Automatic IRA Act of 2017

To amend the Internal Revenue Code of 1986 to expand personal saving and retirement savings coverage by enabling employees not covered by qualifying retirement plans to save for retirement through automatic IRA arrangements, and for other purposes. 1. Short title; reference (a) Short title This Act may be cited as the Automatic IRA Act of 2017 (b) Amendment of 1986 Code Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. 2. Qualifying automatic IRA arrangements (a) In general Subpart A of part I of subchapter D of chapter 1 408B. Qualifying automatic IRA arrangements (a) In general For purposes of this section, a qualifying automatic IRA arrangement is an automatic IRA arrangement which is offered by a covered employer to each qualifying employee of the employer. (b) Covered employer For purposes of this section— (1) In general Except as otherwise provided in this subsection or subsection (c)(2), the term covered employer (2) Excluded plans A qualifying plan or arrangement shall not be taken into account for purposes of paragraph (1) if— (A) the plan or arrangement is frozen as of the first day of the preceding calendar year, or (B) in the case of a plan or arrangement under which the only contributions are discretionary on the part of the employer or other plan sponsor— (i) no employer contribution has been made to the plan or arrangement for the 3-plan-year period ending with the last plan year ending in the preceding calendar year, and (ii) it is not reasonable to assume that an employer contribution will be made for the last plan year ending in the preceding calendar year. (3) Exception for certain small and new employers (A) In general The term covered employer (i) did not employ more than 10 employees who received at least $5,000 of compensation (as defined in section 3401(a)) from the employer for the preceding calendar year, (ii) did not normally employ more than 10 employees on a typical business day of the preceding calendar year, or (iii) was not in existence at all times during the calendar year and the preceding calendar year. (B) Operating rules In determining the number of employees for purposes of subparagraph (A)— (i) rules consistent with any rules applicable in determining the number of employees for purposes of section 408(p)(2)(C) and section 4980B(d) shall apply, (ii) all members of the same family (within the meaning of section 318(a)(1)) shall be treated as 1 individual, and (iii) any reference to an employer shall include a reference to any predecessor employer. (4) Exception for governments and churches The term covered employer (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. (5) Aggregation rule All persons treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414 shall be treated as a single employer. (c) Qualifying employee For purposes of this section— (1) In general The term qualifying employee (2) Plan sponsor’s employees If— (A) an employer maintains one or more qualifying plans or arrangements described in section 219(g)(5), (B) the employees of any subsidiary, division, or other major business unit of the employer are generally not eligible to participate in any such qualifying plan or arrangement, and (C) the number of employees of the employer described in subparagraph (B) for a calendar year is— (i) at least 50, and (ii) at least 10 percent of the employees of the employer (other than excludable employees), then, for purposes of this section, the employer shall be treated as a covered employer with respect to such employees (other than excluded employees) for the calendar year, and such employees (other than excluded employees) shall be treated as qualifying employees. (3) Excluded employees (A) In general The term excluded employee (B) Excludable employee The term excludable employee (i) any employee described in section 410(b)(3), (ii) any employee who has not attained the age of 18 before the first day of the calendar year, (iii) any employee who has not completed at least 3 months of service with the employer, (iv) in the case of an employer that maintains a qualifying plan or arrangement which excludes employees who have not satisfied the minimum age and service requirements for participation in the plan, any employee who has not satisfied such requirements, (v) in the case of an employer that maintains a section 403(b) annuity contract (including a custodial account or retirement income account), any employee who is permitted to be excluded from any salary reduction arrangement under the contract pursuant to section 403(b)(12), (vi) in the case of an employer that maintains an arrangement described in section 408(p), any employee who is not required to be eligible to participate in the arrangement under section 408(p)(4), and (vii) in the case of an employer that maintains a simplified employee pension described in section 408(k), any employee who is permitted to be excluded from participation under section 408(k)(2). (4) Guidance The Secretary shall issue regulations or other guidance to carry out this subsection, including— (A) guidelines for determining the classes or categories of employees to be covered by an automatic IRA arrangement, (B) if an employer excludes employees from the automatic IRA arrangement, guidelines providing that the employer shall specify the classification or categories of employees who are so excluded, and (C) rules to prevent avoidance of the requirements of this section. (d) Automatic IRA arrangement For purposes of this section— (1) In general The term automatic IRA arrangement (A) under which a qualifying employee— (i) may elect— (I) to contribute to an individual retirement plan, or to purchase a qualifying retirement bond, by having the employer deposit payroll deduction amounts or make other periodic direct deposits (including electronic payments) to the plan or invest such amounts in such qualifying retirement bonds, or (II) to have such payments paid to the employee directly in cash, (ii) is treated as having made the election under clause (i)(I) in the amount specified in paragraph (5) until the individual specifically elects not to have such contributions or purchases made (or specifically elects to have such contributions or purchases made at a different percentage or in a different amount), and (iii) may elect to modify the manner in which such amounts are invested for such year, (B) which meets the administrative requirements of paragraph (3), including the notice requirement of paragraph (3)(C), and (C) which does not charge unreasonable additional fees solely on the basis that the balance in an automatic IRA is small. (2) Employer’s Option to Obtain Affirmative Elections from Employees Instead of Automatic Enrollment As an alternative to automatic enrollment, an employer may choose to comply with paragraph (1)(A)(ii) by notifying employees that the employer wishes to obtain from each qualifying employee an affirmative election either to contribute or not to contribute to an automatic IRA, provided that any qualifying employee who fails to make such an election is treated in the manner provided under paragraph (1)(A)(ii). (3) Administrative requirements (A) Payments The requirements of this paragraph are met with respect to any automatic IRA arrangement if the employer makes the payments elected or treated as elected under paragraph (1)(A)— (i) on or before the last day of the month following the month in which the compensation otherwise would have been payable to the employee in cash, (ii) before such later deadline prescribed by the Secretary for making such payments, but not later than 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 (iii) as early as administratively practicable. (B) Termination of employee participation 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) Notice of election period The requirements of this paragraph shall not be treated as met with respect to any year unless the employer notifies each employee eligible to participate, within a reasonable period of time before the 30th day before the beginning of such year (and, for the first year the employee is so eligible, the 30th day before the first day such employee is so eligible), of— (i) the payments that may be elected or treated as elected under paragraph (1)(A), (ii) the opportunity to make the election to terminate participation in the arrangement under subparagraph (B), (iii) the opportunity to make the election under paragraph (1)(A)(ii) to have contributions or purchases made at a different percentage or in a different amount, and (iv) the opportunity under paragraph (1)(A)(iii) to modify the manner in which such amounts are invested for such year. (D) Investment options The requirements of this paragraph shall not be treated as met with respect to any year unless an employee electing to have contributions made to an individual retirement plan is provided with the option to choose among all investment options described in subparagraphs (B), (C), (D), and (E) of paragraph (6). (4) Default investments If an employee is treated under clause (ii) of paragraph (1)(A) as having made an election to participate in an automatic IRA arrangement— (A) the employee shall be deemed to have made an election to make contributions and payments in the amount determined under such clause, and (B) such contributions shall— (i) be transferred to an individual retirement plan of the designated trustee or issuer, but only if the contributions are invested as provided in paragraph (6), or (ii) be applied toward the purchase of a qualifying retirement bond. (5) Amount of contributions and payments (A) In general The amount specified in this paragraph with respect to any employee is— (i) 3 percent of the compensation of the employee, or (ii) such other percentage of compensation as is specified in regulations prescribed by the Secretary which is not less than 2 percent or more than 6 percent. (B) Authority to provide for periodic increases In the case of qualifying employees under an automatic IRA arrangement for 2 or more consecutive years, the Secretary may by regulation provide for periodic (not more frequent than annual) increases in the percentage of compensation an employee is deemed to have elected under subparagraph (A). The considerations the Secretary shall take into account in issuing any regulations under this subparagraph and subparagraph (A) shall include the potential effects on lower-income employees as well as on adequacy of savings. (C) Permitted additional procedures to limit contributions An employer— (i) shall have no responsibility for any calendar year for determining whether, or ensuring that, the contributions with respect to any employee do not exceed the deductible amount in effect for taxable years beginning in the calendar year under section 219(b)(5) (determined without regard to subparagraph (B) thereof), and (ii) shall not be treated as failing to satisfy the requirements of this section or any other provision of this title merely because the employer chooses to limit the contributions under this subsection on behalf of a qualifying employee for any calendar year in a manner reasonably designed to avoid exceeding such deductible amount. (6) Required investments (A) In general Amounts contributed under paragraph (4)(B)(i) shall be invested only in the class of assets or funds described in subparagraph (B) unless the employee elects a class of assets or funds described in subparagraph (C), (D), or (E). (B) Target date or lifecycle option The class of assets or funds described in this subparagraph is the class of assets or funds that constitutes a qualified default investment alternative under section 2550.404c–5(e)(4)(i) of title 29, Code of Federal Regulations. (C) Principal preservation The class of assets or funds described in this subparagraph is the class of assets or funds that is designed to protect the principal of the individual on an ongoing basis, including passbook savings, certificates of deposit, insurance contracts, mutual funds, United States savings bonds (which may be indexed for inflation), and similar assets specified in regulations. (D) Guaranteed lifetime income option or equivalent The class of assets or funds described in this subparagraph is the class of assets or funds that is designed to provide an employee with the right to elect to receive distributions as a defined level of income annually (or more frequently) for at least the remainder of the life of the employee or the joint lives of the employee and the employee’s designated beneficiary. (E) Other Any other class of assets or funds determined by the Secretary to be a qualified investment for purposes of this section. (7) Qualifying retirement bond For purposes of this section— (A) In general The term qualifying retirement bond chapter 31 (i) provides for interest to be credited at rates that take into account the expected duration of the funds invested in such bonds and at rates determined or adjusted in a manner and with sufficient frequency to provide substantial protection from inflation, (ii) is not transferable, and (iii) is designed for investment for retirement under automatic IRA arrangements or other savings vehicles. (B) Individual retirement plan rules applicable The provisions of this title applicable to an individual retirement plan (as defined in section 7701(a)(37)), including provisions relating to contributions, holding and distributions, shall apply to a qualifying retirement bond, except as determined by the Secretary. (C) Annual statement As soon as practicable after the close of each calendar year, the Secretary shall make available an annual statement to each participant on behalf of whom qualifying retirement bonds have been purchased, setting forth— (i) payments made by or on behalf of the participant for such bonds during such calendar year, (ii) amounts earned by any such bonds, whether purchased during such year or during a prior year, during such calendar year, (iii) the value of the participant's account with respect to such bonds as of the close of such calendar year, (iv) the importance of diversifying retirement savings, (v) the benefits of a well-balanced and diversified investment portfolio, (vi) a notice of the internet website of the Department of Labor for sources of information on individual investing and diversification, (vii) the procedures for redeeming a qualifying retirement bond and directly transferring the redeemed amount into an individual retirement plan, (viii) other factors affecting retirement savings decisions, and (ix) such other information as the Secretary determines necessary or appropriate. (8) Treatment as Roth IRA A qualifying employee for whom an automatic IRA is established under paragraph (1) may elect, at such time and in such manner and form as the Secretary may prescribe but not later than the due date of the return for the taxable year in which such automatic IRA is established, whether to treat the individual retirement plan as described, or not described, in section 408A. If no such election is made, the plan shall be treated as described in section 408A and shall meet the requirements of section 408A (including any appropriate adjustment or conversion as may be provided by the Secretary). (e) Treatment of contributions (1) In general A contribution to an individual retirement plan or purchase of a retirement bond on behalf of an employee under a qualifying automatic IRA arrangement shall be treated for purposes of this title as if it had been made directly by the employee, including for purposes of limitations on contributions to individual retirement plans. (2) Coordination with withholding The Secretary shall modify the withholding exemption certificate under section 3402(f) so that, in the case of any qualifying employee covered under an automatic IRA arrangement, any notice and election requirements with respect to the arrangement may be met through the use of an attachment to such certificate or other modifications of the withholding exemption procedures. (3) Individual retirement plan rules applicable The provisions of this title applicable to an individual retirement plan (as defined in section 7701(a)(37)), including provisions relating to contributions, holding and distributions, shall apply to a qualifying retirement bond, except as determined by the Secretary. (4) Rollover from bonds to IRA The Secretary shall provide for procedures by which an individual may periodically elect to transfer qualifying retirement bonds (with their proceeds) held by the individual to an individual retirement account. Any such transfer shall be treated as a rollover contribution for purposes of section 408(d)(3) (other than subparagraph (B) thereof). (f) Model notice The Secretary, in coordination with the Director of the Consumer Financial Protection Bureau, 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 section 4980J for the employer to provide certain employees with the opportunity to participate in a qualifying automatic IRA arrangement, and (B) to satisfy the requirements of subsection (d)(3)(C), (2) provide uniform forms for enrollment, including automatic enrollment, in an automatic IRA arrangement, and (3) establish a website or other electronic means that small employers can access and use to obtain information on automatic IRA arrangements and to obtain required notices and forms. The information referred to in paragraph (3) shall be provided in a manner designed to assist employers and providers by facilitating the identification by employers of private-sector providers of individual retirement plans and associated investment options that are appropriate for use in automatic IRA arrangements. (g) Cross reference For provision preempting conflicting State laws, see section 2(j) of the Automatic IRA Act of 2017 . (b) Mandatory transfers Section 401(a)(31)(B)(i) (1) by inserting (including a plan established through a qualifying automatic IRA arrangement (as defined in section 408B)) individual retirement plan (2) by adding at the end the following new sentence: Any amount so transferred (and any earnings thereon) shall be invested only in investments described in section 408B(d)(6). (c) Penalty for failure To timely remit contributions to automatic IRA arrangements Section 4975(c) (7) Special rule for qualifying automatic IRA arrangements For purposes of paragraph (1), if an employer is required under a qualifying automatic IRA arrangement under section 408B to deposit amounts withheld from an employee's compensation into an individual retirement account or toward the purchase of a qualifying retirement bond (as defined in section 408B(d)(7)) but fails to do so within the time prescribed under section 408B(d)(3)(A), such amounts shall be treated as assets of the individual retirement account. . (d) Coordination with Employee Retirement Income Security Act of 1974 (1) Exemption (A) In general Section 3(2) of the Employee Retirement Income Security Act of 1974 ( 29 U.S.C. 1002(2) (i) by inserting or (C) subparagraph (B) (ii) by adding at the end the following new subparagraph: (C) A qualifying automatic IRA arrangement described in section 408B . (B) Customer identification program Notwithstanding the amendment made by subparagraph (A), an individual retirement plan established pursuant to an automatic IRA arrangement described in section 408B(d) (2) Fiduciary duties Section 404(c) of such Act is amended by adding at the end the following new paragraph: (6) In the case of an individual retirement account opened under a qualifying automatic IRA arrangement under section 408B of such Code that is not exempt under section 3(2)(C), a participant or beneficiary shall, for purposes of paragraph (1), be treated as exercising control over the assets in the account on and after the 7th day after notice has been given to an employee that such account has been established on behalf of the employee. No reports, other than those required under section 101(g), shall be required with respect to an account opened under a qualifying automatic IRA arrangement under section 408B of such Code. . (e) Notice of availability of investment guidelines (1) In general Section 408(i) Any report furnished under paragraph (2) to an individual shall include notice of the Internet website of the Department of Labor for sources of information on individual investing and diversification. (2) Updated information Such information shall be modified (or updated) by the Secretary of Labor in consultation with the Secretary of the Treasury and the Chairman of the Securities and Exchange Commission to address needed changes due to the creation of automatic IRAs. (f) Failure To provide qualifying automatic IRA arrangements Chapter 43 4980J. Requirements for covered employers to provide qualifying automatic IRA arrangements (a) General rule There is hereby imposed a tax on any failure by a covered employer (as defined in section 408B) to maintain a qualifying IRA arrangement (as defined in such section), and to meet the requirements under such arrangement, 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 maintain a qualifying IRA arrangement and to meet the requirements under such arrangement. (3) Tax not to apply to failures corrected within 90 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 maintain a qualifying IRA arrangement and to meet the requirements under such arrangement, and (B) the employer provides a qualifying automatic IRA arrangement described in section 408B to each qualifying employee (as defined in section 408B) by the end of the 90-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 The Secretary may prescribe and implement procedures for obtaining confirmation of whether employers are subject to the tax imposed by subsection (a). 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. . (g) Waiver of early withdrawal penalty for certain distributions following initial election To participate in automatic IRA arrangement Section 72(t) (11) Distribution following initial election to participate in automatic IRA arrangement Paragraph (1) shall not apply in the case of a distribution to a qualifying employee made not later than 90 days after the initial election under section 408B(d)(1)(A)(ii). . (h) Bankruptcy Section 522 of title 11, United States Code, is amended— (1) in subsection (d)(12), by inserting , 408B 408A (2) in subsection (n), by inserting , or in a qualifying automatic IRA arrangement described in section 408B section 408(p) of such Code (i) Conforming amendments (1) The table of sections for subpart A of part I of subchapter D of chapter 1 Sec. 408B. Qualifying automatic IRA arrangements. . (2) The table of sections for chapter 43 of such Act is amended by adding at the end the following new item: Sec. 4980J. Requirements for covered employers to provide qualifying automatic IRA arrangements. . (j) Preemption of conflicting State laws The amendments made by this section shall supersede any law of a State that would directly or indirectly prohibit or restrict the establishment or operation of a qualifying automatic IRA arrangement meeting the requirements of section 408B (k) Effective date The amendments made by this section shall apply to calendar years beginning after December 31, 2018. (l) Regulations Not later than 12 months after the date of the enactment of this Act, the Secretary of the Treasury, in coordination with the Secretary of Labor, shall issue guidance defining the class of guaranteed lifetime income or equivalent arrangements which meet the requirements of section 408B(d)(5)(E) 3. Credit for small employers maintaining qualifying automatic IRA arrangements (a) In general Subpart D of part IV of subchapter A of chapter 1 45S. Small employer automatic IRA arrangement (a) General rule For purposes of section 38, in the case of an eligible employer maintaining a qualifying automatic IRA arrangement meeting the requirements of section 408B (without regard to whether the employer is a covered employer), the small employer automatic IRA arrangement credit determined under this section for any taxable year in the credit period 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 the sum of— (A) $25 multiplied by the number of qualifying employees (within the meaning of section 408B(c)) for whom contributions are made under the qualifying automatic IRA arrangement referred to in subsection (a) for the calendar year in which the taxable year begins, plus (B) the amount determined under paragraph (2) with respect to the taxable year. (2) Amount determined The amount determined under this paragraph is— (A) $500 in the case of the taxable year which begins in the first calendar year in which the eligible employer maintains the qualifying automatic IRA arrangement, (B) $250 in the case of the taxable year which begins in the second calendar year in which the eligible employer maintains such arrangement, and (C) $0 thereafter. (3) Limitation The amount determined under paragraph (1)(A) for any taxable year shall not exceed $250. (4) Coordination with small employer startup credit (A) In general No credit shall be allowed under this section to the employer for any taxable year if a credit is determined under section 45E with respect to the employer for the taxable year. (B) Extension of credit If the eligible employer maintains a qualifying automatic IRA arrangement meeting the requirements of section 408B (without regard to whether the employer is a covered employer) with respect to any of the first 3 calendar years for which the employer could adopt such an arrangement, and subsequently adopts an eligible employer plan for its employees for any of those years which it maintains throughout such 3-calendar-year period, then section 45E(b)(1) shall be applied with respect to the eligible employer by substituting 3 taxable years 2 taxable years (c) Definitions For purposes of this section— (1) Eligible employer The term eligible employer (A) maintains a qualifying automatic IRA arrangement meeting the requirements of section 408B (without regard to whether the employer is a covered employer), (B) on each day during the preceding calendar year, had no more than 100 employees, and (C) did not maintain a qualifying plan or arrangement (described in section 408B(b)) during the portion of the calendar year preceding the adoption of the qualifying automatic IRA arrangement and the 2 preceding calendar years. (2) Credit period The term credit period (d) Other rules For purposes of this section, the rules of section 45E(e) shall apply. . (b) Credit allowed as part of general business credit Section 38(b) plus , plus (37) the small employer automatic IRA arrangement credit determined under section 45S(a). . (c) Clerical amendment The table of sections for subpart D of part IV of subchapter A of chapter 1 Sec. 45S. Small employer automatic IRA arrangement. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2018. 4. Increase in credit limitation for small employer pension plan startup costs (a) In general Section 45E(b)(1) (1) for the first credit year and each of the 2 taxable years immediately following the first credit year, the greater of— (A) $500, or (B) the lesser of— (i) $250 for each employee of the eligible employer who is not a highly compensated employee (as defined in section 415(q)) and who is eligible to participate in the eligible employer plan maintained by the eligible employer, or (ii) $5,000, and . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017.

Summary: Automatic IRA Act of 2017 This bill amends the Internal Revenue Code to: (1) require certain employers who do not maintain qualifying retirement plans or arrangements to make available to their eligible employees a payroll deposit individual retirement account (IRA) arrangement (automatic IRA arrangement) which grants such employees the right to opt-out of participation; (2) require the Department of the Treasury to provide employers with a model notice for notifying employees of their opportunity to participate in an automatic IRA arrangement and for providing details regarding the election period; (3) impose a penalty on employers who fail to provide eligible employees access to an automatic IRA arrangement; (4) allow employers who do not have more than 100 employees a tax credit for costs associated with establishing an automatic IRA arrangement; and (5) increase the dollar limitation on the tax credit for small employer pension plan startup costs.