, the 

4 TSP II Board may implement (by contract or otherwise) 

5 pilot projects to help assess the efficacy and workability 

6 of specific practices and arrangements. 

7 (e) EXPANSION OF USE OF IRAS BY SELF-EM8 PLOYED AND OTHER INDIVIDUALS.—The TSP II Board 

9 shall establish procedures to disseminate information 

10 (through use of the Internet and other appropriate means) 

11 to facilitate and encourage— 

12 (1) the use by self-employed and other individ13 uals of automatic debit and similar arrangements for 

14 investment in individual retirement plans, including 

15 automatic IRAs, 

16 (2) efforts by voluntary associations to promote 

17 savings in individual retirement plans, including 

18 automatic IRAs, by their members and others, and 

19 (3) the direct deposit of Federal and State in20 come tax refunds in individual retirement plans, in21 cluding automatic IRAs. 

22 (f) EXCLUSIVE INTEREST.—The members of the 

23 TSP II Board shall discharge their responsibilities solely 

24 in the interest of participants and beneficiaries under indiVerDate Aug 31 2005 01:29 Apr 21, 2007 Jkt 030505 PO 00000 Frm 00035 Fmt 6652 Sfmt 6201 E:\BILLS\S1141.IS S1141

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1 vidual retirement plans described in section 408B of the 

2 Internal Revenue Code of 1986. 

3 (g) OTHER PROVISIONS MADE APPLICABLE.—The 

4 provisions of subsections (f)(3), (g), (i), and (j) of section 

5 8472 of title 5, United States Code, shall apply to the 

6 TSP II Board. 

Æ 


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