Small Business Employee Retirement Savings Act of 2016

To amend the Internal Revenue Code of 1986 to encourage small businesses to enroll their employees in retirement savings options, and for other purposes. 1. Short title This Act may be cited as the Small Business Employee Retirement Savings Act of 2016 2. Increase in credit limitation for small employer pension plan startup costs (a) In general Paragraph (1) of section 45E(b) (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, 2015. 3. Credit for small employers adopting auto-enrollment options (a) In general Subpart D of part IV of subchapter A of chapter 1 45S. Auto-enrollment option for retirement savings options provided by small employers (a) In general For purposes of section 38, in the case of a small employer, the retirement auto-enrollment credit determined under this section is an amount equal to $500 for any taxable year in the credit period. (b) Credit period For purposes of subsection (a)— (1) In general The credit period with respect to any small employer is the 3-taxable-year period beginning with the first taxable year for which the employer includes an eligible automatic contribution arrangement (as defined in section 414(w)(3)) in a qualified retirement plan (as defined in section 4974(c)) sponsored by the employer, but only if the plan maintains such arrangement throughout such period. (2) Credit permissible in start-up year The first taxable year in the credit period may be the same taxable year as the first credit year (as defined in section 45E(d)(3)). (3) Employer must remain small employer Notwithstanding paragraph (1), the credit period with respect to any small employer shall end with the earlier of— (A) the last taxable year in such period determined without regard to this paragraph, or (B) the last taxable year in which such employer is a small employer. (c) Small employer For purposes of this section, the term small employer . (b) Credit To be part of general business credit Subsection (b) of section 38 plus , plus (37) in the case of a small employer (as defined in section 45S(c)), the retirement auto-enrollment 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. Auto-enrollment option for retirement savings options provided by small employers. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. 4. Removal of 10 percent cap after first plan year from automatic enrollment safe harbor (a) In general Clause (iii) of section 401(k)(13)(C) , does not exceed 10 percent, and is at least and is (b) Conforming amendments (1) Subclause (I) of section 401(k)(13)(C)(iii) 3 percent at least 3 percent, but not greater than 10 percent, (2) Subclause (II) of section 401(k)(13)(C)(iii) of such Code is amended by striking 4 percent at least 4 percent (3) Subclause (III) of section 401(k)(13)(C)(iii) of such Code is amended by striking 5 percent at least 5 percent (4) Subclause (IV) of section 401(k)(13)(C)(iii) of such Code is amended by striking 6 percent at least 6 percent (c) Effective date The amendments made by this section shall apply to plan years beginning after the date of enactment of this Act.

Summary: Small Business Employee Retirement Savings Act of 2016 This bill amends the Internal Revenue Code to modify the tax treatment of retirement plans for small employers with no more than 100 employees. The bill: (1) increases from $500 to $5,000 the limit on the amount of the tax credit for small employer pension plan startup costs, and (2) allows a three-year $500 business-related tax credit for small employers that include and maintain an automatic contribution arrangement in an employer-sponsored retirement plan. The bill also removes the 10% cap on the amount of an employee's wages that an employer may contribute to a retirement plan under an automatic contribution arrangement.