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[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 868 Introduced in Senate (IS)]

109th CONGRESS
  1st Session
                                 S. 868

     To encourage savings, promote financial literacy, and expand 
     opportunities for young adults by establishing KIDS Accounts.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             April 21, 2005

 Mr. Santorum (for himself, Mr. Corzine, Mr. Schumer, and Mr. DeMint) 
introduced the following bill; which was read twice and referred to the 
                          Committee on Finance

_______________________________________________________________________

                                 A BILL

 
     To encourage savings, promote financial literacy, and expand 
     opportunities for young adults by establishing KIDS Accounts.

    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 ``America Saving for Personal 
Investment, Retirement, and Education Act of 2005'' or the ``ASPIRE Act 
of 2005''.

SEC. 2. KIDS ACCOUNT FUND.

    (a) Establishment.--There is established in the Treasury of the 
United States a KIDS Account Fund.
    (b) Amounts Held by Fund.--The KIDS Account Fund consists of the 
sum of all amounts paid into the Fund under subsections (d) and (e), 
increased by the total net earnings from investments of sums held in 
the Fund or reduced by the total net losses from investments of sums 
held in the Fund, and reduced by the total amount of payments made from 
the Fund (including payments for administrative expenses).
    (c) Use of Fund.--
            (1) In general.--The sums in the KIDS Account Fund are 
        appropriated and shall remain available without fiscal year 
        limitation--
                    (A) to invest under section 5,
                    (B) to make distributions under section 6,
                    (C) to pay the administrative expenses of carrying 
                out this Act, and
                    (D) to purchase insurance as provided in section 
                9(c)(2).
            (2) Exclusive purposes.--The sums in the KIDS Account Fund 
        shall not be appropriated for any purpose other than the 
        purposes specified in this section and may not be used for any 
        other purpose.
    (d) Government Contributions.--
            (1) In general.--The Secretary of the Treasury shall make 
        transfers from the general fund of the Treasury to the KIDS 
        Account Fund as follows:
                    (A) Automatic contributions.--Upon receipt of each 
                certification under section 3(b), the Secretary of the 
                Treasury shall transfer $500.
                    (B) Supplemental contributions.--Upon receipt of 
                each certification under section 4(a), the Secretary of 
                the Treasury shall transfer the supplemental amount.
                    (C) Matching contributions.--Upon receipt of each 
                certification under section 4(b), the Secretary of the 
                Treasury shall transfer the matching amount.
            (2) Adjustment for inflation.--
                    (A) In general.--For each fifth calendar year 
                beginning after 2006, the $500 amount in paragraph 
                (1)(A) shall be increased by such dollar amount 
                multiplied by the cost-of-living adjustment determined 
                under section 1(f)(3) of the Internal Revenue Code of 
                1986 determined by substituting ``calendar year 2005'' 
                for ``calendar year 1992'' in subparagraph (B) thereof.
                    (B) Rounding.--If any amount adjusted under 
                subparagraph (A) is not a multiple of $50, such amount 
                shall be rounded to the next lowest multiple of $50.
    (e) Private Contributions.--The Executive Director shall pay into 
the KIDS Account Fund such amounts as are contributed under section 
3(f).

SEC. 3. KIDS ACCOUNTS.

    (a) Establishment.--The Executive Director shall establish in the 
KIDS Account Fund a Kids Investment and Development Savings Account 
(hereafter in this Act referred to as a ``KIDS Account'') for each 
eligible individual certified under subsection (b). Each such account 
shall be identified to its account holder by means of the account 
holder's social security account number.
    (b) Certification of Account Holders.--On the date on which an 
eligible individual is issued a social security account number under 
section 203(c)(2) of the Social Security Act, the Commissioner of 
Social Security shall certify to the Executive Director and the 
Secretary of the Treasury the name of, and social security number 
issued to, such eligible individual.
    (c) Account Balance.--The balance in an account holder's KIDS 
Account at any time is the excess of--
            (1) the sum of--
                    (A) all deposits made into the KIDS Account Fund 
                and credited to the account under subsection (d), and
                    (B) the total amount of allocations made to and 
                reductions made in the account pursuant to subsection 
                (e), over
            (2) the amounts paid out of the account with respect to 
        such individual under section 6.
    (d) Crediting of Contributions.--Pursuant to regulations which 
shall be prescribed by the Executive Director, the Executive Director 
shall credit to each KIDS Account the amounts paid into the KIDS 
Account Fund under subsections (d) and (e) of section 2 which are 
attributable to the account holder of such account.
    (e) Allocation of Earnings and Losses.--The Executive Director 
shall allocate to each KIDS Account an amount equal to the net earnings 
and net losses from each investment of sums in the KIDS Account Fund 
which are attributable, on a pro rata basis, to sums credited to such 
account, reduced by an appropriate share of the administrative expenses 
paid out of the net earnings, as determined by the Executive Director.
    (f) Private Contributions.--
            (1) In general.--The Executive Director shall accept cash 
        contributions for payment into the KIDS Account Fund if such 
        contribution is identified (in such manner as the Executive 
        Director may require) with the account holder of a KIDS Account 
        to whom it is to be credited at the time the contribution is 
        made.
            (2) Alternative methods of contribution.--
                    (A) Payroll deduction.--Under regulations 
                prescribed by the Executive Director and at the 
                election of the employer, contributions under paragraph 
                (1) may be made through payroll deductions.
                    (B) Tax refunds.--Under regulations prescribed by 
                the Secretary of the Treasury, contributions under 
                paragraph (1) may be made by an election to contribute 
                all or a portion of the tax refund of the contributor.
            (3) Annual limitation.--
                    (A) Account holders under age 18.--In the case of 
                an account holder who has not attained age 18 at the 
                end of a calendar year--
                            (i) the limitation under section 219(b)(1) 
                        of the Internal Revenue Code of 1986 shall not 
                        apply, and
                            (ii) the Executive Director shall not 
                        accept any contribution identified with such 
                        account holder if such contribution, when added 
                        to all other contributions made under this 
                        subsection during such calendar year with 
                        respect to such account holder, exceeds $1,000.
                    (B) Account holders age 18 or older.--In the case 
                of an account holder who is age 18 or older at the end 
                of a calendar year, any contribution identified with 
                such account holder shall be taken into account under 
                section 219(b)(1) of the Internal Revenue Code of 1986 
                for such year.
                    (C) Adjustment for inflation.--
                            (i) In general.--For each fifth calendar 
                        year beginning after 2006, the $1,000 amount 
                        under subparagraph (A)(ii) shall be increased 
                        by such dollar amount multiplied by the cost-
                        of-living adjustment determined under section 
                        1(f)(3) of the Internal Revenue Code of 1986 
                        determined by substituting ``calendar year 
                        2005'' for ``calendar year 1992'' in 
                        subparagraph (B) thereof.
                            (ii) Rounding.--If any amount adjusted 
                        under clause (i) is not a multiple of $50, such 
                        amount shall be rounded to the next lowest 
                        multiple of $50.
    (g) Eligible Individual.--For purposes of this Act, the term 
``eligible individual'' means any individual who is--
            (1) a United States citizen or a person described in 
        paragraph (1) of section 431(b) of the Personal Responsibility 
        and Work Opportunity Reconciliation Act of 1996,
            (2) born after December 31, 2006, and
            (3) less than 18 years of age.
    (h) Repayment of Automatic Contribution.--Beginning with the year 
in which an account holder of a KIDS Account attains the age of 30, 
such account holder shall repay, in such form and manner as the 
Executive Director shall prescribe by regulation, the amount 
transferred under section 2(d)(1)(A) and credited to the account of the 
account holder under subsection (d).
    (i) Rights of Legal Guardian.--Until the account holder of a KIDS 
Account attains age 18, any rights or duties of the account holder 
under this Act with respect to such account shall be exercised or 
performed by the legal guardian of such account holder.

SEC. 4. CERTIFICATIONS RELATED TO GOVERNMENT CONTRIBUTIONS.

    (a) Supplemental Government Contributions.--
            (1) In general.--Upon such showing as the Executive 
        Director may require to establish the basis for certification, 
        the Executive Director shall, with respect to each eligible 
        account holder, certify to the Secretary of the Treasury the 
        supplemental amount with respect to such account holder.
            (2) Eligible account holder.--For purposes of this 
        subsection, the term ``eligible account holder'' means an 
        account holder of a KIDS Account who, for the last taxable year 
        ending before such account holder's certification under section 
        3(b), has a modified adjusted gross income which is below the 
        applicable national median adjusted gross income amount.
            (3) Supplemental amount.--
                    (A) In general.--For purposes of this Act, the term 
                ``supplemental amount'' means $500.
                    (B) Income phase-out.--With respect to any account 
                holder who has a modified adjusted gross income for the 
                last taxable year ending before such account holder's 
                certification under section 3(b) which is in excess of 
                50 percent of the applicable national median adjusted 
                gross income amount, the $500 amount in subparagraph 
                (A) shall be reduced (but not below zero) by an amount 
                which bears the same ratio to $500 as such excess bears 
                to 50 percent of the applicable national median 
                adjusted gross income amount.
                    (C) Adjustment for inflation.--
                            (i) In general.--For each fifth calendar 
                        year beginning after 2006, each of the $500 
                        amounts under subparagraphs (A) and (B) shall 
                        be increased by such dollar amount multiplied 
                        by the cost-of-living adjustment determined 
                        under section 1(f)(3) of the Internal Revenue 
                        Code of 1986 determined by substituting 
                        ``calendar year 2005'' for ``calendar year 
                        1992'' in subparagraph (B) thereof.
                            (ii) Rounding.--If any amount adjusted 
                        under clause (i) is not a multiple of $50, such 
                        amount shall be rounded to the next lowest 
                        multiple of $50.
    (b) Government Matching Contribution.--
            (1) In general.--Upon such showing as the Executive 
        Director may require to establish the basis for certification, 
        the Executive Director shall, with respect to each private 
        contribution to the account of an account holder which is made 
        before such account holder attains age 18, certify to the 
        Secretary of the Treasury the matching amount with respect to 
        such contribution.
            (2) Matching amount.--
                    (A) In general.--For purposes of this subsection, 
                the term ``matching amount'' means, with respect to the 
                first $500 of private contributions to an account 
                during any calendar year, an amount equal to 100 
                percent of such contribution.
                    (B) Income phase-out.--With respect to any account 
                holder who has a modified adjusted gross income for the 
                last taxable year ending before such contribution which 
                is in excess of 100 percent of the applicable national 
                median adjusted gross income amount, the $500 amount in 
                subparagraph (A) shall be reduced (but not below zero) 
                by an amount which bears the same ratio to $500 as such 
                excess bears to 5 percent of the applicable national 
                median adjusted gross income amount.
                    (C) Adjustment for inflation.--
                            (i) In general.--For each fifth calendar 
                        year beginning after 2006, each of the $500 
                        amounts under subparagraphs (A) and (B) shall 
                        be increased by such dollar amount multiplied 
                        by the cost-of-living adjustment determined 
                        under section 1(f)(3) of the Internal Revenue 
                        Code of 1986 determined by substituting 
                        ``calendar year 2005'' for ``calendar year 
                        1992'' in subparagraph (B) thereof.
                            (ii) Rounding.--If any amount adjusted 
                        under clause (i) is not a multiple of $50, such 
                        amount shall be rounded to the next lowest 
                        multiple of $50.
            (3) Private contribution.--For purposes of this subsection, 
        the term ``private contribution'' means a contribution accepted 
        under section 3(f).
    (c) Definitions and Rules Relating to Modified Adjusted Gross 
Income.--For purposes of this section--
            (1) Special rule for account holders who can be claimed as 
        dependents.--In the case of an account holder of a KIDS Account 
        for whom a deduction is allowable under section 151 of the 
        Internal Revenue Code of 1986 to another taxpayer, any 
        reference in this section to the modified adjusted gross income 
        of the account holder for any taxable year shall be treated as 
        a reference to the modified adjusted gross income of such other 
        taxpayer.
            (2) Modified adjusted gross income.--The term ``modified 
        adjusted gross income'' has the meaning given such term in 
        section 221(b) of the Internal Revenue Code of 1986.
            (3) Applicable national median adjusted gross income.--
                    (A) In general.--The term ``applicable national 
                median adjusted gross income'' means, with respect to 
                any calendar year, the median amount of adjusted gross 
                income (as defined in section 62 of the Internal 
                Revenue Code of 1986) for individual taxpayers for 
                taxable years ending in the prior calendar year as 
                determined by the Secretary of the Treasury.
                    (B) Joint returns.--The applicable national median 
                adjusted gross income shall be calculated and applied 
                separately with respect to joint returns and all other 
                returns.

SEC. 5. RULES GOVERNING KIDS ACCOUNTS RELATING TO INVESTMENT, 
              ACCOUNTING, AND REPORTING.

    (a) Default Investment Program.--The KIDS Account Fund Board shall 
establish a default investment program under which, in a manner similar 
to a lifecycle investment program, sums in each KIDS Account are 
allocated to investment funds in the KIDS Account Fund based on the 
amount of time before the account holder attains the age of 18. Each 
account holder of a KIDS Account shall be enrolled in such program 
unless such account holder, in such form and manner as prescribed by 
the Executive Director, elects otherwise.
    (b) Other Rules.--Under regulations which shall be prescribed by 
the Executive Director, and subject to the provisions of this Act, the 
provisions of--
            (1) section 8438 of title 5, United States Code (relating 
        to investment of the Thrift Savings Fund),
            (2) section 8439(b) of such title (relating to engagement 
        of independent qualified public accountant),
            (3) section 8439(c) of such title (relating to periodic 
        statements and summary descriptions of investment options), and
            (4) section 8439(d) of such title (relating to assumption 
        of risk), shall apply with respect to the KIDS Account Fund and 
        accounts maintained in such Fund in the same manner and to the 
        same extent as such provisions relate to the Thrift Savings 
        Fund and the accounts maintained in the Thrift Savings Fund. 
        For purposes of this subsection, references in such sections 
        8438 and 8439 to an employee, Member, former employee, or 
        former Member shall be deemed references to an account holder 
        of a KIDS Account in the KIDS Account Fund.

SEC. 6. DISTRIBUTIONS FROM KIDS ACCOUNTS.

    (a) In General.--Under regulations prescribed by the Executive 
Director, amounts in a KIDS Account shall, at the request of the 
account holder, be distributed to the account holder if such 
distribution is a qualified distribution (within the meaning of section 
408A(d)(2) of the Internal Revenue Code of 1986).
    (b) Age Limitation.--No distribution shall be made under subsection 
(a) with respect to any account holder of a KIDS Account before such 
account holder attains age 18.
    (c) Minimum Balance.--No amount shall be distributed under 
subsection (a) to the extent such distribution would cause the balance 
of such account to be less than the amount transferred to such account 
under section 2(d)(1)(A) before the account holder--
            (1) attains age 59 \1/2\,
            (2) dies, or
            (3) becomes disabled (within the meaning of section 
        72(m)(7).

SEC. 7. TAX TREATMENT OF KIDS ACCOUNTS.

    (a) In General.--Except as otherwise provided in this Act, for 
purposes of the Internal Revenue Code of 1986--
            (1) each KIDS Account shall be treated in the same manner 
        as a Roth IRA (within the meaning of section 408A of such 
        Code), and
            (2) any distribution from such account shall be treated in 
        the same manner as a distribution from a Roth IRA.
    (b) Qualified Rollovers Contributions.--
            (1) In general.--Except as provided in paragraph (2), no 
        qualified rollover contribution (as defined in section 408A(e) 
        of the Internal Revenue Code of 1986) shall be allowed with 
        respect to a KIDS Account.
            (2) Qualified rollovers.--
                    (A) In general.--Under regulations prescribed by 
                the Secretary of the Treasury in consultation with the 
                Executive Director, after an account holder of a KIDS 
                Account attains the age of 18, such account holder may 
                elect to make a rollover contribution from such account 
                holder's account to--
                            (i) a Roth IRA, or
                            (ii) a qualified tuition program (within 
                        the meaning of section 529 of the Internal 
                        Revenue Code of 1986).
                    (B) Limitation.--No rollover contribution may be 
                made under this paragraph to the extent that such 
                rollover contribution would cause the balance of such 
                account holder's account to be less than the amount of 
                the contribution transferred to such account under 
                section 2(d)(1)(A) before such account holder--
                            (i) attains age 59 \1/2\,
                            (ii) dies, or
                            (iii) becomes disabled (within the meaning 
                        of section 72(m)(7).
    (c) 100 Percent Tax on Government Contributions.--
            (1) Kids accounts.--
                    (A) In general.--In the case of any amount 
                distributed from a KIDS Account which is attributable 
                to contributions made under section 2(d) and which 
                would be includible in gross income (but for this 
                paragraph)--
                            (i) such amount shall not be includible in 
                        gross income, and
                            (ii) the tax imposed under chapter 1 of the 
                        Internal Revenue Code of 1986 on the 
                        distributee for the taxable year in which such 
                        amount is distributed shall be increased by 100 
                        percent of such amount.
                    (B) Ordering rules.--For purposes of this 
                paragraph, distributions from KIDS Accounts shall be 
                treated as made from amounts attributable to 
                contributions made under section 3(f) and from earnings 
                before made from amounts attributable to contributions 
                made under section 2(d).
            (2) Roth iras.--Section 408A(d) of the Internal Revenue 
        Code of 1986 (relating to distribution rules) is amended by 
        adding at the end the following new paragraph:
            ``(8) 100 percent tax on distributions related to certain 
        government contributions.--
                    ``(A) In general.--In the case of any distribution 
                which is attributable to contributions made under 
                section 2(d)of the America Saving for Personal 
                Investment, Retirement, and Education Act of 2005 and 
                which would be includible in gross income (but for this 
                paragraph)--
                            ``(i) such amount shall not be includible 
                        in gross income, and
                            ``(ii) the tax imposed under chapter 1 on 
                        the distributee for the taxable year in which 
                        such amount is distributed shall be increased 
                        by 100 percent of such amount.
                    ``(B) Ordering rules.--For purposes of this 
                paragraph, distributions shall be treated as made from 
                amounts attributable to other contributions and from 
                earnings before made from amounts attributable to 
                contributions made under section 2(d) of the America 
                Saving for Personal Investment, Retirement, and 
                Education Act of 2005.''.
            (3) Qualified tuition programs.--Section 529(c)(3) of the 
        Internal Revenue Code of 1986 (relating to distributions) is 
        amended by adding at the end the following new subparagraph:
                    ``(E) 100 percent tax on distributions related to 
                certain government contributions.--
                            ``(i) In general.--In the case of any 
                        distribution which is attributable to 
                        contributions made under section 2(d) of the 
                        America Saving for Personal Investment, 
                        Retirement, and Education Act of 2005 and which 
                        would be includible in gross income (but for 
                        this subparagraph)--
                                    ``(I) such amount shall not be 
                                includible in gross income, and
                                    ``(II) the tax imposed under 
                                chapter 1 on the distributee for the 
                                taxable year in which such amount is 
                                distributed shall be increased by 100 
                                percent of such amount.
                            ``(ii) Ordering rules.--For purposes of 
                        this paragraph, distributions shall be treated 
                        as made from amounts attributable to other 
                        contributions and from earnings before made 
                        from amounts attributable to contributions made 
                        under section 2(d) of the America Saving for 
                        Personal Investment, Retirement, and Education 
                        Act of 2005.''.

SEC. 8. KIDS ACCOUNT FUND BOARD.

    (a) In General.--There is established in the executive branch of 
the Government a KIDS Account Fund Board.
    (b) Composition, Duties, and Responsibilities.--Subject to the 
provisions of this Act, the provisions of--
            (1) section 8472 of title 5, United States Code (relating 
        to composition of Federal Retirement Thrift Investment Board),
            (2) section 8474 of such title (relating to Executive 
        Director),
            (3) section 8475 of such title (relating to investment 
        policies), and
            (4) section 8476 of such title (relating to administrative 
        provisions), shall apply with respect to the KIDS Account Fund 
        Board in the same manner and to the same extent as such 
        provisions relate to the Federal Retirement Thrift Investment 
        Board.

SEC. 9. FIDUCIARY RESPONSIBILITIES.

    (a) In General.--Under regulations of the Secretary of Labor, the 
provisions of sections 8477 and 8478 of title 5, United States Code, 
shall apply in connection with the KIDS Account Fund and the accounts 
maintained in such Fund in the same manner and to the same extent as 
such provisions apply in connection with the Thrift Savings Fund and 
the accounts maintained in the Thrift Savings Fund.
    (b) Investigative Authority.--Any authority available to the 
Secretary of Labor under section 504 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1134) is hereby made available to the 
Secretary of Labor, and any officer designated by the Secretary of 
Labor, to determine whether any person has violated, or is about to 
violate, any provision applicable under subsection (a).
    (c) Exculpatory Provisions; Insurance.--
            (1) In general.--Any provision in an agreement or 
        instrument which purports to relieve a fiduciary from 
        responsibility or liability for any responsibility, obligation, 
        or duty under this Act shall be void.
            (2) Insurance.--Amounts in the KIDS Account Fund available 
        for administrative expenses shall be available and may be used 
        at the discretion of the Executive Director to purchase 
        insurance to cover potential liability of persons who serve in 
        a fiduciary capacity with respect to the Fund and accounts 
        maintained therein, without regard to whether a policy of 
        insurance permits recourse by the insurer against the fiduciary 
        in the case of a breach of a fiduciary obligation.

SEC. 10. ASSIGNMENT, ALIENATION, AND TREATMENT OF DECEASED INDIVIDUALS.

    (a) Assignment and Alienation.--Under regulations which shall be 
prescribed by the Executive Director, rules relating to assignment and 
alienation applicable under chapter 84 of title 5, United States Code, 
with respect to amounts held in accounts in the Thrift Savings Fund 
shall apply with respect to amounts held in KIDS Accounts in the KIDS 
Account Fund.
    (b) Treatment of Accounts of Deceased Individuals.--In the case of 
a deceased account holder of a KIDS Account which has an account 
balance greater than zero, upon receipt of notification of such 
individual's death, the Executive Director shall close the account and 
shall transfer the balance in such account to the KIDS Account of such 
account holder's surviving spouse or, if there is no such account of a 
surviving spouse, to the duly appointed legal representative of the 
estate of the deceased account holder, or if there is no such 
representative, to the person or persons determined to be entitled 
thereto under the laws of the domicile of the deceased account holder.

SEC. 11. ACCOUNTS DISREGARDED IN DETERMINING ELIGIBILITY FOR FEDERAL 
              BENEFITS.

    Amounts in any KIDS Account shall not be taken into account in 
determining any individual's eligibility for any federally funded 
benefit, including student financial aid.

SEC. 12. REPORTS.

    (a) Annual Report.--The Executive Director, in consultation with 
the Secretary of the Treasury, shall annually transmit a written report 
to the Congress. Such report shall include--
            (1) a detailed description of the status and operation of 
        the KIDS Account Fund and the management of the KIDS Accounts, 
        and
            (2) a detailed accounting of the administrative expenses in 
        carrying out this Act, including the ratio of such 
        administrative expenses to the balance of the KIDS Account Fund 
        and the methodology adopted by the Executive Director for 
        allocating such expenses among the KIDS Accounts.
    (b) Repayment of Automatic Contributions.--Not later than 2 years 
before the issuance of any final regulation under section 3(h), the 
Executive Director shall transmit a written report to the Congress. 
Such report shall include a draft of the proposed regulation to be 
issued under such section and a description of the conclusions and 
recommendations of the Executive Director regarding the implementation 
of the following repayment options:
            (1) Repayment through service or employment in high-need 
        professions or areas.
            (2) Increasing the Federal income tax liability of each 
        account holder of a KIDS Account by $100 per year for 5 years 
        after the account holder attains age 30.
            (3) Repayment from the account or other sources before the 
        account holder of a KIDS Account attains age 30.
            (4) Alternatives for individuals facing financial hardship, 
        including deferred repayment and forgiveness.

SEC. 13. PROGRAMS FOR PROMOTING FINANCIAL LITERACY.

    The Secretary of the Treasury, in coordination with the Financial 
Literacy and Education Commission, shall develop programs to promote 
the financial literacy of account holders of KIDS Accounts and the 
legal guardians of such account holders who have the rights with 
respect to such accounts under section 3(i).
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