II 

109TH CONGRESS 

2D SESSION S. 3952 

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 

SEPTEMBER 27, 2006 

Mr. BINGAMAN (for himself and Mr. SMITH) 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 2006’’. 


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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 (relating to pension, profit-sharing, stock 

7 bonus plans, etc.) is amended by inserting after section 

8 408A the following new section: 

9 ‘‘SEC. 408B. RIGHT TO PAYROLL DEPOSIT IRA ARRANGE10 MENTS AT WORK. 

11 ‘‘(a) REQUIREMENT TO PROVIDE PAYROLL DEPOSIT

12 IRA ARRANGEMENT.—Each employer (other than an em13 ployer described in subsection (e)) shall provide to each 

14 applicable employee of the employer for any calendar year 

15 the opportunity to participate in a payroll deposit IRA ar16 rangement which meets the requirements of this section. 

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

18 purposes of this section— 

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

20 IRA arrangement’ means a written arrangement of 

21 an employer— 

22 ‘‘(A) under which an applicable employee 

23 eligible to participate in the arrangement may 

24 elect to contribute to an individual retirement 

25 plan established by or on behalf of the employee 

26 by having the employer make periodic direct deVerDate Aug 31 2005 00:35 Sep 29, 2006 Jkt 049200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S3952.IS S3952

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1 posit or other payroll deposit payments (includ2 ing electronic payments) to the plan by payroll 

3 deduction, and 

4 ‘‘(B) which meets the requirements of 

5 paragraph (2). 

6 ‘‘(2) ADMINISTRATIVE REQUIREMENTS.—The 

7 requirements of this paragraph are met with respect 

8 to any payroll deposit IRA arrangement if— 

9 ‘‘(A) the employer must make the pay10 ments elected under paragraph (1)(A) on or be11 fore the later of— 

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

13 tax required to be deducted and withheld 

14 under chapter 24 (relating to collection of 

15 income tax at source on wages) for the 

16 payroll period to which such payments re17 late, or 

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

19 day of the month with respect to which the 

20 payments are to be made, 

21 ‘‘(B) subject to a requirement for reason22 able notice, an employee may elect to terminate 

23 participation in the arrangement at any time 

24 during a calendar year, except that if an em25 ployee so terminates, the arrangement may proVerDate Aug 31 2005 00:35 Sep 29, 2006 Jkt 049200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S3952.IS S3952

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1 vide that the employee may not elect to resume 

2 participation until the beginning of the next cal3 endar year, 

4 ‘‘(C) each employee eligible to participate 

5 may elect, during the 60-day period or other pe6 riod specified by the Secretary before the begin7 ning of any calendar year (and during the 60- 

8 day period or other period specified by the Sec9 retary before the first day the employee is eligi10 ble to participate), to participate in the ar11 rangement, or to modify the employee’s election 

12 under the arrangement (including the amounts 

13 subject to the arrangement and the manner in 

14 which such amounts are invested), for such 

15 year, 

16 ‘‘(D) the employer provides— 

17 ‘‘(i) immediately before the beginning 

18 of each period described in subparagraph 

19 (C), a notice to each employee of the em20 ployee’s opportunity to make the election 

21 and the maximum amount which may be 

22 contributed to an individual retirement 

23 plan on an annual basis, and 

24 ‘‘(ii) if the arrangement includes an 

25 automatic contribution arrangement, the 


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1 notices required under subsection (g) with 

2 respect to the automatic contribution ar3 rangement, 

4 ‘‘(E) subject to subsection (f), the arrange5 ment provides that an employee may elect to 

6 have contributions made to any individual re7 tirement plan specified by the employee, and 

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

9 an automatic contribution arrangement— 

10 ‘‘(i) the arrangement requires the em11 ployer to take all reasonable actions to so12 licit from all employees eligible to partici13 pate in the arrangement an explicit elec14 tion to either participate or not to partici15 pate in the arrangement, and 

16 ‘‘(ii) the arrangement provides that if 

17 an employee fails to make an explicit elec18 tion under clause (i) within the time pre19 scribed under the arrangement, the em20 ployee will be treated as having made an 

21 election to participate in the arrangement 

22 (and amounts shall be invested on behalf 

23 of the participant) in the same manner as 

24 if the arrangement had included an autoVerDate Aug 31 2005 00:35 Sep 29, 2006 Jkt 049200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S3952.IS S3952

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1 matic contribution arrangement under sub2 section (g). 

3 ‘‘(c) APPLICABLE EMPLOYEE DEFINED; RELATED

4 DEFINITIONS AND RULES.—For purposes of this sec5 tion— 

6 ‘‘(1) APPLICABLE EMPLOYEE.— 

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

8 employee’ means, with respect to any calendar 

9 year, any employee— 

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

11 qualified plan or arrangement maintained 

12 by the employer for service for the pre13 ceding calendar year, and 

14 ‘‘(ii) with respect to whom it is rea15 sonable to expect that the employee will 

16 not be eligible during the calendar year 

17 under such a qualified plan or arrange18 ment. 

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

20 subparagraph (A)(i)— 

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

22 be treated as eligible under a plan for a 

23 preceding calendar year if, as of the last 

24 day of the last plan year ending in the preVerDate Aug 31 2005 00:35 Sep 29, 2006 Jkt 049200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S3952.IS S3952

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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 subparagraph (A)— 


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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) employees who will be eligible to par9 ticipate in a qualified plan or arrangement of 

10 the employer upon completion of eligibility re11 quirements described in section 410(a)(1)(A) 

12 (without regard to section 410(a)(1)(B)), 

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

14 salary reduction contributions under an ar15 rangement which meets the requirements of 

16 section 403(b), and 

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

18 employer maintains an arrangement described 

19 in section 408(p). 

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

21 The term ‘qualified plan or arrangement’ means a 

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

23 219(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 00:35 Sep 29, 2006 Jkt 049200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S3952.IS S3952

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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— 

24 ‘‘(A) individual retirement plans specified 

25 in paragraph (2), or 


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1 ‘‘(B) individual retirement plans under the 

2 payroll tax deposit system established under 

3 paragraph (3). 

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

5 ISSUER.—An employer may elect to have contribu6 tions for all applicable employees participating in a 

7 payroll deposit IRA arrangement made to individual 

8 retirement plans of a designated trustee or issuer 

9 under the arrangement. The preceding sentence 

10 shall not apply unless each participant is notified in 

11 writing that the participant’s balance may be trans12 ferred without cost or penalty to another individual 

13 retirement plan established by or on behalf of the 

14 participant. 

15 ‘‘(3) PAYROLL TAX DEPOSIT SYSTEM.—The 

16 Secretary, in consultation with the TSP II Board, 

17 shall establish a system under which an employer— 

18 ‘‘(A) includes with each deposit of tax re19 quired to be deducted and withheld under chap20 ter 24 the aggregate amounts, for the period 

21 covered by the deposit, which applicable employ22 ees designated under subsection (b)(1)(A) (or 

23 are deemed to have designated under subsection 

24 (b)(2)(F)(ii) or under an automatic contribu25 tion arrangement described in subsection (g)) 


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1 for contribution to individual retirement plans, 

2 established on behalf of the employees under 

3 paragraph (4), and 

4 ‘‘(B) specifies, in such manner as the Sec5 retary may prescribe, for each applicable em6 ployee for whom a contribution is to be made 

7 the following information: 

8 ‘‘(i) The employee’s name and TIN. 

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

10 ‘‘(iii) The investment options selected 

11 by the employee (or deemed to have been 

12 selected by the employee under such auto13 matic contribution arrangement) and the 

14 amount of the contribution allocated to 

15 each option. 

16 ‘‘(4) ESTABLISHMENT AND MAINTENANCE OF

17 ACCOUNTS UNDER PAYROLL TAX DEPOSIT SYS18 TEM.— 

19 ‘‘(A) IN GENERAL.—Subject to the provi20 sions of this section and section 408C, the TSP 

21 II Board shall provide for the establishment 

22 and maintenance of individual retirement plans 

23 (including automatic IRAs) into which contribu24 tions may be deposited through the payroll tax 


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1 deposit system. To the maximum extent prac2 ticable, the TSP II Board shall— 

3 ‘‘(i) enter into contracts with persons 

4 eligible to be trustees of individual retire5 ment plans under section 408 to establish 

6 such plans, to provide the investment 

7 funds and investment management, and to 

8 provide notice, record keeping, and other 

9 administrative services, and 

10 ‘‘(ii) ensure that the costs of invest11 ment management and administration are 

12 kept to a minimum, including through con13 sideration of the use of investments which 

14 involve passive management and which 

15 seek to replicate the performance of a por16 tion of the market. 

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

18 TSP II Board shall establish procedures so that 

19 contributions may be made to individual retire20 ment plans (including automatic IRAs) through 

21 the payroll tax deposit system described in 

22 paragraph (3) without undue administrative or 

23 paperwork requirements on employers partici24 pating in the payroll tax deposit system. Such 


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1 procedures shall ensure that only 1 such plan 

2 may be established for each TIN. 

3 ‘‘(C) LIMITATION ON ROLLOVERS TO

4 PLANS OUTSIDE THE SYSTEM.—If— 

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

6 out of an individual retirement plan estab7 lished under this paragraph, and 

8 ‘‘(ii) such amount is paid into an indi9 vidual retirement plan established outside 

10 of the payroll tax deposit system, 

11 the payment described in clause (ii) shall be 

12 treated as a rollover contribution for purposes 

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

14 to the credit of the individual in such individual 

15 retirement plan or arrangement immediately be16 fore the payment described in clause (i) was at 

17 least $15,000. 

18 ‘‘(g) COORDINATION WITH AUTOMATIC ENROLL19 MENT AND OTHER DEFAULT ELECTION PROVISIONS.— 

20 ‘‘(1) IN GENERAL.—A payroll deposit IRA ar21 rangement may provide that contributions under the 

22 arrangement will be made pursuant to an automatic 

23 contribution arrangement but only if the arrange24 ment meets requirements similar to the require25 ments applicable to an eligible automatic contribuVerDate Aug 31 2005 00:35 Sep 29, 2006 Jkt 049200 PO 00000 Frm 00015 Fmt 6652 Sfmt 6201 E:\BILLS\S3952.IS S3952

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1 tion arrangement under section 414(w). The Sec2 retary shall modify such requirements to the extent 

3 necessary to carry out the purposes of this section. 

4 ‘‘(2) DEFAULT INVESTMENTS.—If an employee 

5 is deemed under an automatic contribution arrange6 ment to have made an election to participate in a 

7 payroll deposit IRA arrangement— 

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

9 made an election to make contributions in the 

10 amount specified in paragraph (3), 

11 ‘‘(B) such contributions shall be trans12 ferred to— 

13 ‘‘(i) an automatic IRA, or, 

14 ‘‘(ii) if the employer has made an elec15 tion under subsection (f)(2), to an indi16 vidual retirement plan of the designated 

17 trustee or issuer but only if the require18 ments of subparagraph (C) are met with 

19 respect to such individual retirement plan, 

20 and 

21 ‘‘(C) such contributions shall be invested 

22 as provided in paragraph (4). 

23 ‘‘(3) AMOUNT OF CONTRIBUTIONS.— 

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

25 in this paragraph is 3 percent of compensation. 


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1 ‘‘(B) AUTHORITY OF BOARD TO PROVIDE

2 FOR ANNUAL INCREASES.—The TSP II Board 

3 may by regulation provide for annual increases 

4 in the percentage of compensation an employee 

5 is deemed to have elected under paragraph (2) 

6 but in no event shall the percentage of com7 pensation an employee is deemed to have elect8 ed exceed 8 percent. 

9 ‘‘(C) CONTRIBUTION LIMIT.—The con10 tributions under paragraph (2) on behalf of an 

11 employee for any calendar year shall not exceed 

12 the dollar limits applicable to the employee for 

13 the calendar year under section 219 or 408A. 

14 ‘‘(4) INVESTMENT IN LIFE CYCLE FUND OR

15 OTHER INVESTMENTS SPECIFIED BY THE BOARD.— 

16 Amounts contributed under paragraph (2) shall be 

17 invested in— 

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

19 cycle funds offered under the Thrift Savings 

20 Fund established under subchapter III of chap21 ter 84 of title 5, United States Code, or 

22 ‘‘(B) such other investment or investments 

23 as the TSP II Board specifies in regulations 

24 and which entails asset allocation and extensive 

25 diversification. 


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1 A fund or investment shall meet the requirements of 

2 this paragraph only if it is consistent with regula3 tions prescribed by the Secretary of Labor under 

4 section 404(c)(5) of the Employee Retirement In5 come Security Act of 1974. 

6 ‘‘(5) COORDINATION WITH WITHHOLDING.— 

7 The Secretary shall modify the withholding exemp8 tion certificate under section 3402(f) so that any no9 tice and election requirements with respect to an 

10 automatic contribution arrangement which is part of 

11 a payroll deposit IRA arrangement may be met 

12 through the use of such certificate. 

13 ‘‘(h) MODEL NOTICE.—The Secretary, in consulta14 tion with the TSP II Board, shall— 

15 ‘‘(1) provide a model notice, written in a man16 ner calculated to be understandable to the average 

17 worker, that is simple for employers to use— 

18 ‘‘(A) to notify employees of the require19 ment under this section for the employer to pro20 vide certain employees with the opportunity to 

21 participate in a payroll deposit IRA arrange22 ment, and 

23 ‘‘(B) to satisfy the requirements of sub24 section (b)(2)(D). 


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1 ‘‘(2) provide uniform forms for enrollment, in2 cluding automatic enrollment, in a payroll deposit 

3 IRA arrangement, and 

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

5 means for small employers to access and use to ob6 tain information on payroll deposit IRA arrange7 ments and to obtain required notices and forms.’’. 

8 (b) PREEMPTION OF CONFLICTING STATE LAWS.— 

9 Section 514(e)(1) of the Employee Retirement Income Se10 curity Act of 1974 (29 U.S.C. 1144(e)(1)), as added by 

11 section 902 of the Pension Protection Act of 2006, is 

12 amended to read as follows: 

13 ‘‘(1) IN GENERAL.—Notwithstanding any other 

14 provision of this section, this title shall supersede 

15 any law of a State which would directly or indirectly 

16 prohibit or restrict— 

17 ‘‘(A) the inclusion in any plan of an auto18 matic contribution arrangement, or 

19 ‘‘(B) the establishment or operation of a 

20 deposit IRA arrangement meeting the require21 ments of section 408B of the Internal Revenue 

22 Code of 1986 (and the inclusion in such ar23 rangement of an automatic contribution ar24 rangement). 


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1 The Secretary may prescribe regulations which 

2 would establish minimum standards that an auto3 matic contribution arrangement would be required to 

4 satisfy in order for this subsection to apply in the 

5 case of such arrangement. This subsection shall 

6 apply to a plan or arrangement without regard to 

7 whether this title applies to such plan or arrange8 ment.’’. 

9 (c) NOTICE OF AVAILABILITY OF INVESTMENT

10 GUIDELINES.—Section 408(i) (relating to reports) is 

11 amended by adding at the end the following new sentence: 

12 ‘‘Any report furnished under paragraph (2) to an indi13 vidual shall include notice of the availability of, and meth14 ods of acquiring, the basic investment guidelines prepared 

15 by the Secretary of Labor.’’. 

16 (d) DEVELOPMENT OF BASIC INVESTMENT GUIDE17 LINES.— 

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

19 shall, in consultation with the Secretary of Treasury, 

20 develop and publish basic guidelines for investing for 

21 retirement. Except as otherwise provided by the Sec22 retary of Labor, such guidelines shall include— 

23 (A) information on the benefits of diver24 sification, 


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1 (B) information on the essential dif2 ferences, in terms of risk and return, between 

3 various pension plan investments, including 

4 stocks, bonds, mutual funds, and money market 

5 investments, 

6 (C) information on how an individual’s 

7 pension plan investment allocations may differ 

8 depending on the individual’s age and years to 

9 retirement and on other factors determined by 

10 the Secretary of Labor, 

11 (D) sources of information where individ12 uals may learn more about pension rights, indi13 vidual investing, and investment advice, and 

14 (E) such other information related to indi15 vidual investing as the Secretary of Labor de16 termines appropriate. 

17 (2) CALCULATION INFORMATION.—The guide18 lines under paragraph (1) shall include addresses for 

19 Internet sites and worksheets which a participant or 

20 beneficiary in a pension plan may use to calculate— 

21 (A) the retirement age value of the partici22 pant’s or beneficiary’s nonforfeitable pension 

23 benefits under the plan (expressed as an annu24 ity amount and determined by reference to varVerDate Aug 31 2005 00:35 Sep 29, 2006 Jkt 049200 PO 00000 Frm 00021 Fmt 6652 Sfmt 6201 E:\BILLS\S3952.IS S3952

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1 ied historical annual rates of return and annu2 ity interest rates), and 

3 (B) other important amounts relating to 

4 retirement savings, including the amount which 

5 a participant or beneficiary would be required 

6 to save annually to provide a retirement income 

7 equal to various percentages of their current 

8 salary (adjusted for expected growth prior to 

9 retirement). 

10 (3) PUBLIC COMMENT.—The Secretary of 

11 Labor shall provide at least 90 days for public com12 ment on proposed guidelines before publishing the 

13 final guidelines. 

14 (4) RULES RELATING TO GUIDELINES.—The 

15 guidelines under paragraph (1)— 

16 (A) shall be written in a manner calculated 

17 to be understood by the average plan partici18 pant, and 

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

20 or other appropriate manner to the extent such 

21 manner would ensure that the guidelines are 

22 reasonably accessible to participants and bene23 ficiaries. 

24 (e) PENALTY FOR FAILURE TO PROVIDE ACCESS TO

25 PAYROLL SAVINGS ARRANGEMENTS.—Chapter 43 (relatVerDate Aug 31 2005 00:35 Sep 29, 2006 Jkt 049200 PO 00000 Frm 00022 Fmt 6652 Sfmt 6201 E:\BILLS\S3952.IS S3952

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1 ing to qualified pension, etc., plans) is amended by adding 

2 at the end the following new section: 

3 ‘‘SEC. 4980H. REQUIREMENTS FOR EMPLOYERS TO PRO4 VIDE EMPLOYEES ACCESS TO PAYROLL DE5 POSIT IRA ARRANGEMENTS. 

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

7 tax on any failure by an employer to meet the require8 ments of subsection (d) for a calendar year. 

9 ‘‘(b) AMOUNT.— 

10 ‘‘(1) IN GENERAL.—The amount of the tax im11 posed by subsection (a) on any failure for any cal12 endar year shall be $100 with respect to each em13 ployee to whom such failure relates. 

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

15 DISCOVERED AND REASONABLE DILIGENCE EXER16 CISED.—No tax shall be imposed by subsection (a) 

17 on any failure during any period for which it is es18 tablished to the satisfaction of the Secretary that the 

19 employer subject to liability for the tax did not know 

20 that the failure existed and exercised reasonable dili21 gence to meet the requirements of subsection (d). In 

22 no event shall the tax be imposed with respect to 

23 any failure that ends before the expiration of 90 

24 days after the employer has responded or has had a 


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1 reasonable opportunity to respond to a request for 

2 confirmation of compliance under subsection (c). 

3 ‘‘(3) TAX NOT TO APPLY TO FAILURES COR4 RECTED WITHIN 30 DAYS.—No tax shall be imposed 

5 by subsection (a) on any failure if— 

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

7 the tax under subsection (a) exercised reason8 able diligence to meet the requirements of sub9 section (d), and 

10 ‘‘(B) the employer provides the payroll de11 posit IRA arrangement described in section 

12 408B to each employee eligible to participate in 

13 the arrangement by the end of the 30-day pe14 riod beginning on the first date the employer 

15 knew, or exercising reasonable diligence would 

16 have known, that such failure existed. 

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

18 failure which is due to reasonable cause and not to 

19 willful neglect, the Secretary may waive part or all 

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

21 that the payment of such tax would be excessive or 

22 otherwise inequitable relative to the failure involved. 

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

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

25 the Secretary shall prescribe and implement procedures 


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1 for obtaining from employers confirmation that such em2 ployers are in compliance with the requirements of sub3 section (d). The Secretary, in the Secretary’s discretion, 

4 may prescribe that the confirmation shall be obtained on 

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

6 purpose the annual report or quarterly report for employ7 ment taxes, or such other means as the Secretary may 

8 deem advisable. 

9 ‘‘(d) REQUIREMENT TO PROVIDE EMPLOYEE ACCESS

10 TO PAYROLL DEPOSIT IRA ARRANGEMENTS.—The re11 quirements of this subsection are met if the employer 

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

13 (f) COORDINATION WITH ERISA FIDUCIARY DU14 TIES.—Section 404(c)(2) of such Act (29 U.S.C. 

15 1104(c)(2)) is amended— 

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

17 plan designated by the employer under section 408B 

18 of such Code’’ after ‘‘1986’’, 

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

20 given to an employee that an individual retirement 

21 plan has been established on behalf of the employee 

22 under section 408B of such Code)’’ after ‘‘estab23 lished’’ in subparagraph (C), and 

24 (3) by inserting ‘‘or with respect to an indi25 vidual retirement plan designated by an employer 


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1 under section 408B of such Code’’ after ‘‘arrange2 ment’’ in the last sentence. 

3 (g) CONFORMING AMENDMENTS.— 

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

5 I of subchapter A of chapter 1 is amended by insert6 ing after the item relating to section 408A the fol7 lowing new item: 

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

8 (2) The table of sections for chapter 43 is 

9 amended by adding at the end the following new 

10 item: 

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

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

12 this section shall apply to calendar years beginning after 

13 December 31, 2007. 

14 SEC. 3. CREDIT FOR SMALL EMPLOYERS MAINTAINING 

15 PAYROLL DEPOSIT IRA ARRANGEMENTS. 

16 (a) IN GENERAL.—Subpart D of part IV of sub17 chapter A of chapter 1 (relating to business related cred18 its) is amended by adding at the end the following new 

19 section: 

20 ‘‘SEC. 45N. SMALL EMPLOYER PAYROLL DEPOSIT IRA AR21 RANGEMENT COSTS. 

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

23 in the case of an eligible employer maintaining a payroll 


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1 deposit IRA arrangement meeting the requirements of sec2 tion 408B (without regard to whether or not the employer 

3 is required to maintain the arrangement), the small em4 ployer payroll deposit IRA arrangement cost credit deter5 mined under this section for any taxable year is the 

6 amount determined under subsection (b). 

7 ‘‘(b) AMOUNT OF CREDIT.— 

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

9 determined under this section for any taxable year 

10 with respect to an eligible employer shall be equal to 

11 the lesser of— 

12 ‘‘(A) $25 multiplied by the number of ap13 plicable employees (within the meaning of sec14 tion 408B(c)) for whom contributions are made 

15 under the payroll deposit IRA arrangement re16 ferred to in subsection (a) for the calendar year 

17 in which the taxable year begins, or 

18 ‘‘(B) $250. 

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

20 determined under this section for any taxable year 

21 other than a taxable year which begins in the first 

22 2 calendar years in which the eligible employer 

23 maintains a payroll deposit IRA arrangement meet24 ing the requirements of section 408B. 


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1 ‘‘(3) COORDINATION WITH SMALL EMPLOYER

2 STARTUP CREDIT.—No credit shall be allowed under 

3 this section for any taxable year if a credit is deter4 mined under section 45E for the taxable year. 

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

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

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

8 employer which maintains a payroll deposit IRA arrange9 ment meeting the requirements of section 408B and 

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

11 had no more than 100 employees.’’. 

12 (b) CREDIT ALLOWED AS PART OF GENERAL BUSI13 NESS CREDIT.—Section 38(b) (defining current year busi14 ness credit) is amended by striking ‘‘and’’ at the end of 

15 paragraph (29), by striking the period at the end of para16 graph (30) and inserting ‘‘, and’’, and by adding at the 

17 end the following new paragraph: 

18 ‘‘(31) in the case of an eligible employer (as de19 fined in section 45N(c)) maintaining a payroll de20 posit IRA arrangement meeting the requirements of 

21 section 408B, the small employer payroll deposit 

22 IRA arrangement cost credit determined under sec23 tion 45N(a).’’ 


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

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

3 is amended by adding at the end the following new item: 

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

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

5 this section shall apply to taxable years beginning after 

6 December 31, 2007. 

7 SEC. 4. ESTABLISHMENT OF AUTOMATIC IRAS. 

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

9 A of chapter 1 (relating to pension, profit-sharing, stock 

10 bonus plans, etc.), as amended by section 2, is amended 

11 by inserting after section 408B the following new section: 

12 ‘‘SEC. 408C. AUTOMATIC IRAS. 

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

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

15 an individual retirement plan. An automatic IRA may also 

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

17 meets the requirements of section 408A. 

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

19 the term ‘automatic IRA’ means an individual retirement 

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

21 investment and fee requirements under the regulations 

22 under subsection (c). 

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

24 ‘‘(1) IN GENERAL.—The TSP II Board, in con25 sultation with the Secretary and the Secretary of 


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

2 the enactment of this section, prescribe regulations 

3 which set forth the requirements of this subsection 

4 which an individual retirement plan must meet in 

5 order to be treated as an automatic IRA. 

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

7 under paragraph (1) shall provide that an automatic 

8 IRA shall allow the individual on whose behalf the 

9 individual retirement plan is established to invest 

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

11 the following investment options: 

12 ‘‘(A) Options which are similar to all in13 vestment options which are available (at the 

14 time the plan is established) to a participant in 

15 the Thrift Savings Fund established under sub16 chapter III of chapter 84 of title 5, United 

17 States Code. 

18 ‘‘(B) Any other investment option specified 

19 in the regulations. 

20 Such regulations shall specify which of the invest21 ment options shall be treated as default investment 

22 options for purposes of section 408B(g)(4). 

23 ‘‘(3) INVESTMENT FEES.— 

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

25 paragraph (1) shall provide that an automatic 


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1 IRA shall not charge any investment fees 

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

3 determined under such regulations). 

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

5 this paragraph, the term ‘investment fees’ in6 cludes any fee, commission, asset management 

7 fee, compensation for services, or any other 

8 charge or fee specified in the regulations under 

9 paragraph (1) which is imposed with respect to 

10 the automatic IRA.’’. 

11 (b) MANDATORY TRANSFERS.—Section 

12 401(a)(31)(B) is amended— 

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

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

15 it appears, and 

16 (2) by adding at the end the following new sen17 tence: ‘‘Any amount so transferred (and any earn18 ings thereon) shall be invested in a default invest19 ment described in section 408B(g)(4).’’ 

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

21 for subpart A of part I of subchapter A of chapter 1 is 

22 amended by inserting after the item relating to section 

23 408B the following new item: 

‘‘Sec. 408C. Automatic IRAs.’’. 

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

25 this section shall apply to calendar years beginning on or 


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1 after the date on which proposed and temporary or final 

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

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

4 SEC. 5. ESTABLISHMENT OF TSP II BOARD. 

5 (a) ESTABLISHMENT.—There is established in the ex6 ecutive branch of the Government a TSP II Board. The 

7 board shall be established and maintained in the same 

8 manner as the Federal Retirement Thrift Investment 

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

10 United States Code. 

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

12 appoint an Executive Director in a similar manner and 

13 with similar functions as the Executive Director of the 

14 Federal Retirement Thrift Investment Board under sec15 tion 8474 of title 5, United States Code. 

16 (c) DUTIES OF BOARD.—The TSP II Board shall es17 tablish policies and procedures for— 

18 (1) establishment and maintenance of individual 

19 retirement plans under the payroll tax deposit sys20 tem established under section 408B(f)(3) of the In21 ternal Revenue Code of 1986, 

22 (2) the investment and management of con23 tributions to such individual retirement plans, 

24 (3) the amount of contributions, and the invest25 ment of such contributions, under automatic conVerDate Aug 31 2005 00:35 Sep 29, 2006 Jkt 049200 PO 00000 Frm 00032 Fmt 6652 Sfmt 6201 E:\BILLS\S3952.IS S3952

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1 tribution arrangements under section 408B(g) of 

2 such Code, including the designation of investment 

3 funds in which such contributions may be invested, 

4 and 

5 (4) the establishment of automatic IRAs under 

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

7 regulations under subsection (c) of such section. 

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

9 a continual basis, prescribe and encourage best practices 

10 (including cost efficiencies and innovations) in enrollment, 

11 investment, distribution, and other procedures or arrange12 ments relating to retirement savings and investment. In 

13 carrying out its responsibilities under this section, the 

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

15 pilot projects to help assess the efficacy and workability 

16 of specific practices and arrangements. 

17 (e) EXPANSION OF USE OF IRAS BY SELF-EM18 PLOYED AND OTHER INDIVIDUALS.—The TSP II Board 

19 shall establish procedures to disseminate information 

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

21 to— 

22 (1) facilitate and encourage the use by self-em23 ployed and other individuals of automatic debit and 

24 similar arrangements for investment in individual re25 tirement plans, including automatic IRAs, 


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1 (2) facilitate and encourage efforts by voluntary 

2 associations to promote savings in individual retire3 ment plans, including automatic IRAs, by their 

4 members and others, and 

5 (3) facilitate and encourage the direct deposit 

6 of Federal and State income tax refunds in indi7 vidual retirement plans, including automatic IRAs. 

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

9 TSP II Board shall discharge their responsibilities solely 

10 in the interest of participants and beneficiaries under the 

11 payroll tax deposit system established under section 408B 

12 of the Internal Revenue Code of 1986. 

13 (g) OTHER PROVISIONS MADE APPLICABLE.—The 

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

15 8472 of title 5, United States Code, shall apply to the 

16 TSP II Board. 

Æ 


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