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[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 3952 Introduced in Senate (IS)]

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.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Automatic IRA Act of 2006''.

SEC. 2. EMPLOYEES NOT COVERED BY QUALIFIED RETIREMENT PLANS OR 
              ARRANGEMENTS ENTITLED TO PARTICIPATE IN PAYROLL DEPOSIT 
              IRA ARRANGEMENTS.

    (a) In General.--Subpart A of part I of subchapter A of chapter 1 
(relating to pension, profit-sharing, stock bonus plans, etc.) is 
amended by inserting after section 408A the following new section:

``SEC. 408B. RIGHT TO PAYROLL DEPOSIT IRA ARRANGEMENTS AT WORK.

    ``(a) Requirement to Provide Payroll Deposit IRA Arrangement.--Each 
employer (other than an employer described in subsection (e)) shall 
provide to each applicable employee of the employer for any calendar 
year the opportunity to participate in a payroll deposit IRA 
arrangement which meets the requirements of this section.
    ``(b) Payroll Deposit IRA Arrangement.--For purposes of this 
section--
            ``(1) In general.--The term `payroll deposit IRA 
        arrangement' means a written arrangement of an employer--
                    ``(A) under which an applicable employee eligible 
                to participate in the arrangement may elect to 
                contribute to an individual retirement plan established 
                by or on behalf of the employee by having the employer 
                make periodic direct deposit or other payroll deposit 
                payments (including electronic payments) to the plan by 
                payroll deduction, and
                    ``(B) which meets the requirements of paragraph 
                (2).
            ``(2) Administrative requirements.--The requirements of 
        this paragraph are met with respect to any payroll deposit IRA 
        arrangement if--
                    ``(A) the employer must make the payments elected 
                under paragraph (1)(A) on or before the later of--
                            ``(i) the due date for the deposit of tax 
                        required to be deducted and withheld under 
                        chapter 24 (relating to collection of income 
                        tax at source on wages) for the payroll period 
                        to which such payments relate, or
                            ``(ii) the 30th day following the last day 
                        of the month with respect to which the payments 
                        are to be made,
                    ``(B) subject to a requirement for reasonable 
                notice, an employee may elect to terminate 
                participation in the arrangement at any time during a 
                calendar year, except that if an employee so 
                terminates, the arrangement may provide that the 
                employee may not elect to resume participation until 
                the beginning of the next calendar year,
                    ``(C) each employee eligible to participate may 
                elect, during the 60-day period or other period 
                specified by the Secretary before the beginning of any 
                calendar year (and during the 60-day period or other 
                period specified by the Secretary before the first day 
                the employee is eligible to participate), to 
                participate in the arrangement, or to modify the 
                employee's election under the arrangement (including 
                the amounts subject to the arrangement and the manner 
                in which such amounts are invested), for such year,
                    ``(D) the employer provides--
                            ``(i) immediately before the beginning of 
                        each period described in subparagraph (C), a 
                        notice to each employee of the employee's 
                        opportunity to make the election and the 
                        maximum amount which may be contributed to an 
                        individual retirement plan on an annual basis, 
                        and
                            ``(ii) if the arrangement includes an 
                        automatic contribution arrangement, the notices 
                        required under subsection (g) with respect to 
                        the automatic contribution arrangement,
                    ``(E) subject to subsection (f), the arrangement 
                provides that an employee may elect to have 
                contributions made to any individual retirement plan 
                specified by the employee, and
                    ``(F) if the arrangement does not include an 
                automatic contribution arrangement--
                            ``(i) the arrangement requires the employer 
                        to take all reasonable actions to solicit from 
                        all employees eligible to participate in the 
                        arrangement an explicit election to either 
                        participate or not to participate in the 
                        arrangement, and
                            ``(ii) the arrangement provides that if an 
                        employee fails to make an explicit election 
                        under clause (i) within the time prescribed 
                        under the arrangement, the employee will be 
                        treated as having made an election to 
                        participate in the arrangement (and amounts 
                        shall be invested on behalf of the participant) 
                        in the same manner as if the arrangement had 
                        included an automatic contribution arrangement 
                        under subsection (g).
    ``(c) Applicable Employee Defined; Related Definitions and Rules.--
For purposes of this section--
            ``(1) Applicable employee.--
                    ``(A) In general.--The term `applicable employee' 
                means, with respect to any calendar year, any 
                employee--
                            ``(i) who was not eligible under a 
                        qualified plan or arrangement maintained by the 
                        employer for service for the preceding calendar 
                        year, and
                            ``(ii) with respect to whom it is 
                        reasonable to expect that the employee will not 
                        be eligible during the calendar year under such 
                        a qualified plan or arrangement.
                    ``(B) Special rules.--For purposes of subparagraph 
                (A)(i)--
                            ``(i) Eligibility.--An employee shall be 
                        treated as eligible under a plan for a 
                        preceding calendar year if, as of the last day 
                        of the last plan year ending in the preceding 
                        calendar year, the employee has satisfied the 
                        plan's eligibility requirements.
                            ``(ii) Excluded plans.--A qualified plan or 
                        arrangement shall not be taken into account 
                        under this paragraph if--
                                    ``(I) the plan or arrangement is 
                                frozen as of the first day of the 
                                preceding calendar year, or
                                    ``(II) in the case of a plan or 
                                arrangement under which the only 
                                contributions are discretionary on the 
                                part of the sponsor, there has not been 
                                an employer contribution made to the 
                                plan or arrangement for the 2-plan-year 
                                period ending with the last plan year 
                                ending in the second preceding calendar 
                                year and it is not reasonable to assume 
                                that an employer contribution will be 
                                made for the plan year ending in the 
                                preceding calendar year.
            ``(2) Excludable employees.--An employer may elect to 
        exclude from treatment as applicable employees under 
        subparagraph (A)--
                    ``(A) employees described in section 410(b)(3),
                    ``(B) employees who have not attained the age of 18 
                before the beginning of the calendar year,
                    ``(C) employees who have not completed at least 3 
                months of service with the employer,
                    ``(D) employees who will be eligible to participate 
                in a qualified plan or arrangement of the employer upon 
                completion of eligibility requirements described in 
                section 410(a)(1)(A) (without regard to section 
                410(a)(1)(B)),
                    ``(E) employees who are eligible to make salary 
                reduction contributions under an arrangement which 
                meets the requirements of section 403(b), and
                    ``(F) all employees of the employer if the employer 
                maintains an arrangement described in section 408(p).
            ``(3) Qualified plan or arrangement.--The term `qualified 
        plan or arrangement' means a plan, contract, pension, or trust 
        described in section 219(g)(5).
            ``(4) Exception for employees of governments and 
        churches.--The term `applicable employee' shall not include an 
        employee of--
                    ``(A) a government or entity described in section 
                414(d), or
                    ``(B) a church or a convention or association of 
                churches which is exempt from tax under section 501, 
                including any employee described in section 
                414(e)(3)(B).
            ``(5) Designation of applicable employees.--The Secretary 
        shall issue guidelines for determining the class or classes of 
        employees to be covered by a payroll deposit IRA arrangement. 
        Such guidelines shall provide that if an employer elects under 
        paragraph (2) to exclude employees from the arrangement, the 
        employer shall specify the classification or categories of 
        employees who are not so covered.
    ``(d) Payroll Deposit IRA Contributions Treated Like Other 
Contributions to Individual Retirement Plans.--
            ``(1) Tax treatment unaffected.--The fact that a 
        contribution to an individual retirement plan is made on behalf 
        of an employee under a payroll deposit IRA arrangement instead 
        of being made directly by the employee shall not affect the 
        deductibility or other tax treatment of the contribution or of 
        other amounts under this title.
            ``(2) Payroll savings contributions taken into account.--
        Any contribution made on behalf of an employee under a payroll 
        deposit IRA arrangement shall be taken into account in applying 
        the limitations on contributions to individual retirement plans 
        and the other provisions of this title applicable to individual 
        retirement plans as if the contribution had been made directly 
        by the employee.
    ``(e) Exception for Certain Small and New Employers.--
            ``(1) In general.--The requirements of this section shall 
        not apply for any calendar year to an employer if--
                    ``(A) the employer did not have more than 10 
                employees who received at least $5,000 of compensation 
                from the employer for the preceding calendar year, or
                    ``(B) was not in existence at all times during the 
                2 preceding calendar years and did not have more than 
                100 employees who received at least $5,000 of 
                compensation from the employer on any day during either 
                of the 2 preceding calendar years.
            ``(2) Operating rules.--In determining the number of 
        employees for purposes of this subsection--
                    ``(A) any rule applicable in determining the number 
                of employees for purposes of section 408(p)(2)(C) shall 
                be applicable under this subsection,
                    ``(B) all members of the same family (within the 
                meaning of section 318(a)(1)) shall be treated as 1 
                individual, and
                    ``(C) any reference to an employer shall include a 
                reference to any predecessor employer.
    ``(f) Deposits to Individual Retirement Plans Other Than Those 
Selected by Employee.--
            ``(1) In general.--An employer shall not be treated as 
        failing to satisfy the requirements of this section or any 
        other provision of this title merely because the employer makes 
        all contributions (or all contributions on behalf of employees 
        who do not specify an individual retirement plan, trustee, or 
        issuer to receive the contributions) to--
                    ``(A) individual retirement plans specified in 
                paragraph (2), or
                    ``(B) individual retirement plans under the payroll 
                tax deposit system established under paragraph (3).
            ``(2) Plans of a designated trustee or issuer.--An employer 
        may elect to have contributions for all applicable employees 
        participating in a payroll deposit IRA arrangement made to 
        individual retirement plans of a designated trustee or issuer 
        under the arrangement. The preceding sentence shall not apply 
        unless each participant is notified in writing that the 
        participant's balance may be transferred without cost or 
        penalty to another individual retirement plan established by or 
        on behalf of the participant.
            ``(3) Payroll tax deposit system.--The Secretary, in 
        consultation with the TSP II Board, shall establish a system 
        under which an employer--
                    ``(A) includes with each deposit of tax required to 
                be deducted and withheld under chapter 24 the aggregate 
                amounts, for the period covered by the deposit, which 
                applicable employees designated under subsection 
                (b)(1)(A) (or are deemed to have designated under 
                subsection (b)(2)(F)(ii) or under an automatic 
                contribution arrangement described in subsection (g)) 
                for contribution to individual retirement plans, 
                established on behalf of the employees under paragraph 
                (4), and
                    ``(B) specifies, in such manner as the Secretary 
                may prescribe, for each applicable employee for whom a 
                contribution is to be made the following information:
                            ``(i) The employee's name and TIN.
                            ``(ii) The amount of the contribution.
                            ``(iii) The investment options selected by 
                        the employee (or deemed to have been selected 
                        by the employee under such automatic 
                        contribution arrangement) and the amount of the 
                        contribution allocated to each option.
            ``(4) Establishment and maintenance of accounts under 
        payroll tax deposit system.--
                    ``(A) In general.--Subject to the provisions of 
                this section and section 408C, the TSP II Board shall 
                provide for the establishment and maintenance of 
                individual retirement plans (including automatic IRAs) 
                into which contributions may be deposited through the 
                payroll tax deposit system. To the maximum extent 
                practicable, the TSP II Board shall--
                            ``(i) enter into contracts with persons 
                        eligible to be trustees of individual 
                        retirement plans under section 408 to establish 
                        such plans, to provide the investment funds and 
                        investment management, and to provide notice, 
                        record keeping, and other administrative 
                        services, and
                            ``(ii) ensure that the costs of investment 
                        management and administration are kept to a 
                        minimum, including through consideration of the 
                        use of investments which involve passive 
                        management and which seek to replicate the 
                        performance of a portion of the market.
                    ``(B) Payroll deposit features.--The TSP II Board 
                shall establish procedures so that contributions may be 
                made to individual retirement plans (including 
                automatic IRAs) through the payroll tax deposit system 
                described in paragraph (3) without undue administrative 
                or paperwork requirements on employers participating in 
                the payroll tax deposit system. Such procedures shall 
                ensure that only 1 such plan may be established for 
                each TIN.
                    ``(C) Limitation on rollovers to plans outside the 
                system.--If--
                            ``(i) any amount is paid or distributed out 
                        of an individual retirement plan established 
                        under this paragraph, and
                            ``(ii) such amount is paid into an 
                        individual retirement plan established outside 
                        of the payroll tax deposit system,
                the payment described in clause (ii) shall be treated 
                as a rollover contribution for purposes of section 
                408(d)(3) if and only if the balance to the credit of 
                the individual in such individual retirement plan or 
                arrangement immediately before the payment described in 
                clause (i) was at least $15,000.
    ``(g) Coordination With Automatic Enrollment and Other Default 
Election Provisions.--
            ``(1) In general.--A payroll deposit IRA arrangement may 
        provide that contributions under the arrangement will be made 
        pursuant to an automatic contribution arrangement but only if 
        the arrangement meets requirements similar to the requirements 
        applicable to an eligible automatic contribution arrangement 
        under section 414(w). The Secretary shall modify such 
        requirements to the extent necessary to carry out the purposes 
        of this section.
            ``(2) Default investments.--If an employee is deemed under 
        an automatic contribution arrangement to have made an election 
        to participate in a payroll deposit IRA arrangement--
                    ``(A) the employee shall be deemed to have made an 
                election to make contributions in the amount specified 
                in paragraph (3),
                    ``(B) such contributions shall be transferred to--
                            ``(i) an automatic IRA, or,
                            ``(ii) if the employer has made an election 
                        under subsection (f)(2), to an individual 
                        retirement plan of the designated trustee or 
                        issuer but only if the requirements of 
                        subparagraph (C) are met with respect to such 
                        individual retirement plan, and
                    ``(C) such contributions shall be invested as 
                provided in paragraph (4).
            ``(3) Amount of contributions.--
                    ``(A) In general.--The amount specified in this 
                paragraph is 3 percent of compensation.
                    ``(B) Authority of board to provide for annual 
                increases.--The TSP II Board may by regulation provide 
                for annual increases in the percentage of compensation 
                an employee is deemed to have elected under paragraph 
                (2) but in no event shall the percentage of 
                compensation an employee is deemed to have elected 
                exceed 8 percent.
                    ``(C) Contribution limit.--The contributions under 
                paragraph (2) on behalf of an employee for any calendar 
                year shall not exceed the dollar limits applicable to 
                the employee for the calendar year under section 219 or 
                408A.
            ``(4) Investment in life cycle fund or other investments 
        specified by the board.--Amounts contributed under paragraph 
        (2) shall be invested in--
                    ``(A) a life cycle fund similar to the life cycle 
                funds offered under the Thrift Savings Fund established 
                under subchapter III of chapter 84 of title 5, United 
                States Code, or
                    ``(B) such other investment or investments as the 
                TSP II Board specifies in regulations and which entails 
                asset allocation and extensive diversification.
        A fund or investment shall meet the requirements of this 
        paragraph only if it is consistent with regulations prescribed 
        by the Secretary of Labor under section 404(c)(5) of the 
        Employee Retirement Income Security Act of 1974.
            ``(5) Coordination with withholding.--The Secretary shall 
        modify the withholding exemption certificate under section 
        3402(f) so that any notice and election requirements with 
        respect to an automatic contribution arrangement which is part 
        of a payroll deposit IRA arrangement may be met through the use 
        of such certificate.
    ``(h) Model Notice.--The Secretary, in consultation with the TSP II 
Board, shall--
            ``(1) provide a model notice, written in a manner 
        calculated to be understandable to the average worker, that is 
        simple for employers to use--
                    ``(A) to notify employees of the requirement under 
                this section for the employer to provide certain 
                employees with the opportunity to participate in a 
                payroll deposit IRA arrangement, and
                    ``(B) to satisfy the requirements of subsection 
                (b)(2)(D).
            ``(2) provide uniform forms for enrollment, including 
        automatic enrollment, in a payroll deposit IRA arrangement, and
            ``(3) establish a web site or other electronic means for 
        small employers to access and use to obtain information on 
        payroll deposit IRA arrangements and to obtain required notices 
        and forms.''.
    (b) Preemption of Conflicting State Laws.--Section 514(e)(1) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1144(e)(1)), 
as added by section 902 of the Pension Protection Act of 2006, is 
amended to read as follows:
            ``(1) In general.--Notwithstanding any other provision of 
        this section, this title shall supersede any law of a State 
        which would directly or indirectly prohibit or restrict--
                    ``(A) the inclusion in any plan of an automatic 
                contribution arrangement, or
                    ``(B) the establishment or operation of a deposit 
                IRA arrangement meeting the requirements of section 
                408B of the Internal Revenue Code of 1986 (and the 
                inclusion in such arrangement of an automatic 
                contribution arrangement).
        The Secretary may prescribe regulations which would establish 
        minimum standards that an automatic contribution arrangement 
        would be required to satisfy in order for this subsection to 
        apply in the case of such arrangement. This subsection shall 
        apply to a plan or arrangement without regard to whether this 
        title applies to such plan or arrangement.''.
    (c) Notice of Availability of Investment Guidelines.--Section 
408(i) (relating to reports) is amended by adding at the end the 
following new sentence: ``Any report furnished under paragraph (2) to 
an individual shall include notice of the availability of, and methods 
of acquiring, the basic investment guidelines prepared by the Secretary 
of Labor.''.
    (d) Development of Basic Investment Guidelines.--
            (1) In general.--The Secretary of Labor shall, in 
        consultation with the Secretary of Treasury, develop and 
        publish basic guidelines for investing for retirement. Except 
        as otherwise provided by the Secretary of Labor, such 
        guidelines shall include--
                    (A) information on the benefits of diversification,
                    (B) information on the essential differences, in 
                terms of risk and return, between various pension plan 
                investments, including stocks, bonds, mutual funds, and 
                money market investments,
                    (C) information on how an individual's pension plan 
                investment allocations may differ depending on the 
                individual's age and years to retirement and on other 
                factors determined by the Secretary of Labor,
                    (D) sources of information where individuals may 
                learn more about pension rights, individual investing, 
                and investment advice, and
                    (E) such other information related to individual 
                investing as the Secretary of Labor determines 
                appropriate.
            (2) Calculation information.--The guidelines under 
        paragraph (1) shall include addresses for Internet sites and 
        worksheets which a participant or beneficiary in a pension plan 
        may use to calculate--
                    (A) the retirement age value of the participant's 
                or beneficiary's nonforfeitable pension benefits under 
                the plan (expressed as an annuity amount and determined 
                by reference to varied historical annual rates of 
                return and annuity interest rates), and
                    (B) other important amounts relating to retirement 
                savings, including the amount which a participant or 
                beneficiary would be required to save annually to 
                provide a retirement income equal to various 
                percentages of their current salary (adjusted for 
                expected growth prior to retirement).
            (3) Public comment.--The Secretary of Labor shall provide 
        at least 90 days for public comment on proposed guidelines 
        before publishing the final guidelines.
            (4) Rules relating to guidelines.--The guidelines under 
        paragraph (1)--
                    (A) shall be written in a manner calculated to be 
                understood by the average plan participant, and
                    (B) may be delivered in written, electronic, or 
                other appropriate manner to the extent such manner 
                would ensure that the guidelines are reasonably 
                accessible to participants and beneficiaries.
    (e) Penalty for Failure to Provide Access to Payroll Savings 
Arrangements.--Chapter 43 (relating to qualified pension, etc., plans) 
is amended by adding at the end the following new section:

``SEC. 4980H. REQUIREMENTS FOR EMPLOYERS TO PROVIDE EMPLOYEES ACCESS TO 
              PAYROLL DEPOSIT IRA ARRANGEMENTS.

    ``(a) General Rule.--There is hereby imposed a tax on any failure 
by an employer to meet the requirements of subsection (d) for a 
calendar year.
    ``(b) Amount.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure for any calendar year shall be 
        $100 with respect to each employee to whom such failure 
        relates.
            ``(2) Tax not to apply where failure not discovered and 
        reasonable diligence exercised.--No tax shall be imposed by 
        subsection (a) on any failure during any period for which it is 
        established to the satisfaction of the Secretary that the 
        employer subject to liability for the tax did not know that the 
        failure existed and exercised reasonable diligence to meet the 
        requirements of subsection (d). In no event shall the tax be 
        imposed with respect to any failure that ends before the 
        expiration of 90 days after the employer has responded or has 
        had a reasonable opportunity to respond to a request for 
        confirmation of compliance under subsection (c).
            ``(3) Tax not to apply to failures corrected within 30 
        days.--No tax shall be imposed by subsection (a) on any failure 
        if--
                    ``(A) the employer subject to liability for the tax 
                under subsection (a) exercised reasonable diligence to 
                meet the requirements of subsection (d), and
                    ``(B) the employer provides the payroll deposit IRA 
                arrangement described in section 408B to each employee 
                eligible to participate in the arrangement by the end 
                of the 30-day period beginning on the first date the 
                employer knew, or exercising reasonable diligence would 
                have known, that such failure existed.
            ``(4) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive or otherwise inequitable relative to the failure 
        involved.
    ``(c) Procedures for Notice.--Not later than 6 months after the 
date of the enactment of this section, the Secretary shall prescribe 
and implement procedures for obtaining from employers confirmation that 
such employers are in compliance with the requirements of subsection 
(d). The Secretary, in the Secretary's discretion, may prescribe that 
the confirmation shall be obtained on an annual or less frequent basis, 
and may use for this purpose the annual report or quarterly report for 
employment taxes, or such other means as the Secretary may deem 
advisable.
    ``(d) Requirement to Provide Employee Access to Payroll Deposit IRA 
Arrangements.--The requirements of this subsection are met if the 
employer meets the requirements of section 408B.''.
    (f) Coordination With ERISA Fiduciary Duties.--Section 404(c)(2) of 
such Act (29 U.S.C. 1104(c)(2)) is amended--
            (1) by inserting ``or an individual retirement plan 
        designated by the employer under section 408B of such Code'' 
        after ``1986'',
            (2) by inserting ``(7 days after notice has been given to 
        an employee that an individual retirement plan has been 
        established on behalf of the employee under section 408B of 
        such Code)'' after ``established'' in subparagraph (C), and
            (3) by inserting ``or with respect to an individual 
        retirement plan designated by an employer under section 408B of 
        such Code'' after ``arrangement'' in the last sentence.
    (g) Conforming Amendments.--
            (1) The table of sections for subpart A of part I of 
        subchapter A of chapter 1 is amended by inserting after the 
        item relating to section 408A the following new item:

``Sec. 408B. Right to payroll deposit IRA arrangements at work.''.
            (2) The table of sections for chapter 43 is amended by 
        adding at the end the following new item:

``Sec. 4980H. Requirements for employers to provide employees access to 
                            payroll deposit IRA arrangements.''.
    (h) Effective Date.--The amendments made by this section shall 
apply to calendar years beginning after December 31, 2007.

SEC. 3. CREDIT FOR SMALL EMPLOYERS MAINTAINING PAYROLL DEPOSIT IRA 
              ARRANGEMENTS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits) is amended by adding at the end 
the following new section:

``SEC. 45N. SMALL EMPLOYER PAYROLL DEPOSIT IRA ARRANGEMENT COSTS.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible employer maintaining a payroll deposit IRA arrangement meeting 
the requirements of section 408B (without regard to whether or not the 
employer is required to maintain the arrangement), the small employer 
payroll deposit IRA arrangement cost credit determined under this 
section for any taxable year is the amount determined under subsection 
(b).
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit determined 
        under this section for any taxable year with respect to an 
        eligible employer shall be equal to the lesser of--
                    ``(A) $25 multiplied by the number of applicable 
                employees (within the meaning of section 408B(c)) for 
                whom contributions are made under the payroll deposit 
                IRA arrangement referred to in subsection (a) for the 
                calendar year in which the taxable year begins, or
                    ``(B) $250.
            ``(2) Duration of credit.--No credit shall be determined 
        under this section for any taxable year other than a taxable 
        year which begins in the first 2 calendar years in which the 
        eligible employer maintains a payroll deposit IRA arrangement 
        meeting the requirements of section 408B.
            ``(3) Coordination with small employer startup credit.--No 
        credit shall be allowed under this section for any taxable year 
        if a credit is determined under section 45E for the taxable 
        year.
    ``(c) Eligible Employer.--For purposes of this section, the term 
`eligible employer' means, with respect to any calendar year in which 
the taxable year begins, an employer which maintains a payroll deposit 
IRA arrangement meeting the requirements of section 408B and which, on 
each day during the preceding calendar year, had no more than 100 
employees.''.
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) (defining current year business credit) is amended by striking 
``and'' at the end of paragraph (29), by striking the period at the end 
of paragraph (30) and inserting ``, and'', and by adding at the end the 
following new paragraph:
            ``(31) in the case of an eligible employer (as defined in 
        section 45N(c)) maintaining a payroll deposit IRA arrangement 
        meeting the requirements of section 408B, the small employer 
        payroll deposit IRA arrangement cost credit determined under 
        section 45N(a).''
    (c) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by adding at the end 
the following new item:

``Sec. 45N. Small employer payroll deposit IRA arrangement costs.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2007.

SEC. 4. ESTABLISHMENT OF AUTOMATIC IRAS.

    (a) In General.--Subpart A of part I of subchapter A of chapter 1 
(relating to pension, profit-sharing, stock bonus plans, etc.), as 
amended by section 2, is amended by inserting after section 408B the 
following new section:

``SEC. 408C. AUTOMATIC IRAS.

    ``(a) General Rule.--An automatic IRA shall be treated for purposes 
of this title in the same manner as an individual retirement plan. An 
automatic IRA may also be treated as a Roth IRA for purposes of this 
title if it meets the requirements of section 408A.
    ``(b) Automatic IRA.--For purposes of this section, the term 
`automatic IRA' means an individual retirement plan (as defined in 
section 7701(a)(37)) which meets the investment and fee requirements 
under the regulations under subsection (c).
    ``(c) Investment and Fee Requirements.--
            ``(1) In general.--The TSP II Board, in consultation with 
        the Secretary and the Secretary of Labor, shall, not later than 
        1 year after the date of the enactment of this section, 
        prescribe regulations which set forth the requirements of this 
        subsection which an individual retirement plan must meet in 
        order to be treated as an automatic IRA.
            ``(2) Investment options.--The regulations under paragraph 
        (1) shall provide that an automatic IRA shall allow the 
        individual on whose behalf the individual retirement plan is 
        established to invest contributions to, and earnings of, the 
        plan in all of the following investment options:
                    ``(A) Options which are similar to all investment 
                options which are available (at the time the plan is 
                established) to a participant in the Thrift Savings 
                Fund established under subchapter III of chapter 84 of 
                title 5, United States Code.
                    ``(B) Any other investment option specified in the 
                regulations.
        Such regulations shall specify which of the investment options 
        shall be treated as default investment options for purposes of 
        section 408B(g)(4).
            ``(3) Investment fees.--
                    ``(A) In general.--The regulations under paragraph 
                (1) shall provide that an automatic IRA shall not 
                charge any investment fees which, in the aggregate, are 
                not reasonable (as determined under such regulations).
                    ``(B) Investment fees.--For purposes of this 
                paragraph, the term `investment fees' includes any fee, 
                commission, asset management fee, compensation for 
                services, or any other charge or fee specified in the 
                regulations under paragraph (1) which is imposed with 
                respect to the automatic IRA.''.
    (b) Mandatory Transfers.--Section 401(a)(31)(B) is amended--
            (1) by inserting ``(including an automatic IRA)'' after 
        ``individual retirement plan'' each place it appears, and
            (2) by adding at the end the following new sentence: ``Any 
        amount so transferred (and any earnings thereon) shall be 
        invested in a default investment described in section 
        408B(g)(4).''
    (c) Clerical Amendment.--The table of sections for subpart A of 
part I of subchapter A of chapter 1 is amended by inserting after the 
item relating to section 408B the following new item:

``Sec. 408C. Automatic IRAs.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to calendar years beginning on or after the date on which 
proposed and temporary or final regulations described in section 
408C(c) of the Internal Revenue Code of 1986 (as added by this Act) are 
issued.

SEC. 5. ESTABLISHMENT OF TSP II BOARD.

    (a) Establishment.--There is established in the executive branch of 
the Government a TSP II Board. The board shall be established and 
maintained in the same manner as the Federal Retirement Thrift 
Investment Board under subchapter VII of chapter 84 of title 5, United 
States Code.
    (b) Executive Director.--The TSP II Board shall appoint an 
Executive Director in a similar manner and with similar functions as 
the Executive Director of the Federal Retirement Thrift Investment 
Board under section 8474 of title 5, United States Code.
    (c) Duties of Board.--The TSP II Board shall establish policies and 
procedures for--
            (1) establishment and maintenance of individual retirement 
        plans under the payroll tax deposit system established under 
        section 408B(f)(3) of the Internal Revenue Code of 1986,
            (2) the investment and management of contributions to such 
        individual retirement plans,
            (3) the amount of contributions, and the investment of such 
        contributions, under automatic contribution arrangements under 
        section 408B(g) of such Code, including the designation of 
        investment funds in which such contributions may be invested, 
        and
            (4) the establishment of automatic IRAs under section 408C 
        of such Code, including the issuance of regulations under 
        subsection (c) of such section.
    (d) Best Practices.--The TSP II Board shall, on a continual basis, 
prescribe and encourage best practices (including cost efficiencies and 
innovations) in enrollment, investment, distribution, and other 
procedures or arrangements relating to retirement savings and 
investment. In carrying out its responsibilities under this section, 
the TSP II Board may implement (by contract or otherwise) pilot 
projects to help assess the efficacy and workability of specific 
practices and arrangements.
    (e) Expansion of Use of IRAs by Self-Employed and Other 
Individuals.--The TSP II Board shall establish procedures to 
disseminate information (through use of the Internet and other 
appropriate means) to--
            (1) facilitate and encourage the use by self-employed and 
        other individuals of automatic debit and similar arrangements 
        for investment in individual retirement plans, including 
        automatic IRAs,
            (2) facilitate and encourage efforts by voluntary 
        associations to promote savings in individual retirement plans, 
        including automatic IRAs, by their members and others, and
            (3) facilitate and encourage the direct deposit of Federal 
        and State income tax refunds in individual retirement plans, 
        including automatic IRAs.
    (f) Exclusive Interest.--The members of the TSP II Board shall 
discharge their responsibilities solely in the interest of participants 
and beneficiaries under the payroll tax deposit system established 
under section 408B of the Internal Revenue Code of 1986.
    (g) Other Provisions Made Applicable.--The provisions of 
subsections (f)(3), (g), (i), and (j) of section 8472 of title 5, 
United States Code, shall apply to the TSP II Board.
                                 <all>
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