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[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 547 Introduced in Senate (IS)]

109th CONGRESS
  1st Session
                                 S. 547

  To amend the Internal Revenue Code of 1986 to provide for employer 
          retirement savings accounts, and for other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             March 8, 2005

  Mr. Thomas (for himself and Mr. Kyl) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL

 
  To amend the Internal Revenue Code of 1986 to provide for employer 
          retirement savings accounts, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. EMPLOYER RETIREMENT SAVINGS ACCOUNTS.

    (a) In General.--Subpart A of part 1 of subchapter D of chapter 1 
of the Internal Revenue Code of 1986 is amended by inserting after 
section 401 the following new section:

``SEC. 401A. EMPLOYER RETIREMENT SAVINGS ACCOUNTS.

    ``(a) In General.--A defined contribution plan shall not fail to 
meet the requirements of section 401(a) merely because the plan 
includes an employer retirement savings account arrangement.
    ``(b) Employer Retirement Savings Account Arrangement.--An employer 
retirement savings account arrangement is any arrangement which is part 
of a plan which meets the requirements of section 401(a)--
            ``(1) under which a covered employee may elect to have the 
        employer make payments as contributions to a trust under the 
        plan on behalf of the employee, or to the employee directly in 
        cash,
            ``(2) under which amounts held by the trust which are 
        attributable to employer contributions made pursuant to the 
        employee's election--
                    ``(A) may not be distributable to participants or 
                other beneficiaries earlier than--
                            ``(i) severance from employment, death, or 
                        disability,
                            ``(ii) an event described in subsection 
                        (g),
                            ``(iii) the attainment of age 59\\, or
                            ``(iv) upon hardship of the employee, and
                    ``(B) will not be distributable merely by reason of 
                the completion of a stated period of participation or 
                the lapse of a fixed number of years,
            ``(3) which provides that an employee's right to the 
        employee's accrued benefit derived from employer contributions 
        made to the trust pursuant to the employee's election is 
        nonforfeitable, and
            ``(4) which does not require, as a condition of 
        participation in the arrangement, that an employee complete a 
        period of service with the employer (or employers) maintaining 
        the plan extending beyond the period permitted under section 
        410(a)(1) (determined without regard to subparagraph (B)(i) 
        thereof).
    ``(c) Application of Nondiscrimination Standards.--
            ``(1) Contribution percentage requirement.--An arrangement 
        shall not be treated as an employer retirement savings account 
        arrangement for any plan year unless--
                    ``(A) the contribution percentage for eligible 
                highly compensated employees for the plan year does not 
                exceed 200 percent of such percentage for all other 
                eligible employees for the preceding plan year, or
                    ``(B) the contribution percentage of nonhighly 
                compensated employees for the preceding plan year 
                exceeded 6 percent.
            ``(2) Alternative methods of meeting nondiscrimination 
        requirements.--
                    ``(A) In general.--An arrangement shall be treated 
                as meeting the requirements of paragraph (1)(A) if such 
                arrangement--
                            ``(i) meets the contribution requirements 
                        of subparagraph (B), and
                            ``(ii) meets the notice requirements of 
                        subparagraph (D).
                    ``(B) Contribution requirement.--The requirements 
                of this subparagraph are met if, under the arrangement, 
                the employer is required to make contributions to a 
                defined contribution plan on behalf of each eligible 
                employee who is not a highly compensated employee in an 
                amount equal to at least 3 percent of the employee's 
                compensation. For purposes of this subparagraph, 
                elective deferrals and employee contributions shall not 
                be taken into account in determining the amount of 
                contributions the employer makes to the plan.
                    ``(C) Special rules for matching contributions.--
                            ``(i) In general.--If an employer takes 
                        matching contributions into account for 
                        purposes of subparagraph (B), the requirements 
                        of such subparagraph shall be treated as met 
                        only if the matching contributions on behalf of 
                        each employee who is not a highly compensated 
                        employee are equal to 50 percent of the 
                        elective deferrals of the employee to the 
                        extent that such elective deferrals do not 
                        exceed 6 percent of the employee's 
                        compensation.
                            ``(ii) Alternative plan designs.--If the 
                        rate of any matching contribution with respect 
                        to any rate of elective deferral is not equal 
                        to the percentage required under clause (i), an 
                        arrangement shall not be treated as failing to 
                        meet the requirements of clause (i) if--
                                    ``(I) the rate of an employer's 
                                matching contribution does not increase 
                                as an employee's rate of elective 
                                contributions increases, and
                                    ``(II) the aggregate amount of 
                                matching contributions at such rate of 
                                elective contribution is at least equal 
                                to the aggregate amount of matching 
                                contributions which would be made if 
                                matching contributions were made on the 
                                basis of the percentages described in 
                                clause (i).
                            ``(iii) Rate for highly compensated 
                        employees.--The requirements of this 
                        subparagraph are not met if, under the 
                        arrangement, the rate of matching contribution 
                        with respect to any elective deferral of a 
                        highly compensated employee at any rate of 
                        elective deferral is greater than that with 
                        respect to an employee who is not a highly 
                        compensated employee.
                    ``(D) Notice requirement.--An arrangement meets the 
                requirements of this subparagraph if, under the 
                arrangement, each employee eligible to participate is, 
                within a reasonable period before any year, given 
                written notice of the employee's rights and obligations 
                under the arrangement which--
                            ``(i) is sufficiently accurate and 
                        comprehensive to apprise the employee of such 
                        rights and obligations, and
                            ``(ii) is written in a manner calculated to 
                        be understood by the average employee eligible 
                        to participate.
                    ``(E) Other requirements.--
                            ``(i) Withdrawal and vesting 
                        restrictions.--An arrangement shall not be 
                        treated as meeting the requirements of 
                        subparagraph (B) unless the requirements of 
                        paragraphs (2) and (3) of subsection (b) are 
                        met with respect to all employer contributions 
                        (including matching contributions) taken into 
                        account in determining whether the requirements 
                        of subparagraph (B) are met.
                            ``(ii) Social security and similar 
                        contributions not taken into account.--An 
                        arrangement shall not be treated as meeting the 
                        requirements of subparagraph (B) unless such 
                        requirements are met without regard to section 
                        401(l), and, for purposes of section 401(l), 
                        employer contributions under subparagraph (B) 
                        shall not be taken into account.
                    ``(F) Other plans.--An arrangement shall be treated 
                as meeting the requirements of subparagraph (B) if any 
                other plan maintained by the employer meets such 
                requirements with respect to employees eligible under 
                the arrangement.
            ``(3) Contribution percentage.--For purposes of paragraph 
        (1), the contribution percentage for an eligible employee for a 
        specified group of employees for a plan year shall be the 
        average of the ratios (calculated separately for each employee 
        in such group) of--
                    ``(A) the sum of the elective deferrals, matching 
                contributions, employee contributions, and qualified 
                nonelective contributions paid under the plan on behalf 
                of each such employee for such plan year, to
                    ``(B) the employee's compensation for such plan 
                year.
            ``(4) Special rules.--For purposes of this subsection--
                    ``(A) Multiple arrangements.--If 2 or more plans 
                which include employer retirement savings account 
                arrangements are considered as 1 plan for purposes of 
                section 401(a)(4) or 410(b), all such arrangements 
                included in such plans shall be treated as 1 
                arrangement.
                    ``(B) Employees in more than 1 arrangement.--If any 
                highly compensated employee is a participant under 2 or 
                more employer retirement savings account arrangements 
                of the employer, for purposes of determining the 
                contribution percentage with respect to such employee, 
                all such arrangements shall be treated as 1 
                arrangement.
                    ``(C) Use of current year.--An employer may elect 
                to apply paragraph (1) (A) or (B) by using the plan 
                year rather than the preceding plan year. An employer 
                may change such an election only with the consent of 
                the Secretary.
                    ``(D) 1st plan year.--In the case of the first plan 
                year of any plan (other than a successor plan), the 
                amount taken into account as the contribution 
                percentage of nonhighly compensated employees for the 
                preceding plan year shall be--
                            ``(i) 3 percent, or
                            ``(ii) if the employer makes an election 
                        under this clause, the contribution percentage 
                        of nonhighly compensated employees determined 
                        for such first plan year.
                    ``(E) Special rule for early participation.--If an 
                employer elects to apply section 410(b)(4)(B) in 
                determining whether an employer retirement savings 
                account arrangement meets the requirements of section 
                410(b)(1), the employer may, in determining whether the 
                arrangement meets the requirements of this subsection, 
                exclude from consideration all eligible employees 
                (other than highly compensated employees) who have not 
                met the minimum age and service requirements of section 
                410(a)(1)(A).
            ``(5) Exceptions.--
                    ``(A) Governmental plans.--A governmental plan 
                (within the meaning of section 414(d)) maintained by a 
                State or local government or political subdivision 
                thereof (or agency or instrumentality thereof) shall be 
                treated as meeting the requirements of this subsection.
                    ``(B) Tax exempt plans.--
                            ``(i) In general.--A plan not described in 
                        subparagraph (A) which is maintained by an 
                        organization described in section 501(c)(3) 
                        shall be treated as meeting the requirements of 
                        this subsection for any plan year if the plan 
                        provides that all employees of such 
                        organization may elect to have the employer 
                        make contributions of more than $200 pursuant 
                        to a salary reduction agreement if any employee 
                        of the organization may elect to have the 
                        organization make contributions pursuant to 
                        such agreement.
                            ``(ii) Exception.--Clause (i) shall not 
                        apply to any plan if under the plan--
                                    ``(I) matching contributions may be 
                                made on behalf of any employee, or
                                    ``(II) an employee may make 
                                contributions other than elective 
                                deferrals.
                            ``(iii) Exclusion.--For purposes of clause 
                        (i), there may be excluded any employee who 
                        is--
                                    ``(I) a participant in another 
                                employer retirement savings account 
                                arrangement of the organization,
                                    ``(II) a nonresident alien 
                                described in section 410(b)(3)(C), or
                                    ``(III) subject to the conditions 
                                applicable under section 410(b)(4), a 
                                student performing services described 
                                in section 3121(b)(10) or an employee 
                                who normally works less than 20 hours 
                                per week.
            ``(6) Coordination with subsection (a)(4).--A cash or 
        deferred arrangement shall be treated as meeting the 
        requirements of subsection (a)(4) with respect to contributions 
        if the requirements of paragraph (1) are met.
    ``(d) Other Requirements.--For purposes of this section--
            ``(1) Benefits (other than matching contributions) must not 
        be contingent on election to defer.--An employer retirement 
        savings account arrangement of any employer shall not be 
        treated as such an arrangement if any other benefit is 
        conditioned (directly or indirectly) on the employee electing 
        to have the employer make or not make contributions under the 
        arrangement in lieu of receiving cash. The preceding sentence 
        shall not apply to any matching contribution made by reason of 
        such an election.
            ``(2) Coordination with other plans.--Any employer 
        contribution made pursuant to an employee's election under an 
        employer retirement savings account arrangement shall not be 
        taken into account for purposes of determining whether any 
        other plan meets the requirements of section 401(a) or 410(b). 
        This paragraph shall not apply for purposes of determining 
        whether a plan meets the average benefit requirement of section 
        410(b)(2)(A)(ii).
    ``(e) Definitions.--For purposes of this section--
            ``(1) Eligible employee.--The term `eligible employee' 
        means any employee who is eligible to benefit under the 
        employer retirement savings account arrangement.
            ``(2) Highly compensated employee.--For purposes of this 
        subsection, the term `highly compensated employee' has the 
        meaning given such term by section 414(q).
            ``(3) Matching contribution.--The term `matching 
        contribution' means--
                    ``(A) any employer contribution made to a defined 
                contribution plan on behalf of an employee on account 
                of an employee contribution made by such employee, and
                    ``(B) any employer contribution made to a defined 
                contribution plan on behalf of an employee on account 
                of an employee's elective deferral.
            ``(4) Elective deferral.--The term `elective deferral' 
        means any employer contribution described in section 402(g)(3).
            ``(5) Qualified nonelective contributions.--The term 
        `qualified nonelective contribution' means any employer 
        contribution (other than a matching contribution) with respect 
        to which--
                    ``(A) the employee may not elect to have the 
                contribution paid to the employee in cash instead of 
                being contributed to the plan, and
                    ``(B) the requirements of paragraphs (2) and (3) of 
                subsection (b) are met.
            ``(6) Compensation.--The term `compensation' has the 
        meaning given such term by section 414(s).
    ``(f) Arrangement Not Disqualified If Excess Contributions 
Distributed.--
            ``(1) In general.--An employer retirement savings account 
        arrangement shall not be treated as failing to meet the 
        requirements of subsection (c)(1)(A) for any plan year if, 
        before the close of the following plan year--
                    ``(A) the amount of the excess contributions for 
                such plan year (and any income allocable to such 
                contributions) is distributed, or
                    ``(B) to the extent provided in regulations, the 
                employee elects to treat the amount of the excess 
                contributions as an amount distributed to the employee 
                and then contributed by the employee to the plan.
        Any distribution of excess contributions (and income) may be 
        made without regard to any other provision of law.
            ``(2) Excess contributions.--For purposes of paragraph (1), 
        the term `excess contributions' means, with respect to any plan 
        year, the excess of--
                    ``(A) the aggregate amount of employer 
                contributions actually paid over to the trust on behalf 
                of highly compensated employees for such plan year, 
                over
                    ``(B) the maximum amount of such contributions 
                permitted under the limitations of subsection (c)(1)(A) 
                (determined by reducing contributions made on behalf of 
                highly compensated employees in order of the 
                contribution percentages beginning with the highest of 
                such percentages).
            ``(3) Method of distributing excess contributions.--Any 
        distribution of the excess contributions for any plan year 
        shall be made to highly compensated employees on the basis of 
        the amount of contributions by, or on behalf of, each of such 
        employees.
            ``(4) Additional tax under section 72(t) not to apply.--No 
        tax shall be imposed under section 72(t) on any amount required 
        to be distributed under this subsection.
            ``(5) Treatment of matching contributions forfeited by 
        reason of excess deferral or contribution.--For purposes of 
        subsection (b)(3), a matching contribution shall not be treated 
        as forfeitable merely because such contribution is forfeitable 
        if the contribution to which the matching contribution relates 
        is treated as an excess contribution under paragraph (2) or an 
        excess deferral under section 402(g)(2)(A).
            ``(6) Cross reference.--For excise tax on certain excess 
        contributions, see section 4979.
    ``(g) Distributions Upon Termination of Plan.--
            ``(1) In general.--An event described in this subsection is 
        the termination of the plan without establishment or 
        maintenance of another defined contribution plan (other than an 
        employee stock ownership plan as defined in section 
        4975(e)(7)).
            ``(2) Distributions must be lump sum distributions.--
                    ``(A) In general.--A termination shall not be 
                treated as described in paragraph (1) with respect to 
                any employee unless the employee receives a lump sum 
                distribution by reason of the termination.
                    ``(B) Lump-sum distribution.--For purposes of this 
                paragraph, the term `lump-sum distribution' has the 
                meaning given such term by section 402(e)(4)(D) 
                (without regard to subclauses (I), (II), (III), and 
                (IV) of clause (i) thereof). Such term includes a 
                distribution of an annuity contract from--
                            ``(i) a trust which forms a part of a plan 
                        described in section 401(a) and which is exempt 
                        from tax under section 501(a), or
                            ``(ii) an annuity plan described in section 
                        403(a).
    ``(h) Special Rules for Small Employers.--
            ``(1) In general.--An arrangement maintained by an eligible 
        employer shall not fail to meet the requirements of this 
        section merely because contributions under the arrangement on 
        behalf of any employee are made to an individual retirement 
        plan (as defined under section 7701(a)(37)) established on 
        behalf of the employee.
            ``(2) Eligible employer.--For purposes of paragraph (1), 
        the term `eligible employer' means, with respect to any year, 
        an employer which had no more than 10 employees who received at 
        least $5,000 of compensation from the employer for the 
        preceding year. An eligible employer who establishes and 
        maintains an arrangement under this subsection for 1 or more 
        years and who fails to be an eligible employer for any 
        subsequent year shall be treated as an eligible employer for 
        the 2 years following the last year the employer was an 
        eligible employer. If such failure is due to any acquisition, 
        disposition, or similar transaction involving an eligible 
        employer, the preceding sentence shall not apply.
    ``(i) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section, 
including regulations permitting appropriate aggregation of plans and 
contributions.
    ``(j) Transition Rules.--
            ``(1) Deemed ersas.--Any arrangement which, as of December 
        31, 2005--
                    ``(A) is part of a plan meeting the requirements of 
                section 401(a), and
                    ``(B) is--
                            ``(i) a qualified cash or deferred 
                        arrangement (as defined in section 401(k)(2)), 
                        or
                            ``(ii) subject to the requirements of 
                        section 401(m),
        shall be treated as an employer retirement savings account 
        arrangement and subject to the requirements of this title 
        applicable to such an arrangement for plan years beginning 
        after December 31, 2005.
            ``(2) Electable ersas.--
                    ``(A) In general.--If an employer makes an election 
                under this paragraph with respect to any applicable 
                arrangement, such arrangement shall be treated as an 
                employer retirement savings account arrangement and 
                subject to the requirements of this title applicable to 
                such an arrangement for plan years beginning after 
                December 31, 2005.
                    ``(B) Applicable arrangement.--For purposes of 
                subparagraph (A), the term `applicable arrangement' 
                means an arrangement which, as of December 31, 2005, 
                is--
                            ``(i) an arrangement under which amounts 
                        are contributed by an individual's employer for 
                        an annuity contract described in section 
                        403(b),
                            ``(ii) an eligible deferred compensation 
                        plan (within the meaning of section 457(b)) 
                        maintained by an eligible employer described in 
                        section 457(e)(1)(A),
                            ``(iii) a simplified employee pension 
                        (within the meaning of section 408(k)) for 
                        which an election is in effect under paragraph 
                        (6) thereof, or
                            ``(iv) a simple retirement account (within 
                        the meaning of section 408(p).''.
    (b) Elective Deferrals.--Section 402 of such Code is amended--
            (1) in subsection (e)(3), by inserting ``, an employer 
        retirement savings account arrangement (as defined in section 
        401A(b)),'' after ``section 401(k)(2))'', and
            (2) in subsection (g)(3)(A), by inserting ``, or an 
        employer retirement savings account arrangement (as defined in 
        section 401A(b)),'' before ``to the extent''.
    (c) Termination of Contributions to Other Plans.--
            (1) 401(k) plans.--Section 401(k) of such Code is amended 
        by adding at the end the following new paragraph:
            ``(13) Termination.--This subsection shall not apply to any 
        plan year beginning after December 31, 2005.''.
            (2) 403(b) annuity contracts.--Section 403(b) of such Code 
        is amended by adding at the end the following new paragraph:
            ``(14) Termination.--No elective deferral (as defined in 
        section 402(g)(3)) may be contributed under this subsection by 
        an employer, and no amount may be transferred under an eligible 
        rollover, for an annuity contract after December 31, 2006.''.
            (3) Governmental 457 plans.--Section 457 of such Code is 
        amended by adding at the end the following new subsection:
    ``(h) Termination.--No amount may be deferred under this subsection 
under a plan maintained by an eligible employer described in subsection 
(e)(1)(A), and no amount may be transferred under an eligible rollover 
to an eligible deferred compensation plan maintained by such an 
employer, after December 31, 2006.''.
            (4) Sarseps.--Subparagraph (H) of section 408(k)(6) of such 
        Code is amended by adding at the end the following new 
        sentence: ``No amount may be contributed under this paragraph 
        to a simplified employee pension by an employer, and no amount 
        may be transferred to a simplified employee pension maintained 
        under this paragraph under an eligible rollover, after December 
        31, 2006.''.
            (5) Simple iras.--Section 408(p) of such Code is amended by 
        adding at the end the following new paragraph:
            ``(11) Termination.--No amount may be contributed under 
        this paragraph to a simple retirement account after December 
        31, 2006.''.
    (d) Other Conforming Changes.--
            (1) Section 401 of such Code is amended by striking 
        subsection (m).
            (2) Section 7701(j) of such Code (relating to tax treatment 
        of Federal Thrift Savings Fund) is amended--
                    (A) in paragraph (1)(C), by striking ``section 
                401(k)(4)(B)'' and inserting ``section 401A(d)(1)'', 
                and
                    (B) in paragraph (2), by striking ``section 
                401(k)'' and inserting ``section 401A''.
            (3) The Secretary of the Treasury shall, not later than 90 
        days after the date of the enactment of this Act, submit such 
        technical and other conforming changes as are necessary to 
        carry out the amendments made by this section.
    (e) Clerical Amendment.--The table of sections for subpart A of 
part 1 of subchapter D of chapter 1 of such Code is amended by 
inserting after the item relating to section 401 the following new 
item:

``Sec. 401A. Employer Retirement Savings Accounts.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2005.
    (g) Provisions Relating to Plan Amendments.--
            (1) In general.--If this subsection applies to any plan or 
        contract amendment--
                    (A) such plan or contract shall be treated as being 
                operated in accordance with the terms of the plan 
                during the period described in paragraph (2)(C)(i), and
                    (B) except as provided by the Secretary of the 
                Treasury, such plan shall not fail to meet the 
                requirements of section 401A of the Internal Revenue 
                Code of 1986 by reason of such amendment.
            (2) Amendments to which section applies.--
                    (A) In general.--This subsection shall apply to any 
                amendment to any plan or annuity contract which is 
                made--
                            (i) pursuant to any amendment made by this 
                        section, or pursuant to any regulation issued 
                        by the Secretary of the Treasury or the 
                        Secretary of Labor under this section, and
                            (ii) on or before the last day of the first 
                        plan year beginning on or after January 1, 
                        2007.
                    (B) Governmental plan.--In the case of a 
                governmental plan (as defined in section 414(d) of the 
                Internal Revenue Code of 1986), subparagraph (A) shall 
                be applied by substituting ``2009'' for ``2007''.
                    (C) Conditions.--This subsection shall not apply to 
                any amendment unless--
                            (i) during the period--
                                    (I) beginning on the date the 
                                legislative or regulatory amendment 
                                described in subparagraph (A)(i) takes 
                                effect (or in the case of a plan or 
                                contract amendment not required by such 
                                legislative or regulatory amendment, 
                                the effective date specified by the 
                                plan), and
                                    (II) ending on the date described 
                                in subparagraph (A)(ii) (or, if 
                                earlier, the date the plan or contract 
                                amendment is adopted), the plan or 
                                contract is operated as if such plan or 
                                contract amendment were in effect; and
                            (ii) such plan or contract amendment 
                        applies retroactively for such period.
                                 <all>
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